PROBLEM 23-2 (Continued)
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest
$2,000
Income taxes:
$6,500
Noncash investing and financing activities
Retired notes payable by issuing common stock
Purchased equipment by issuing notes payable
$26,000
$20,750
(6,000)
$14,750
$11,000
(4,400)
$ 4,100
$ 1,900
$20,000
(11,000)
9,000
(45,000)
PROBLEM 23-3
MORTONSON COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2014
($000 Omitted)
Cash flows from operating activities
Cash receipts from customers ………………….
$3,520 (a)
Cash payments for:
Payments for merchandise …………………..
(b)
Salaries and benefits …………………………...
Heat, light, and power …………………………..
75
Property taxes ……………………………………..
Interest ………………………………………………..
30
Miscellaneous ……………………………………..
10
Income taxes ……………………………………….
(c)
Net cash provided by operating activities ….
Cash flows from investing activities
Sale of available-for-sale investments ……….
40
Purchase of buildings and equipment ……….
Purchase of land ………………………………………
Net cash used by investing activities …………
(350)
Increase in cash ………………………………………………
233
Cash, January 1, 2014 ………………………………………
100
Cash, December 31, 2014………………………………….
$ 333
(a) Sales ……………………………………………………….
Deduct ending accounts receivable …………..
3,020
Cash receipts (collections) from
Customers …………………………………….
PROBLEM 23-3 (Continued)
(b) Cost of goods sold…………………………………
$1,200
Add ending inventory …………………………….
720
Goods available for sale ………………….
1,920
Deduct beginning inventory ……………………
Purchases ………………………………………
Deduct ending accounts payable ……………
420
940
Add beginning accounts payable ……………
330
Cash purchases (payments for
(c) Income taxes …………………………………………
$818
Deduct ending income taxes payable ……..
40
778
Add beginning income taxes payable ……..
30
PROBLEM 23-4
MICHAELS 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 …………………….
$1,152,450a
Dividends received ……………………………………..
2,400
Cash payments:
For operating expenses ………………………………
For taxes …………………………………………………….
For interest …………………………………………………
Net cash provided by operating activities …………….
Cash flows from investing activities
Sale of short-term investments
($8,000 + $4,000) ………………………………………
12,000
Sale of land ($175,000 – $125,000) + $8,000 …..
58,000
Purchase of equipment …………………………..…..
(125,000)
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 ……………………………………………
(24,300)
Net cash used by financing activities …………..
Net increase in cash ……………………………………………
Cash, January 1, 2014 …………………………………………
Cash, December 31, 2014…………………………………….
aSales revenue ……………………………………………………
$1,160,000
– Increase in Accounts receivable ……………………….
(7,550)
Cash received from customers …………………………..
$1,152,450
bCost of Goods Sold …………………………………………….
$ 748,000
+ Increase in Inventory …………………………………………
+ Decrease in Accounts Payable …………………………..
PROBLEM 23-4 (Continued)
cOperating Expenses ………………………………………
$276,400
– Depreciation/Amortization expense ……………….
(40,500)
– Decrease in prepaid rent ……………………………….
(9,000)
+ Increase in prepaid insurance ……………………….
+ Increase in office supplies…………………………….
– Increase in salaries and wages payable …………
Cash payments for operating expenses …….
$226,350
$ 39,400
– Increase in income taxes payable ………………….
Taxes paid ……………………………………………….
$ 38,400
eInterest Expense ……………………………………………
$ 51,750
+ Decrease in bond premium …………………………..
5,550
Interest paid …………………………………………….
$ 57,300
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net income ……………………………………………………..
$58,850
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation/amortization expense ……………
$40,500
Decrease in prepaid rent …………………………..
Increase in income taxes payable ……………..
Increase in salaries and wages payable ……..
Increase in accounts receivable ………………..
Increase in inventory ………………………………..
(7,000)
Increase in prepaid insurance ……………………
Increase in supplies ………………………………….
Decrease in accounts payable …………………..
Gain on sale of land ………………………………….
Amortization of bond premium ………………….
Total adjustments ……………………………..
8,950
Net cash provided by operating activities …………
PROBLEM 23-5
ALEXANDER CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2014
(Indirect Method)
Cash flows from operating activities
Net income ……………………………………………….
$115,000*
Adjustments to reconcile net income
to net cash used by operating
activities:
Loss on sale of machinery ………………….
$ 2,200
(4)
Gain on redemption of bonds ……………..
(1,425)
(5)
Depreciation of machinery ………………….
48,200
(4)
Depreciation of building ……………………..
(8)
Amortization of patents ………………………
(3)
Amortization of copyrights …………………
10,000
Amortization of bond discount ……………
(6)
Amortization of bond premium ……………
(5)
Equity in earnings of subsidiary ………….
(7)
Increase in inventory ………………………….
Increase in prepaid expenses ……………..
(4,000)
Increase in income taxes payable ……….
Increase in accounts payable ……………..
Net cash used by operating activities …………
Cash flows from investing activities
Sale of machinery ……………………………………..
