SOLUTION
Requirement 1
The purpose of the statement of cash flow is to report on the cash receipts and cash payments for a
Requirement 2
OFFICIAL RESERVE RARE COINS
Income Statement
Year Ended December 31, 2016
Revenue:
Sales (2,300 × $225)
$ 517,500
Expenses:
Cost of Goods Sold
Salaries and Wages Expense
Depreciation Expense ($54,000 / 5 years)
Rent Expense
Total Expenses
Net Income
P14-32A, cont.
Requirement 3
OFFICIAL RESERVE RARE COINS
Balance Sheet
December 31, 2016
Assets
$ 349,750
51,750
194,000
$ 595,500
$ 638,700
$ 106,000
$ 638,700
P14-32A, cont.
Requirement 4
OFFICIAL RESERVE RARE COINS
Statement of Cash Flows
Year Ended December 31, 2016
Cash Flows from Operating Activities:
Net Income
$ 67,700
Provided by Operating Activities:
Net Cash Used by Operating Activities
Cash Flows from Investing Activities:
Acquisition of Store Fixtures
(54,000)
Net Cash Used for Investing Activities
Cash Flows from Financing Activities:
Cash Receipt from Issuance of Common Stock
(35,000)
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash
Cash Balance, December 31, 2015
Cash Balance, December 31, 2016
Adjustments to Reconcile Net Income to Net Cash
P14-33A Preparing the statement of cash flows—indirect method
Learning Objective 2
Net Cash Used for Inv. Act. $(16,000)
Accountants for Smithson, Inc. have assembled the following data for the year ended December 31,
2016:
Prepare Smithson’s statement of cash flows using the indirect method. Include an accompanying
schedule of non-cash investing and financing activities.
SOLUTION
ACCOUNTANTS FOR SMITHSON, INC.
Statement of Cash Flows
Year Ended December 31, 2016
Cash Flows from Operating Activities:
Net Income
$ 69,500
Provided by Operating Activities:
$ 25,000
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Acquisition of Equipment for Cash
Cash Receipt from Sale of Building
Net Cash Used for Investing Activities
Cash Flows from Financing Activities:
Cash Receipt from Issuance of Common Stock
Cash Receipt from Issuance of Notes Payable
Cash Payment of Notes Payable
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash
Cash Balance, December 31, 2015
Cash Balance, December 31, 2016
$ 102,700
Non-cash Investing and Financing Activities:
Acquisition of Land by issuing Long-term Notes Payable
$ 118,000
Total Non-cash Investing and Financing Activities
$ 118,000
Adjustments to Reconcile Net Income to Net Cash
1. Net Cash Prov. by Op. Act. $132,700
The 2016 income statement and comparative balance sheet of McKnight, Inc. follow:
Additionally, McKnight purchased land of $27,800 by financing it 100% with long-term notes payable
during 2016. During the year, there were no sales of land, no retirements of stock, and no treasury stock
Requirements
1. Prepare the 2016 statement of cash flows, formatting operating activities by the indirect method.
2. How will what you learned in this problem help you evaluate an investment?
SOLUTION
Requirement 1
MCKNIGHT, INC.
Statement of Cash Flows
Year Ended December 31, 2016
Cash Flows from Operating Activities:
Net Income
$ 105,400
Provided by Operating Activities:
$ 14,200
(1,500)
11,900
4,600
27,300
Adjustments to Reconcile Net Income to Net Cash
Net Cash Provided by Operating Activities
132,700
Cash Flows from Investing Activities:
Acquisition of Plant Asset for Cash
(18,400)
Net Cash Used for Investing Activities
(18,400)
Cash Flows from Financing Activities:
Cash Receipt from Issuance of Common Stock
23,400
Cash Payment of Notes Payable
(60,800)
(65,600)
Net Cash Used for Financing Activities
Net Increase (Decrease) in Cash
11,300
Cash Balance, December 31, 2015
15,100
Cash Balance, December 31, 2016
$ 26,400
Non-cash Investing and Financing Activities:
Acquisition of Land by issuing Long-term Notes Payable
$ 27,800
Total Non-cash Investing and Financing Activities
$ 27,800
P14-34A
Requirement 1, cont.
Plant Assets
12/31/2015
110,310
Acquisitions
18,400
10,200
Disposed of
12/31/2016
118,510
12/31/2015
Depreciation Expense
Disposed of
12/31/2016
12/31/2015
Net Income
Dividend
65,600
42,100
12/31/2016
12/31/2015
Issuance
Payment
12/31/2016
Requirement 2
I will be able to evaluate an investment with this information because I can see the cash receipts and
P14-35A Preparing the statement of cash flows—indirect method, evaluating cash flows, and
measuring free cash flows
Learning Objectives 2, 3
1. Net Cash Used for Inv. Act. $(157,100)
The comparative balance sheet of Morston Educational Supply at December 31, 2016, reported the
following:
Morston’s transactions during 2016 included the following:
Requirements
1. Prepare the statement of cash flows of Morston Educational Supply for the year ended December 31,
2016. Use the indirect method to report cash flows from operating activities.
SOLUTION
Requirement 1
MORSTON’S EDUCATIONAL SUPPLY
Statement of Cash Flows
Year Ended December 31, 2016
Cash Flows from Operating Activities:
Net Income
$ 59,600
Provided by Operating Activities:
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Acquisition of Equipment for Cash
Acquisition of Building for Cash
Net Cash Used for Investing Activities
Cash Flows from Financing Activities:
Cash Receipt from Issuance of Common Stock
Cash Receipt from Issuance of Notes Payable
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash
Cash Balance, December 31, 2015
Cash Balance, December 31, 2016
Adjustments to Reconcile Net Income to Net Cash
Requirement 2
The company shows a strong cash flow. They are generating cash from their operations due primarily to
net income. They are investing in Building and Equipment for their business and are financing it using
the issuance of Common Stock and Notes Payable. The overall cash position increased over last year by
$63,900.
