E14-19 Computing operating activities cash flow—indirect method
Learning Objective 2
Net Cash Prov. by Op. Act. $17,000
The records of Paramount Color Engraving reveal the following:
Compute cash flows from operating activities by the indirect method for year ended December 31, 2016.
SOLUTION
PARAMOUNT COLOR ENGRAVING
Statement of Cash Flows—Partial
Year Ended December 31, 2016
Cash Flows from Operating Activities:
Net Income
Net Cash Provided by Operating Activities
E14-20 Computing operating activities cash flow—indirect method
Learning Objective 2
Net Cash Prov. by Op. Act. $71,500
The accounting records of XYZ Sales, Inc. include the following accounts:
Compute XYZ’s net cash provided by (used for) operating activities during July 2016.
Use the indirect method.
SOLUTION
XYZ SALES, INC.
Statement of Cash Flows—Partial
For Month Ended July 31, 2016
Cash Flows from Operating Activities:
Net Income
Provided by Operating Activities:
(12,000)
Net Cash Provided by Operating Activities
E14-21 Preparing the statement of cash flows—indirect method
Learning Objective 2
Net Cash Prov. by Op. Act. $99,000
The income statement of Supplements Plus, Inc. follows:
Additional data follow:
a. Acquisition of plant assets is $121,000. Of this amount, $104,000 is paid in cash and $17,000 by
SOLUTION
SUPPLEMENTS PLUS, INC
Statement of Cash Flows
Year Ended September 30, 2016
Cash Flows from Operating Activities:
Net Income
$ 53,000
Provided by Operating Activities:
(6,000)
46,000
Net Cash Provided by Operating Activities
99,000
Cash Flows from Investing Activities:
Acquisition of Plant Asset
Net Cash Used for Investing Activities
Cash Flows from Financing Activities:
Cash Receipt from Issuance of Common Stock
Cash Payment of Notes Payable
(16,000)
(9,000)
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash
Cash Balance, September 30, 2015
Cash Balance, September 30, 2016
Non-cash Investing and Financing Activities:
Acquisition of Plant Assets with Notes Payable
Total Non-cash Investing and Financing Activities
E14-22 Computing cash flows for investing and financing activities
Learning Objective 2
2. Book Value on Plant Assets Sold $10,000
Consider the following facts for Vanilla Valley:
a. Beginning and ending Retained Earnings are $43,000 and $69,000, respectively. Net income for the
period is $58,000.
Requirements
1. How much are cash dividends?
2. What was the amount of the cash receipt from the sale of plant assets?
SOLUTION
Requirement 1
Retained Earnings (let Dividends = X)
Beginning
+
Net income
−
Dividends
=
Ending
$43,000
+
$58,000
−
X
=
$69,000
X
=
$32,000
Beginning
Net Income
Dividend
Ending
Requirement 2
Plant Assets (let X = Cost of Assets Sold)
Beginning
+
Acquisitions
−
Sold
=
Ending
$120,600
+
$27,000
−
X
=
$126,600
X
=
$ 21,000
Beginning
120,600
Acquisitions
Ending
126,600
Beginning
Depreciation Expense
Ending
Total Cash Receipt for Sale of Plant Assets
E14-23 Computing the cash effect
Learning Objective 2
2. Payment: $6,000
4. Dividends $32,000
Stenback Exercise Equipment, Inc. reported the following financial statements for 2016:
Requirements
1. Compute the amount of Stenback Exercise’s acquisition of plant assets. Assume the acquisition was
for cash. Stenback Exercise disposed of plant assets at book value. The cost and accumulated
depreciation of the disposed asset was $43,500. No cash was received upon disposal.
2. Compute new borrowing or payment of long-term notes payable, with Stenback Exercise having
only one long-term notes payable transaction during the year.
3. Compute the issuance of common stock with Stenback Exercise having only one common stock
transaction during the year.
4. Compute the payment of cash dividends.
SOLUTION
Requirement 1
12/31/2015
Acquisitions
Disposed of
12/31/2016
Accumulated Depreciation—Plant Assets
34,200
12/31/2015
51,000
Depreciation Expense
41,700
12/31/2016
Requirement 2
Notes Payable
65,000
12/31/2015
0
Issuance
Payment
6,000
59,000
12/31/2016
35,000
12/31/2015
Issuance
Retirement
42,000
12/31/2016
E14-23, cont.
