E14–17 Concluded
L.L. Beeno
Operating Section – Statement of Cash Flows (Indirect Method)
For the Year Ended December 31, 2015
Cash flows from operating activities:
Net income …………………………………………………………………. $ 5,500
Adjustments:
Depreciation expense ………………………………………………. $ 3,300
E14–18
Martland Stores
Operating Section – Statement of Cash Flows (Direct Method)
For the Year Ended December 31, 2015
Cash from operating activities:
Cash receipts from revenues …………………………………………… $ 97,500
Cash payments for inventory ………………………………………….. (59,200)
E14–18 Concluded
Martland Stores
Operating Section – Statement of Cash Flows (Indirect Method)
For the Year Ended December 31, 2015
Cash flows from operating activities:
Net income …………………………………………………………………. $ (3,600)
Adjustments:
Depreciation expense ………………………………………………. $ 5,700
E14–19
Mako Retail
Operating Section – Statement of Cash Flows (Direct Method)
For the Year Ended December 31, 2015
Cash from operating activities:
Cash receipts from revenues …………………………………………… $ 108,700
Cash payments for inventory ………………………………………….. (58,800)
E14–19 Concluded
Mako Retail
Operating Section – Statement of Cash Flows (Indirect Method)
For the Year Ended December 31, 2015
Cash flows from operating activities:
Net income …………………………………………………………………. $ 11,200
Adjustments:
Depreciation expense ………………………………………………. $ 6,200
E14–20
Steeler and Jones
Operating Section – Statement of Cash Flows (Direct Method)
For the Year Ended December 31, 2015
Cash from operating activities:
Cash receipts from revenues …………………………………………… $ 86,300
Cash payments for inventory ………………………………………….. (50,600)
E14–20 Concluded
Steeler and Jones
Operating Section – Statement of Cash Flows (Indirect Method)
For the Year Ended December 31, 2015
Cash flows from operating activities:
Net income …………………………………………………………………. $ 9,300
Adjustments:
Depreciation expense ………………………………………………. $ 5,700
Gain on sale of equipment ……………………………………….. (5,200)
activities …………………………………………………….. $ 2,300
E14–21
Harbaugh Auto Supply
Operating Section – Statement of Cash Flows (Direct Method)
For the Year Ended December 31, 2015
Cash from operating activities:
Cash receipts from sales revenue…………………………………….. $ 47,000
Cash receipts from service revenues ………………………………… 32,400
E14–21 Concluded
Harbaugh Auto Supply
Operating Section – Statement of Cash Flows (Indirect Method)
For the Year Ended December 31, 2015
Cash flows from operating activities:
Net income …………………………………………………………………. $ 24,300
Adjustments:
Depreciation expense ………………………………………………. $ 11,500
Gain on sale of investments …………………………..…………. (13,200)
E14–22
Standard Center Manufacturing
Operating Section – Statement of Cash Flows (Direct Method)
For the Year Ended December 31, 2015
Cash from operating activities:
Cash receipts from sales revenue…………………………………….. $ 73,500
Cash receipts from service revenue …………………………………. 25,800
E14–22 Concluded
Standard Center Manufacturing
Operating Section – Statement of Cash Flows (Indirect Method)
For the Year Ended December 31, 2015
Cash flows from operating activities:
Net income …………………………………………………………………. $2,800
Adjustments:
Depreciation expense ………………………………………………. $ 4,300
Loss on sale of investments ………………………………………. 17,900
Decrease in accounts receivable ……………………………….. 6,000
Decrease in inventory ………………………………………………. 1,000
E14–23
An estimate of net cash from operations would be:
Income before tax 552
Less: Tax (543)
PROBLEMS
P14–1
a., b., and c.
Transaction Section Inflow Outflow Amount
1. Operating X $ 60,000
2. N/A
P14–2
a., b., and c.
Transaction Section Inflow Outflow Amount
1. Operating X $ 52,000
11. N/A
13. N/A
P14–3
a. Transaction Cash Affected Type of Effect Dollar Amount
1. Yes Provided $ 1,200
2. Yes Used 13,000
3. Yes Used 9,000
b. 1. Investing
2. Investing
12. N/A
13. N/A
P14–4
The two most notable similarities among all three companies are that they have generated increasing
P14–5
Transaction Effect on Cash Section of Statement Explanation
1. $50,000 Operating Operations is defined in terms of
Note: If the company uses the indirect method to prepare its statement of cash flows, the $15,000
loss on sale of fixed assets would be included in the operating activities section as an adjustment to
net income to arrive at net cash flow from operating activities.
