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
Income statement items not affecting cash
Depreciation expense ……………………………………………………….
$ 7,200
Decrease in accounts receivable …………………………..
Increase in inventory ……………………………………………………….
Decrease in accounts payable ………………………………………….
Decrease in salaries payable …………………………………………….
(100)
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
Note 1
Equipment
Bal., 12/31/Prior Year
41,500
Purchase
“plug”
Sale 0
→ plug = $8,400
Bal., 12/31/ Current Year
49,900
Exercise 12-13 (15 minutes)
a.
Year 1: $102,920 / $1,240,000 = 8.3%
Year 2: $138,920 / $1,510,000 = 9.2%
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
(f)
$ 70,000
190,000
Inventory……………………………………………
250,000
(g)
$ 20,000
230,000
Plant assets ………………………………………
600,000
(d)
70,000
670,000
$1,050,000
$1,150,000
Balance sheet—credit bal. accounts
Accum. depreciation—Plant assets ….
(c)
$ 170,000
Accounts payable …………………………..…
150,000
140,000
Notes payable ……………………………………
370,000
(e)
390,000
Common stock ………………………………….
200,000
200,000
Retained earnings……………………………..
$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 …………..
(g)
20,000
Decrease in accounts payable ………….
(h)
10,000
Depreciation expense ……………………….
(c)
70,000
Investing activities
Payment for plant assets…………………..
(d)
70,000
Financing activities
Paid cash dividends ………………………….
(b)
Issued note payable ………………………….
(e)
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
by signing a 9-month note
Exercise 12-16B (15 minutes)
Case X:
Sales revenue …………………………………………………..
$515,000
Accounts receivable, Beg. bal. ………………………….
$ 27,200
Accounts receivable, End. bal. ………………………….
(33,600)
Less increase in accounts receivable ………………..
(6,400)
Cash received from customers ………………………….
$508,600
Rent payable, Beg. bal. ……………………………………..
Rent payable, End. bal. ……………………………………..
Plus decrease in rent payable …………………………..
1,600
Cash paid for rent ……………………………………………..
Case Z:
Cost of goods sold ……………………………………………
$525,000
Inventory, End. bal. …………………………………………..
$130,400
Inventory, Beg. bal. …………………………………………..
(158,600)
Less decrease in merch. inventory ……………………
(28,200)
Cost of goods purchased …………………………..
496,800
Accounts payable, End. bal. …………………………..
82,000
Accounts payable, Beg. bal. …………………………..
(66,700)
Less increase in accounts payable ……………………
(15,300)
Cash paid for inventory …………………………..
$481,500
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) ……………………..
(393,300)
Cash paid for operating expenses (Note 3) ………
(75,000)
Cash paid for income taxes (Note 4) ………………..
(44,290)
Net cash provided by operating activities ………..
$151,410
Cash flows from investing activities
Cash received from sale of equip. (Note 5) ………
10,000
Cash paid for equipment (Note 5—given) ………..
(57,600)
Net cash used in investing activities ……………….
Cash flows from financing activities
Cash received from stock issuance …………………
60,000
Cash paid to retire notes (Note 6) ……………………
(30,000)
Cash paid for dividends (Note 7) ……………………..
(90,310)
Net cash used in financing activities ……………….
(60,310)
Net increase in cash ………………………………………….
Cash balance at prior year-end ………………………….
Exercise 12-17B (continued)
Notes
(1)
Sales …………………………..…………………………………………………………………….
$678,000
Less increase in accounts receivable ………………………………………………….
(14,000)
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 ……………………………………………………….
9,000
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 …………………………..………………………………..
8,000
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
57,600
Sale 48,600
Sale *40,600
Depr. Expense
58,600
Bal., 6/30/2019
124,000
Bal., 6/30/2019
27,000
(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)
90,310
Net income
99,510
Bal., 6/30/2019
33,300
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) ………………………………………..
(1,028,500)
Payments for salaries (see note c) …………………………………………..
(249,035)
Payments for rent ………………………………………………………………….
(49,600)
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 ………………………………………….
(76,500)
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 ……………..
$108,000
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 …………………………………………………..
(450,000)
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 ……………………….
710,000
(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. ……………………
(218,000)
Net cash provided by financing activities …………………..
4,036,000
Net increase in cash……………………………………………………
Beginning balance of cash ………………………………………….
333,000
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.
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
Income statement items not affecting cash
Depreciation expense ………………………………………………..
$12,000
Decrease in accounts receivable ………………………………..
Increase in inventory ………………………………………………….
)
Decrease in accounts payable ……………………………………
)
Increase in salaries payable ……………………………………….
180
Increase in utilities payable ………………………………………..
60
Increase in prepaid rent ……………………………………………..
(40
)
Decrease in prepaid insurance …………………………………..
20
11,780
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
Cash payments to suppliers (2) …………………………………………………….
(42,640)
)
Cash payments for salaries (3) ……………………………………………………..
(17,820)
)
)
Cash payments for utilities (6) ………………………………………………………
)
Cash payments for interest ……………………………………………………….
)
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
(3) Salaries expense – Increase in salaries payable = $18,000 – ($880 – $700) = $17,820
+
+
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:
Income statement items not affecting cash
Depreciation expense ……………………………………………………….