Requirement 4
12/31/2015
Net Income
12/31/2016
Note: Exercise E14-23 must be completed before attempting Exercise E14-24.
E14-24 Preparing the statement of cash flows—indirect method
Learning Objective 2
Net Cash Prov. by Op. Act. $150,000
Use the Stenback Exercise Equipment data in Exercise E14-23. Prepare the company’s statement of cash
flows—indirect method—for the year ended December 31, 2016. Assume investments are purchased
with cash.
SOLUTION
STENBACK EXERCISE EQUIPMENT, INC.
Statement of Cash Flows
Year Ended December 31, 2016
Cash Flows from Operating Activities:
Net Income
$ 102,000
Provided by Operating Activities:
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Acquisition of Plant Asset
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
E14-25 Identifying and reporting non-cash transactions
Learning Objective 2
Total Non-cash Inv. and Fin. Act. $161,000
Motorcross, Inc. identified the following selected transactions that occurred during 2016:
a. Issued 850 shares of $5 par common stock for cash of $21,000.
b. Issued 5,600 shares of $5 par common stock for a building with a fair market value of $99,000.
c. Purchased new truck with a fair market value of $36,000. Financed it 100% with a long-term note.
d. Retired short-term notes of $26,000 by issuing 2,500 shares of $5 par common stock.
e. Paid long-term note of $8,500 to Bank of Tallahassee. Issued new long-term note of $17,000 to
Bank of Trust.
Identify any non-cash transactions that occurred during the year, and show how they would be reported
in the non-cash investing and financing activities section of the statement of cash flows.
SOLUTION
MOTOCROSS, INC.
Statement of Cash Flows – Partial
Year Ended December 31, 2016
Non-cash Investing and Financing Activities:
Acquisition of a Building by issuing Common Stock
Acquisition of a Truck by issuing a Long-Term Note
Retirement of Short-term Note by issuing Common Stock
Total Non-cash Investing and Financing Activities
E14-26 Analyzing free cash flow
Learning Objective 3
Use the Stenback Exercise Equipment data in Exercises E14-23 and E14-24. Stenback plans to purchase
a truck for $31,000 and a forklift for $120,000 next year. In addition, it plans to pay cash dividends of
$1,000. Assuming Stenback plans similar activity for 2017, what would be the amount of free cash
flow?
SOLUTION
Net Cash provided by Operating Activities
$ 150,000
= Free Cash Flow
E14A-27 Preparing operating activities cash flow—direct method
Learning Objective 4
Appendix 14A
The accounting records of Grand Auto Parts reveal the following:
Compute cash flows from operating activities using the direct method for the year ended December 31,
2016.
SOLUTION
GRAND AUTO PARTS
Statement of Cash Flows—Partial
Year Ended December 31, 2016
Cash Flows from Operating Activities:
Receipts:
Collections from Customers
Payments:
Net Cash Provided by Operating Activities
E14A-28 Preparing the statement of cash flows—direct method
Learning Objective 4
Appendix 14A
Net Cash Prov. by Op. Act. $77,000
The income statement and additional data of Rolling Hills Corporation follow:
a. Collections from customers are $14,000 more than sales.
b. Dividend revenue, interest expense, and income tax expense equal their cash amounts.
c. Payments to suppliers are the sum of cost of goods sold plus advertising expense.
d. Payments to employees are $1,500 more than salaries expense.
Prepare Rolling Hills Corporation’s statement of cash flows for the year ended June 30,
2016. Use the direct method.
SOLUTION
ROLLING HILLS CORPORATION
Statement of Cash Flows
Year Ended June 30, 2016
Cash Flows from Operating Activities:
Receipts:
Collections from Customers
Payments:
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Net Cash Used for Investing Activities
Cash Flows from Financing Activities:
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash
Cash Balance, June 30, 2015
Cash Balance, June 30, 2016
$ 24,000
E14A-29 Computing cash flow items—direct method
Learning Objective 4
Appendix 14A
1. Cash Receipts from Cust. $66,000
Consider the following facts:
a. Beginning and ending Accounts Receivable are $25,000 and $27,000, respectively. Credit sales for
