Chapter 12 Statement of Cash Flows
12–21
EXERCISE 12–12A
a.
Reconciliation of Common Stock Account
Beginning balance
$150,000
Increase due to issuing common stock
?
= 25,000
Ending balance
$175,000
Cash Flows from Financing Activities
Proceeds from issue of common stock
$ 25,000
Paid for purchase of treasury stock
(20,000)
Net cash inflow from financing activities
$ 5,000
Cash flows from financing activities:
Proceeds from issue of common stock
Payment of dividends
(50,000)
Repayment of bonds
(50,000)
Net cash flow from financing activities
$ (70,000)
EXERCISE 12-13A
a.
Reconciliation of Bonds Payable Account
Beginning balance
$400,000
Decrease due to repayment of bonds
payable
?
= (50,000)
Ending balance
$350,000
Reconciliation of Common Stock Account
Beginning balance
$420,000
Increase due to issue of common stock
?
= 30,000
Ending balance
$450,000
Chapter 12 Statement of Cash Flows
12–23
PROBLEM 12-14A
a. Direct Method
Reconciliation of Accounts Receivable
Beginning balance
$ 52,000
Increase due to revenue recognized on account
720,000
Decrease due to cash collections from
customers
?
= (724,000)
Ending balance
$ 48,000
Reconciliation of Inventory
Beginning balance
$ 72,000
Increase due to inventory purchases
?
= 404,000
Decrease due to recognizing cost of goods
sold
(398,000)
Ending balance
$ 78,000
Reconciliation of Accounts Payable*
Beginning balance
$ 28,000
Increase due to inventory purchases on acct.
404,000
Decrease due to cash settlements of accts. pay.
?
= (401,000)
Ending balance
$ 31,000
Cash flows from operating activities:
Cash collections from customers for sales
Cash collections from customers for services
Cash payments for:
PROBLEM 12-14A (cont.)
Reconciliation of Prepaid Insurance
Beginning balance
$ 32,000
Increase due to the cash outflow for ins.
?
= 28,000
Decrease due to recognizing ins. expense
(36,000)
Ending balance
$24,000
Reconciliation of Salaries Payable
Beginning balance
$ 7,800
Increase due to recognizing sal. exp. on acct.
195,000
Decrease due to cash settlements of sal. pay.
?
= (194,600)
Ending balance
$ 8,200
Reconciliation of Unearned Revenue
Beginning balance
$ 3,600
Increase due to collecting cash in advance
?
= 4,800
Decrease due to recognizing revenue
(6,000)
Ending balance
$ 2,400
Chapter 12 Statement of Cash Flows
12–25
Insurance
(28,000)
Salaries
(194,600)
Net cash inflow from operating activities
$105,200
Chapter 12 Statement of Cash Flows
12–26
PROBLEM 12-14A (cont.)
b. Begin by determining the amount of change in the balances in the
current asset, other than cash, and current liability accounts.
Account Title
2017
2016
Change
Accounts receivable
$48,000
$52,000
(4,000)
Merchandise inventory
78,000
72,000
6,000
Prepaid insurance
24,000
32,000
(8,000)
Accounts payable
31,000
28,000
3,000
Salaries payable
8,200
7,800
400
Unearned revenue
2,400
3,600
(1,200)
Green Brands, Inc.
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash Flows from Operating Activities:
Net income
$ 89,500
Add:
Decrease in accounts receivable (1)
4,000
Decrease in prepaid insurance (1)
8,000
Increase in accounts payable (2)
3,000
Increase in salaries payable (2)
400
Deduct:
Increase in merchandise inventory (1)
(6,000)
Decrease in unearned service revenue (2)
(1,200)
Add: noncash expenses
Depreciation expense (3)
12,000
Deduct: Gain on sale of equipment (4)
(4,500)
Net cash inflow from operating activities
$105,200
(1 ) Add decreases and subtract increases in current asset account balances, other than cash, to net
income.
(2) Add increases and subtract decreases in current liability account balances to net income.
(3) Add noncash expenses (e.g., depreciation) to net income.
12–27
(4) Add losses and subtract gains from the sale of noncurrent assets to net income.
Chapter 12 Statement of Cash Flows
12–28
PROBLEM 12-15A
a.
Reconciliation of Investment securities Account
Beginning balance
$42,400
Increase due to purchase of investment sec.
?
= 10,900
Decrease due to sale of investment sec.
