CHAPTER
16
STATEMENT OF CASH FLOWS: ANOTHER
LOO
K
Problems and Cases: Answers and
S
ol
u
tio
ns
16.1 (Effects of transactions on statement of cash flows.) (amounts in
US$)
a. The journal entry to record this transaction is:
Retained
Earnings………………………………………….
15,000
Dividends
Payable………………………………………
3,00
0
Ca
sh
……………………………………………………
…….
12,00
0
∆Cash = ∆L + ∆SE – ∆N$A
Accumulated
Machinery…………………………………………….
……
40,00
0
Gain on Sale of
15,00
0
+
$75,000
$15,00
0
–$5,00
0
$3,000
The debit to the Cash account results in an increase in Line
(11) of
$20,000. Selling machinery is an investing activity so Line (6)
increases by $20,000. The gain on the sale increases net
income on Line (3) by $15,000. Because the full cash
proceeds is an investing activity, Line (5) increases by
$15,000 to subtract from net income a revenue that did not
provide an operating source of cash.
d. The journal entry for this transaction is:
The credit to the Cash account reduces Line (11) by $28,000. The
Solutions16-2
16.1 continued.
f. The journal entry to record this transaction is:
∆Cash = ∆L + ∆SE – ∆N$A
g. The journal entry to record this event is:
i. The journal entry for this event is:
∆Cash = ∆L + ∆SE – ∆N$A
c. The journal entry for this event is:
Allowance for Uncollectible A
cc
o
un
t
s
28,000
Accounts R
ecei
vab
l
e …………………………………… 28,000
This entry does not involve the Cash account so Line (11) does not change.
The recognition of bad debt expense reduces net income on Line (3) by
$32,000. Because this expense does not use cash, Line (4)
d. The journal entry to record this
transaction
is:
e. The journal entries to record this transaction
are:
22,000
16-5
16.2 continued.
statement of cash flows. The firm discloses in a
supplementary schedule or note the conversion of preferred
stock into common stock totaling $10,000.
Solutions16-6
16.2 continued.
g. The journal entry to record this transaction is:
∆Cash = ∆L + ∆SE –
∆
N$
A
16-7
16.3 (Effects of transactions on statement of cash flows.) (amounts in
US$)
a. The journal entry to record this event is:
b. The journal entry to record this transaction is:
Solutions16-8
d. The journal entry to record the recognition of
e. The journal entry to record this transaction is:
Warranty Expe
ns
e ………………………………………….
35,000
f. The journal entry to record this transaction is:
–$28,000
16-9Solutions
16.3 f. continued.
g. The journal entry to record this event is:
Income Tax Expense
……………………………………….
80,
00
0
Deferred Tax
Liability…………………………………….
20,00
0
Ca
sh
…………………………………………………………. 100,00
0
∆Cash = ∆L + ∆SE – ∆N$A
Operations –$100,000
= –$20,000
+
–$80,000 – $0
The credit to the Cash account results in a reduction in Line
(11) of
$100,000. Line (2) increases the amount to be subtracted by
$100,000. The recognition of income tax expense reduces net
income on Line (3) by
$80,000. Because the firm used more cash this period than the
amount
of income tax expense, Line (5) increases by $20,000 when
converting net income to cash flow from operations.
h. The journal entry to record this event is:
–$18,00
–$18,00
Solutions16-10
=
=
….
16.4 (Metals Company; working backward from statement of cash
flows.) (amounts in millions of US$)
The debit to the Cash account results in an increase in Line
(11) of
$20,000. Selling machinery is an investing activity so Line (6)
increases by $20,000. The gain on the sale increases net
income on Line (3) by $15,000. Because the full cash
proceeds is an investing activity, Line (5) increases by
$15,000 to subtract from net income a revenue that did not
provide an operating source of cash.
d. The journal entry for this transaction is:
The credit to the Cash account reduces Line (11) by $28,000. The
Solutions16-2
16.1 continued.
f. The journal entry to record this transaction is:
∆Cash = ∆L + ∆SE – ∆N$A
g. The journal entry to record this event is:
i. The journal entry for this event is:
∆Cash = ∆L + ∆SE – ∆N$A
c. The journal entry for this event is:
Allowance for Uncollectible A
cc
o
un
t
s
28,000
Accounts R
ecei
vab
l
e …………………………………… 28,000
This entry does not involve the Cash account so Line (11) does not change.
The recognition of bad debt expense reduces net income on Line (3) by
$32,000. Because this expense does not use cash, Line (4)
d. The journal entry to record this
transaction
is:
e. The journal entries to record this transaction
are:
22,000
16-5
16.2 continued.
statement of cash flows. The firm discloses in a
supplementary schedule or note the conversion of preferred
stock into common stock totaling $10,000.
Solutions16-6
16.2 continued.
g. The journal entry to record this transaction is:
∆Cash = ∆L + ∆SE –
∆
N$
A
16-7
16.3 (Effects of transactions on statement of cash flows.) (amounts in
US$)
a. The journal entry to record this event is:
b. The journal entry to record this transaction is:
Solutions16-8
d. The journal entry to record the recognition of
e. The journal entry to record this transaction is:
Warranty Expe
ns
e ………………………………………….
35,000
f. The journal entry to record this transaction is:
–$28,000
16-9Solutions
16.3 f. continued.
g. The journal entry to record this event is:
Income Tax Expense
……………………………………….
80,
00
0
Deferred Tax
Liability…………………………………….
20,00
0
Ca
sh
…………………………………………………………. 100,00
0
∆Cash = ∆L + ∆SE – ∆N$A
Operations –$100,000
= –$20,000
+
–$80,000 – $0
The credit to the Cash account results in a reduction in Line
(11) of
$100,000. Line (2) increases the amount to be subtracted by
$100,000. The recognition of income tax expense reduces net
income on Line (3) by
$80,000. Because the firm used more cash this period than the
amount
of income tax expense, Line (5) increases by $20,000 when
converting net income to cash flow from operations.
h. The journal entry to record this event is:
Solutions16-10
….
16.4 (Metals Company; working backward from statement of cash
flows.) (amounts in millions of US$)