978-1259722660 Chapter 21 Solution Manual Part 1

AACSB assurance of learning standards in accounting and business education require

documentation of outcomes assessment. Although schools, departments, and faculty may approach

assessment and its documentation differently, one approach is to provide specific questions on exams

that become the basis for assessment. To aid faculty in this endeavor, we have labeled each question,

exercise, and problem in Intermediate Accounting, 9e, with the following AACSB learning skills:

Questions AACSB Tags Exercises (cont.) AACSB Tags

21–1 Reflective thinking 21–6 Analytic

21–2 Reflective thinking 21–7 Analytic

21–3 Reflective thinking 21–8 Analytic

21–4 Reflective thinking 21–9 Analytic

21–5 Reflective thinking 21–10 Analytic

21–6 Reflective thinking 21–11 Analytic

21–7 Reflective thinking 21–12 Analytic

21–8 Reflective thinking 21–13 Analytic

21–9 Reflective thinking 21–14 Analytic

21–10 Reflective thinking 21–15 Analytic

21–11 Reflective thinking 21–16 Analytic

21–12 Reflective thinking 21–17 Analytic

21–13 Analytic 21–18 Analytic

21–14 Reflective thinking 21–19 Analytic

21–15 Reflective thinking 21–20 Analytic

21–16 Reflective thinking 21–21 Analytic

21–17 Reflective thinking 21–22 Analytic

21–18 Reflective thinking 21–23 Analytic

21–19 Reflective thinking 21–24 Analytic

21–20 Reflective thinking 21–25 Analytic

21–21 Diversity, Reflective thinking 21–26 Analytic

21–22 Diversity, Reflective thinking 21–27 Analytic

Brief Exercises 21–28 Analytic

21–1 Analytic 21–29 Communication

21–2 Analytic 21–30 Communication

21–3 Analytic 21–31 Analytic

21–4 Analytic 21–32 Analytic

21–5 Analytic CPA/CMA

21–6 Analytic 1 Reflective thinking

21–7 Analytic 2 Analytic

21–8 Analytic 3 Analytic

21–9 Analytic 4 Reflective thinking

21–10 Analytic 5 Reflective thinking

21–11 Analytic 6 Analytic

21–12 Analytic 7 Diversity, Reflective thinking

Exercises 8 Diversity, Reflective thinking

21–1 Reflective thinking 9 Diversity, Analytic

21–2 Analytic 1 Reflective thinking

21–3 Analytic 2 Analytic

21–4 Analytic 3 Analytic

21–5 Analytic

Problems AACSB Tags

21–1 Reflective thinking

Solutions Manual, Vol.2, Chapter 21 21–&

Chapter 21 The Statement of Cash Flows Revisited

21–2 Analytic

21–3 Analytic

21–4 Analytic

21–5 Analytic

21–6 Analytic

21–7 Analytic

21–8 Analytic

21–9 Analytic

21–10 Analytic

21–11 Analytic

21–12 Analytic

21–13 Analytic

21–14 Analytic

21–15 Analytic

21–16 Analytic

21–17 Analytic

21–18 Analytic

21–19 Analytic

21–20 Analytic

21–21 Analytic

Question 21–1

Every cash flow eventually affects the balance of

one or more accounts in the balance sheet, and the

cash flows related to income-producing activities also are represented in the income

statement. The activities, though, are not necessarily reported in the balance sheet and

income statement in the period the cash flows occur. This is because the income

statement measures activities on an accrual basis rather than a cash basis. The

statement of cash flows fills the information gap by reporting the cash flows directly

and in the period the cash flows occur.

