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E14-26 Analyzing free cash flow
Learning Objective 3
Use the Rouse Exercise Equipment data in Exercises E14-23 and E14-24. Rouse plans to
purchase a truck for $23,000 and a forklift for $125,000 next year. In addition, it plans to pay
cash dividends of $3,500. Assuming Rouse plans similar activity for 2019, what would be the
amount of free cash flow?
SOLUTION
E14A-27 Preparing operating activities cash flow—direct method
Learning Objective 4
Appendix 14A
Net Cash Prov. by Op. Act. $3,000
The accounting records of Four Seasons Parts reveal the following:
Payment of salaries and wages $ 34,000 Net income $ 21,000
Depreciation expense 10,000 Payment of income tax 16,000
Payment of interest 17,000 Collection of dividend revenue 5,000
Payment of dividends 5,000 Payment to suppliers 51,000
Collections from customers 116,000
Compute cash flows from operating activities using the direct method for the year ended
December 31, 2018.
E14A-27, cont.
SOLUTION
E14A-28 Preparing the statement of cash flows—direct method
Learning Objective 4
Appendix 14A
Net Cash Prov. by Op. Act. $76,000
The income statement and additional data of Value Corporation follow:
a. Collections from customers are $13,000 more than sales.
b. Dividend revenue, interest expense, and income tax expense equal their cash amounts.
c. Payments to suppliers are the sum of cost of goods sold plus advertising expense.
d. Payments to employees are $3,000 more than salaries expense.
e. Cash payment for the acquisition of plant assets is $102,000.
f. Cash receipts from sale of land total $29,000.
g. Cash receipts from issuance of common stock total $38,000.
h. Payment of long-term notes payable is $10,000.
i. Payment of dividends is $9,000.
j. Cash balance at June 30, 2017, was $21,000; at June 30, 2018, it was $43,000.
Prepare Value Corporation’s statement of cash flows for the year ended June 30, 2018. Use the
direct method.
E14A-28, cont.
SOLUTION
E14A-29 Computing cash flow items—direct method
Learning Objective 4
Appendix 14A
1. Cash Receipts from Cust. $72,000
Consider the following facts:
a. Beginning and ending Accounts Receivable are $24,000 and $20,000, respectively. Credit
sales for the period total $68,000.
b. Cost of goods sold is $77,000.
c. Beginning Merchandise Inventory balance is $29,000, and ending Merchandise Inventory
balance is $26,000.
d. Beginning and ending Accounts Payable are $12,000 and $16,000, respectively.
Requirements
1. Compute cash collections from customers.
2. Compute cash payments for merchandise inventory.
SOLUTION
Requirement 1
E14A-30 Computing cash flow items—direct method
Learning Objective 4
Appendix 14A
2. Cash Paid for Merchandise Inventory $18,542
7. Dividends $374
A-One Mobile Homes reported the following in its financial statements for the year ended
December 31, 2018:
2018 2017
Income Statement
Net Sales Revenue $ 25,118 $ 21,893
Cost of Goods Sold 18,074 15,501
Depreciation Expense 271 234
Other Operating Expenses 4,632 4,277
Income Tax Expense 530 482
Net Income $ 1,611 $ 1,399
Balance Sheet
Cash $ 21 $ 19
Accounts Receivable 798 615
Merchandise Inventory 3,483 2,832
Property, Plant, and
Equipment, net
4,351 3,437
Accounts Payable 1,547 1,364
Accrued Liabilities 938 851
Long-term Liabilities 477 461
Common Stock, no par 670 443
Retained Earnings 5,021 3,784
Requirements
1. Compute the collections from customers.
2. Compute payments for merchandise inventory.
3. Compute payments of other operating expenses.
4. Compute the acquisitions of property, plant, and equipment (no sales of property during
2018).
5. Compute the amount of borrowing, with A-One paying no long-term liabilities.
6. Compute the cash receipt from issuance of common stock.
7. Compute the payment of cash dividends.
E14A-30, cont.
SOLUTION
Requirement 1
E14A-30, cont.
Requirement 5
E14B-31 Using a spreadsheet to prepare the statement of cash flows—indirect method
Learning Objective 5
Appendix 14B
Use the Boost Plus, Inc. data in Exercise E14-21 to prepare the spreadsheet for the 2018
statement of cash flows. Format cash flows from operating activities by the indirect method.
SOLUTION
E14B-31, cont.
Problems (Group A)
P14-32A Identifying the purpose and preparing the statement of cash flows—indirect
method
Learning Objectives 1, 2
2. Net Income $266,400
4. Net Cash Used by Op. Act. $(48,000)
American Rare Coins (ARC) was formed on January 1, 2018. Additional data for the year
follow:
a. On January 1, 2018, ARC issued no par common stock for $450,000.
b. Early in January, ARC made the following cash payments:
1. For store fixtures, $53,000
2. For merchandise inventory, $340,000
3. For rent expense on a store building, $20,000
c. Later in the year, ARC purchased merchandise inventory on account for $239,000. Before
year-end, ARC paid $139,000 of this accounts payable.
d. During 2018, ARC sold 2,400 units of merchandise inventory for $275 each. Before year-end,
the company collected 85% of this amount. Cost of goods sold for the year was $250,000, and
ending merchandise inventory totaled $329,000.
e. The store employs three people. The combined annual payroll is $96,000, of which ARC still
owes $3,000 at year-end.
f. At the end of the year, ARC paid income tax of $17,000. There are no income taxes payable.
g. Late in 2018, ARC paid cash dividends of $44,000.
h. For store fixtures, ARC uses the straight-line depreciation method, over five years, with zero
residual value.
Requirements
1. What is the purpose of the statement of cash flows?
2. Prepare ARC’s income statement for the year ended December 31, 2018. Use the single-step
format, with all revenues listed together and all expenses listed together.
3. Prepare ARC’s balance sheet at December 31, 2018.
4. Prepare ARC’s statement of cash flows using the indirect method for the year ended
December 31, 2018.
P14-32A, cont.
SOLUTION
Requirement 1
P14-32A, cont.
Requirement 4