Requirements
1. Compute cash collections from customers.
2. Compute cash payments for merchandise inventory.
SOLUTION
Requirement 1
Sales Revenue
$ 68,000
Cost of Goods Sold
+Ending Merchandise Inventory
E14A-30 Computing cash flow items—direct method
Learning Objective 4
Appendix 14A
2. Cash Paid for Merchandise Inventory $18,482
7. Dividends $213
Elite Mobile Homes reported the following in its financial statements for the year ended December 31,
2016:
Requirements
1. Compute the collections from customers.
SOLUTION
Requirement 1
Sales Revenue
$ 24,691
+ Beginning Accounts Receivable
= Cash receipts from customers
Requirement 2
Cost of Goods Sold
$ 18,015
+ Ending Merchandise Inventory
+ Beginning Accounts Payable
Cash paid for Merchandise Inventory
Requirement 3
Operating Expenses
$ 4,427
+ Beginning Accrued Liabilities
= Cash receipts from customers
E14A-30, cont.
Requirement 4
Property and Equipment, net
12/31/2015
3,457
Acquisitions
1,183
273
Depreciation
12/31/2016
4,367
Requirement 5
463
12/31/2015
Issuance
Payment
0
478
12/31/2016
Requirement 6
Common Stock
445
12/31/2015
230
Issuance
Retirement
0
675
12/31/2016
Requirement 7
12/31/2015
Net Income
Dividend
12/31/2016
E14B-31 Using a spreadsheet to prepare the statement of cash flows—indirect method
Learning Objective 5
Appendix 14B
Use the Supplements Plus, Inc. data in Exercise E14-21 to prepare the spreadsheet for the 2016
statement of cash flows. Format cash flows from operating activities by the indirect method.
SOLUTION
SUPPLEMENTS PLUS, INC.
Statement of Cash Flows
Year Ended September 30, 2016
Transaction Analysis
Panel A – Balance Sheet:
9/30/2015
DEBIT
CREDIT
9/30/2016
Cash
$ 12,000
(l)
26,000
$ 38,000
Accounts Receivable
60,000
16,000
(c)
44,000
Merchandise Inventory
86,000
91,000
Plant Assets
80,000
17,000
Accumulated Depreciation
25,000
26,000
75,000
Accounts Payable
15,000
16,000
31,000
Accrued Liabilities
26,000
20,000
Notes Payable
16,000
16,000
17,000
17,000
Common Stock, no par
37,000
Retained Earnings
53,000
E14B-31, cont.
Panel B – Statement of Cash Flows:
Cash Flows from Operating Activities:
Net Income
(a)
53,000
Depreciation Expense
(b)
25,000
Decrease in Accounts Receivable
(c)
16,000
Increase in Merchandise Inventory
(d)
Increase in Accounts Payable
(e)
16,000
Decrease in Accrued Liabilities
(f)
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Cash Receipt from Sale of Land
(h)
26,000
Cash Payment for Acquisition of Plant Assets
104,000
(g)
Net Cash Used for Investing Activities
Cash Flows from Financing Activities:
Cash Receipt from Issuance of Common Stock
(i)
30,000
Cash Payments of Notes Payable
16,000
(j)
Cash Payment of Dividends
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash
26,000
(l)
Non-cash Investing and Financing Activities:
17,000
(g)
Total Non-cash Investing and Financing Activities
(g)
17,000
Problems (Group A)
P14-32A Identifying the purpose and preparing the statement of cash flows— indirect method
Learning Objectives 1, 2
2. Net Income $67,700
4. Net Cash Used by Op. Act. $(61,250)
Official Reserve Rare Coins (ORRC) was formed on January 1, 2016. Additional data for the year
follow:
a. On January 1, 2016, ORRC issued no par common stock for $500,000.
b. Early in January, ORRC made the following cash payments:
1. For store fixtures, $54,000
2. For merchandise inventory, $270,000
3. For rent expense on a store building, $11,000
c. Later in the year, ORRC purchased merchandise inventory on account for $244,000. Before year-
end, ORRC paid $144,000 of this accounts payable.
Requirements
1. What is the purpose of the statement of cash flows?
2. Prepare ORRC’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.