Question 21–2

The informational value of the presentation is enhanced if the cash flows are

classified according to the nature of the activities that create the cash flows. The three

Question 21–3

Solutions Manual, Vol.2, Chapter 21 21–&

Questions for Review of Key Topics

No, an investment in Treasury bills need not always be classified as a cash

equivalent. A guideline—not a rule—for cash equivalents is that these investments

Solutions Manual, Vol.2, Chapter 21 21–&

Answers to Questions (continued)

Question 21–4

Transactions that involve merely transfers from cash to cash equivalents such as

the purchase of a three-month Treasury bill, or from cash equivalents to cash such as

the sale of a Treasury bill, should not be reported on the statement of cash flows. A

Question 21–5

“Cash flows from operating activities” are both inflows and outflows of cash that

result from the same activities that are reported on the income statement. However,

Question 21–6

The generalization that “cash flows from operating activities” report all the

elements of the income statement on a cash basis is not strictly true for all elements of

the income statement. No cash effects are reported for depreciation and amortization

Solutions Manual, Vol.2, Chapter 21 21–&

Answers to Questions (continued)

Question 21–7

“Cash flows from investing activities” are both outflows and inflows of cash due to

the acquisition and disposition of assets. This classification includes cash payments to

Two exceptions are inventories and cash equivalents. The purchase and sale of

inventories are not considered investing activities because inventories are purchased

Question 21–8

The payment of cash dividends to shareholders is classified as a financing activity,

but paying interest to creditors is classified as an operating activity. This is because

Solutions Manual, Vol.2, Chapter 21 21–&

Answers to Questions (continued)

Question 21–9

A statement of cash flows reports transactions that cause an increase or a decrease

in cash. However, some transactions that don’t increase or decrease cash, but which

1. Acquiring an asset by incurring a debt payable to the seller.

Question 21–10

The acquisition of a building purchased by issuing a mortgage note payable in

addition to a cash down payment is an example of a transaction involving a significant

Question 21–11

Perhaps the most noteworthy item reported on an income statement is net income

—the amount by which revenues exceed expenses. The most noteworthy item

reported on a statement of cash flows is not the amount of net cash flows. In fact, this

Solutions Manual, Vol.2, Chapter 21 21–&

Answers to Questions (continued)

Question 21–12

The spreadsheet entries shown in the two “changes” columns, which separate the

beginning and ending balances, explain the increase or decrease in each account

balance. Spreadsheet entries duplicate the actual journal entries used to record the

Question 21–13

If sales revenue is $200,000, this does not necessarily mean that $200,000 cash

was received from customers. Amounts reported on the income statement usually do

not represent the cash effects of the items reported. By referring to the beginning and

Question 21–14

When an asset is sold at a gain, the gain is not reported as a cash inflow from

operating activities. A gain (or loss) is simply the difference between cash received in

Solutions Manual, Vol.2, Chapter 21 21–&

Answers to Questions (continued)

Question 21–15

When determining the amount of cash paid for income taxes, an increase in the

deferred income tax liability account would indicate that less cash had been paid than

Question 21–16

When using the indirect method of determining net cash flows from operating

activities, the net cash increase or decrease from operating activities is derived

indirectly by starting with reported net income and “working backwards” to convert

Question 21–17

When using the indirect method of determining net cash flows from operating

activities, when components of net income increase or decrease cash, but by an

amount different from that reported on the income statement, net income is adjusted

Solutions Manual, Vol.2, Chapter 21 21–&

Answers to Questions (continued)

Question 21–18

Either the direct method or the indirect method is permitted, but the FASB strongly

encourages companies to report “cash flows from operating activities” by the direct

method. The direct method reports specific operating cash receipts and operating cash

Question 21–19

The direct and indirect methods are alternative approaches to deriving net cash

Question 21–20

Question 21–21

U.S. GAAP designates cash outflows for interest payments and cash inflows from

interest and dividends received as operating cash flows. Dividends paid to

Solutions Manual, Vol.2, Chapter 21 21–&

Summary Entry ($ in

millions)

Summary Entry ($ in

millions)

Summary Entry ($ in

millions)

Cost of goods sold 25

Summary Entry ($ in

millions)

Solutions Manual, Vol.2, Chapter 21 21–&

BRIEF Exercises

Brief Exercise 21–1

Brief Exercise 21–2

Brief Exercise 21–3

Brief Exercise 21–4

($

in millions)

Agee would report the cash inflow of $380 million from the sale of the bonds as a

cash inflow from financing activities in its statement of cash flows.

The $18 million cash interest paid is cash outflow from operating activities because

interest is an income statement (operating) item.

Solutions Manual, Vol.2, Chapter 21 21–&

Brief Exercise 21–5