4. (70,000) Financing Dividend payment.
5. (500,000) Financing Stock repurchase.
rent payable. The net of these
two is a zero effect on cash.
P14–6
2015 2014 2013
a. Cash from operating activities $ X $ (202) $ X
Cash from investing activities 160 X (500)
90 110 110
b. Ruttman Enterprises began operations during 2013. As part of its start-up phase, the company appears
to have issued large amounts of stock and/or debt to finance the acquisition of nonoperating assets, to
cover the cash used by operating activities during the start-up phase, and to provide a cash surplus for
future years. During 2014, the company once again issued large amounts of stock and/or debt to
P14–7
a. 2012 2011 2010
Cash provided (used) by operating activities $10,571 $12,639 $11,922
Cash provided (used) by investing activities (3,453) (13,959) (11,359)
b. Cash from operations has been consistently strong over the three-year period. H-P uses this cash flow
to invest in its growing business (negative cash from investing activities in all three years) and is still
P14–8
a. Case 1:
Based on the $820,000 beginning balance in the Buildings account and the purchase during 2015 of a
building for $60,000, one would expect the Buildings account to have a balance of $880,000 at the end
of 2015. The fact that its balance is only $750,000 implies that Webb Industries must have sold a
E.B. 750,000 E.B. 100,000
X = Cost of building sold = $130,000
Y = Accumulated depreciation on building sold = $20,000
Case 2:
Based on the $380,000 beginning balance in the Equipment account and the sale during 2015 of
equipment that originally cost $50,000, one would expect the Equipment account to have a balance at
P14–8 Continued
Equipment Accumulated Depreciation
Case 3:
Based on the $250,000 beginning balance in the Land account and the sale of land during 2015, one
would expect the balance in the Land account to decrease. The fact that its balance is still $250,000 at
the end of 2015 implies that (1) Webb Industries must have purchased some land during 2015 and (2)
Case 4:
In exchange between two independent parties, one would expect the fair market value of the item
given up by one of the parties to equal the fair market value of the item that party is to receive. Thus, it
is probably safe to assume that the fair market value of the new building is $600,000. Based on the
P14–8 Continued
Buildings Accumulated Depreciation
B.B. 820,000 B.B. 80,000
Purchase 600,000 Sale X Sale Y Depr. Exp. 40,000
b. Case 1:
Proceeds from sale = Cost of building sold – Related accumulated depreciation
= $130,000 – $20,000
= $110,000
Note: This solution assumes that there was no gain or loss on the sale of the building, since no such
information was given in the problem.
Case 2:
Proceeds from sale = Book value of equipment sold + Gain on sale
= ($50,000 – $25,000) + $5,000
Case 3:
In the statement of cash flows for 2015, Webb Industries would report the following items under cash
flows from investing activities.
Proceeds from the sale of land $300,000
Case 4:
Since Webb Industries exchanged land for a building, this transaction did not affect cash and would not
P14–9
Total number of shares issued during 2015 = Change in balance of common stock account
÷ Par value per share of common stock
= ($128,000 – $100,000) ÷ $1 per share
= 28,000 shares
Number of shares issued for cash = Total number of shares issued – (Shares issued as
stock dividend + Shares issued in exchange for land)
a $40,000 represents the additional paid-in capital from the 20% stock dividend. The company distributed
P14–10
a. Ending accounts receivable = Beginning accounts receivable + (Gross sales – Sales
returns) – Cash collections
P14–10 Concluded
b. 2015 Ending inventory = 2015 Beginning inventory + Net purchases of inventory
during 2015 – 2015 Cost of goods sold
c. Ending prepaid insurance = Beginning prepaid insurance + Insurance purchased during
the year – Insurance expense
2014
Ending prepaid insurance = $0 + $65,000 – $35,000 = $30,000
Accrual COGS = Payments to suppliers – Increase in inventory + Increase in accounts
Battery Builders, Inc.
