CHAPTER 14 Statement of Cash Flows
P 14-48
1. and 2.
Cash flows from operating activities:
Net income…………………………………………
…
$ 450,000
Add (deduct) adjusting items:
Decrease in accounts receivable………………
…
68,750
Decrease in accounts payable…………………
…
(62,500)
Cash flows from investing activities:
Sale of equipment…………………………………
…
$ 175,000
Purchase of equipment*…………………………
…
(250,000)
Purchase of land…………………………………
…
(218,750)
Net cash from investing activities…………
…
(293,750)
Cash flows from financing activities:
3. Answers will vary.
Booth Manufacturing
Statement of Cash Flows
For the Year Ended December 31, 20X2
CHAPTER 14 Statement of Cash Flows
P 14-49
Income
Statement
A
djustments Cash Flows
Cash flows from operating activities:
Revenues…………………………….………
…
$1,200,000 $ 68,750 $1,268,750
Gain on sale of equipment………………… 50,000 (50,000)
—
Cost of goods sold…………………………
…
(640,000) (25,000)
Booth Manufacturing
Operating Cash Flows
For the Year Ended September 30, 20X2
a
b
c
—
—
CHAPTER 14 Statement of Cash Flows
P 14-50
1. a. Indirect Method:
Cash flows from operating activities:
Net income…………………………………………
…
$122,400
Add (deduct) adjusting items:
Increase in accounts receivable………………
…
(18,000)
Income
b. Direct Method: Statement Cash Flows
Revenues………………………
…
$ 920,000 $ 902,000
Cost of goods sold……………
…
(620,000) (602,000)
Adjustments
$(18,000)
18,000
…
CHAPTER 14 Statement of Cash Flows
P 14-50 (Concluded)
2.
Cash flows from operating activities:
Net income……………………………….……………………
…
$ 122,400
Add (deduct) adjusting items:
Increase in accounts receivable…………………………… (18,000)
Increase in accounts payable…………………………….… 18,000
Cash flows from investing activities:
Sale of equipment……………………………………………
…
$ 3,600
Purchase of investments……………………………………. (54,000)
Cash flows from financing activities:
Retirement of mortgage………………………………….…
…
$(108,000)
Issuance of bonds……………………………………………. 90,000
Retirement of preferred stock……………………………… (36,000)
Payment of dividends………………………………………… (36,000)
Issuance of common stock…………………………………
…
108,000
Net cash from financing activities……………………
…
18,000
Net increase in cash………………………………….…………
…
$ 63,000
Rosie-Lee Company
Statement of Cash Flows
For the Year Ended June 30, 20X2
CHAPTER 14 Statement of Cash Flows
P 14-51
Beginning Ending
Balance Debit Credit Balance
Assets:
Cash……………………………..………
…
$270,000 (1) $ 63,000 $333,000
Accounts receivable…………………
…
126,000 (2) 18,000 144,000
Investments……………………..………
…
— (3) 54,000 54,000
Liabilities and equity:
Accounts payable……………………..
…
$ 72,000 (8) 18,000 $ 90,000
Mortgage payable……………………..
…
108,000 (9) 108,000 —
Bonds payable……………………..…… — (10) 90,000 90,000
…
…
…
Cash flows from operating activities:
Net income (loss)……………………..
…
(14) 122,400
Increase in accounts receivable……
…
(2) 18,000
Increase in account payable…………
…
(8) 18,000
Depreciation expense…………………
…
(6) 19,800
Loss on sale of equipment…………… (5) 1,800
Cash flows from investing activities:
Sale of equipment……………………..
…
(5) 3,600
…
…
Cash flows from financing activities:
Retirement of mortgage………………
…
(9) 108,000
Retirement of preferred stock………
…
(11) 36,000
Issuance of bonds……………………..
…
(10) 90,000
Issuance of common stock…………
…
(12) 108,000
…
Transaction
Worksheet: Rosie-Lee Company
…
CHAPTER 14 Statement of Cash Flows
P 14-51 (Concluded)
Cash flows from operating activities:
Net income……………………………..………………
…
$ 122,400
Add (deduct) adjusting items:
Increase in accounts receivable……………………
…
(18,000)
Increase in accounts payable………………………
…
18,000
Cash flows from investing activities:
Sale of equipment……………………………….……
…
$ 3,600
Purchase of investments……………………………
…
(54,000)
Purchase of equipment………………………………
…
(30,600)
Purchase of land………………………………………..
