EXERCISE 23.10 (25–35 minutes)
a. The solution can be determined through use of a T-account for
property, plant, and equipment.
Property, Plant & Equipment
12/31/18
247,000
45,000
Equipment sold
Equipment from exchange of B/P
25,000
12/31/19
277,000
b. The solution can be determined through use of a T-account for accu-
mulated depreciation.
Accumulated Depreciation
167,000
12/31/18
Depreciation expense
Equipment sold
12/31/19
EXERCISE 23.10 (Continued)
The proceeds from the sale of equipment of $32,500 are considered
an investing activity. Investing activities include the acquisition and
disposition of long-term productive assets.
c. The cash dividends paid can be determined by analyzing T-accounts
for Retained Earnings and Dividends Payable.
Retained Earnings
91,000
12/31/18
Dividends declared
31,000
Net income
12/31/19
Dividends Payable
5,000
12/31/18
18,000
Dividends declared
Cash dividends paid
?
8,000
12/31/19
d. The redemption of bonds payable amount is determined by setting up
a T-account.
Bonds Payable
46,000
12/31/18
25,000
Issuance of B/P for PP&E
Redemption of B/P
49,000
12/31/19
EXERCISE 23.10 (Continued)
Redemption of bonds payable = $46,000 + $25,000 – $49,000
= $22,000
EXERCISE 23.11 (30–35 minutes)
FAIRCHILD SA
Statement of Cash Flows
For the Year Ended December 31, 2019
(Indirect Method)
Cash flows from operating activities
Net income ……………………………………………………………
€ 810
Depreciation expense (€1,200 – €1,170) ……………
Gain on sale of investments …………………………….
Decrease in inventory (€1,900 – €1,600) …………….
Increase in accounts payable (€1,200 – €800) ……
Increase in receivables (€1,750 – €1,300) …………..
Decrease in accrued liabilities (€200 – €250) ……..
150
Net cash provided by operating activities ………………..
Adjustments to reconcile net income to net cash
Cash flows from investing activities
Net cash provided by investing activities ………………..
Cash flows from financing activities
Retirement of bonds payable (€1,400 – €1,650) ………….
Payment of cash dividends ……………………………………..
Net cash used by financing activities ……………………….
(380)
Sale of held for collection investments
Net increase in cash ………………………………………………………..
700
Cash, January 1, 2019 ……………………………………………………..
1,100
Cash, December 31, 2019…………………………………………………
€1,800
Non-cash investing and financing activities*
Issuance of ordinary shares for plant assets …………….
€ 70
EXERCISE 23.12 (20–30 minutes)
FAIRCHILD SA
Statement of Cash Flows
For the Year Ended December 31, 2019
(Direct Method)
Cash flows from operating activities
Cash collections from customers …………………………
€6,450a
Less: Cash paid for merchandise ………………………..
€4,000b
Cash paid for income taxes………………………..
Net cash provided by operating activities …………….
Cash flows from investing activities
Net cash provided by investing activities ……………..
Cash flows from financing activities
Issuance of ordinary shares
[(€1,900 – €1,700) – €70] …………………………………..
130
Retirement of bonds payable ……………………………….
Payment of cash dividends ………………………………….
Net cash used by financing activities …………………..
Net increase in cash ……………………………………………………..
Cash, January 1, 2019 …………………………………………………..
Non-cash investing and financing activities
Issuance of ordinary shares for plant assets ………..
€ 70d
a€6,900 – (€1,750 – €1,300)
EXERCISE 23.13 (30–40 minutes)
ANDREWS AG
Statement of Cash Flows
For the Year Ended December 31, 2019
Cash flows from operating activities
Less: Cash received from customers ……………
€325,150a
Cash paid to suppliers ………………………………….
Cash paid for operating expenses …………………
Cash paid for interest …………………………………..
Cash paid for income taxes …………………………..
Net cash provided by operating activities ………
Cash flows from investing activities
Purchase of trading investments
Net cash used by investing activities …………….
Sale of equipment
Cash flows from financing activities
Dividend payments ………………………………………
Net cash used by financing activities …………….
Principal payment on short-term loan
Net decrease in cash ……………………………………………..
(3,000)
Cash, January 1, 2019 ……………………………………………
9,000
Cash, December 31, 2019……………………………………….
€ 6,000
aSales Revenue ……………………………………………………..
€338,150
Increase in accounts receivable (€62,000 – €49,000) …
Cash received from customers ………………………………
€175,000
Increase in accounts payable (€46,000 – €42,000) …….
Decrease in inventory (€40,000 – €60,000) ……………….
Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only) 23–27
EXERCISE 23.13 (Continued)
cOperating expenses ………………………………………………
€120,000
Increase in prepaid rent (€5,000 – €4,000) …………………
1,000
Depreciation expense
EXERCISE 23.14 (30–40 minutes)
ANDREWS AG
Statement of Cash Flows
For the Year Ended December 31, 2019
Cash flows from operating activities
Net income ………………………………………………………
€27,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense ………………………………..
Amortization of copyright ………………………….
Gain on sale of equipment …………………………
Decrease in inventory ………………………………..
Increase in wages payable …………………………
Increase in accounts payable …………………….
Increase in prepaid rent ……………………………..
Increase in accounts receivable …………………
Decrease in income taxes payable ……………..
Cash flows from investing activities
Sale of equipment [(€30,000 X 30%) + €2,000] …….
11,000
Purchase of trading investments……………………….
Net cash used by investing activities …………………
Purchase of equipment
Amortization of copyright (€46,000 – €50,000) …………..
Increase in salaries and wages payable
Decrease in income taxes payable (€4,000 – €6,000) …
EXERCISE 23.14 (Continued)
Cash flows from financing activities
Principal payment on short-term loan ……………….
(2,000)
Principal payment on long-term loan …………………
(7,000)
Dividend payments ………………………………………….
(6,000)
Net cash used by financing activities ………………..
Net decrease in cash ………………………………………………..
Cash, January 1, 2019 ………………………………………………
Note to instructor: Supplemental disclosures of cash flow information is a
follows:
Cash paid during the year for:
Interest
€11,400
Income taxes
EXERCISE 23.15 (25–35 minutes)
DURAND SpA
Statement of Cash Flows
For the Year Ended December 31, 2019
Cash flows from operating activities
Net income ……………………………………………………..
€ 46,000*
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense …………………………………
Loss on sale of investments ……………………….
Increase in current assets other than cash ……
Increase in current liabilities ……………………….
Net cash provided by operating activities ………….
Cash flows from investing activities
Sale of plant assets …………………………………………
8,000
Sale of held-for-collection investments …………….
Purchase of plant assets ………………………………….
EXERCISE 23.15 (Continued)
Cash flows from financing activities
Issuance of bonds payable………………………………..
75,000
Payment of dividends ……………………………………….
(10,000)
Net cash provided by financing activities …………..
65,000
Net increase in cash ………………………………………………….
5,000
Cash balance, January 1, 2019 ………………………………….
Cash balance, December 31, 2019 …………………………....
**Supporting computation
(purchase of plant assets)
Plant assets, December 31, 2018 ………………………
Less: Plant assets sold ……………………………………
Plant assets, December 31, 2019 ………………………
LO: 2, Bloom: AP, Difficulty: Moderate, Time: 25-35, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
EXERCISE 23.16 (30–40 minutes)
(a) Computation of net cash provided by operating activities (amounts
in 000):
Net income (¥8,000 + ¥9,000) – ¥5,000 ……………….
¥12,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense ………………………………
¥17,000*
Loss on sale of equipment
(¥6,000 – ¥3,000) …………………………………..
3,000
Decrease in prepaid expenses
Net cash provided by operating activities ………….
EXERCISE 23.16 (Continued)
(b)
Computation of net cash provided (used) by investing activities:
Sale of equipment ………………………………………………
Net cash used by investing activities …………………..
(c)
Computation of net cash provided (used) by financing activities:
Cash dividends paid …………………………………………..
Payment of notes payable …………………………………..
Issuance of bonds payable ………………………………….
Net cash used by financing activities …………………..
EXERCISE 23.17 (30–40 minutes)
(a) OCHOA GROUP
Statement of Cash Flows
For the Year Ended December 31, 2019 (¥ in 000)
Cash flows from operating activities
Net income ………………………………………………………
¥30,250
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense ……………………………….
Gain on sale of investment ………………………..
Net cash provided by operating activities ………….
Cash flows from investing activities
Purchase of land ……………………………………………..
(11,000)
Sale of non-trading equity investments ……………..
12,875
Net cash provided by investing activities…………..
1,875
Cash flows from financing activities
Payment of dividends ………………………………………
Retirement of bonds payable …………………………...
Issuance of ordinary shares ……………………………..
10,000
Net cash used by financing activities ………………..
EXERCISE 23.17 (Continued)
Net increase in cash …………………………………………………
24,250
Cash, January 1, 2019 ………………………………………………
Cash, December 31, 2019 …………………………………………
¥32,750
Non-cash investing and financing activities*
Issuance of bonds for land ……………………………….
¥22,500
*This information is presented in the notes to the
financial statements.