Income Statement
Sales …………………………………………………………………………………………………… $ 29,000
P14–12
a.
Pendleton Enterprises
Statement of Cash Flows from Operating Activities
For the Years Ended December 31, 2013, 2014, and 2015
2015 2014 2013
**Expenses minus increase in Accounts Payable
b.
Pendleton Enterprises
Statement of Cash Flows from Operating Activities
For the Years Ended December 31, 2013, 2014, and 2015
2015 2014 2013
Cash collections from customers and sales …………………………. $ 9,000 $ 9,000 $ 8,000
c.
Pendleton Enterprises
Statement of Cash Flows from Operating Activities
For the Years Ended December 31, 2013, 2014, and 2015
2015 2014 2013
Cash collections from customers and sales …………………………. $ 9,000 $ 13,000 $ 4,000
d. Managers can manipulate cash flows from operating activities by manipulating the timing of cash
collections and cash payments associated with operating activities. By comparing parts (b) and (c) with
P14–13
Watson and Holmes Detective Agency
Statement of Cash Flows – Direct Method
For the Year Ended December 31, 2015
Cash flows from operating activities:
Cash collections from customers …………………………..………… $ 34,500*
Cash paid for inventory …………………………..……………………… (23,000)
Cash paid for interest …………………………………………………….. (2,800)
Cash paid for dividends ………………………………………………….. $ (700)
Proceeds from issuance of common stock ………………………… 6,000
Net cash increase (decrease) due to financing
activities ……………………………………………………………….. 5,300
Net increase in cash …………………………………………………………… $ 4,000
P14–13 Concluded
Watson and Holmes Detective Agency
Statement of Cash Flows – Direct Method
For the Year Ended December 31, 2015
Cash flows from operating activities:
Net income ………………………………………………………. $ 2,000
Adjustments:
Depreciation ………………………………………………… $ 2,000
Cash flows from investing activities:
Purchase of long–lived assets ……………………………… $ (1,000)
Net cash increase (decrease) due to
investing activities …………………………………….. (1,000)
Cash flows from financing activities:
Cash paid for dividends ……………………………………… $ (700)
P14–14
a. 1. Cash (+A) ……………………………………………………………………………. 60,000
Common Stock (+SE) ……………………………………………………… 60,000
Issued common stock.
2. Inventory (+A) …………………………………………………………………….. 20,000
P14–14 Continued
5a. Accounts Receivable (+A) …………………………………………………….. 35,200
Sales (R, +SE) ………………………………………………………………… 35,200
Accounts Receivable (–A) ………………………………………………. 12,000
Collected cash from customers.
8. Miscellaneous Expenses (E, –SE) …………………………………………… 10,000
Cash (–A) ……………………………………………………………………… 10,000
Incurred and paid miscellaneous expenses.
9. Depreciation Expense (E, –SE) ………………………………………………. 5,000
Used portion of prepaid rent.
b.
ISS, Inc.
Income Statement
For the Year Ended December 31, 2015
Sales …………………………………………………………………………………………………… $ 35,200
Cost of goods sold ……………………………………………………………………………….. (8,800)
P14–14 Continued
ISS, Inc.
Statement of Retained Earnings
For the Year Ended December 31, 2015
Beginning retained earnings balance: January 1, 2015 ……………………………… $ 0
Plus: Net income ………………………………………………………………………………….. 7,400
Ending retained earnings balance: December 31, 2015 …………………………….. $ 4,400
ISS, Inc.
Balance Sheet
December 31, 2015
Assets Liabilities & Stockholders’ Equity
Cash ………………………………………. $ 25,000 Accounts payable …………………. $ 10,000
Accounts receivable ………………… 23,200 Accrued interest payable ………. 1,000
ISS, Inc.
Statement of Cash Flows – Indirect Method
For the Year Ended December 31, 2015
Cash flows from operating activities:
Net income …………………………………………………………… $ 7,400
Adjustments:
Depreciation …………………………………………………… $ 5,000
Increase in accounts receivable…………………………. (23,200)
Increase in inventory ……………………………………….. (11,200)
Purchase of furniture …………………………………………….. $ (20,000)
Net cash increase (decrease) due to
investing activities ………………………………………… (20,000)
Cash flows from financing activities:
Proceeds from issuance of common stock ………………… $ 60,000