…
(18,000)
Net cash from investing activities………………
…
(99,000)
Cash flows from financing activities:
Retirement of mortgage………………………………
…
$(108,000)
Issuance of bonds………………………………….…
…
90,000
…
Rosie-Lee Company
Statement of Cash Flows
For the Year Ended June 30, 20X2
…
CHAPTER 14 Statement of Cash Flows
P 14-52
Cash flows from operating activities:
Net loss………………………………………………
…
$ (15,000)
Add (deduct) adjusting items:
Decrease in accounts receivable………………
…
20,000
Increase in inventory………………………………
…
(10,000)
Cash flows from investing activities:
Sale of equipment…………………………………
…
$ 40,000
Purchase of equipment……………………………
…
(50,000)
Purchase of land……………………………………
…
(50,000)
Net cash from investing activities…………… (60,000)
Cash flows from financing activities:
…
…
*
Beginning accumulated depreciation………………………
…
$200,000
Depreciation expense…………………………………………
…
80,000
Accumulated depreciation for asset sold…………………
…
(35,000)
Ending accumulated depreciation…………………………… $245,000
Brierwold Corporation
Statement of Cash Flows
CHAPTER 14 Statement of Cash Flows
P 14-53
Beginning Ending
Balance Debit Credit Balance
Assets:
Cash…………………………………
…
$ 100,000 (1) $ 50,000 $ 150,000
Accounts receivable……………
…
200,000 (2) $ 20,000 180,000
Liabilities and equity:
Accounts payable………………… $ 300,000 (8) 50,000 $ 250,000
Mortgage payable…………………
…
— (9) 110,000 110,000
Preferred stock……………………
…
100,000 (10) 100,000 —
Cash flows from operating activities:
Net loss……………………………
…
(12) 15,000
Depreciation expense……………
…
Gain on sale of equipment………
…
Decrease in accounts receivable
…
(2) 20,000
…
…
Cash flows from investing activities:
Sale of equipment………………… (5) 40,000
Purchase of equipment…………
…
(4) 50,000
Purchase of land…………………
…
(7) 50,000
Cash flows from financing activities:
Retirement of preferred stock…
…
(10) 110,000
Transaction
Worksheet: Brierwold Corporation
…
…
…
CHAPTER 14 Statement of Cash Flows
P14-53 (Concluded)
Cash flows from operating activities:
Net loss………………………………….……………
…
$ (15,000)
Add (deduct) adjusting items:
Decrease in accounts receivable…………………
…
20,000
Increase in inventory………………………………… (10,000)
Decrease in accounts payable……………………
…
(50,000)
Cash flows from investing activities:
Sale of equipment…………………………………….
.
$ 40,000
Purchase of equipment……………………………… (50,000)
Purchase of land………………………………………
…
(50,000)
Net cash from investing activities……………
…
(60,000)
Cash flows from financing activities:
Retirement of preferred stock……………………… $(110,000)
Issuance of common stock…………………………
…
100,000
Receipt of mortgage…………………………………
…
110,000
Brierwold Corporation
Statement of Cash Flows
For the Year Ended
…
CHAPTER 14 Statement of Cash Flows
P 14-54
Cash flows from operating activities:
Net income………………………………………………………………………
…
$ 17,500
Add (deduct) adjusting items:
Increase in accounts receivable………………………………………………
.
(10,000)
Increase in accounts payable…………………………………………………. 7,500
Decrease in inventory……………………………………………………..…… 16,000
P 14-55
1.
