Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
721
Exercise 12–12 (25 minutes)
MONTGOMERY, INC.
Statement of Cash Flows (Indirect Method)
For Current Year Ended December 31
Cash flows from operating activities
Net income …………………………………………………………………………
$ 10,500
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation expense ……………………………………………………….
Decrease in accounts receivable …………………………..
Increase in inventory ……………………………………………………….
Decrease in accounts payable ………………………………………….
Decrease in salaries payable …………………………………………….
(100)
Net cash used in operating activities …………………………..
$ (1,750)
Cash flows from investing activities
Cash paid for equipment (Note 1) ……………………………………….
(8,400)
Net cash used in investing activities …………………………..
(8,400)
Cash flows from financing activities
Cash received from stock issuance …………………………..
$ 30,400
Exercise 12-13 (15 minutes)
b. Yes.
Explanation. The company’s cash flow on total assets ratio improved from
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
722
Exercise 12-14A (30 minutes)
SCORETECK CORPORATION
Spreadsheet for Statement of Cash Flows
For Year Ended December 31, 2019
December
31, 2018
Analysis of Changes
December
31, 2019
Debit
Credit
Balance sheet—debit bal. accounts
Cash ………………………………………………….
$ 80,000
$ 60,000
Accounts receivable …………………………
120,000
190,000
Inventory……………………………………………
$ 20,000
Plant assets ………………………………………
600,000
670,000
$1,050,000
$1,150,000
Balance sheet—credit bal. accounts
Accum. depreciation—Plant assets ….
$ 100,000
(c)
70,000
$ 170,000
Accounts payable …………………………..…
150,000
(h)
10,000
140,000
Notes payable ……………………………………
(e)
20,000
Common stock ………………………………….
Retained earnings……………………………..
(b)
80,000
$1,150,000
Statement of cash flows
Operating activities
Net income ………………………………………..
(a)
100,000
Increase in accounts receivable ……….
(f)
70,000
Decrease in merch. inventory …………..
Decrease in accounts payable ………….
10,000
Depreciation expense ……………………….
(c)
Investing activities
Payment for plant assets…………………..
70,000
Financing activities
Paid cash dividends ………………………….
Issued note payable ………………………….
(e)
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
723
Exercise 12-15B (15 minutes)
Statement of Cash Flows
Noncash
Operating
Activities
Investing
Activities
Financing
Activities
Investing &
Financing
Activities
Not Reported
on Statement
or in Notes
a. Retired long-term notes
payable by issuing stock
X
payable
e. Accepted note receivable
in exchange for plant
assets
X
f. Recorded depreciation
expense
X
g. Paid cash to acquire
treasury stock
X
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
724
Exercise 12-16B (15 minutes)
Case X:
Sales revenue …………………………………………………..
$515,000
Accounts receivable, Beg. bal. ………………………….
Accounts receivable, End. bal. ………………………….
Less increase in accounts receivable ………………..
Cash received from customers ………………………….
$508,600
Case Y:
Rent expense ……………………………………………………
$139,800
Rent payable, Beg. bal. ……………………………………..
Rent payable, End. bal. ……………………………………..
Plus decrease in rent payable …………………………..
Cash paid for rent ……………………………………………..
Case Z:
Cost of goods sold ……………………………………………
$525,000
Inventory, End. bal. …………………………………………..
$130,400
Inventory, Beg. bal. …………………………………………..
Less decrease in merch. inventory ……………………
Cost of goods purchased …………………………..
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
725
Exercise 12-17B (40 minutes)
Part 1
IKIBAN, INC.
Statement of Cash Flows (Direct Method)
For Year Ended June 30, 2019
Cash flows from operating activities
Cash received from customers (Note 1) …………..
$664,000
Cash paid for inventory (Note 2) ……………………..
Cash paid for income taxes (Note 4) ………………..
Cash flows from investing activities
Cash received from sale of equip. (Note 5) ………
10,000
Cash paid for equipment (Note 5—given) ………..