9,000
(4)
Investment in subsidiary …………………………...
(100,000)
(7)
Addition to buildings …………………………………
(127,300)
Extraordinary repairs to building………………..
(7,200)
(8)
Purchase of machinery ……………………………..
(4)
Purchase of patent…………………………………….
(3)
Net cash used by investing activities ………….
PROBLEM 23-5 (Continued)
Cash flows from financing activities
Redemption of bonds ………………………………..
(100,900)
(5)
Sale of bonds less expense of sale …………….
120,411
(6)
Sale of stock ……………………………………………..
Net cash provided by financing activities ……
Decrease in cash ……………………………………………..
Cash, January 1, 2014 ………………………………………
*Net income per retained earnings statement
($25,000 + $90,000) ……………………………………….
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ……………………………………………………..
$10,500
Income taxes …………………………………………….
$34,000
Noncash investing and financing activities
Reduction in stated value of stock to
eliminate deficit ………………………………………
$425,000
Comments on Numbered Items
(1) Write-off of deficit has no effect on cash. Analysis of the capital stock
account shows the following:
Balance 12/31/13 ……………………………………….
Restatement of stated value of stock ………….
Balance 4/1/14 …………………………………………..
(2) Sale of 29,600 shares 11/1/14 for $257,000
with stated value of $5 per share ………………..
PROBLEM 23-5 (Continued)
(3) A patent was purchased for $15,000 cash. The account activity is
analyzed as follows:
Balance 12/31/13 ……………………………………………
$64,000
Purchase ……………………………………………………….
Total ……………………………………………………………..
Balance 12/31/14 ……………………………………………
Amortization charged against income which
(4) Analysis of the Machinery account shows the following:
Balance 12/31/13 …………………………………………….
$190,000
Disposition of machinery ………………………………..
(16,400)
Total ………………………………………………………
173,600
Balance 12/31/14 …………………………………………….
Loss on sale:
Analysis of accumulated depreciation—
machinery:
Balance 12/31/13 of Accumulated
Depreciation …………………………………
Amount on asset sold ………………………
(5,200)
Balance …………………………………………..
Balance 12/31/14 ……………………………..
Depreciation charged against income
PROBLEM 23-5 (Continued)
$100,900
$100,000
$2,400
$ (1,425)
$125,000
$3,750
839
(4,589)
$120,411
(87)*
$100,000
10,500
$110,500
$400,000
(7,200)
(424,000)
PROBLEM 23-5 (Continued)
Comments on Other Items
(not required)
Increase in cash surrender value of insurance required cash ……
$ 504
Increase in Buildings required cash ………………………………………..
127,300
Decrease in Copyrights was a noncash charge against income ..
Dividends declared did not require cash ………………………………….
PROBLEM 23-6
(a)
Net Cash Flow from Operating Activities
Cash received from customers ………………………..
$524,8501
Cash payments:
Cash payments to suppliers ………………………..
$375,7502
Cash payments for operating expenses ……….
**Increase in accrued payables
PROBLEM 23-6 (Continued)
(b) MARCUS INC.
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities
Net income …………………………..…………………..
$42,500
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation expense ………………………….
Gain on sale of investments ………………..
Loss on sale of machinery …………………..
Increase in accounts receivable (net) …..
Increase in inventory …………………………..
Increase in accounts payable ………………
Increase in accrued payables ………………
Net cash provided by operating activities …..
Cash flows from investing activities
Purchase of investments
$22,250 – ($38,500 – $25,000) ………………….
(8,750)
Purchase of machinery
$30,000 – ($18,750 – $3,750) ……………………
(15,000)
Addition to buildings …………………………………
(11,250)
Sale of investments …………………………………..
28,750
Sale of machinery ……………………………………..
Net cash used by investing activities ………….
Reduction in long-term note payable …………
(10,000)
Cash dividends paid …………………………………
Net cash used by financing activities …………
Net increase in cash ……………………………………….
Cash, January 1, 2014 …………………………..………..
PROBLEM 23-7
(a) Both the direct method and the indirect method for reporting cash
flows from operating activities are acceptable in preparing a statement
of cash flows according to GAAP; however, the FASB encourages the use
(b) The Statement of Cash Flows for Chapman Company, for the year ended
May 31, 2014, using the direct method, is presented below.
CHAPMAN COMPANY
Statement of Cash Flows
For the Year Ended May 31, 2014
Cash flows from operating activities
Cash received from customers ………………….
$1,238,250
Cash payments:
To suppliers ……………………………………..
$684,000
To employees …………………………………..
For other expenses …………………………..
For interest ……………………………………….
For income taxes ………………………………
43,000
Net cash provided by operating activities …..
Cash flows from investing activities
Purchase of plant assets…………………………...
Cash flows from financing activities
Cash received from common stock issue …..
$ 20,000
Cash paid:
For dividends ……………………………………
(105,000)
To retire bonds payable …………………….
(30,000)
Net cash used by financing activities …………
(115,000)
Net increase in cash ………………………………………….
