EXERCISE 23-9 (20–30 minutes)
1.
Sales revenue
$538,800
Deduct: Increase in accounts receivable,
net of write-offs
[$33,000 – ($30,000 – $4,800)]
7,800
Cash collected from customers
$531,000
2.
Cost of goods sold
Deduct: Decrease in inventory ($47,000 – $31,000)
Purchases
Deduct: Increase in accounts payable
($25,000 – $15,500)
9,500
Cash payments to suppliers
$224,500
3.
Interest expense
$4,300
Deduct: Decrease in unamortized bond discount
($5,000 – $4,500)
500
Cash paid for interest
$3,800
Income tax expense
Add: Decrease in income taxes payable
Deduct: Increase in deferred tax liability
Cash paid for income taxes
Selling expenses
Deduct: Depreciation ($1,500* X 1/3)
Bad debt expense
Cash paid for selling expenses
$136,000
EXERCISE 23-10 (25–35 minutes)
1. The solution can be determined through use of a T-account for
Property, Plant, and Equipment.
Property, Plant & Equipment
12/31/13
247,000
12/31/14
277,000
2. The solution can be determined through use of a T-account for
Accumulated Depreciation.
Accumulated Depreciation
167,000
12/31/13
178,000
12/31/14
EXERCISE 23-10 (Continued)
3. The cash dividends paid can be determined by analyzing T-accounts
for Retained Earnings and Dividends Payable.
Retained Earnings
91,000
12/31/13
12/31/14
Dividends Payable
5,000
12/31/13
18,000
Dividends declared
8,000
12/31/14
4. The redemption of bonds payable amount is determined by setting up
a T-account.
Bonds Payable
46,000
12/31/13
20,000
Issuance of B/P for PP&E
49,000
12/31/14
EXERCISE 23-10 (Continued)
Financing activities include all cash flows involving liabilities and
stockholders’ equity other than operating items. Therefore, redemption
of bonds payable is considered a financing activity.
EXERCISE 23-11 (30–35 minutes)
PAT METHENY COMPANY
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2014
(Indirect Method)
Cash flows from operating activities
Net income
$ 810
Depreciation expense ($1,200 – $1,170)
Gain on sale of investments
Decrease in inventory
Increase in accounts payable
Increase in accounts receivable
Decrease in accrued liabilities
50
Net cash provided by operating activities
860
Adjustments to reconcile net income to net cash
Cash flows from investing activities
Sale of held-to-maturity investments
Purchase of plant assets [($1,900 – $1,700) – $70]
Net cash provided by investing activities
Cash flows from financing activities
Issuance of capital stock [($1,900 – $1,700) – $70]
Redemption of bonds payable
Payment of cash dividends
Net cash used by financing activities
(280)
Net increase in cash
650
Cash, January 1, 2014
1,150
Cash, December 31, 2014
$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, 2014
(Direct Method)
Cash flows from operating activities
Cash receipts from customers
$6,450*
Less: Cash paid for merchandise
Cash paid for selling/administrative
expenses
Cash paid for income taxes
540
Cash flows from investing activities
Sale of held-to-maturity 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
Payment of cash dividends
(260)
Net cash used by financing activities
(280)
Net increase in cash
Cash, January 1, 2014
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, 2014
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]
Purchase of equipment
Purchase of available-for-sale investments
Net cash used by investing activities
Cash flows from financing activities
Principal payment on short-term loan
(2,000)
Principal payment on long-term loan
(9,000)
Dividend payments
Net cash used by financing activities
Net decrease in cash
Cash, January 1, 2014
Cash, December 31, 2014
aSales revenue
$338,150
– Increase in accounts receivable
(11,000)
Cash received from customers
$327,150
– 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
+ Decrease in income taxes payable
– Depreciation expense
(24,000)
EXERCISE 23-14 (30–40 minutes)
BRECKER INC.
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2014
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
4,000
Gain on sale of equipment
Decrease in inventories
Increase in salaries and wages payable
4,000
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 available-for-sale investments
Net cash used by investing activities
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, 2014
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, 2014
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 held-to-maturity investments
34,000
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
Cash balance, January 1, 2014
Cash balance, December 31, 2014
*Net income $57,000 – $9,000 – $2,000 = $46,000
**Supporting computation
(purchase of plant assets)
Plant assets, December 31, 2013
Less: Plant assets sold
Plant assets, December 31, 2014
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
$14,000*
($6,000 – $3,000)
Net cash provided by operating activities
Loss on sale of equipment
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
$(10,000)
Payment of notes payable
Issuance of bonds payable
Net cash used by financing activities
$ (3,000)
EXERCISE 23-17 (30–40 minutes)
(a) JOBIM INC.