Cash flows from financing activities
Cash received from stock issuance …………………
60,000
Cash paid to retire notes (Note 6) ……………………
Cash paid for dividends (Note 7) ……………………..
Net increase in cash ………………………………………….
Cash balance at prior year-end ………………………….
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
726
Exercise 12-17B (continued)
Notes
(1)
Sales …………………………..…………………………………………………………………….
$678,000
Less increase in accounts receivable ………………………………………………….
Cash received from customers ……………………………………………………………
$664,000
(2)
Cost of goods sold ……………………………………………………………………………..
$411,000
Less decrease in inventory …………………………………………………………………
(22,700)
Purchases ………………………………………………………………………………………….
Plus decrease in accounts payable ……………………………………………………..
5,000
Cash paid for inventory ………………………………………………………………………
$393,300
(3)
Other operating expenses …………………………………………………………………..
$ 67,000
Plus decrease in wages payable ……………………………………………………….
Less decrease in prepaid expenses …………………………………………………….
(1,000)
Cash paid for other operating expenses ………………………………………………
$ 75,000
(4)
Income taxes expense ……………………………………………………….……………….
$ 43,890
Plus decrease in income taxes payable ……………………………………………….
400
Cash paid for income taxes …………………………..…………………………………….
$ 44,290
(5)
Cost of equipment sold (Given) …………………………………………………………..
$ 48,600
Accumulated depreciation of equipment sold* ……………………………………..
(40,600)
Book value of equipment sold …………………………..………………………………..
Gain on sale of equipment ………………………………………………………………….
2,000
Cash receipt from sale of equipment ……………………………………………………
$ 10,000
Cost of equipment sold ………………………………………………………………………
$ 48,600
Plus net increase in the equipment account balance …………………………..
9,000
Cash paid for new equipment (given) …………………………………………………..
$ 57,600
Equipment
Accumulated Depreciation, Equipment
Bal., 6/30/2018
115,000
Bal., 6/30/2018
9,000
Purchase
Sale 48,600
Sale *40,600
Depr. Expense
Bal., 6/30/2019
124,000
Bal., 6/30/2019
(6)
Carrying value of notes retired ……………………………………………………………
$ 30,000
Cash payment to retire notes ………………………………………………………………
$ 30,000
(7)
Retained Earnings
Bal., 6/30/2018
24,100
Dividends (plug)
Net income
99,510
Bal., 6/30/2019
33,300
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
727
Exercise 12-18B (20 minutes)
Cash flows from operating activities
Receipts from customers (see note a) ……………………………………..
$1,797,500
Payments for inventory (see note b) ………………………………………..
Payments for salaries (see note c) …………………………………………..
Payments for rent ………………………………………………………………….
Net cash provided by operating activities …………………………………
$ 452,240
Note a: Sales – Increase in receivables
$1,828,000 – $30,500 = $1,797,500
$991,000 + $25,000 + $12,500 = $1,028,500
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
Exercise 12-19B (20 minutes)
FERRON COMPANY
Statement of Cash Flows
For Year Ended December 31
Cash flows from operating activities
Receipts from customers …………………………………….
$ 495,000
Receipts of interest……………………………………………..
3,500
Payments for inventory ……………………………………….
(254,500)
Payments for salaries ………………………………………….
Payments for other expenses ………………………………
(20,000)
Cash flows from investing activities
Receipt from sale of equipment …………………………..
60,250
Payment for store equipment ………………………………
(24,750)
Cash flows from financing activities
Payment to retire long-term notes payable …………..
(100,000)
Receipt from borrowing on six-month note ………….
35,000
Payment of cash dividends …………………………………
(10,000)
Net cash used in financing activities ……………………
(75,000)
Net increase in cash and cash equivalents ……………..
Note No. ___
Noncash investing and financing activities
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
729
Exercise 12–20B (40 minutes)
1.