Requirement 3
Net Cash provided by Operating Activities
$ 80,200
= Free Cash Flow
P14A-36A Preparing the statement of cash flows—direct method
Learning Objective 4
Appendix 14A
2. Total Assets $1,177,800
3. Net Cash Prov. by Op. Act. $356,500
Frontier Rare Coins (FRC) was formed on January 1, 2016. Additional data for the year follow:
a. On January 1, 2016, FRC issued no par common stock for $500,000.
b. Early in January, FRC made the following cash payments:
1. For store fixtures, $51,000
2. For merchandise inventory, $300,000
3. For rent expense on the store building, $16,000
Requirements
1. Prepare FRC’s income statement for the year ended December 31, 2016. Use the single-step format,
with all revenues listed together and all expenses listed together.
2. Prepare FRC’s balance sheet at December 31, 2016.
3. Prepare FRC’s statement of cash flows for the year ended December 31, 2016. Format cash flows
from operating activities by the direct method.
SOLUTION
Requirement 1
FRONTIER RARE COINS
Income Statement
Year Ended December 31, 2016
Revenue:
Sales (2,900 × $350)
$ 1,015,000
Expenses:
Cost of Goods Sold
Salaries and Wages Expense
Depreciation Expense ($51,000 / 5 years)
Rent Expense
P14A-36A, cont.
Requirement 2
FRONTIER RARE COINS
Balance Sheet
December 31, 2016
Assets
$ 766,500
101,500
269,000
51,000
102,000
575,800
1,075,800
P14A-36A, cont.
Requirement 3
FRONTIER RARE COINS
Statement of Cash Flows
Year Ended December 31, 2016
Cash Flows from Operating Activities:
Receipts:
Collections from Customers (2,900 × $350 × 0.90)
Payments:
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Acquisition of Store Fixtures
Net Cash Used for Investing Activities
Cash Flows from Financing Activities:
Cash Receipt from Issuance of Common Stock
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash
Cash Balance, December 31, 2015
Cash Balance, December 31, 2016
P14A-37A Preparing the statement of cash flows—direct method
Learning Objective 4
Appendix 14A
1. Net Cash Prov. by Op. Act. $132,700
Collections from Cust. $439,500
Use the McKnight, Inc. data from Problem P14-34A.
Requirements
1. Prepare the 2016 statement of cash flows by the direct method.
2. How will what you learned in this problem help you evaluate an investment?
SOLUTION
Requirement 1
MCKNIGHT, INC.
Statement of Cash Flows
Year Ended December 31, 2016
Cash Flows from Operating Activities:
Receipts:
Collections from Customers
$ 439,500
Interest Received
8,800
$ 448,300
Payments:
To Suppliers
To Employees
For Interest
For Income Tax
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Acquisition of Plant Asset for Cash
Net Cash Used for Investing Activities
Cash Flows from Financing Activities:
Cash Receipt from Issuance of Common Stock
Cash Payment of Notes Payable
Net Cash Used for Financing Activities
Net Increase (Decrease) in Cash
11,300
Cash Balance, December 31, 2015
15,100
Cash Balance, December 31, 2016
$ 26,400
Non-cash Investing and Financing Activities:
Acquisition of Land by issuing Long-term Notes Payable
$ 27,800
Total Non-cash Investing and Financing Activities
$ 27,800
P14A-37A, cont.
Requirement 1, cont.
Sales Revenue
$ 441,000
+ Beginning Accounts Receivable
+ 25,200
− Ending Accounts Receivable
− 26,700
= Cash receipts from customers
$ 439,500
+Beginning Accounts Payable
Cash paid for merchandise inventory
+ Beginning Accrued Liabilities
+ 30,100
For Inventory
For Operating Expenses
P14A-37A, cont.
Requirement 1, cont.
Plant Assets
12/31/2015
110,310
Acquisitions
18,400
10,200
Disposed of
12/31/2016
118,510
12/31/2015
Depreciation Expense
Disposed of
12/31/2016
12/31/2015
Net Income
Dividend
65,600
42,100
12/31/2016
12/31/2015
Issuance
Payment
12/31/2016
Requirement 2
I will be able to evaluate an investment with this information because I can see the cash receipts and
P14B-38A Using a spreadsheet to prepare the statement of cash flows—indirect method
Learning Objective 5
Appendix 14B
Prepare the spreadsheet for the 2016 statement of cash flows. Format cash flows from operating
activities by the indirect method. A plant asset was disposed of for $0. The cost and accumulated
depreciation of the disposed asset was $12,200. There were no sales of land, no retirement of common
stock, and no treasury stock transactions. Assume plant asset and land acquisitions were for cash.
SOLUTION
ALLENTOWN GROUP, INC.
Statement of Cash Flows
Year Ended December 31, 2015
Balance
Transaction Analysis
Balance
Panel A – Balance Sheet:
12/31/2015
DEBIT
CREDIT
12/31/2016
Cash
$ 15,100
6,100
(m)
$ 9,000
Accounts Receivable
43,300
1,000
(c)
42,300
Merchandise Inventory
93,400
3,800
97,200
Plant Assets
Accumulated Depreciation—Plant Assets
12,000
37,600
$ 258,100
Accounts Payable
26,400
(e)
1,600
Accrued Liabilities
22,100
1,200
23,300
Notes Payable
67,000
54,000
Common Stock, no par
8,600
Retained Earnings
19,900
53,700
$ 258,100
$ 287,100