(b) OCHOA GROUP
Statement of Financial Position
December 31, 2019
Assets
Equities
Investments
¥ 9,125
a
Share capital—ordinary
¥ 85,000
Land
73,500
*
Retained earnings
45,375
**
Plant assets (net)
Long-term notes
Current assets
payable
other than cash
Bonds payable
Cash
32,750
Current liabilities
¥198,375
*¥40,000 + ¥11,000 + ¥22,500
***¥25,000 – ¥20,000 + ¥22,500
EXERCISE 23.18 (25–30 minutes)
POPOVICH SA
Statement of Cash Flows (partial)
For the Year Ended December 31, 2019
Cash flows from operating activities
Net income ………………………………………………………
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense ………………………………..
EXERCISE 23.18 (Continued)
Cash flows from investing activities
Purchase of equipment …………………………………….
(62,000)
Sale of equipment
[(€66,000 – €25,200) – €5,800] ………………………..
Major repairs on equipment………………………………
(21,000)
Cost of equipment constructed …………………………
Net cash used by investing activities ………………..
Cash flows from financing activities
Payment of cash dividends ………………………………
Decrease in cash ……………………………………………………..
(38,400)
Cash, January 1, 2019 ………………………………………………
Cash, December 31, 2019………………………………………….
EXERCISE 23.19 (20–25 minutes)
Retained Earnings ……………………………………………………
15,000
Financing—Cash Dividends ……………………………..
15,000
Retained Earnings ……………………………………………
50,000
16,800
Accumulated Depreciation—Equipment ……………
16,800
Equipment ……………………………………………………………….
131,000
Investing—Major Repairs to Equipment …………….
21,000
Investing—Purchase of Equipment …………………..
62,000
Investing—Construction of Equipment ……………..
48,000
Accumulated Depreciation—Equipment …………………….
35,000
Equipment ……………………………………………………….
66,000
EXERCISE 23.20 (20–25 minutes)
1.
Bonds Payable ………………………………………………..
300,000
Share Capital—Ordinary …………………………..
300,000
(Non-cash financing activity)
2.
360,000
Retained Earnings ……………………………………
3.
Accumulated Depreciation—Buildings ……..
4.
Accumulated Depreciation—Equipment ……………
30,000
Equipment ………………………………………………………
5,000
Investing—Purchase of Equipment …………..
5.
Retained Earnings ……………………………………………
123,000
Cash Dividend Payable …………………………….
123,000
EXERCISE 23.21 (45–55 minutes)
LOWENSTEIN CORPORATION
Worksheet for Preparation of Statement of Cash Flows
For the Year Ended December 31, 2019
Balance
at
12/31/18
2019
Reconciling Items
Balance
at
12/31/19
Debits
Debit
Credit
Cash
$ 24,000
(17)
$ 7,500
$ 16,500
Equity investments
19,000
(2)
$ 6,000
25,000
Accounts receivable
45,000
(3)
43,000
Prepaid expenses
2,500
(4)
4,200
Inventory
57,000
(5)
81,500
Land
50,000
50,000
Buildings
78,500
(10)
46,500
125,000
Equipment
46,000
(11)
53,000
Delivery equipment
39,000
39,000
Patents
(12)
15,000
15,000
Credits
Accounts payable
$ 16,000
(6)
$10,000
$ 26,000
Short-term notes
payable (trade)
6,000
(7)
$ 2,000
4,000
Accrued payables
4,600
(8)
3,000
Allowance for doubtful
accounts
2,000
(3)
1,800
Accum. depr.—bldg.
23,000
(13)
30,000
Accum. depr.—equip.
15,500
(13)
19,000
Accum. depr.—del.
equip.
20,500
(13)
22,000
Mortgage payable
53,400
(14)
19,600
73,000
Bonds payable
62,500
(16)
12,500
50,000
Share capital—ordinary
102,000
(15)
38,000
140,000
Retained earnings
51,500
(9)
10,000
(1)
31,900
73,400
EXERCISE 23.21 (Continued)
Statement of Cash Flows Effects
Operating activities
Net income
(1)
31,900
Depreciation
(13)
12,000
Dec. in accounts
receivable (net)
(3)
Inc. in prepaid expenses
(4)
Inc. in inventory
(5)
24,500
Inc. in accounts payable
(6)
10,000
Dec. in notes payable
(7)
Dec. in accrued payables
(8)
1,600
Investing activities
Purchase of trading equity investments
(2)
6,000
Purchase of building
(10)
46,500
Purchase of equipment
(11)
Purchase of patents
(12)
15,000
Financing activities
Payment of cash dividends
(9)
10,000
Issuance of mortgage payable
(14)
19,600
Sale of ordinary shares
(15)
44,000
Retirement of bonds
(16)
Totals
Decrease in cash
(17)
TIME AND PURPOSE OF PROBLEMS
Problem 23.1 (Time 40–45 minutes)
Purpose—to develop an understanding of the procedures involved in the preparation of a statement of
cash flows. The student is required to prepare the statement using the indirect method.