Cash flows from operating activities:
Net income……………………………………………
…
Add (deduct) adjusting items:
Decrease in accounts receivable…………………
…
Decrease in accounts payable……………………
…
Cash flows from investing activities:
Purchase of equipment……………………………
…
(10,000,000)
Cash flows from financing activities:
Payment of dividends………………………………
…
Issuance of bonds……………………………………
…
2. First, some assessment of Lemmons’s value is needed. The net worth of Lemmons
as of 20X2 is $640,000. What is the market value of these assets? The operating
10,000,000
$(10,000,000)
Golding Company
Statement of Cash Flows
For the Year Ended December 31, 20X2
$ 25,000,000
(5,000,000)
5,000,000
CHAPTER 14 Statement of Cash Flows
P 14-56
Cash flows from operating activities:
Net income………………………………………………
…
$ 68,000
Add (deduct) adjusting items:
Increase in accounts receivable……………………… (10,000)
Cash flows from investing activities:
Sale of equipment………………………………………
…
$ 2,000
Purchase of investments………………………………
…
(30,000)
Purchase of equipment**………………………………
…
(17,000)
Purchase of land………………………………………… (10,000)
Net cash from investing activities………………
…
(55,000)
Cash flows from financing activities:
Retirement of bonds……………………………………
…
$(60,000)
Receipt of mortgage……………………………………
…
50,000
…
Beginning accumulated depreciation………………
…
$ 30,000
Depreciation expense…………………………………
…
11,000
Less accumulated depreciation for asset sold……
…
(9,000)
Ending accumulated depreciation……………………
…
$ 32,000
…
…
Blalock Company
Statement of Cash Flows
For the Year Ended December 31, 20X2
…
…
CHAPTER 14 Statement of Cash Flows
P 14-57
Beginning Ending
Balance Debit Credit Balance
Assets:
Cash…………………………………… $150,000 (1) $35,000 $185,000
Accounts receivable………………
…
70,000 (2) 10,000 80,000
Liabilities and equity:
Accounts payable…………………… $ 40,000 (8) 10,000 $ 50,000
Bonds payable………………………
…
60,000 (9) 60,000 —
Mortgage payable…………………… — (10) 50,000 50,000
Preferred stock………………………
…
20,000 (11) 20,000 —
Common stock………………………
…
100,000 (12) 60,000 160,000
Retained earnings…………………
…
90,000 (13) 20,000 (14) 68,000 138,000
Total liabilities and equity……
…
$310,000 $398,000
Cash flows from operating activities:
…
…
…
Cash flows from investing activities:
Sale of equipment…………………… (5) 2,000
Purchase of equipment……………
…
(4) 17,000
Purchase of land……………………
…
(7) 10,000
Purchase of investments……… (3) 30,000
Cash flows from financing activities:
Retirement of bonds………………
…
(9) 60,000
Retirement of preferred stock……
…
(11) 20,000
…
…
Transaction
Worksheet: Blalock Company
For the Year Ended, December 31, 20X2
CHAPTER 14 Statement of Cash Flows
P14-57 (Continued)
Cash flows from operating activities:
Net income…………………………………………
…
$ 68,000
Add (deduct) adjusting items:
Increase in accounts receivable………………… (10,000)
Cash flows from investing activities:
Sale of equipment…………………………………
…
$ 2,000
Purchase of investments…………………………
…
(30,000)
Purchase of equipment…………………………… (17,000)
Purchase of land…………………………………… (10,000)
Net cash from investing activities…………
…
(55,000)
Cash flows from financing activities:
Retirement of bonds………………………………
…
$(60,000)
Receipt of mortgage………………………………
…
50,000
.
Blalock Company
For the Year Ended December 31, 20X2
Statement of Cash Flows
…
…
CHAPTER 14 Statement of Cash Flows
Case 14-58
1. a. Indirect method:
Net income………………………………………………………………………
…
$32,000
Add (deduct) adjusting items:
Increase in accounts receivable…………………………………………
.
(4,000)
Decrease in inventory……………………………………………………… 20,000
Increase in accounts payable…………………………………….……… 16,000
*
$48,000 – ($52,000 – $12,000) [The accumulated depreciation ($12,000) on the equipment sold
must be removed.]
b. Direct method:
Cash Flows
Revenues…………………………
…
$ (4,000) $ 316,000
Cost of goods sold……………… 20,000
a
Increase in Accounts Receivable
b
Decrease in Inventory
c
Increase in Accounts Payable
d
f
CASES
$ 320,000
(200,000)
Income
AdjustmentsStatement
a
b
c
CHAPTER 14 Statement of Cash Flows
Case 14-58 (Continued)
2.