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2014
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
Purchase of land
Sale of available-for-sale investments
Net cash provided by investing activities
Cash flows from financing activities
Payment of dividends
Redemption of bonds payable
(15,000)
Issuance of capital stock
Net cash used by financing activities
EXERCISE 23-17 (Continued)
Net increase in cash
36,250
Cash, January 1, 2014
Cash, December 31, 2014
$44,750
Noncash investing and financing activities
Issuance of bonds for land
$22,500
(b) JOBIM INC.
BALANCE SHEET
December 31, 2014
Assets
Equities
Cash
$ 44,750
Current liabilities
$ 15,000
Current assets
Long-term notes
other than cash
payable
Investments
Bonds payable
Plant assets (net)
Capital stock
Land
71,500
Retained earnings
50,375
*$40,000 + $9,000 + $22,500
***$24,500 + $35,250 – $9,375
EXERCISE 23-18 (25–30 minutes)
ANITA BAKER COMPANY
Statement of Cash Flows (partial)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense
$16,800
Net cash provided by operating activities
EXERCISE 23-18 (Continued)
Cash flows from investing activities
Purchase of equipment
(62,000)
Sale of equipment
[($56,000 – $25,200) – $5,800]
Extraordinary repairs on equipment
Cost of equipment constructed
Net cash used by investing activities
(106,000)
Cash flows from financing activities
Payment of cash dividends
Decrease in cash
Cash, January 1, 2014
Cash, December 31, 2014
EXERCISE 23-19 (20–25 minutes)
Retained Earnings …………………………………………………..
15,000
Financing—Cash Dividends …………………………….
15,000
Operating—Net Income …………………………………………..
40,000
Retained Earnings …………………………………………..
40,000
Accumulated Depreciation—Equipment …………..
Investing—Purchase of Equipment ………………….
Investing—Construction of Equipment …………….
Accumulated Depreciation—Equipment …………………..
Investing—Extraordinary Repairs to Equipment .
Accumulated Depreciation—Equipment …………………..
25,200
EXERCISE 23-20 (20–25 minutes)
1.
Bonds Payable ……………………………………………….
300,000
Common Stock ………………………………………
300,000
(Noncash financing activity)
2.
Retained Earnings ………………………………….
Accumulated Depreciation—Building ………
4.
Accumulated Depreciation—Equipment ………….
30,000
Equipment ……………………………………………………..
10,000
Investing—Purchase of Equipment …………
5.
Retained Earnings ………………………………………….
Dividend Payable……………………………………
123,000
Operating—Gain on Disposal of
EXERCISE 23-21 (45–55 minutes)
STEVIE WONDER CORPORATION
WORKSHEET FOR PREPARATION OF STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2014
Balance
at
12/31/13
2014
Reconciling Items
Balance
at
12/31/14
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)
2,000
43,000
Prepaid expenses
2,500
(4)
1,700
4,200
Inventory
65,000
(5)
81,500
Land
50,000
50,000
Buildings
(10)
Equipment
46,000
(11)
53,000
Equipment (Delivery)
39,000
39,000
Patents
(12)
15,000
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.
(13)
Accum. depr.—equip.
15,500
(13)
3,500
19,000
Accum. depr.—equip.
20,500
(13)
1,500
22,000
Mortgage payable
(14)
Capital stock
(15)
Retained earnings
51,500
(9)
(1)
73,400
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 available-for-sale 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
(14)
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
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)
Problem 23-5 (Time 50–65 minutes)
Purpose—to develop an understanding of the procedures involved in the preparation of a statement
Problem 23-6 (Time 40–50 minutes)
Problem 23-7 (Time 30–40 minutes)
Purpose—Using comparative financial statement data, the student is required to prepare the statement
of cash flows, using the direct method. The student must also prepare the operating activities section of
the statement of cash flows using the indirect method.
Problem 23-8 (Time 30–40 minutes)
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, 2014
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, 2014 …………………………………….
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, 2014 ……………………………..
Accumulated depreciation on equipment sold:
Cost ……………………………………………………….
Carrying value ………………………………………..
Depreciation for 2014 ……………………………………..
(b) Gain on sale of equipment
Proceeds ………………………………………………..
Carrying value ………………………………………..
Gain …………………………………………………..
$ 2,000
(c) Equity in earnings of Myers Co.
Myers’s net income for 2014 ……………………
$140,000
Sullivan’s ownership……………………………….
X 25%
Undistributed earnings of Myers Co ….
$ 35,000
PROBLEM 23-2
HINCKLEY CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities
Net income ……………………………………………..
$14,750 (a)
Adjustments to reconcile net income
to net cash provided by operating
activities:
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 ……………
(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, 2014 …………………………………….