FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P12-67B
(40 min.)
Requirements
Solution:
Req. 1
Sales revenue 488,000$
Cost of goods sold [$203,000 + (1 × $40,000)] 243,000
Salary expense 125,000
Rent expense 17,000
1. Prepare Pruitt Motors, Inc.’s, income statement for the year ended December 31, 2016.
Use the single-step format, with all revenues listed together and all expenses together.
2. Prepare Pruitt’s balance sheet at December 31, 2016.
3. Prepare Pruitt’s statement of cash flows for the year ended December 31, 2016. Format
cash flows from operating activities by using the indirect method.
Pruitt Motors, Inc.
Income Statement
Year Ended December 31, 2016
Chapter 12: The Statement of Cash Flows Page 61 of 93
Depreciation expense ($180,000 / 5) 36,000
Req. 2
Property, plant, and equipment: Common stock 440,000
Pruitt Motors, Inc.
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Chapter 12: The Statement of Cash Flows Page 62 of 93
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P12-68B
(40 min.)
Requirements
Solution:
Req. 1
Sales revenue 488,000$
Cost of goods sold [$203,000 + (1 × $40,000)] 243,000
Salary expense 125,000
Rent expense 17,000
Pruitt Motors, Inc.
Income Statement
Year Ended December 31, 2016
1. Prepare Pruitt’s income statement for the year ended December 31, 2016. Use the
single-step format, with all revenues listed together and all expenses together.
2. Prepare Pruitt’s balance sheet at December 31, 2016.
3. Prepare Pruitt’s statement of cash flows for the year ended December 31, 2016.
Format cash flows from operating activities by using the direct method.
Chapter 12: The Statement of Cash Flows Page 63 of 93
Depreciation expense ($180,000 / 5) 36,000
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 3
Cash flows from operating activities:
Receipts:
Collections from customers
($488,000 x .80)
$390,400
Total cash receipts 390,400
Payments:
Statement of Cash Flows
Year Ended December 31, 2016
*$440,000 (stock) − $180,000 (equipment) − $203,000 (inventory) − $17,000 (rent) −
$24,000 (inventory) + $390,400 (sales) − $122,000 (salaries) − $12,600 (taxes) –
$19,000 (dividends) = $252,800
Pruitt Motors, Inc.
Chapter 12: The Statement of Cash Flows Page 64 of 93
Total cash payments
Net cash used for operating activities 11,800
Cash flows from investing activities:
Cash flows from financing activities:
Net increase in cash 252,800$
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P12-69B
(35-45 min.)
Requirement
Solution:
Cash flows from operating activities:
Net income 5,700$
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense
21,000$
Amortization expense
4,400
Gain on sale of equipment (3,500)
Johnson Software Corp.
Statement of Cash Flows
Year Ended December 31, 2016
1. Prepare Johnson Software Corp.’s statement of cash flows using the indirect method
to report operating activities. Include an accompanying schedule of noncash investing
and financing activities.
Chapter 12: The Statement of Cash Flows Page 65 of 93
Decrease in accounts receivable
Decrease in inventories
Increase in prepaid expenses (1,400)
Decrease in accounts payable
Increase in income tax payable
2,100
Net cash provided by operating activities 85,200
Cash flows from investing activities:
Purchase of building (109,000)$
Net cash used for investing activities (91,100)
Cash flows from financing activities:
Payment of cash dividends (18,100)
Net increase in cash 37,000$
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Chapter 12: The Statement of Cash Flows Page 66 of 93
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P12-70B
(35-45 min.)
Requirements
Solution:
Req. 1
Cash flows from operating activities:
Net income 58,000$
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense
15,700$
Amortization expense
6,000
Decrease in accounts receivable
7,100
Increase in inventories
(3,500)
1. Prepare Barberton Movie Theater Company’s statement of cash flows for the year
ended September 30, 2016, using the indirect method to report cash flows from
operating activities. Report noncash investing and financing activities in an
accompanying schedule.
2. Evaluate Barberton’s cash flows for the year. Mention all three categories of cash
flows, and give the reason for your evaluation
Barberton Movie Theater Company
Statement of Cash Flows
Year Ended September 30, 2016
Chapter 12: The Statement of Cash Flows Page 67 of 93
Increase in prepaid expenses (15,700)
Increase in accounts payable 2,000
Increase in accrued liabilities 10,000
Net cash provided by operating activities
Cash flows from investing activities:
Cash flows from financing activities:
Issuance of common stock 15,000$
Net increase (decrease) in cash
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Noncash investing and financing activities:
Acquisition of land by issuing note payable
$ 109,000
Req. 2
Barberton’s cash flows look strong. Operations are a significant source of cash
indicating that the company generated sufficient net income to cover operating
Chapter 12: The Statement of Cash Flows Page 68 of 93
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P12-71B
(30-40 min.)
Requirements
Solution:
Req. 1
Cash flows from operating activities:
Net income 55,900$
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation
16,100$
Decrease in accounts receivable
3,300
Decrease in inventories
14,500
Req. 2.
1. Prepare the 2016 statement of cash flows, formatting operating activities by using
the indirect method.
2. How will what you learned in this problem help you evaluate an investment?
Lombardi Supply Corp.
Statement of Cash Flows
Year Ended December 31, 2016
Chapter 12: The Statement of Cash Flows Page 69 of 93
Decrease in prepaid expenses
2,200
Net cash provided by operating activities 103,800
Cash flows from investing activities:
Purchase of land (47,000)$
depreciation expense of $16,100 = $33,200;
Net cash used for investing activities (75,900)
Payment of dividends
14,000
Net increase in cash 3,900$
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
This problem will help students learn how operating activities, investing activities, and
financing activities generate cash receipts and cash payments. By solving this
problem, students will learn how companies prepare the statement of cash flows and
Chapter 12: The Statement of Cash Flows Page 70 of 93
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P12-72B
(30-40 min.)