(6,100)
Ending balance
$47,200
In order to balance the account, investment securities costing $10,900
must have been purchased.
b. Since a loss was incurred, the securities must have been sold for
an amount of cash that was less than the cost of the securities.
Specifically, the cash collected from the sale of the securities was
$4,700 ($6,100 original cost – $1,400 loss on sale).
c.
Reconciliation of Equipment Account
Beginning balance
$218,000
Increase due to purchasing equipment
38,000
Decrease due to selling equipment
?
= (10,000)
Ending balance
$246,000
In order to balance the account, machinery costing $10,000 must have
been sold.
d. Since a gain was incurred, the equipment must have been sold
for an amount of cash that was more than the book value of the
equipment. Specifically, the cash collected from the sale of the
equipment is equal to the book value plus the gain. In this case,
the amount of the cash inflow is $10,000 [($10,000 original cost, −
$8,000 accumulated depreciation) + $8,000 gain].
12–29
PROBLEM 12-15A (cont.)
e.
Reconciliation of Buildings Account
Beginning balance
$720,000
Increase due to purchasing buildings
?
= 136,000
Decrease due to cost of building demolished
(210,000)
Ending balance
$646,000
In order to balance the account, buildings costing $136,000 must have
been purchased. In the absence of information to the contrary, we
assume cash was paid to purchase the buildings.
f.
Reconciliation of Land Account
Beginning balance
$72,000
Increase due to purchasing land
?
= 53,000
Decrease due to selling land
(30,000)
Ending balance
$95,000
In order to balance the account, land costing $53,000 must have been
purchased. In the absence of information to the contrary, we assume
cash was paid to purchase the land.
g.
Mass Company
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash Flows from Investing Activities:
Proceeds from sale of investment securities
$ 4,700
Proceeds from sale of equipment
10,000
Proceeds from sale of land
27,000
Paid to purchase investment securities
(10,900)
Paid to purchase equipment
(38,000)
Paid to purchase buildings
(136,000)
Paid to purchase land
(53,000)
Chapter 12 Statement of Cash Flows
12–30
Net cash outflow from investing activities
$(196,200)
PROBLEM 12-16A
a.
Reconciliation of Bonds Payable Account
Beginning balance
$800,000
Increase due to issuing bonds payable
100,000
Decrease due to cash settlements of bonds pay.
?
= (300,000)
Ending balance
$600,000
In order to balance the account, bond liabilities with face value of
$300,000 have been repaid. In the absence of information to the
contrary, we assume cash was used to pay off the bond liabilities.
b.
Reconciliation of Common Stock
Account
Beginning balance
$180,000
Increase due to issuing common stock
?
= 30,000
Ending balance
$210,000
In order to balance the account, common stock of $30,000 must have
been issued. In the absence of information to the contrary, we
assume cash was collected when the stock was issued.
c.
Reconciliation of Treasury Stock Account
Beginning balance
$ 5,000
Increase due to purchasing treasury
stock
?
= 15,000
Ending balance
$20,000
In order to balance the account, treasury stock of $15,000 must have
Chapter 12 Statement of Cash Flows
12–31
PROBLEM 12-16A (cont.)
d.
Reconciliation of Retained Earnings Account
Beginning balance
$75,000
Increase due to recognizing net income
32,000
Decrease due to paying dividends
?
= (21,000)
Ending balance
$86,000
Cash Flows from Financing Activities
Proceeds from issue of bond liabilities
$100,000
Proceeds from issue of common stock
30,000
Repayment of bond liabilities
(300,000)
Paid for purchase of treasury stock
(15,000)
Payment of dividends
(21,000)
Net cash outflow from financing activities
$(206,000)
Chapter 12 Statement of Cash Flows
12–32
PROBLEM 12-17A
Item
Type of Activity
Add or Subtract
a.
Operating
Subtract
b.
Operating
Add
c.
Investing
Subtract
d.
Operating
Subtract
e.
Financing
Subtract
f.
Operating
Subtract
g.
Operating
Add
h.
Financing
Subtract
i.
Operating
Add
j.
Investing
Add
k.
Financing
Add
l.
Financing
Subtract
m.
Operating
Add
n.