THOMAS CORPORATION
Statement of Cash Flows
For Year Ended December 31
Cash flows from operating activities
Cash received from customers ………………………………….
$5,000,000
Cash received from dividends …………………………..………
208,400
Cash paid for inventory …………………………………………….
(2,590,000)
Cash paid for wages …………………………………………………
(550,000)
Cash paid for rent ……………………………………………………..
(320,000)
Cash paid for interest ……………………………………………….
(218,000)
Cash paid for taxes …………………………………………………..
Net cash provided by operating activities ………………….
Cash flows from investing activities
Cash paid for purchases of machinery ………………………
(2,236,000)
Cash paid for purchases of stock investments …………..
(1,260,000)
Cash received from sale of land ………………………………..
220,000
Cash received from sale of machinery ……………………….
(2,566,000)
Cash flows from financing activities
Cash received from issuing stock …………………………..
1,540,000
Cash received from borrowing ………………………………….
3,600,000
Cash paid for note payable ……………………………………….
(386,000)
Cash paid for dividends …………………………………………….
(500,000)
Cash paid for treasury stock purchases. ……………………
Net cash provided by financing activities …………………..
Net increase in cash……………………………………………………
Beginning balance of cash ………………………………………….
2.
a. (i) Financing section reported the largest cash inflow of $4,036,000.
(ii) Investing section reported the largest cash outflow of $2,566,000.
b. The largest individual item among the investing cash outflows is the purchase
of machinery at $2,236,000.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
730
PROBLEM SET A
Problem 12-1A (35 minutes)
LANSING COMPANY
Cash Flows from Operating Activities—Indirect Method
For Current Year Ended December 31
Cash flows from operating activities
Net income …………………………..………………………………………..
$ 6,000
Adjustments to reconcile net income to net cash
provided by operating activities
)
)
)
Net cash provided by operating activities ……………………….
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
Problem 12-2AB (35 minutes)
LANSING COMPANY
Cash Flows from Operating Activities—Direct Method
For Current Year Ended December 31
Cash flows from operating activities
Cash receipts from customers (1) …………………………………………………
$ 97,400
)
)
)
)
)
)
Supporting calculations
(1) Sales + Decrease in receivables = $97,200 + ($5,800 – $5,600) = $97,400
(2) Cost of Increase in Decrease in
goods sold inventory accts payable =
$42,000 + ($1,980 – $1,540) + ($4,600 – $4,400) = $42,640
+
+
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
732
Problem 12-3A (50 minutes)
Part 1
FORTEN COMPANY
Statement of Cash Flows
For Current Year Ended December 31
Cash flows from operating activities
Net income …………………………..………………………………………………….
$114,975
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense ……………………………………………………….
20,750
Loss on disposal of equipment …………………………………………..
Increase in accounts receivable ($65,810 – $50,625) ……………..
Increase in inventory ($275,656 – $251,800) …………………………..
Decrease in prepaid expenses ($1,875 – $1,250) ……………………
Decrease in accounts payable ($114,675 – $53,141) ………………
Net cash provided by operating activities …………………………..
Cash flows from investing activities
Cash received from sale of equipment …………………………………..
11,625
Cash paid for equipment ……………………………………………………….
(30,000)
Net cash used in investing activities ………………………………………
(18,375)
Cash flows from financing activities
Cash borrowed on short–term note ………………………………………..
4,000
Cash paid on long–term note …………………………………………………..
Cash received from issuing stock (2,500 x $20) ……………………….
50,000
Cash paid for dividends ……………………………………………………….
Net cash used in financing activities ………………………………………
Net decrease in cash …………………………………………………………………
Cash balance at December 31, prior year ………………………………….
Noncash investing and financing activities
Purchased equipment for $96,375 by signing a $66,375 long-term note payable
and paying $30,000 in cash.
