P14-40B Preparing the statement of cash flows—indirect method
Learning Objective 2
Net Cash Prov. by Op. Act. $85,700
Accountants for Benson, Inc. have assembled the following data for the year ended December
31, 2018:
2018 2017
Current Assets:
Cash $ 105,100 $ 18,000
Accounts Receivable 64,400 68,900
Merchandise Inventory 86,000 82,000
Current Liabilities:
Accounts Payable 58,000 56,100
Income Tax Payable 14,700 16,900
Transaction Data for 2018:
Issuance of common stock for cash $ 37,000 Payment of notes payable $ 47,100
Depreciation expense 24,000 Payment of cash dividends 53,000
Purchase of equipment with cash 69,000 Issuance of notes payable to
borrow cash
68,000
Acquisition of land by issuing long-term
notes payable
123,000 Gain on sale of building 4,500
Book value of building sold 61,000 Net income 66,000
Prepare Benson’s statement of cash flows using the indirect method. Include an accompanying
schedule of non-cash investing and financing activities.
P14-40B, cont.
SOLUTION
P14-41B Preparing the statement of cash flows—indirect method with non-cash
transactions
Learning Objective 2
1. Net Cash Prov. by Op. Act. $136,300
The 2018 income statement and comparative balance sheet of Sweet Valley, Inc. follow:
P14-41B, cont.
Additionally, Sweet Valley
purchased land of $20,900 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 $13,240.
Plant asset was acquired 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?
P14-41B, cont.
SOLUTION
Requirement 1
P14-41B, cont.
Requirement 1, cont.
Requirement 2
P14-42B 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. $(157,400)
The comparative balance sheet of Robeson Educational Supply at December 31, 2018, reported
the following:
2018 2017
Current Assets:
Cash $ 83,900 $ 20,500
Accounts Receivable 14,500 21,800
Merchandise Inventory 61,800 60,400
Current Liabilities:
Accounts Payable 29,600 28,100
Accrued Liabilities 10,500 11,900
Robeson’s transactions during 2018 included the following:
Payment of cash dividends $ 21,200 Depreciation expense $ 17,400
Purchase of equipment with cash 54,400 Purchase of building with cash 103,000
Issuance of long-term notes payable to
borrow cash
44,000 Net income 63,600
Issuance of common stock for cash 111,000
Requirements
1. Prepare the statement of cash flows of Robeson Educational Supply for the year ended
December 31, 2018. Use the indirect method to report cash flows from operating activities.
2. Evaluate Robeson’s cash flows for the year. Mention all three categories of cash flows, and
give the reason for your evaluation.
3. If Robeson plans similar activity for 2018, what is its expected free cash flow?
P14-42B, cont.
SOLUTION
Requirement 1
P14A-43B Preparing the statement of cash flows—direct method
Learning Objective 4
Appendix 14A
2. Total Assets $1,118,800
3. Collections from Cust. $918,000
Diversion Rare Coins (DRC) was formed on January 1, 2018. Additional data for the year
follow:
a. On January 1, 2018, DRC issued no par common stock for $450,000.
b. Early in January, DRC made the following cash payments:
1. For store fixtures, $46,000
2. For merchandise inventory, $310,000
3. For rent expense on a store building, $18,000
c. Later in the year, DRC purchased merchandise inventory on account for $238,000. Before
year-end, DRC paid $138,000 of this accounts payable.
d. During 2018, DRC sold 2,700 units of merchandise inventory for $400 each. Before year-end,
the company collected 85% of this amount. Cost of goods sold for the year was $340,000, and
ending merchandise inventory totaled $208,000.
e. The store employs three people. The combined annual payroll is $97,000, of which DRC still
owes $6,000 at year-end.
f. At the end of the year, DRC paid income tax of $18,000. There was no income taxes payable.
g. Late in 2018, DRC paid cash dividends of $35,000.
h. For store fixtures, DRC uses the straight-line depreciation method, over five years, with zero
residual value.
Requirements
1. Prepare DRC’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 DRC’s balance sheet at December 31, 2018.
3. Prepare DRC’s statement of cash flows for the year ended December 31, 2018. Format cash
flows from operating activities by the direct method.
P14A-43B, cont.
SOLUTION
Requirement 1
P14A-43B, cont.
Requirement 2
P14A-43B, cont.
Requirement 3