Financing
Add
12–33
PROBLEM 12-18A
Gypsy Company
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash flows from operating activities:
Net income
$26,100
Less: Increases in current assets and
Decreases in current liabilities:
Increase in accounts receivable
(1,950)
Increase in inventory
(1,400)
Decrease in accounts payable
(1,150)
Plus: Noncash charges
Depreciation expense
12,000
Plus: Loss on disposal of land
100
Less: Gain on sale of equipment
(1,500)
Net cash inflow from operating activities
$32,200
Cash flows from investing activities:
Proceeds from sale of equipment
21,500
Proceeds from sale of land
5,900
Paid to purchase equipment
(29,000)
Net cash outflow from investing activities
(1,600)
Cash flows from financing activities:
Paid for dividends
(12,400)
Repayment of debt
(2,000)
Net cash outflow from financing activities
(14,400)
Net increase in cash
16,200
Plus: Beginning cash balance
16,300
Ending cash balance
$32,500
Schedule of noncash invest. and financ. act.:
Issued common stock for land
$22,000
Chapter 12 Statement of Cash Flows
12–34
12–35
PROBLEM 12-19A
Raceway Corporation
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash Flows From Operating Activities:
Net Income
$ 26,400
Plus: Decreases in current assets and
Increases in current liabilities:
Decrease in inventory
10,800
Decrease in prepaid rent
1,440
Increase in salaries payable
1,600
Less: Increases in Current Assets and
Decreases in current liabilities:
Increase in accounts receivable
(2,940)
Decrease in accounts payable
(2,800)
Plus: Noncash Charges
Depreciation expense
11,400
Net cash inflow from operating activities
$ 45,900
Cash Flows from Investing Activities:
Proceeds from sale of equipment
10,000
Paid to purchase equipment
(62,000)
Paid to purchase land
(66,000)
Net cash outflow from investing activities
(118,000)
Cash Flows from Financing Activities:
Proceeds from stock issue
30,000
Net cash inflow from financing activities
30,000
Net increase in cash
(42,100)
Plus: Beginning cash balance
48,400
Ending cash balance
$ 6,300
Chapter 12 Statement of Cash Flows
12–36
PROBLEM 12-20A
a.
(1)
Reconciliation of Accounts Receivable Account
Beginning balance
$128,000
Increase due to revenue recognized on account
548,000
Decrease due to cash collections from
customers
?
=(586,000)
Ending balance
$ 90,000
flows.
(2)
Reconciliation of Salaries Payable Account
Beginning balance
$ 16,000
Increase due to recognizing sal. exp. on acct.
232,000
Decrease due to cash settlements of sal. pay.
?
= (240,000)
Ending balance
$ 8,000
(3)
Reconciliation of Other Operating Expenses Payable
Beginning balance
$ 16,000
Increase due to recognizing other oper. exp. on acct.
236,000
Decrease due to cash settlements of other
operating expenses payable
?
= (242,000)
Ending balance
$ 10,000
Chapter 12 Statement of Cash Flows
12–37
12–38
PROBLEM 12-20A (cont.)
(4) Depreciation expense does not affect cash flow and is not
(5)
Reconciliation of Equipment Account
Beginning balance
$44,000
Increase due to purchasing equipment
?
= 12,000
Decrease due to selling equipment
-0-
Ending balance
$56,000
In the absence of contrary information, assume $12,000 cash was
used to purchase the equipment. This cash outflow appears in the
investing activities section of the statement of cash flows.
(6)
Reconciliation of Notes Payable Account
Beginning balance
$36,000
Increase due to issuing notes payable
?
= 8,000
Decrease due to cash settlements of notes
pay.
(-0-)
Ending balance
$44,000
In the absence of contrary information, assume $8,000 cash was
obtained when the note was issued. This cash inflow appears in the
financing activities section of the statement of cash flows.
(7)
Reconciliation of Interest Payable Account
Beginning balance
$8,400
Increase due to recognizing accrued int. exp.
4,600
Decrease due to cash settlements of interest pay.
?
= (5,500)
Ending balance
$7,500
The $5,500 cash outflow for settlements of interest payable appears
in the operating activities section of the statement of cash flows.
Chapter 12 Statement of Cash Flows
12–39
Beginning balance
Increase due to inventory purchases
Decrease due to cash settlements accts. pay.
= (92,600)
Ending balance
Reconciliation of Notes Receivable
Beginning balance
Increase due to loans to employee
Decrease due to cash collections from employee
Ending balance
PROBLEM 12-20A (cont.)
(8)
Reconciliation of Inventory
Beginning balance
$ 22,000
Increase due to inventory purchases
?
= 91,000
Decrease due to recognizing cost of goods
sold
(83,600)
Ending balance
$29,400