EXERCISE 23.10 (25–35 minutes)
(a) The solution can be determined through the use of a T-account for
Property, Plant, and Equipment.
Property, Plant & Equipment
12/31/19
247,000
277,000
activity.
(b) The solution can be determined through the use of a T-account for
Accumulated Depreciation.
Accumulated Depreciation
167,000
12/31/19
178,000
EXERCISE 23.10 (Continued)
The proceeds from the sale of equipment of $37,500 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
12/31/19
Dividends Payable
5,000
12/31/19
18,000
Dividends declared
8,000
(d) The redemption of bonds payable amount is determined by setting
up a T-account.
Bonds Payable
46,000
12/31/19
20,000
Issuance of B/P for PP&E
49,000
EXERCISE 23.10 (Continued)
Redemption of bonds payable = $46,000 + $20,000 – $49,000
EXERCISE 23.11 (30–35 minutes)
PAT METHENY COMPANY
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2020
(Indirect Method)
Cash flows from operating activities
Net income
$ 810
Depreciation expense ($1,200 – $1,170)
Gain on sale of investments
Increase in accounts payable
Increase in accounts receivable
Decrease in accrued liabilities
(50)
50
Net cash provided by operating activities
Adjustments to reconcile net income to net cash
Cash flows from investing activities
Sale of investments
[($1,420 – $1,300) + $80]
200
Purchase of plant assets [($1,900 – $1,700) – $70]
(130)
Net cash provided by investing activities
70
Cash flows from financing activities
Issuance of capital stock [($1,900 – $1,700) – $70]
Redemption of bonds payable
(260)
Net cash used by financing activities
(280)
Net increase in cash
Cash, January 1, 2020
Cash, December 31, 2020
$1,800
Noncash investing and financing activities
Issuance of common stock for plant assets
$ 70
EXERCISE 23.12 (20–30 minutes)
PAT METHENY COMPANY
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2020
(Direct Method)
Cash flows from operating activities
Cash receipts from customers
$6,450*
Less: Cash paid for merchandise
$4,100**
Cash paid for income taxes
540
Net cash provided by operating activities
860
Cash flows from investing activities
Purchase of plant assets [($1,900 – $1,700) – $70]
(130)
Net cash provided by investing activities
Cash flows from financing activities
Issuance of capital stock [($1,900 – $1,700) – $70]
130
Redemption of bonds payable
(150)
Payment of cash dividends
(260)
Net cash used by financing activities
(280)
Cash, January 1, 2020
Noncash investing and financing activities
Issuance of common stock for plant assets
$ 70
*$1,300 + $6,900 – $1,750
***$250 + ($930 – $30) – $200
EXERCISE 23.13 (30–40 minutes)
BRECKER INC.
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2020
Cash flows from operating activities
Less: Cash received from customers
$327,150a
Cash payments to suppliers
Cash payments for operating expenses
Cash payments for interest
Cash payments for income taxes
Net cash provided by operating activities
Cash flows from investing activities
Sale of equipment [($20,000 X 30%) + $2,000]
8,000
Purchase of equipment
(44,000)
Purchase of investments
(17,000)
Net cash used by investing activities
(53,000)
Cash flows from financing activities
Principal payment on short-term loan
Principal payment on long-term loan
Dividend payments
Net cash used by financing activities
Net decrease in cash
Cash, January 1, 2020
Cash, December 31, 2020
aSales revenue
$338,150
– Increase in accounts receivable
(11,000)
Cash received from customers
$327,150
$175,000
– Increase in accounts payable
– Decrease in inventories
(20,000)
Cash payments to suppliers
EXERCISE 23.13 (Continued)
cOperating expenses
$120,000
+ Increase in prepaid rent
1,000
EXERCISE 23.14 (30–40 minutes)
BRECKER INC.
