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P14-33A Preparing the statement of cash flows—indirect method
Learning Objective 2
Net Cash Used for Inv. Act. $(15,500)
Accountants for Morganson, Inc. have assembled the following data for the year ended
December 31, 2018:
2018 2017
Current Assets:
Cash $ 99,400 $ 25,000
Accounts Receivable 64,100 69,700
Merchandise
Inventory
83,000 75,000
Current Liabilities:
Accounts Payable 57,600 55,200
Income Tax Payable 14,800 16,800
Transaction Data for 2018:
Issuance of common stock for
cash
$ 38,000 Payment of notes
payable
$ 46,100
Depreciation expense 24,000 Payment of cash
dividends
50,000
Purchase of equipment with cash 74,000 Issuance of notes
payable to borrow cash
62,000
Acquisition of land by issuing
long-term notes payable
119,000 Gain on sale of
building
4,500
Book value of building sold 54,000 Net income 68,500
Prepare Morganson’s statement of cash flows using the indirect method. Include an
accompanying schedule of non-cash investing and financing activities.
P14-33A, cont.
SOLUTION
P14-34A Preparing the statement of cash flows—indirect method with non-cash
transactions
Learning Objective 2
Net Cash Prov. by Op. Act. $125,100
The 2018 income statement and comparative balance sheet of Rolling Hills, Inc. follow:
P14-34A, cont.
Additionally, Rolling Hills purchased land of $21,100 by financing it 100% with long-term notes
payable during 2018. During the year, there were no sales of land, no retirements of stock, and
no treasury stock transactions. A plant asset was disposed of for $0. The cost and the
accumulated depreciation of the disposed asset was $13,410. The plant acquisition was for cash.
Requirements
1. Prepare the 2018 statement of cash flows, formatting operating activities by the indirect
method.
2. How will what you learned in this problem help you evaluate an investment?
P14-34A, cont.
SOLUTION
Requirement 1
P14-34A
Requirement 1, cont.
Requirement 2
P14-35A Preparing the statement of cash flows—indirect method, evaluating cash flows,
and measuring free cash flows
Learning Objectives 2, 3
1. Net Cash Used for Inv. Act. $(152,700)
The comparative balance sheet of Jackson Educational Supply at December 31, 2018, reported
the following:
2018 2017
Current Assets:
Cash $ 87,700 $ 23,500
Accounts Receivable 15,300 22,000
Merchandise Inventory 62,600 60,400
Current Liabilities:
Accounts Payable 28,100 26,100
Accrued Liabilities 10,600 11,300
Jackson’s transactions during 2018 included the following:
Payment of cash dividends $ 16,200 Depreciation expense $ 16,700
Purchase of equipment with cash 54,700 Purchase of building with cash 98,000
Issuance of long-term notes payable to borrow cash 48,000 Net income 57,600
Issuance of common stock for cash 105,000
Requirements
1. Prepare the statement of cash flows of Jackson Educational Supply for the year ended
December 31, 2018. Use the indirect method to report cash flows from operating activities.
2. Evaluate Jackson’s cash flows for the year. Mention all three categories of cash flows, and
give the reason for your evaluation.
3. If Jackson plans similar activity for 2019, what is its expected free cash flow?
P14-35A, cont.
SOLUTION
Requirement 1
P14A-36A Preparing the statement of cash flows—direct method
Learning Objective 4
Appendix 14A
2. Total Assets $1,051,400
3. Net Cash Prov. by Op. Act. $308,500
Boundary Rare Coins (BRC) was formed on January 1, 2018. Additional data for the year
follow:
a. On January 1, 2018, BRC issued no par common stock for $475,000.
b. Early in January, BRC made the following cash payments:
1. For store fixtures, $53,000
2. For merchandise inventory, $260,000
3. For rent expense on the store building, $13,000
c. Later in the year, BRC purchased merchandise inventory on account for $240,000. Before
year-end, BRC paid $160,000 of this accounts payable.
d. During 2018, BRC sold 2,200 units of merchandise inventory for $450 each. Before year-end,
the company collected 85% of this amount. Cost of goods sold for the year was $330,000, and
ending merchandise inventory totaled $170,000.
e. The store employs three people. The combined annual payroll is $80,000, of which BRC still
owes $4,000 at year-end.
f. At the end of the year, BRC paid income tax of $24,000. There are no income taxes payable.
g. Late in 2018, BRC paid cash dividends of $40,000.
h. For store fixtures, BRC uses the straight-line depreciation method, over five years, with zero
residual value.
Requirements
1. Prepare BRC’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.
2. Prepare BRC’s balance sheet at December 31, 2018.
3. Prepare BRC’s statement of cash flows for the year ended December 31, 2018. Format cash
flows from operating activities by the direct method.
P14A-36A, cont.
SOLUTION
Requirement 1
P14A-36A, cont.
Requirement 2
P14A-36A, cont.
Requirement 3
