CHAPTER 23
SOLUTIONS TO B PROBLEMS
PROBLEM 23-1B
SANIBEL CORP.
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities
Net income …………………………………………….
$285,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation ……………………………………
(a)
Loss on sale of equipment ……………….
(b)
Equity in earnings of Island Co. ……….
(c)
Increase in accounts receivable ……….
(170,000)
Increase in inventories …………………….
Increase in accounts payable …………..
Net cash provided by operating
activities …………………………………………….
Cash flows from investing activities:
Purchase of equipment
(167,000)
(d)
Proceeds from sale of equipment ……………
20,000
Principal payment of loan receivable ……….
100,000
Net cash provided by investing
activities ………………………………
(47,000)
Cash flows from financing activities:
Dividends paid ……………………………………….
Net cash used by financing
activities ………………………………
Net increase in cash ……………………………………….
Cash, January 1, 2014 …………………………………….
PROBLEM 23-1B (Continued)
$850,000
$220,000
X 25%
$ 55,000
$917,000
$167,000
PROBLEM 23-2B
QUEEN CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities
Net income ……………………………………………..
$105,900 (a)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Loss on sale of equipment ……………….
(b)
Gain from hurricane damage …………….
(133,000)
*
Depreciation expense ………………………
(c)
Patent amortization ………………………….
Loss on sale of investments ……………..
Increase in accounts receivable (net) ..
Decrease in inventory ………………………
Increase in accounts payable ……………
(82,300)
Net cash provided by operating activities …
Cash flows from investing activities
Sale of investments …………………………………
39,200
Sale of equipment …………………………………..
Purchase of equipment …………………………...
Proceeds from damage to building …………..
Net cash provided by investing activities …
Cash flows from financing activities
Payment of dividends ……………………………..
(12,000)
***
Payment of long-term notes payable ………..
(212,000)
(e)
Proceeds from short-term note payable ……
Increase in cash …………………………………………….
Cash, January 1, 2014 …………………………………….
PROBLEM 23-2B (Continued)
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest
$1,000
Income taxes:
$23,600
Noncash investing and financing activities
Retired notes payable by issuing common stock
Purchased equipment by issuing notes payable
Supporting Computations:
(a) Ending retained earnings ………………………………..
$153,400
Beginning retained earnings …………………………...
(53,500)
Cash dividends declared …………………………………
6,000
Net income ……………………………………………………..
$105,900
(b) Cost ……………………………………………………………….
Accumulated depreciation (60% X $20,000) ………
Book value …………………………..…………………………
Proceeds from sale …………………………………………
Loss on sale …………………………………………………..
(c) Accumulated depreciation on equipment sold ….
$ 12,000
Increase in accumulated depreciation ………………
25,000
Depreciation expense ……………………………………..
$ 37,000
(d) Beginning equipment balance …………………………
$120,000
Cost of equipment sold …………………………………..
Remaining balance …………………………………………
Purchase of equipment with note …………………….
Adjusted balance ……………………………………………
Ending equipment balance ………………………………
Purchased with cash……………………………………….
PROBLEM 23-2B (Continued)
(e) Beginning long-term notes payable balance …….
$260,000
Retired notes by issuing common stock…………..
(18,000)
Remaining balance …………………………………………
242,000
Purchase of equipment with note …………………….
Adjusted balance ……………………………………………
Ending long-term notes payable balance ………….
(50,000)
Retired with cash ……………………………………………
PROBLEM 23-3B
SEAHORSE INNS COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2014
($000 Omitted)
Cash flows from operating activities
Cash receipts from customers ………………….
$15,500 (a)
Cash payments:
Payments for merchandise …………………..
$10,961
(b)
Salaries and benefits …………………………...
Heat, light, and power …………………………..
Interest ………………………………………………..
45
Property taxes ……………………………………..
24
Miscellaneous ……………………………………..
Income taxes ……………………………………….
1,556
(c)
Net cash provided by operating activities ….
Cash flows from investing activities
Sale of available-for-sale investments ……….
35
Purchase of buildings and equipment ……….
(750)
Purchase of land ………………………………………
(180)
Net cash used by investing activities …………
(965)
Cash flows from financing activities
Porceeds form sale of common stock ………
Payment of long-term notes payable ………..
Proceeds from short-term note payable ……
Net cash used by financing activities ……….
Decrease in cash ……………………………………………..
(81)
Cash, January 1, 2014 …………………………..………….
210
Cash, December 31, 2014………………………………….
$ 129
(a) Sales ……………………………………………………….
Deduct ending accounts receivable …………..
Add beginning accounts receivable …………..
3,100
Cash receipts (collections from
PROBLEM 23-3B (Continued)
(b) Cost of goods sold…………………………………
$9,200
Add ending inventory …………………………….