733
Problem 12-3A (Concluded)
Part 2
Forten Company’s operations provide a positive net cash inflow of $40,900—a
good result. At the same time, the cash balance decreased by $23,700 (32%)
during the year. Two major cash outflows are the retirement of debt ($50,125)
and the dividend payment ($50,100), which together represent 87% of net
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
734
Problem 12-4AA (60 minutes)
FORTEN COMPANY
Spreadsheet for Statement of Cash Flows
For Current Year Ended December 31
Dec. 31,
Prior Year
Analysis of Changes
Dec. 31,
Current Year
Debit
Credit
Balance sheet—debits
Cash ………………………………………………….
$ 73,500
$ 49,800
Accounts receivable …………………………
(b)
Inventory …………………………………………..
(c)
23,856
Prepaid expenses …………………………..
(d)
Equipment ………………………………………..
(h)
96,375
(g)
46,875
$485,800
$550,016
Balance sheet—credits
Accum. depreciation—Equip. …………..
$ 46,000
(g)
30,125
(f)
20,750
$ 36,625
Accounts payable …………………………..
61,534
Short–term notes payable …………………
Long–term notes payable ………………….
(k)
50,125
66,375
Common stock, $5 par value ……………
12,500
37,500
Retained earnings …………………………..
50,100
$485,800
$550,016
(e)
Statement of cash flows
Operating activities
Net income ……………………………………….
(a)
114,975
Increase in accts. receivable …………….
(b)
15,185
Increase in merch. inventory …………….
(c)
23,856
Decrease in prepaid expenses ………….
(d)
625
Decrease in accounts payable ………….
(e)
61,534
Depreciation expense ……………………….
20,750
Loss on sale of equipment ……………….
(g)
Investing activities
Receipt from sale of equipment ………..
(g)
11,625
Payment to purchase equipment ……..
(h)
30,000
Financing activities
Borrowed on short–term note……………
Payment on long–term note ………………
(k)
50,125
Issued common stock for cash ………..
50,000
Payments of cash dividends …………….
50,100
Noncash investing and
financing activities
Purchase of equip. financed
by long-term note payable ………
(i)
66,375
(h)
66,375
$600,775
$600,775
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
735
Problem 12-4AA (Concluded)
FORTEN COMPANY
Statement of Cash Flows
For Current Year Ended December 31
Cash flows from operating activities
Net income …………………………..………………………………………………….
$114,975
Adjustments to reconcile net income to net
cash provided by operating activities:
Income statement items not affecting cash
Depreciation expense ……………………………………………………….
Loss on disposal of equipment …………………………………………..
5,125
Changes in current assets and current liabilities
Increase in accounts receivable ($65,810 – $50,625) ……………..
Increase in inventory ($275,656 – $251,800) …………………………..
Decrease in prepaid expenses ($1,875 – $1,250) ……………………
Decrease in accounts payable ($114,675 – $53,141) ………………
Net cash provided by operating activities …………………………..
Cash flows from investing activities
Cash received from sale of equipment …………………………………..
11,625
Cash paid for equipment ……………………………………………………….
(30,000)
Net cash used in investing activities ………………………………………
(18,375)
Cash flows from financing activities
Cash borrowed on short–term note ………………………………………..
4,000
Cash paid on long–term note …………………………………………………..
Cash received from issuing stock (2,500 x $20) ……………………….
Cash paid for dividends ……………………………………………………….
Net cash used in financing activities ………………………………………
Net decrease in cash …………………………………………………………………
Noncash investing and financing activities
736
Problem 12-5AB (40 minutes)
FORTEN COMPANY
Statement of Cash Flows
For Current Year Ended December 31
Cash flows from operating activities
Cash received from customers (Note 1) ………………..
$567,315
Cash paid for inventory (Note 2) …………………………..
Cash paid for other expenses (Note 3) ………………….
Cash paid for income taxes …………………………………
(24,250)
Net cash provided by operating activities …………….
Cash flows from investing activities
Cash received from sale of equipment …………………
11,625
Cash paid for equipment ……………………………………..