Problem 23.2 (Time 50–60 minutes)
Purpose—to develop an understanding of the procedures involved in the preparation of a statement of
Problem 23.3 (Time 50–60 minutes)
Problem 23.4 (Time 45–60 minutes)
Purpose—to develop an understanding of the procedures involved in the preparation of a statement of
Problem 23.5 (Time 40–50 minutes)
Purpose—to develop an understanding of the procedures involved in the preparation of a statement of
Problem 23.6 (Time 30–40 minutes)
Purpose—Using comparative financial statement data, the student is required to prepare the statement
Problem 23.7 (Time 30–40 minutes)
Purpose—to develop an understanding of both the direct and indirect method. The student is first asked
Problem 23.8 (Time 30–40 minutes)
Purpose—to develop an understanding of the indirect method. In the second part, the student is asked
PROBLEM 23.1
SULLIVAN CORP.
Statement of Cash Flows
For the Year Ended December 31, 2019
Cash flows from operating activities
Net income …………………………………………….
$370,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation ……………………………………
$147,000
(a)
Gain on sale of equipment ……………….
(b)
Equity in earnings of Myers Co. ……….
(c)
Decrease in accounts receivable ………
Increase in inventories …………………….
Increase in accounts payable …………..
Decrease in income taxes payable ……
(20,000)
Net cash provided by operating
activities …………………………..….
Cash flows from investing activities:
Proceeds from sale of equipment ……………
40,000
Loan to TLC Co. ……………………………………..
(300,000)
Principal repayment of loan receivable ……
50,000
Net cash used by investing
activities …………………………..….
(210,000)
Cash flows from financing activities:
Dividends paid ……………………………………….
(100,000)
Net cash used by financing
activities …………………………..….
(100,000)
Net increase in cash ……………………………………….
Cash, January 1, 2019 …………………………………….
PROBLEM 23.1 (Continued)
Separate schedule presented in the notes:
Non-cash investing and financing activities:
Issuance of lease liability for building …………….
$400,000
Explanation of Amounts
(a) Depreciation
Net increase in accumulated
depreciation for the year ended
December 31, 2019 ……………………………..
$125,000
Accumulated depreciation on equipment sold:
Cost …………………………..…………………………..
$60,000
Carrying value ………………………………………..
22,000
Depreciation for 2019 …………………………..…………
(b) Gain on sale of equipment
Proceeds ………………………………………………..
$ 40,000
Carrying value ………………………………………..
(38,000)
Gain on sale of equipment ………………….
$ 2,000
(c) Equity in earnings of Myers Co.
Myers’s net income for 2019 ……………………
Sullivan’s ownership ……………………………….
Undistributed earnings of Myers Co. …
$ 35,000
PROBLEM 23.2
HINCKLEY SA
Statement of Cash Flows
For the Year Ended December 31, 2019
Cash flows from operating activities
Net income …………………………..…………………
€14,750 (a)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Loss on sale of equipment ……………….
(b)
Gain from flood damage …………………..
*
Depreciation expense ………………………
1,900
(c)
Patent amortization (€6,250 – €5,000) …
Gain on sale of investments ……………..
Increase in accounts receivable (net) ..
Net cash provided by operating activities …
Cash flows from investing activities
Sale of investments (€3,000 + €1,700) ……….
4,700
Sale of equipment …………………………………..
2,500
Purchase of equipment …………………………...
(20,000)
(d)
Proceeds from flood damage to building ….
32,000
Net cash provided by investing activities …
19,200
Cash flows from financing activities
Payment of dividends ……………………………..
Net cash used by financing activities ……….
(6,000)
Increase in cash …………………………………………….
20,500
Cash, January 1, 2019 …………………………………….
PROBLEM 23.2 (Continued)
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest
Income taxes:
Non-cash investing and financing activities*
Retired notes payable by issuing ordinary shares
€10,000
Purchased equipment by issuing notes payable
16,000
€26,000
*Presented in the notes to the financial statements.
Supporting Computations:
(a) Ending retained earnings ………………………………..
€20,750
Beginning retained earnings …………………………...
(6,000)
Net income ……………………………………………………..
€14,750
(b) Cost ……………………………………………………………….
€11,000
Accumulated depreciation (40% X €11,000) ………
(4,400)
Book value ……………………………………………………..
Proceeds from sale …………………………………………
Loss on sale …………………………………………………..
€ 4,100
(c) Accumulated depreciation on equipment sold ….
€ 4,400
Decrease in accumulated depreciation …………….
(2,500)
Depreciation expense ……………………………………..
€ 1,900
(d) Beginning equipment balance …………………………
€20,000
Cost of equipment sold …………………………………..
Remaining balance …………………………………………
Purchase of equipment with note …………………….
Adjusted balance ……………………………………………
Ending equipment balance ………………………………
Equipment Purchased with cash ……………………..