Requirements
Solution:
Req. 1
Cash flows from operating activities:
Receipts:
Collections from customers ($438,000 + $3,300) 441,300$
Total cash receipts 441,300
Payments:
1. Prepare the 2016 statement of cash flows by using the direct method.
2. How will what you learned in this problem help you evaluate an investment?
Lombardi Supply Corp.
Statement of Cash Flows
Year Ended December 31, 2016
Chapter 12: The Statement of Cash Flows Page 71 of 93
For interest (24,600)
Cash flows from investing activities:
Purchase of land (47,000)$
Cash flows from financing activities:
Net increase in cash 3,900$
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2
This problem will help students learn how operating activities, investing activities, and
financing activities generate cash receipts and cash payments. By solving this problem,
students will learn how companies prepare the statement of cash flows and will thus be
able to understand the meaning of cash flows from the three basic categories of
Chapter 12: The Statement of Cash Flows Page 72 of 93
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P12-73B
(35-45 min.)
Requirements
Solution:
Req. 1
Cash flows from operating activities:
Receipts:
Collections from customers
($395,000 + $191,300)
586,300$
Interest received 4,300
Dividends received 8,900
Total cash receipts 599,500$
Payments:
To suppliers
(368,200)$
To employees
(88,800)
1. Prepare Driscoll Furniture Gallery, Inc.’s, statement of cash flows for the year ended
December 31, 2016. Use the direct method for cash flows from operating activities.
Include an accompanying schedule of noncash investing and financing activities.
2. Evaluate 2016 from a cash flows standpoint. Give your reasons.
Driscoll Furniture Gallery, Inc.
Statement of Cash Flows
Year Ended December 31, 2016
Chapter 12: The Statement of Cash Flows Page 73 of 93
For income tax (38,000)
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of plant assets
Collection of loans 8,500
Proceeds from sale of plant assets
Loan to another company
Net cash used for investing activities (26,900)
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Cash flows from financing activities:
Proceeds from issuance of common stock 20,000$
Payments of long-term note payable
(57,000)
Payment of dividends (48,600)
Proceeds from issuance of note payable 20,000
Chapter 12: The Statement of Cash Flows Page 74 of 93
Net (decrease) in cash (1,800)$
Noncash investing and financing transactions:
Payment of short-term note payable by
Acquisition of equipment by issuing
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P12-74B
(45-60 min.)
Requirements
Solution:
Req. 1
Cash flows from operating activities:
Receipts:
Collections from customers 661,800$
Dividends received 16,600
Total cash receipts $678,400
Payments:
To suppliers ($387,000 + $34,300)
(421,300)$
To employees
(132,800)
For interest (26,800)
For income tax
(19,300)
Total cash payments
(600,200)
Net cash provided by operating activities 78,200
1. Prepare the statement of cash flows of Franklin Electric Company for the year ended
December 31, 2016, using the direct method to report operating activities. Also prepare
the accompanying schedule of noncash investing and financing activities.
2. Use Franklin Electric’s 2016 income statement and information from its selected
balance sheet data to prepare a supplementary schedule of cash flows from operating
activities by using the indirect method.
Franklin Electric Company
Statement of Cash Flows
Year Ended December 31, 2016
Chapter 12: The Statement of Cash Flows Page 75 of 93
Cash flows from investing activities:
Purchase of equipment
Net cash provided by investing activities (10,600)
Cash flows from financing activities:
Payment of long-term note payable
Issuance of common stock 47,100
Purchase of treasury stock (19,000)
Net increase in cash $26,200
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Noncash investing and financing activities:
Acquisition of land by issuing common stock 51,000
Retirement of long-term note payable by
issuing common stock
24,000
Total noncash investing and financing activities 75,000
Req. 2
Cash flows from operating activities:
Net income 77,300$
Adjustments to reconcile net income to net
cash flow provided by operating activities:
Depreciation expense
41,700$
Loss on sale of investments 1,400
Year Ended December 31, 2016
Franklin Electric Company
Statement of Cash Flows
Chapter 12: The Statement of Cash Flows Page 76 of 93
Increase in accounts receivable
Decrease in inventories
Decrease in prepaid expenses
Decrease in accounts payable
Decrease in interest payable (2,400)
Decrease in salary payable (7,800)
Decrease in other accrued liabilities (10,800)
Decrease in income tax payable
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P12-75B
(45-60 min.)
Requirements
Solution:
Req. 1
Net income 70,600$
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense
$13,200
Loss on sale of land
6,900
1. Prepare the statement of cash flows of Sally Fagan Design Studio, Inc., for the year
ended June 30, 2016, using the indirect method to report operating activities. Also
prepare the accompanying schedule of noncash investing and financing activities. All
current accounts except Notes Payable, short-term, result from operating transactions.
2. Prepare a supplementary schedule showing cash flows from operations by the direct
method. The accounting records provide the following: collections from customers,
$231,600; interest received, $1,200; payments to suppliers, $95,100; payments to
employees, $39,100; payments for income tax, $12,100; and payment of interest,
$4,400.
Cash flows from operating activities:
Sally Fagan Design Studio, Inc.
Statement of Cash Flows
Year Ended June 30, 2016
Chapter 12: The Statement of Cash Flows Page 77 of 93
Increase in accounts receivable
Increase in inventories
Decrease in prepaid expenses
2,000
Decrease in accounts payable
Sale of land $39,900
Net cash provided by investing activities 25,300