120. Income tax was $175,000 for the year. Income tax payable was $30,000 and $40,000 at the beginning and
end of the year. Cash payments for income tax reported on the cash flow statement using the direct method is
121. Free cash flow is
122. Free cash flow is cash from operations, less cash for
123. The cost of merchandise sold during the year was $45,000. Merchandise inventories were $13,500 and
$10,500 at the beginning and end of the year, respectively. Accounts payable were $7,000 and $5,000 at the
beginning and end of the year, respectively. Using the direct method of reporting cash flows from operating
activities, cash payments for merchandise total
124. For each of the following, identify whether it would be disclosed as an operating (O), financing (F), or
investing (I) activity on the statement of cash flows under the indirect method.
a.
Receipt of dividends
b.
Payment of dividends
c.
Purchase of equipment
d.
Net income
e.
Issuance of the company’s common stock
f.
Amortization expense
125. For each of the following, identify whether it would be disclosed as an operating (O), financing (F), or
investing (I) activity on the statement of cash flows under the indirect method.
a.
Purchased buildings
b.
Sold Patents
c.
Net income
d.
Issued Common Stock
e.
Paid cash dividends
f.
Depreciation expense
a.
b.
c.
f.
a.
b.
c.
d.
e.
f.
126. For each of the following, identify whether it would be disclosed as an operating (O), financing (F), or
investing (I) activity on the statement of cash flows under the indirect method.
a.
Purchased treasury stock
b.
Sold equipment at book value
c.
Net income
d.
Sold long-term investments
e.
Issued common stock
f.
Depreciation expense
a.
b.
d.
e.
f.
127. Each of the events below may have an effect on the statement of cash flows. Designate how the event
should be reported within the statement of cash flows using the codes provided below. Codes may be used more
than once, or not at all.
Codes
I +
Investing activity; cash inflow
I –
Investing activity; cash outflow
F +
Financing activity; cash inflow
F –
Financing activity; cash outflow
O +
Operating activity; cash inflow
O –
Operating activity; cash outflow
NC
Noncash investing and financing activity
Events
_____
1.
Paid the weekly payroll
_____
2.
Paid an account payable
_____
3.
Issued bonds payable for cash
_____
4.
Declared and paid a cash dividend
_____
5.
Paid cash for a new piece of equipment
_____
6.
Purchased treasury stock for cash
_____
7.
Paid cash for stock in another company
_____
8.
Received interest on a long-term bond investment
_____
9.
Received cash for sales
_____
10.
Sold a long-term stock investment for cash at book value
1.
2.
3.
4.
5.
6.
7.
O +
8.
O +
9.
I +
10.
128. Durrand Corporation’s accumulated depreciation increased by $12,000, while patents decreased by $2,200
between consecutive balance sheet dates. There were no purchases or sales of depreciable or intangible assets
during the year. In addition, the income statement showed a gain of $4,300 from sale of land. Reconcile a net
income of $65,000 to net cash flow from operating activities.
129. Fortune Corporation’s comparative balance sheet for current assets and liabilities was as follows:
Dec. 31, 2012
Dec. 31, 2011
Accounts receivable
7,500
5,200
Inventory
11,500
16,000
Accounts payable
4,300
5,200
Dividends payable
4,000
3,000
Adjust 2012 net income of $65,000 for changes in operating assets and liabilities to arrive at cash flows from operating activities using the indirect
method.
Adjustments to reconcile net income to net cash from operating activities:
Changes in current operating assets and liabilities:
Increase in accounts receivable
(2,300)
Decrease in inventory
4,500
Net cash flow from operating activities
$66,300
Net income
$65,000
Adjustments to reconcile net income to net cash from operating activities:
Amortization
2,200
Net cash flows from operating activities
$74,900
130. Kennedy, Inc. reported the following data:
Net income
$118,000
Depreciation expense
15,000
Loss on disposal of equipment
10,000
Gain on sale of building
20,000
Increase in accounts receivable
7,000
Decrease in accounts payable
(2,000)
Prepare the cash flows for operating activities under the indirect method as it would appear on the statement of cash flows.
131. Lamar Corporation purchased land for $150,000. Later in the year the company sold land with a book
value of $190,000 for $200,000. Show how the effects of these transactions are reported on the statement of
cash flows using the indirect method.
132. Sales reported on the income statement were $690,000. The accounts receivable balance declined $39,000
over the year. Determine the amount of cash received from customers.
Sales
$690,000
Add decrease in accounts receivable
39,000
Cash received from customers
$729,000
Cash flow from operating activities:
Net income
$118,000
Depreciation
15,000
Loss from disposal of equipment
10,000
Gain on sale of building
(20,000)
Changes in current operating assets and liabilities:
Increase in accounts receivable
(7,000)
Decrease in accounts payable
(2,000)
Net cash flow from operating activities
$114,000
133. Cost of merchandise sold reported on the income statement was $155,000. The accounts payable balance
increased $5,000, and the inventory balance increased by $11,000 over the year. Determine the amount of cash
paid for merchandise.