(30,000)
Net cash used in investing activities ……………………
(18,375)
Cash flows from financing activities
Cash borrowed on short-term note ………………………
Cash paid on long-term note ……………………………….
Cash received from issuing stock (2,500 x $20) ……..
Noncash investing and financing activities
Purchased equipment for $96,375 by signing a $66,375 long-term note payable
and paying $30,000 in cash.
Supporting calculations
(1) Sales – Increase in receivables = $582,500 – ($65,810 – $50,625) = $567,315
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
737
Problem 12-6A (35 minutes)
GOLDEN CORPORATION
Statement of Cash Flows
For Current Year Ended December 31
Cash flows from operating activities
Net income …………………………..……………………………………………
$136,000
Adjustments to reconcile net income to net
cash provided by operating activities
Net cash provided by operating activities ………………………..
Cash flows from investing activities
Cash paid for equipment …………………………………………………..
(36,000)
Net cash used in investing activities ……………………….
(36,000)
Cash flows from financing activities
Cash balance at December 31, prior year …………………………..
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
Problem 12-7AA (50 minutes)
GOLDEN CORPORATION
Spreadsheet for Statement of Cash Flows
For Current Year Ended December 31
Dec. 31,
Prior Year
Analysis of Changes
Dec. 31,
Current Year
Debit
Credit
Balance sheet—debits
Cash ………………………………………………….
$ 107,000
$ 164,000
Accounts receivable …………………………
71,000
83,000
Inventory …………………………………………..
(c)
75,000
$1,003,000
Balance sheet—credits
Accum. depreciation—Equip. …………..
$ 104,000
(f)
$ 54,000
$ 158,000
Accounts payable …………………………..
71,000
(d)
16,000
87,000
Income taxes payable ……………………….
25,000
(e)
3,000
28,000
Common stock, $2 par value …………….
24,000
36,000
Retained earnings …………………………..
89,000
(a)
122,000
$1,003,000
Statement of cash flows
Operating activities
Net income ………………………………………..
(a)
136,000
Increase in accounts receivable ………
12,000
Increase in merch. inventory …………….
(c)
75,000
Increase in accounts payable ……………
16,000
Increase in income tax payable …………
(e)
Depreciation expense ……………………….
54,000
Investing activities
Payment for equipment …………………….
(g)
36,000
Financing activities
Issued common stock for cash ………..
(h)
60,000
Paid cash dividends ………………………….
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
739
Problem 12-7AA (Concluded)
GOLDEN CORPORATION
Statement of Cash Flows
For Current Year Ended December 31
Cash flows from operating activities
Net income …………………………..……………………………………………
$136,000
Adjustments to reconcile net income to net
cash provided by operating activities
Net cash provided by operating activities ………………………..
Cash flows from investing activities
Cash paid for equipment …………………………………………………..
(36,000)
Net cash used in investing activities ……………………….
(36,000)
Cash flows from financing activities
Cash received from issuing stock (12,000 x $5) …………………
60,000
Cash paid for cash dividends ……………………………………………
(89,000)
Cash balance at beginning of the year………………………………..
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
740
Problem 12-8AB (35 minutes)
GOLDEN CORPORATION
Statement of Cash Flows
For Current Year Ended December 31
Cash flows from operating activities
Cash received from customers (Note 1) ……………..
$1,780,000
Cash paid for inventory (Note 2) ……………………….
(1,145,000)
Cash paid for other operating expenses …………..
Cash paid for income taxes (Note 3) ………………….
(19,000)
Net cash provided by operating activities …………
Cash flows from investing activities
Net cash used in investing activities ……………………….
Cash flows from financing activities
Cash from issuing stock (12,000 x $5) ………………..
60,000
Cash paid for cash dividends …………………………..
(89,000)
Net cash used in financing activities ………………..
(29,000)
Net increase in cash ……………………………………………
107,000
Supporting calculations
(1) Sales – Increase in receivables = $1,792,000 – ($83,000 – $71,000) = $1,780,000