2,860
Goods available for sale ………………….
Deduct beginning inventory ……………………
Purchases ………………………………………
Deduct ending accounts payable ……………
Add beginning accounts payable ……………
2,740
Cash purchases (payments for
(c) Income taxes …………………………………………
$ 1,336
Deduct ending income taxes payable ……..
(240)
Add beginning income taxes payable ……..
460
PROBLEM 23-4B
WIZARDS COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2014
(Direct Method)
Cash flows from operating activities
Cash receipts:
Cash received from customers …………………….
$1,550,800a
Dividends received …………………………..…………
Cash payments:
Cash paid for operating expenses ………………..
Taxes paid …………………………..……………………..
Interest paid ……………………………………………….
Net cash provided by operating activities …………….
Cash flows from investing activities
Sale of short-term investments
($8,500 – $8,000) ……………………………………….
500
Sale of land ($260,000 – $200,000) + $21,000 …
81,000
Purchase of equipment ……………………………….
(196,000)
Net cash used by investing activities ……………
(55,000)
Cash flows from financing activities
Proceeds from issuance of common stock …..
Principal payment on long-term debt ……………
Dividends paid ……………………………………………
Net cash used by financing activities …………..
Net increase in cash ……………………………………………
Cash, January 1, 2014 …………………………………………
Cash, December 31, 2014…………………………………….
aSales Revenue …………………………………………………..
$1,560,000
– Increase in Accounts Receivable ………………………
(9,200)
Cash received from customers …………………………..
$1,550,800
bCost of Goods Sold …………………………………………….
$ 976,000
+ Increase in Inventory …………………………………………
+ Decrease in Accounts Payable …………………………..
5,900
PROBLEM 23-4B (Continued)
cOperating Expenses ………………………………………
$339,900
– Depreciation/Amortization expense ……………….
(63,000)
– Decrease in prepaid expenses ………………………
(10,400)
+ Decrease in wages payable …………………………..
– Increase in income taxes payable ………………….
– Decrease in bond discount …………………………...
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net income ……………………………………………………..
$103,350
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation/amortization expense ……………
$63,000
Decrease in prepaid expenses …………………..
10,400
Increase in income taxes payable ……………..
5,800
Decrease in salaries and wages payable ……
Increase in accounts receivable ………………..
Increase in inventory ………………………………..
Decrease in accounts payable …………………..
Gain on sale of land ………………………………….
(21,000)
Loss on sale of short-term investments …….
8,000
Amortization of bond discount ………………….
Total adjustments ……………………………..
PROBLEM 23-5B
CLARK CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2014
(Indirect Method)
Cash flows from operating activities
Net income ……………………………………………….
$76,538
Adjustments to reconcile net income
to net cash used by operating
activities:
Loss on sale of equipmemt …………………
$ 5,600
(2)
Loss on retirement of bonds ……………….
8,981
(3)
Depreciation of equipment ………………….
62,800
(2)
Depreciation of building ……………………..
(6)
Amortization of patents ………………………
(1)
Amortization of trademark ………………….
Amortization of bond discount ……………
(3)
Amortization of bond issue costs ………..
(4)
Amortization of bond premium ……………
(4)
Equity in earnings of subsidiary ………….
(54,000)
(5)
Increase in accounts receivable
(net) ………………………………………………..
(41,700)
Increase in inventory ………………………….
(59,265)
Increase in prepaid expenses ……………..
(8,000)
Increase in taxes payable ……………………
33,500
Increase in salaries and wages payable .
Increase in accounts payable ……………..
26,000
Net cash used by operating activities …………
Cash flows from investing activities
Sale of equipment ……………………………………..
15,000
(2)
Investment in subsidiary …………………………...
(146,000)
(5)
Addition to buildings …………………………………
(125,000)
Extraordinary repairs to building………………..
(6)
Purchase of equipment ……………………………..
(117,400)
(2)
Purchase of patent…………………………………….
(1)
Net cash used by investing activities ………….
PROBLEM 23-5B (Continued)
Cash flows from financing activities
Redemption of bonds ………………………………..
(303,000)
(3)
Sale of bonds less expense of sale …………….
406,800
(4)
Payment of cash dividends ………………………..
Sale of stock ……………………………………………..
Net cash provided by financing activities ……
Decrease in cash ……………………………………………..
Cash, January 1, 2014 ………………………………………
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ……………………………………………………..
Income taxes …………………………………………….
PROBLEM 23-5B (Continued)
Comments on Numbered Items
(1) A patent was purchased for $31,000 cash. The account activity is
analyzed as follows:
101,000
(2) Analysis of the Equipment account shows the following:
$290,000
(26,400)
263,600