20,750
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 …………………………………………………..
(50,125)
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 …………………………………………………………………
$(23,700)
Cash balance at December 31, prior year ………………………………….
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
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 …………………………
50,625
(b)
$15,185
65,810
Inventory …………………………………………..
251,800
(c)
23,856
275,656
Prepaid expenses …………………………..
1,875
(d)
$ 625
1,250
Equipment ………………………………………..
108,000
(h)
96,375
(g)
46,875
157,500
$485,800
$550,016
Balance sheet—credits
Accum. depreciation—Equip. …………..
(g)
30,125
20,750
$ 36,625
Accounts payable …………………………..
114,675
(e)
61,534
53,141
Short–term notes payable …………………
6,000
10,000
Long–term notes payable ………………….
48,750
(k)
50,125
66,375
65,000
Common stock, $5 par value ……………
150,250
12,500
162,750
par value, common stock ………………
0
(l)
37,500
37,500
Retained earnings …………………………..
120,125
(m)
50,100
(a)
114,975
185,000
$485,800
$550,016
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)
Decrease in accounts payable ………….
(e)
61,534
Depreciation expense ……………………….
20,750
Loss on sale of equipment ……………….
(g)
5,125
Investing activities
Receipt from sale of equipment ………..
(g)
11,625
Payment to purchase equipment ……..
(h)
30,000
Financing activities
Borrowed on short–term note……………
(j)
4,000
Payment on long–term note ………………
(k)
50,125
Issued common stock for cash ………..
(l)
50,000
Payments of cash dividends …………….
(m)
50,100
66,375
$600,775
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:
Depreciation expense ……………………………………………………….
20,750
Loss on disposal of equipment …………………………………………..
5,125
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 …………………………..
$ 40,900
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 …………………………………………………..
(50,125)
Cash received from issuing stock (2,500 x $20) ……………………….
50,000
Cash paid for dividends ……………………………………………………….
(50,100)
Net cash used in financing activities ………………………………………
Net decrease in cash …………………………………………………………………
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) …………………………..
(370,390)
Cash paid for other expenses (Note 3) ………………….
(131,775)
Cash paid for income taxes …………………………………
(24,250)
Net cash provided by operating activities …………….
$ 40,900
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) ……..
Net decrease in cash ……………………………………………..
Supporting calculations
(1) Sales – Increase in receivables = $582,500 – ($65,810 – $50,625) = $567,315
(2) Cost of Increase in Decrease in
goods sold inventory payables =
$285,000 + ($275,656 – $251,800) + ($114,675 – $53,141) = $370,390
(3) Other expenses – Decrease in prepaid expenses = $132,400 – ($1,875 – $1,250)
= $131,775
+
+
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
Income statement items not affecting cash
Depreciation expense ………………………………………………….
54,000
Changes in current assets and current liabilities
Increase in accounts receivable ($83,000 – $71,000) ………
Increase in inventory ($601,000 – $526,000) ……………………
Increase in accounts payable ($87,000 – $71,000) ………….
Increase in taxes payable ($28,000 – $25,000) ………………..
3,000
Net cash provided by operating activities ………………………..
Cash flows from investing activities
Cash flows from financing activities
Cash received 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…………………………………………………………….
$ 57,000
Cash balance at December 31, prior year …………………………..
107,000
Cash balance at December 31, current year ……………………….
$164,000
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
(b)
$ 12,000
83,000
Inventory …………………………………………..
526,000
(c)
75,000
601,000
Equipment ………………………………………..
299,000
(g)
36,000
335,000
$1,003,000
$1,183,000
Balance sheet—credits
Accum. depreciation—Equip. …………..
$ 104,000
$ 158,000
Accounts payable …………………………..
71,000
16,000
87,000
Income taxes payable ……………………….
25,000
(e)
28,000
Common stock, $2 par value …………….
568,000
(h)
24,000
592,000
160,000
36,000
196,000
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 ………
(b)
12,000
Increase in merch. inventory …………….
(c)
75,000
Increase in accounts payable ……………
(d)
16,000
Increase in income tax payable …………
(e)
3,000
Depreciation expense ……………………….
(f)
54,000
Investing activities
Payment for equipment …………………….
(g)
36,000
Financing activities
Issued common stock for cash ………..
(h)
60,000
Paid cash dividends ………………………….
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
Income statement items not affecting cash
Changes in current assets and current liabilities
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)
Net cash used in financing activities ………………………………..
(29,000)
Net increase in cash…………………………………………………………….
$ 57,000
Cash balance at beginning of the year………………………………..
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 …………..
(494,000)
Cash paid for income taxes (Note 3) ………………….
(19,000)
Net cash provided by operating activities …………
$122,000
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 from issuing stock (12,000 x $5) ………………..
Cash paid for cash dividends …………………………..
(89,000)
Net cash used in financing activities ………………..
Net increase in cash ……………………………………………
$ 57,000
Cash balance at December 31, prior year …………….
Supporting calculations
(1) Sales – Increase in receivables = $1,792,000 – ($83,000 – $71,000) = $1,780,000
(3) Income taxes expense – Increase in income taxes payable
= $22,000 – ($28,000 – $25,000) = $19,000