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2020
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 inventories
Increase in salaries and wages payable
Increase in accounts payable
Increase in prepaid rent
Increase in accounts receivable
Decrease in income taxes payable
Net cash provided by operating activities
Cash flows from investing activities
Sale of equipment [($20,000 X 30%) + $2,000]
8,000
Purchase of equipment
Purchase of investments
EXERCISE 23.14 (Continued)
Cash flows from financing activities
Principal payment on short-term loan
(2,000)
Principal payment on long-term loan
Dividend payments
Net cash used by financing activities
Net decrease in cash
Cash, January 1, 2020
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest
Income taxes
*$35,000 – [$25,000 – ($20,000 X 70%)]
EXERCISE 23.15 (25–35 minutes)
ALEE COMPANY
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2020
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
Loss on sale of plant assets
2,000
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 investments
EXERCISE 23.15 (Continued)
Cash flows from financing activities
Issuance of bonds payable
Payment of dividends
Net cash provided by financing activities
Cash balance, January 1, 2020
Cash balance, December 31, 2020
*Net income $57,000 – $9,000 – $2,000 = $46,000
** $43,000 – $34,000
***Supporting computation
(purchase of plant assets)
Plant assets, December 31, 2019
Less: Plant assets sold
Plant assets, December 31, 2020
EXERCISE 23.16 (30–40 minutes)
(a) Computation of net cash provided by operating activities:
Net income ($8,000 + $10,000) – $5,000
$13,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense
Loss on sale of equipment
($6,000 – $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) JOBIM INC.
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2020
Cash flows from operating activities
Net income
$35,250
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense
Gain on sale of investments
Net cash provided by operating activities
Cash flows from investing activities
Sale of investments
Net cash provided by investing activities
Cash flows from financing activities
Payment of dividends
Redemption of bonds payable
(15,000)
EXERCISE 23.17 (Continued)
Net increase in cash
Cash, January 1, 2020
Noncash investing and financing activities
(b) JOBIM INC.
BALANCE SHEET
December 31, 2020
Assets
Equities
Cash
$ 44,750
Current liabilities
$ 15,000
Current assets
Long-term notes
other than cash
payable
Investments
Bonds payable
Plant assets (net)
Common stock
Land
71,500
Retained earnings
50,375
EXERCISE 23.18 (25–30 minutes)
ANITA BAKER COMPANY
Statement of Cash Flows (partial)
For the Year Ended December 31, 2020
Cash flows from operating activities
Net income
$ 40,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense
$16,800
EXERCISE 23.18 (Continued)
Cash flows from investing activities
Purchase of equipment
(62,000)
[($56,000 – $25,200) – $5,800]
Major repairs on equipment
(21,000)
Net cash used by investing activities
(106,000)
Payment of cash dividends
Cash, January 1, 2020
Cash, December 31, 2020
EXERCISE 23.19 (20–25 minutes)
Retained Earnings …………………………………………………..
15,000
Financing—Cash Dividends …………………………….
15,000
Operating—Net Income ……………………………………………
40,000
Retained Earnings …………………………………………..
40,000
16,800
Accumulated Depreciation—Equipment …………..
16,800
Equipment ………………………………………………………………
Investing—Purchase of Equipment ………………….
62,000
Investing—Construction of Equipment …………….
48,000
Accumulated Depreciation—Equipment ……………………
21,000
Investing—Major Repairs to Equipment ……………
21,000
Accumulated Depreciation—Equipment ……………………
25,200
25,000
EXERCISE 23.20 (20–25 minutes)
1.
Bonds Payable ………………………………………………
300,000
Common Stock ………………………………………
300,000
(Noncash financing activity)
2.
Operating—Net Income ………………………………….
410,000
Retained Earnings ………………………………….
410,000
3.
Accumulated Depreciation—Building ……..
4.
Accumulated Depreciation—Equipment ………….
Equipment …………………………..………………………..
Investing—Purchase of Equipment …………
5.
Retained Earnings ………………………………………….
123,000
Dividend Payable …………………………………..
123,000
EXERCISE 23.21 (45–55 minutes)
STEVIE WONDER CORPORATION
WORKSHEET FOR PREPARATION OF STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2020
Balance
at
12/31/19
2020
Reconciling Items
Balance
at
12/31/20
Debits
Debit
Credit
Cash
$ 21,000
(17)
$ 4,500
$ 16,500
Short-term
investments
19,000
(2)
$ 6,000
25,000
Accounts receivable
45,000
(3)
43,000
Prepaid expenses
2,500
(4)
4,200
Inventory
65,000
(5)
81,500
Land
50,000
50,000
Buildings
(10)
Equipment
46,000
(11)
7,000
53,000
Equipment (Delivery)
39,000
39,000
Credits
Accounts payable
$ 16,000
(6)
$10,000
$ 26,000
Notes
Payable
6,000
(7)
$ 2,000
4,000
Accrued liabilities
4,600
(8)
1,600
3,000
Allowance for doubtful
Accounts
2,000
(3)
200
1,800
Accum. depr.—bldg.
