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S14-9 Computing the change in cash; identifying non-cash transactions
Learning Objective 2
Jennifer’s Wedding Shops earned net income of $27,000, which included depreciation of
$16,000. Jennifer’s acquired a $119,000 building by borrowing $119,000 on a long-term note
payable.
Requirements
1. How much did Jennifer’s cash balance increase or decrease during the year?
2. Were there any non-cash transactions for the company? If so, show how they would be
reported in the statement of cash flows.
S14-9, cont.
SOLUTION
S14-10 Computing free cash flow
Learning Objective 3
Julie Lopez Company expects the following for 2018:
• Net cash provided by operating activities of $148,000.
• Net cash provided by financing activities of $56,000.
• Net cash used for investing activities of $77,000 (no sales of long-term assets).
• Cash dividends paid to stockholders of $7,000.
How much free cash flow does Lopez expect for 2018?
SOLUTION
S14A-11 Preparing a statement of cash flows using the direct method
Learning Objective 4
Appendix 14A
Jelly Bean, Inc. began 2018 with cash of $58,000. During the year, Jelly Bean earned revenue of
$595,000 and collected $614,000 from customers. Expenses for the year totaled $427,000, of
which Jelly Bean paid $212,000 in cash to suppliers and $205,000 in cash to employees. Jelly
Bean also paid $148,000 to purchase equipment and a cash dividend of $57,000 to its
stockholders during 2018. Prepare the company’s statement of cash flows for the year ended
December 31, 2018. Format operating activities by the direct method.
SOLUTION
Net Cash Used for Financing Activities (57,000)
Net Increase (Decrease) in Cash (8,000)
Cash Balance, December 31, 2017 58,000
Cash Balance, December 31, 2018 $ 50,000
S14A-12 Preparing operating activities using the direct method
Learning Objective 4
Appendix 14A
Amy’s Learning Center has assembled the following data for the year ended June 30, 2018:
Payments to suppliers $
115,000
Cash payment for purchase of
equipment
39,000
Payments to employees 66,000
Payment of notes payable 34,000
Payment of dividends 7,500
Cash receipt from issuance of stock 22,000
Collections from customers 188,000
Cash receipt from sale of land 58,000
Cash balance, June 30, 2017 41,000
Prepare the operating activities section of the business’s statement of cash flows for the year
ended June 30, 2018, using the direct method.
SOLUTION
S14A-13 Preparing the direct method statement of cash flows
Learning Objective 4
Appendix 14A
Use the data in Short Exercise S14A-12 and your results. Prepare the business’s complete
statement of cash flows for the year ended June 30, 2018, using the direct method for operating
activities.
SOLUTION
S14A-14 Preparing the direct method statement of cash flows
Learning Objective 4
Appendix 14A
Red Toy Company reported the following comparative balance sheet:
Requirements
1. Compute the collections from customers during 2018 for Red Toy Company. Sales Revenue
totaled $134,000.
2. Compute the payments for inventory during 2018. Cost of Goods Sold was $79,000.
S14A-14, cont.
SOLUTION
S14B-15 Using a spreadsheet to complete the statement of cash flows—indirect method
Learning Objective 5
Appendix 14B
Companies can use a spreadsheet to complete the statement of cash flows. Each item that
follows is recorded in the transaction analysis columns of the spreadsheet.
a. Net income
b. Increases in current assets (other than Cash)
c. Decreases in current liabilities
d. Cash payment for acquisition of plant assets
e. Cash receipt from issuance of common stock
f. Depreciation expense
Identify each as being recorded by a Debit or Credit in the statement of cash flows section of
the spreadsheet.
SOLUTION
Exercises
E14-16 Classifying cash flow items
Learning Objective 1
Consider the following transactions:
a. Purchased equipment for $130,000 cash.
b. Issued $14 par preferred stock for cash.
c. Cash received from sales to customers of $35,000.
d. Cash paid to vendors, $17,000.
e. Sold building for $19,000 gain for cash.
f. Purchased treasury stock for $28,000.
g. Retired a notes payable with 1,250 shares of the company’s common stock.
Identify the category of the statement of cash flows in which each transaction would be reported.
SOLUTION
E14-17 Classifying transactions on the statement of cash flows—indirect method
Learning Objective 1
Consider the following transactions:
Identify the category of the statement of cash flows, indirect method, in which each transaction
would be reported.
SOLUTION
E14-18 Classifying items on the indirect statement of cash flows
Learning Objectives 1, 2
The statement of cash flows categorizes like transactions for optimal reporting.
Identify each item as a(n):
• Operating activity—addition to net income
( )
O+
or subtraction from net income
( )
O-
• Investing activity—cash inflow
( )
I+
or cash outflow
( )
I-
• Financing activity—cash inflow
( )
F+
or cash outflow
( )
F-
• Non-cash investing and financing activity (NIF)
• Activity that is not used to prepare the indirect statement of cash flows (N)
The indirect method is used to report cash flows from operating activities.
a. Loss on sale of land.
b. Acquisition of equipment by issuance of note payable.
c. Payment of long-term debt.
d. Acquisition of building by issuance of common stock.
e. Increase in Salaries Payable.
f. Decrease in Merchandise Inventory.
g. Increase in Prepaid Expenses.
h. Decrease in Accrued Liabilities.
i. Cash sale of land (no gain or loss).
j. Issuance of long-term note payable to borrow cash.
k. Depreciation Expense.
l. Purchase of treasury stock.
m.Issuance of common stock.
n. Increase in Accounts Payable.
o. Net income.
p. Payment of cash dividend.
E14-18 , cont.
SOLUTION
E14-19 Computing operating activities cash flow—indirect method
Learning Objective 2
Net Cash Prov. by Op. Act. $16,000
The records of Vintage Color Engraving reveal the following:
Net income $ 36,000 Depreciation expense $ 5,000
Sales revenue 53,000 Decrease in current liabilities 19,000
Loss on sale of
land
4,000 Increase in current assets other than cash 10,000
Acquisition of land 35,000
Compute cash flows from operating activities by the indirect method for year ended December
31, 2018.
SOLUTION