134. Sinclair Company’s accumulated depreciation-equipment increased by $6,000, while patents decreased by
$2,200 between balance sheet dates. There were no purchases or sales of depreciable or intangible assets
during the year. In addition, the income statement showed a loss of $3,200 from the sale of investments.
Required:
Reconcile a net income of $92,000 to net cash flow from operating activities.
Net income
$92,000
Adjustments to reconcile net income to net cash flow from
operating activities:
Depreciation
6,000
Amortization
2,200
Loss from sale of investments
3,200
Net cash flow from operating activities
$103,400
135. Dorman Company reported the following data:
Net income
$225,000
Depreciation expense
25,000
Gain on disposal of equipment
20,500
Decrease in accounts receivable
14,000
Decrease in account payable
3,600
Cash flows from operating activities:
Net income
$225,000
Adjustments to reconcile net income to net cash
Depreciation
25,000
Gain on disposal of equipment
(20,500)
Changes in current operating assets and liabilities:
Cost of merchandise sold
$155,000
Add increase in inventories
11,000
Deduct increase in accounts payable
(5,000)
Cash payments for merchandise
161,000
136. Identify which section the statement of cash flows (using the indirect method) would present information
regarding the following activities: (Use O for operating, I for investing, or F for financing):
a. Issued common stock
b. Redeemed bonds
c. Issued preferred stock
d. Purchased patents
e. Net income
f. Paid cash dividends
g. Purchased treasury stock
h. Sold long-term investment.
i. Sold equipment.
j. Purchased buildings
k. Issued bonds
137. The board of directors declared cash dividends total $168,000 during 2014. The comparative balance
sheet indicated dividends payable of $46,000 at the beginning of the year and $42,000 at the end of the
year. What was the amount of cash payment to stockholders during the year?
138. Selected data taken from the accounting records of Laser Inc. for the current year ended December 31, are
as follows:
Balance, December 31
Balance, January 1
Accrued operating expenses
$5,590
$6,110
Accounts payable (merchandise creditors)
41,730
46,020
Inventories
77,350
84,110
Prepaid expenses
3,250
3,900
During the current year, the cost of merchandise sold was $448,500, and the operating expenses other than depreciation were $78,000. The direct
method is used for presenting the cash flows from operating activities on the statement of cash flows.
Required:
Determine the amount reported on the statement of cash flows for:
(1) Cash payments for merchandise; and
(2) Cash payments for operating expenses.
139. The net income reported on the income statement for the current year was $210,000. Depreciation
recorded on equipment and a building amount to $62,500 for the year. Balances of the current asset and current
liabilities accounts at the beginning and end of the year are as follows:
End of Year
Beginning of Year
Cash
$56,000
$59,500
Accounts receivable (net)
71,000
73,400
Inventories
140,000
126,500
Prepaid expenses
7,800
8,400
Accounts payable (merchandise creditors)
62,600
66,400
Salaries payable
9,000
8,250
Required:
(1)
Prepare the Cash flows for Operating Activities section of the statement of cash flows, using the indirect method.
(2)
If the direct method had been used, would the net cash flow from operating activities have been the same? Explain.
(1)
Cost of merchandise sold
$448,500
Add decrease in accounts payable
4,290
$452,790
Deduct decrease in inventories
6,760
Cash payments for merchandise
$446,030
(2)
Operating expenses other than depreciation
$ 78,000
Add decrease in accrued expenses
520
$ 78,520
Deduct decrease in prepaid expenses
650
Cash payments for operating expenses
$ 77,870
140. The income statement disclosed the following items for 2011:
Depreciation expense
$36,000
Gain on disposal of equipment
21,000
Net income
317,500
Balances of the current assets and current liabilities accounts changed between December 31, 2010 and December 31, 2011, as follows:
Increase in accounts receivable
$5,600
Decrease in inventory
3,200
Decrease in prepaid insurance
1,200
Decrease in account payable
3,800
Increase in income taxes payable
1,200
Increase in dividends payable
850
Required:
Prepare the Cash Flows for Operating Activities section of the statement of cash flows, using the indirect method.
Net income
$317,500
to net cash
141. The following two problems are independent of one another.
(1)
An analysis of the general ledger accounts indicates that office equipment was sold for $39,600 during the year. The
equipment originally cost $68,000 and had accumulated depreciation of $22,500 on the date of sale. Indicate how
the elements of this transaction would be reported on the statement of cash flows using the indirect method.
(2)
An analysis of the general ledger accounts indicates that delivery equipment, which cost $97,000 and on which
accumulated depreciation totaled $42,100 on the date of sale, was sold for $57,500 during the year. Using this
information, indicate the items to be reported on the statement of cash flows.
142. The cash flows from operating activities are reported by the direct method on the statement of cash
flows. Determine the following:
(1)
If sales for the current year were $695,000 and accounts receivable decreased by $43,500 during the year, what was
the amount of cash received from customers?
