Problem 21–11
ARDUOUS COMPANY
Spreadsheet for the Statement of Cash Flows
Dec.31 Changes Dec. 31
2015 Debits Credits 2016
Balance Sheet
Assets:
Cash 81 (21) 35 116
Accounts receivable 194 (1) 4 190
Liabilities:
Accounts payable 65 (4) 15 50
Salaries payable 11 (5) 5 6
Bond interest payable 4 (9) 4 8
Shareholders’ Equity:
Common stock 410 (17) 20 430
Paid-in capital—ex. of par 85 (17) 10 95
21–82 Intermediate Accounting, 8/e
Problem 21–11 (continued)
Spreadsheet for the Statement of Cash Flows
(continued)
Dec.31 Changes Dec. 31
2015 Debits Credits 2016
Statement of Income
Revenues:
Sales revenue (1) 410 410
Expenses:
Cost of goods sold (4) 180 (180)
Salaries expense (5) 73 (73)
Net income (12) 67 67
X Noncash investing and financing activity.
Problem 21–11 (continued)
Spreadsheet for the Statement of Cash Flows
(continued)
Dec.31 Changes Dec. 31
2015 Debits Credits 2016
Statement of Cash Flows
Operating activities:
Cash inflows:
From customers (1) 414
From investment revenue (2) 3
Net cash flows 82
Investing activities:
Sale of machine components (11) 17
Net cash flows (31)
Financing activities:
Retirement of bonds payable (16) 60
Sale of preferred stock (18) 75
Net increase in cash (21) 35 35
Totals 1,313 1,313
Problem 21–11 (concluded)
ARDUOUS COMPANY
Statement of Cash Flows
For year ended December 31, 2016 ($ in millions)
Cash flows from operating activities:
Cash inflows:
From customers $414
From investment revenue 3
Cash flows from investing activities:
Sale of machine components 17
Purchase of long-term investment (25)
Purchase of land (23)
Net cash flows from investing activities (31)
Cash flows from financing activities:
Retirement of bonds payable (60)
Sale of preferred stock 75
Noncash investing and financing activities:
Acquired $82 million building by 15-year lease.
Problem 21–12
Requirement 1
Retirement of common shares ($ in millions)
Common stock (5 million shares x $1 par per share) …………………………. 5
Paid-in capital—excess of par ($22 – 5 – 2) ……………………………. 15
Net income closed to retained earnings
Income summary …………………………………………………………………………………. 88
Retained earnings (given) ……………………………………………….. 88
Declaration of a cash dividend
Retained earnings (given) …………………………………………………… 33
Declaration of a stock dividend
Retained earnings (given) …………………………………………………… 20
21–86 Intermediate Accounting, 8/e
Problem 21–12 (concluded)
Requirement 2
BRENNER-JUDE CORPORATION
Statement of Retained Earnings
FOR THE YEAR ENDED DECEMBER 31, 2016
($ in millions)
Balance at January 1 $ 90
Deductions:
Retirement of common stock (2)
Problem 21–13
Amount Category
1. Cash collections from customers (direct method). $145,0001 O
2. Payments for purchase of property, plant, and
1 Summary Entry
Cash (received from customers) 145,000
Accounts receivable ($34,000 – 24,000) 10,000
Sales revenue (given) 155,000
2Property, Plant, & Equipment
________________________________________________________________
Beginning balance 247
3 Summary Entry
Cash (sale of equipment) 31,000
Accumulated depreciation (determined below) 22,000
P, P, & E (given) 40,000
Gain on sale of equipment (given) 13,000
Accumulated Depreciation
21–88 Intermediate Accounting, 8/e
Problem 21–13 (concluded)
4 Summary Entry
Retained earnings (determined below) 15,000
Retained Earnings
_______________________________________________________________
91 Beginning balance
5 Summary Entry
Bonds payable (determined below) 17,000
Cash 17,000
Bonds Payable
Problem 21–14
SURMISE COMPANY
Spreadsheet for the Statement of Cash Flows
Dec.31 Changes Dec. 31
2015 Debits Credits 2016
Balance Sheet
Assets:
Cash 40 (16) 5 45
Liabilities:
Accounts payable 32 (7) 15 17
Accrued liabilities 10 (9) 12 (2)
X Noncash investing and financing activity.