Cash flows from operating activities:
Net income………………………………………………
…
$32,000
Add (deduct) adjusting items:
Increase in accounts receivable……………………
…
(4,000)
Decrease in inventory…………………………………
…
20,000
Increase in accounts payable………………………… 16,000
Decrease in wages payable…………………………… (1,600)
Cash flows from investing activities:
Sale of equipment………………………………………
…
6,000
Cash flows from financing activities:
Reduction in bonds payable…………………………
…
$ (8,000)
Payment of dividends…………………………………
…
(8,000)
…
Noncash investing and financing activities:
Acquisition of equipment by issuing
common stock…………………………………………
…
$32,000
*
Computation of cash flow change:
Piura Manufacturing
Statement of Cash Flows
For the Year Ended June 30, 20X2
…
…
CHAPTER 14 Statement of Cash Flows
Case 14-58 (Continued)
3.
Beginning Ending
Balance Debit Credit Balance
Assets:
Cash…………………………………… $ 72,000 (1) $74,400 $146,400
Accounts receivable………………
…
44,000 (2) 4,000 48,000
Inventory……………………………… 64,000 (3) $20,000 44,000
Liabilities and equity:
Accounts payable…………………… $ 32,000 (7) 16,000 $ 48,000
Wages payable………………………
…
4,000 (8) 1,600 2,400
Bonds payable………………………
…
24,000 (9) 8,000 16,000
Preferred stock (no par)……………
…
4,000 (10) 8,000 12,000
…
…
…
)
Cash flows from operating activities:
Net income …………………………
…
(13
)
32,000
Increase in accounts receivable…
…
(2) 4,000
Decrease in inventory……………… (3) 20,000
Increase in account payable………
…
(7) 16,000
Decrease in wages payable………
…
(8) 1,600
Depreciation expense………………
…
(6) 8,000
Loss on sale of equipment………
…
(5) 6,000
Cash flows from investing accounts:
Sale of equipment…………………
…
(5) 6,000
…
…
…
)
)
Transaction
Worksheet: Piura Manufacturing
For the Year Ended June 30, 20X2
CHAPTER 14 Statement of Cash Flows
Case 14-58 (Concluded)
Cash flows from operating activities:
Net income……………………………………..………
…
$32,000
Add (deduct) adjusting items:
Increase in accounts receivable……………………
…
(4,000)
Decrease in inventory………………………………… 20,000
Increase in accounts payable………………………
…
16,000
Cash flows from investing activities:
Sale of equipment…………………………………..…
…
6,000
Cash flows from financing activities:
Reduction in bonds payable………………………… $ (8,000)
Payment of dividends………………………………… (8,000)
Issuance of preferred stock…………………………
…
8,000
Net cash from financing activities……………
…
(8,000)
Net increase in cash…………………………….…………
…
$74,400
4. Although answers may vary, the group should mention that the direct method
provides much more information for investors (a detailed, line-by-line conversion
of the income statement plus the indirect method), allowing them to better assess
Piura Manufacturing
Statement of Cash Flows
For the Year Ended June 30, 20X2
…
CHAPTER 14 Statement of Cash Flows
Case 14-59
1. The intent of the owner is to acquire extra operating cash through an arrangement
that essentially provides a side payment by the contractor in order to acquire the
business. Since the cost of construction is fuzzy to begin with, the bank will not
likely know that the cost is out of line. Furthermore, it is very likely that the contractor
2. Delivering the large order early and reporting it as a cash sale and at the same time
writing off other receivables as collected and borrowing money on the side from
Bill (which would not appear on the balance sheet either) in order to improve the
reported cash position of the firm is fraudulent behavior. It is a misrepresentation
3. The standards that would be violated should Karla agree to Fred’s scheme:
Management accountants have a responsibility to: “Provide decision support
information and recommendations that are accurate, clear, concise, and timely” (I-3);
“Refrain from engaging in or supporting any activity that would discredit the
4. Should Fred insist on implementing the plan, then consultation with the board of
directors (if one exists) or owners is mandated. If this brings no resolution of the
ethical conflict, then resignation is in order. If resignation is the outcome, then