(2)
If income tax expense for the current year was $56,000 and income tax payable decreased by $5,200 during the year,
what was the amount of cash payments of income tax?
143. Master Designs Company has cash flows for operating activities of $350,000. Cash flows used for
investments in property, plant, and equipment totaled $65,000, of which 70% of this investment was used to
replace machinery to maintain existing capacity.
What is the free cash flow for Master Designs?
144. Indicate the section (operating activities, investing activities, financing activities, or none) in which each of
the following would be reported on the statement of cash flows prepared by the indirect method:
(a)
Gain on sale of fixed assets
(b)
Net income
(c)
Retirement of long-term debt
(d)
Sale of capital stock
(e)
Distribution of stock dividends
(f)
Payment of cash dividends
(g)
Purchase of fixed assets
(h)
Sale of fixed assets
(i)
Receipt of interest revenue
(j)
Payment of interest expense
(a)
operating activities
(b)
operating activities
(c)
financing activities
(d)
financing activities
(e)
financing activities
(g)
investing activities
(h)
investing activities
(i)
operating activities
(j)
operating activities
145. State the section(s) of the statement of cash flows prepared by the indirect method (operating activities,
investing activities, financing activities, or not reported) and the amount that would be reported for each of the
following transactions:
(a)
Received $120,000 from the sale of land costing $70,000.
(b)
Purchased investments for $75,000.
(c)
Declared $35,000 cash dividends on stock. $5,000 dividends were payable at the beginning of the year, and $6,000 were payable at the
end of the year.
(d)
Acquired equipment for $64,000 cash.
(e)
Declared and issued 100 shares of $20 par common stock as a stock dividend, when the market price of the stock was $32 a share.
(f)
Recognized depreciation for the year, $37,000.
(g)
Issued 85,000 shares of $10 par common stock for $25 a share, receiving cash.
(h)
Issued $500,000 of 20-year, 10% bonds payable at 99.
(i)
Borrowed $43,000 from Regional Bank, issuing a 5-year, 8% note for that amount.
(a)
Investing activities, $120,000 ($50,000 gain on the sale would be deducted from net income in determining the cash flows from
(b)
Investing activities,( $75,000)
(c)
Financing activities, ($34,000)
(d)
Investing activities, ($64,000)
(e)
Not reported
Operating activities, $37,000 (addition to net income in determining cash flows from operating activities)
(g)
Financing activities, $2,125,000
(h)
Financing activities, $495,000
(i)
Financing activities, $43,000
146. Indicate whether each of the following would be added to or deducted from net income in determining net
cash flow from operating activities by the indirect method:
(a)
Increase in prepaid expenses
(b)
Amortization of patents
(c)
Increase in salaries payable
(d)
Gain on sale of fixed assets
(e)
Decrease in accounts receivable
(f)
Increase in notes receivable due in 60 days
(g)
Amortization of discount on bonds payable
(h)
Decrease in merchandise inventory
(i)
Depreciation of fixed assets
(j)
Loss on retirement of long-term debt
(k)
Decrease in accounts payable
(l)
Increase in notes payable due in 30 days
(m)
Increase in income taxes payable
(a)
deducted
(b)
added
(c)
added
(d)
deducted
(e)
added
(f)
deducted
(g)
added
(h)
added
(i)
added
(j)
added
(k)
deducted
(l)
added
(m)
added
147. On the basis of the details of the common stock account presented below, calculate the total amount to be
recorded in financing section of the statement of cash flows. Indicate whether the amount results in an increase
or decrease in cash.
148. The net income reported on an income statement for the current year was $63,000. Depreciation recorded
on fixed assets for the year was $24,000. Balances of the current asset and current liability accounts at the end
and beginning of the year are listed below. Prepare the cash flows from operating activities section of a
statement of cash flows using the indirect method.
End
Beginning
Cash
$65,000
$ 70,000
Accounts receivable (net)
70,000
57,000
Inventories
86,000
102,000
Prepaid expenses
4,000
4,500
Accounts payable
(merchandise creditors)
51,000
58,000
Cash dividends payable
4,500
6,500
Salaries payable
6,000
7,500
149. The board of directors declared cash dividends totaling $252,000 during the current year. The
comparative balance sheet indicates dividends payable of $48,000 at the beginning of the year and $63,000 at
the end of the year. What was the amount of cash payments to stockholders during the year?
Dividends declared
$252,000
Less increase in dividends payable
15,000
Dividends paid to stockholders during the year
$237,000
Cash flows from operating activities:
Net income, per income statement
$63,000
Add: Depreciation
$24,000
Decrease in inventories
16,000
Decrease in prepaid expenses
500
40,500
$103,500
Deduct: Increase in accounts
receivable (net)
$13,000
Decrease in accounts payable
7,000
Decrease in salaries payable
1,500
21,500