Cash, June 1, 2013 ……………………………………………
20,000
Cash, May 31, 2014 ……………………………………………
PROBLEM 23-7 (Continued)
Note 1: Noncash investing and financing activities:
Issuance of common stock for plant assets $70,000.
Supporting Calculations:
Cash collected from customers
Sales revenue …………………………………………..
$1,255,250
Less: Increase in accounts receivable ………
17,000
Cash collected from customers ……….
$1,238,250
Cash paid to suppliers
Cost of merchandise sold …………………………
$ 722,000
Less: Decrease in inventory ……………………..
Increase in accounts payable ………….
8,000
Cash paid to suppliers …………………….
$ 684,000
Cash paid to employees
Salaries and wages expense ……………………..
$ 252,100
Cash paid to employees …………………..
$ 276,850
Cash paid for other expenses
Other expenses ………………………………………..
$ 8,150
Add: Increase in prepaid expenses …………..
2,000
Cash paid for other expenses …………..
$ 10,150
Cash paid for interest
Interest expense ……………………………………….
$ 75,000
Less: Increase in interest payable …………….
2,000
Cash paid for interest ……………………..
$ 73,000
Cash paid for income taxes:
Income tax expense (given)……………………….
PROBLEM 23-7 (Continued)
(c) The calculation of the cash flow from operating activities for Chapman
Company, for the year ended May 31, 2014, using the indirect method,
is presented below.
CHAPMAN COMPANY
Statement of Cash Flows
For the Year Ended May 31, 2014
Cash flows from operating activities
Net income ………………………………………………..
$130,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense ………………………..
Decrease in inventory ………………………..
Increase in accounts payable ……………..
Increase in interest payable ………………..
Increase in accounts receivable ………….
Increase in prepaid expenses ……………..
PROBLEM 23-8
(a) Net Cash Provided by Operating Activities
Cash receipts from customers
$925,000 (1)
Cash payments:
To suppliers
For operating expenses
For income taxes
Net cash provided by operating activities
$ 48,000
(1) (Sales Revenue) less (Increase in Accounts Receivable)
$950,000 – $25,000 = $925,000
(2) (Cost of Goods Sold) plus (Increase in Inventory) less
(Increase in Accounts Payable)
$600,000 + $14,000 – $6,000 = $608,000
(3) (Operating Expenses) less (Depreciation Expense) less
(Bad Debt Expense)
PROBLEM 23-8 (Continued)
(b) SHARPE COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities
Net income ………………………………………………….
$67,000
Adjustments to reconcile net income
activities:
Depreciation expense …………………………...
$22,000
Gain on sale of investments ………………….
Loss on sale of equipment …………………….
Increase in accounts receivable (net) …….
Increase in accounts payable ………………..
Increase in income taxes payable ………….
2,000
(19,000)
Net cash provided by operating activities ……..
48,000
Cash flows from investing activities
Purchase of investments
[$55,000 – ($85,000 – $35,000)] …………………..
(5,000)
Payment of long-term notes payable …………….
Issuance of common stock …………………………..
35,000*
Net cash used by financing activities ……………
(43,000)
Net increase in cash …………………………………………….
19,000
Cash, January 1, 2014 ………………………………………….
51,000
Cash, December 31, 2014 …………………………………….
$70,000
Noncash investing and financing activities
Issuance of common stock for land ………………
PROBLEM 23-9
(a) DINGEL CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities
Net income …………………………………………………. $15,750(a)
Adjustments to reconcile net income to net
cash provided by operating activities:
Cash flows from investing activities
Sale of investments …………………………………….. 4,500
Cash flows from financing activities
Payment of dividends …………………………………. (5,000)
Payment of short-term notes payable ………….. (1,000)
Net cash used by financing activities …………… (6,000)
PROBLEM 23-9 (Continued)
Noncash investing and financing activities:
Retired note payable by issuing common stock …….. $ 5,000
$21,000
Supporting Computations:
(a) Ending retained earnings ……………………………………… $20,750
Beginning retained earnings …………………………………. (5,000)
Net income …………………………..……………………….. $15,750
(b) (1) For a severely financially troubled firm:
Operating: Probably a small cash inflow or a cash outflow.
(2) For a recently formed firm which is experiencing rapid growth:
Operating: Probably a cash inflow.
TIME AND PURPOSE OF CONCEPTS FOR ANALYSIS
CA 23-1 (Time 30–35 minutes)
CA 23-2 (Time 30–35 minutes)
Purpose—to illustrate the proper form of the statement of cash flows. The student is required to prepare
the statement using the indirect method, and to discuss the rationale behind the statement.
CA 23-3 (Time 30–35 minutes)
CA 23-4 (Time 20–30 minutes)
CA 23-5 (Time 30–40 minutes)
Purpose—to identify and explain reasons and purposes for preparing a statement of cash flows, to
CA 23-6 (Time 20–30 minutes)
Purpose—provides the student the opportunity to examine the effects of a securitization on the statement
of cash flows, including ethical dimensions.