Problem 21–14 (continued)
Spreadsheet for the Statement of Cash Flows
(continued)
Dec.31 Changes Dec. 31
2015 Debits Credits 2016
Statement of Cash Flows
Operating activities:
Net income (1) 50
Adjustments for noncash effects:
Net cash flows 40
Investing activities:
Purchase of LT investment (10) 40
Net cash flows (40)
Financing activities:
Issuance of note payable (12) 35
Problem 21–14 (concluded)
SURMISE COMPANY
Statement of Cash Flows
For year ended December 31, 2016 ($ in millions)
Cash flows from operating activities:
Net income $ 50
Adjustments for noncash effects:
Depreciation expense 22
Cash flows from investing activities:
Purchase of long-term investment (40)
Net cash flows from investing activities (40)
Cash flows from financing activities:
Issuance of note payable 35
Net increase in cash 5
Cash balance, January 1 40
Cash balance, December 31 $45
21–92 Intermediate Accounting, 8/e
Problem 21–15
Part A: Assuming both companies use current GAAP, not applying the proposed
Accounting Standards Update for lease accounting described in the Chapter
15 Supplement.
Requirement 1
Digital would report the cash inflow of $28,329,472 from the sale of the bonds as a
June 30, 2016*
Interest expense (6% x $28,329,472) …………………. 1,699,768
December 31, 2016**
Interest expense (6% x [$28,329,472 + 99,768]) ….. 1,705,754
Discount on bonds payable (difference) ……… 105,754
Problem 21–15 (continued)
Requirement 2
Calculation of the present value of lease payments
$391,548 x 15.32380t = $6,000,000
(rounded)
t Present value of an annuity due of $1: n = 20, i = 3% (from Table 6)
Midsouth would report the $6,000,000* investment in the switching equipment and its
financing with a capital lease as a significant noncash investing and financing activity
Calculations:
September 30, 2016*
Leased equipment (calculated above) ………………………… 6,000,000
December 31, 2016**
Interest expense (3% x [$6 million – 391,548]) ……………. 168,254
Problem 21–15 (continued)
Requirement 3
Digital would report the $6,000,000* direct financing lease of the switching
equipment as a significant noncash investing activity (acquiring one asset and
disposing of another) in the disclosure notes to the financial statements.
Calculations:
September 30, 2016*
Lease receivable (PV of lease payments) …………………….. 6,000,000
Inventory of equipment (lessor’s cost) ……………………. 6,000,000
December 31, 2016**
Cash (rental payment) ………………………………………………. 391,548
Problem 21–15 (continued)
Requirement 4
MDS would report the $6,000,000* sales-type lease of the switching equipment
as a significant noncash activity in the disclosure notes to the financial
statements.
The $783,096 ($391,548* + 391,548**) cash lease payments is considered to be
Note: By the indirect method of reporting cash flows from operating activities,
the $1,000,000 (sales revenue: $6,000,000 – cost of goods sold:
The $168,254 interest revenue that increased net income actually did
increase cash [the interest portion of the $783,096 ($391,548 x 2) cash
Noncash adjustments to convert net income to cash flows from
operating activities:
Increase in lease receivable ……………………… ($6,000,000)
21–96 Intermediate Accounting, 8/e
Problem 21–15 (concluded)
Calculations:
September 30, 2016*
Lease receivable (present value) ………………………………… 6,000,000
December 31, 2016**
Cash (rental payment) …………………………..………………….. 391,548
Problem 21–15 (continued)
Part B: Assuming both companies use the proposed Accounting Standards
Update for lease accounting described in the Chapter 15 Supplement.
Requirement 1
Digital would report the cash inflow of $28,329,472 from the sale of the bonds as a
June 30, 2016*
Interest expense (6% x $28,329,472) …………………. 1,699,768
December 31, 2016**
Interest expense (6% x [$28,329,472 + 99,768]) …… 1,705,754
Problem 21–15 (continued)
Requirement 2
Calculation of the present value of lease payments
Midsouth would report the $6,000,000* investment in the switching equipment and its
financing with a lease as a significant noncash investing and financing activity in the
disclosure notes to the financial statements.
The $783,096 ($391,548* + 391,548**) cash lease payments are divided into the
interest portion and the principal portion. The interest portion, $168,254, from
Calculations:
September 30, 2016*
Right-of-use equipment (calculated above) …………………. 6,000,000
Lease payable (calculated in above) ………………………… 6,000,000
December 31, 2016**
Interest expense (3% x [$6 million – 391,548]) …………….. 168,254
Lease payable (difference) ……………………………………….. 223,294
Cash (rental payment) …………………………………………… 391,548
Problem 21–15 (continued)
Requirement 3
A lessor classifies its cash receipts from lease payments as operating activities
in its statement of cash flows after initially reporting its acquisition of a lease
receivable and derecognition of the leased asset as a supplemental noncash
Calculations:
September 30, 2016*
Lease receivable (PV of lease payments) ……………………. 6,000,000
Inventory of equipment (lessor’s cost) …………………… 6,000,000
December 31, 2016**
Cash (rental payment)………………………………………………. 391,548
21–100 Intermediate Accounting, 8/e
Problem 21–15 (concluded)
Requirement 4
MDS would report the $6,000,000* lease of the switching equipment as a
noncash transaction in the disclosure notes to the financial statements.
Calculations:
September 30, 2016*
Lease receivable (present value) ………………………………… 6,000,000
December 31, 2016**
Cash (rental payment) …………………………..………………….. 391,548