23,000
(13)
30,000
Accum. depr.—equip.
15,500
(13)
19,000
Accum. depr.
(13)
Mortgage payable
53,400
(14)
73,000
Bonds payable
62,500
(16)
50,000
Common stock
(15)
Retained earnings
(9)
(1)
EXERCISE 23.21 (Continued)
Statement of Cash Flows Effects
Operating activities
Net income
(1)
36,900
Depreciation expense
(13)
12,000
Dec. in accounts
receivable (net)
(3)
Inc. in prepaid expenses
(4)
1,700
Inc. in inventory
(5)
16,500
Inc. in accounts payable
(6)
10,000
Dec. in notes payable
(7)
2,000
Dec. in accrued payables
(8)
1,600
Investing activities
Purchase of investments
(2)
6,000
Purchase of building
(10)
51,500
Purchase of equipment
(11)
7,000
Purchase of patents
(12)
15,000
Financing activities
Payment of cash dividends
(9)
15,000
Issuance of mortgage payable
(14)
19,600
Sale of stock
(15)
44,000
Redemption 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
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 50–65 minutes)
Problem 23.6 (Time 40–50 minutes)
Purpose—to develop an understanding of the procedures involved in the preparation of a statement of
Problem 23.7 (Time 30–40 minutes)
Problem 23.8 (Time 30–40 minutes)
Purpose—to develop an understanding of both the direct and indirect method. The student is first asked
Problem 23.9 (Time 30–40 minutes)
Purpose—to develop an understanding of the indirect method. In the second part, the student is asked
SOLUTIONS TO PROBLEMS
PROBLEM 23.1
SULLIVAN CORP.
Statement of Cash Flows
For the Year Ended December 31, 2020
Cash flows from operating activities
Net income …………………………………………….
$370,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation ……………………………………
(a)
Gain on sale of equipment ……………….
(b)
Equity in earnings of Myers Co. ……….
(c)
Decrease in accounts receivable ………
Increase in inventory ……………………….
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 payment of loan receivable ……….
50,000
Net cash used by investing activities ………
(210,000)
Cash flows from financing activities:
Dividends paid ……………………………………….
Net cash used by financing activities ………
Net increase in cash ……………………………………….
Cash, January 1, 2020 …………………………………….
PROBLEM 23.1 (Continued)
Schedule at bottom of statement of cash flows:
Noncash investing and financing activities:
Explanation of Amounts
(a) Depreciation
Net increase in accumulated
depreciation for the year ended
December 31, 2020 ……………………………..
$125,000
Accumulated depreciation on equipment sold:
Cost ……………………………………………………….
Carrying value …………………………..……………
22,000
Depreciation for 2020 ……………………………………..
(b) Gain on sale of equipment
Proceeds ………………………………………………..
$ 40,000
Carrying value …………………………..……………
(38,000)
Gain …………………………………………………..
$ 2,000
(c) Equity in earnings of Myers Co.
Myers’s net income for 2020 ……………………
Sullivan’s ownership ……………………………….
Undistributed earnings of Myers Co ….
$ 35,000
PROBLEM 23.2
HINCKLEY CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2020
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 ……………….
$ 4,100
(b)
Gain from flood damage …………………..
*
Depreciation expense ………………………
1,900
(c)
Patent amortization ………………………….
1,250
Gain on sale of investments ……………..
Increase in accounts receivable (net) ..
Increase in inventory ………………………..
Increase in accounts payable ……………
2,000
(7,450)
Net cash provided by operating activities …
Cash flows from investing activities
Sale of investments …………………………..…….
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 ……………………………..
Payment of short-term note payable ………..
Net cash used by financing activities ……….
(6,000)
Increase in cash …………………………………………….
20,500
Cash, January 1, 2020 …………………………………….
PROBLEM 23.2 (Continued)
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest
Income taxes:
Noncash investing and financing activities
Retired notes payable by issuing common stock
Purchased equipment by issuing notes payable
$26,000
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 ….
Decrease in accumulated depreciation …………….
Depreciation expense ……………………………………..
$ 1,900
(d) Beginning equipment balance …………………………
$20,000
Cost of equipment sold …………………………………..
(11,000)
Remaining balance …………………………………………
9,000
Purchase of equipment with note …………………….
16,000
Adjusted balance ……………………………………………
25,000
Ending equipment balance ………………………………
(45,000)
Purchased with cash……………………………………….