CHAPTER 23
SOLUTIONS TO B EXERCISES
E23-1B (10–15 minutes)
(a) (3) Investing activity.
(b) (4) Financing activity.
(c) (3) Investing activity.
E23-2B (20–30 minutes)
(a)
Shown in the financing activities section of a statement of cash flows
E23-2B (Continued)
(c)
Plant assets (cost) …………………………………………………..
$70,000)
Accumulated depreciation [($60,000 ÷ 6) X 2] ……………
20,000)
Book value at date of sale ……………………………………….
50,000)
Sale proceeds …………………………………………………………
(25,000)
(d) The goodwill impairment is reported in the operating activities section of
the statement of cash flows. It is added to net income in arriving at net
cash provided by operating activities.
(e) The warranty payments affect the accrued warranty expense liability.
(f) The sale of the U.S. Treasury bill is not reported in the statement of cash
flows. This instrument is considered a cash equivalent and therefore
cash and cash equivalents have not changed as a result of this
transaction.
E23-2B (Continued)
(h) The net income of $176,000 should be reported in the operating activities
section of the statement of cash flows. Depreciation of $69,000 is
reported in the operating activities section of the statement of cash flows.
The loss on sale of the equity investment also appears in the operating
E23-3B (15–25 minutes)
GUESSER COMPANY
Statement of Cash Flows (partial)
For the Year Ended December 31, 2014
Cash flows from operating activities
Net income ………………………………………………………
$ 71,000
Adjustments to reconcile net income
Depreciation expense ………………………………..
Decrease in accounts receivable ………………..
Increase in inventory …………………………………
Increase in prepaid expenses …………………….
Increase in accounts payable …………………….
E23-4B (20–30 minutes)
GUESSER COMPANY
Statement of Cash Flows (partial)
For the Year Ended December 31, 2014
Cash flows from operating activities
Cash receipts from customers ………….
$818,000
(a)
Cash payments
To suppliers ………………………………
(b)
For operating expenses ……………..
(c)
(683,000)
Net cash provided by operating
activities ……………………………………..
$135,000
Computations:
(a)
Cash receipts from customers
Sales ……………………………………….
$755,000
Add: Decrease in accounts
receivable ……………………….
63,000
Cash receipts from customers …..
$818,000
(b)
Cash payments to suppliers
Cost of goods sold ……………………
$543,000
Add: Increase in inventories …….
38,000
Purchases ………………………………..
Deduct: Increase in accounts
payable ………………………
(25,000)
Cash payments to suppliers ……..
$556,000
(c)
Cash payments for operating
expenses
Operating expenses, exclusive
of depreciation ……………………..
$121,000*
Add: Increase in prepaid
expenses …………………………
Deduct: Increase in accrued
expenses payable ……….
6,000
Cash payments for operating
expenses………………………………
$127,000
E23-5B (20–30 minutes)
KRAYON COMPANY
Statement of Cash Flows (partial)
For the Year Ended December 31, 2014
Cash flows from operating activities
Cash receipts from customers ……..
$1,554,000
(a)
Cash payments
For operating expenses …………
(b)
For income taxes …………………..
(c)
Net cash provided by operating
activities …………………………………..
$ 225,500
(a)
Computation of cash receipts from customers:
Revenue from fees
$1,604,000
Deduct: Increase in accounts receivable
Add: ($169,000 – $119,000) …………………………..
(50,000)
Cash receipts from customers ………………………….
$1,554,000
(b)
Computation of cash payments:
Operating expenses per income statement ………..
$1,280,000
Deduct: Increase in accounts payable
Cash payments for operating expenses …………….
$1,230,000
(c)
Income tax expense per income statement ………..
$ 90,000
Add: Decrease in income taxes payable
Add ($16,500 – $25,000) ………………………………….
8,500
Cash payments for income taxes ………………………
$ 98,500
E23-6B (15–20 minutes)
KRAYON COMPANY
Statement of Cash Flows (partial)
For the Year Ended December 31, 2014
Cash flows from operating activities
Net income …………………………………………………….
$130,000
Adjustment to reconcile net income
to net cash provided by operating activities:
Depreciation expense ……………………………….
Gain on sale of equipment …………………………
Increase in accounts receivable …………………
Increase in accounts payable …………………….
Decrease in income taxes payable ……………..
95,500
E23-7B (15–20 minutes)
Situation A:
Cash flows from operating activities
($1,950,000 – $321,000) ……………………………..
Cash receipts from customers
Situation B:
(a)
Computation of cash payments to suppliers
Cost of goods sold ………………………………..
$940,000
Deduct: Decrease in inventory ………………
(96,900)
Increase in accounts payable…………
(64,900)
Operating expenses ………………………………
$523,000
Deduct: Decrease in prepaid expenses ….
(12,000)
Increase in accrued expenses
payable …………………………..………..
(25,000)
E23-8B (20–30 minutes)
Cash flows from operating activities
Net income ………………………………………………….
$540,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Increase in warranty accrual ………………….
Other comments:
No. 1 is shown as a cash outflow in the financing section.
No. 3 is shown as a cash inflow in the financing section.
E23-9B (20–30 minutes)
(a)
Sales (revenues) ………………………………………………..
$2,105,800
Add: Net decrease in accounts receivable
($270,000 – $9,600) – ($298,000 – $8,100) …….
29,500
Cash collected from customers…………………………..
$2,135,300
(b)
Cost of goods sold …………………………………………….
$1,205,000
Add: Increase in inventory ($187,000 – $171,000) …
16,000
Purchases ………………………………………………………...
E23-9B (Continued)
(c)
Interest expense
$ 8,500
Add: Decrease in unamortized bond
premium ($5,000 – $4,500) ……………………
500
Cash paid for interest ………………………………….
$ 9,000
(d)
Income tax expense …………………………………….
$170,300
Deduct: Increase in income taxes payable
Deduct: Increase in deferred tax liability
(8,600)
Cash paid for income taxes ………………………….
$149,300
(e)
General and administrative expenses …………..
$285,000
Deduct: Depreciation expense
Deduct: Bad debts expense …………………………
Cash paid for general and admin. expenses ….
$267,250
E23-10B (25–35 minutes)
(a) The solutions approach is to prepare a T-account for property, plant, and
equipment.
E23-10B (Continued)
(b) The solutions approach is to set up a T-account for accumulated
depreciation.
Accumulated Depreciation
106,000
12/31/13
Depreciation expense
Equipment sold
141,000
12/31/14
(c) The cash dividends paid can be determined by analyzing T-accounts for
retained earnings and dividends payable.
Retained Earnings
261,000
12/31/13
Dividends declared
Net income
340,000
12/31/14
E23-10B (Continued)
Dividends payable
10,000
12/31/13
11,000
Dividends declared
Cash dividends paid
?
0
12/31/14
(d) The redemption of bonds payable amount is determined by setting up a
T-account.
Bonds Payable
100,000
12/31/13
Bond conversion
12/31/14
E23-11B (30–35 minutes)
FULTON CORP.
Statement of Cash Flows
For the Year Ended December 31, 2014
(Indirect Method)
Cash flows from operating activities
Net income …………………………………………………………….
$2,145
Adjustments to reconcile by operating activities:
Depreciation expenses ($600 – $455) ………………..
$145
Loss on sale of investments …………………………….
Increase in receivables ……………………………………
Increase in inventory ……………………………………….
Decrease in accounts payable………………………….
Decrease in accrued liabilities………………………….
Net cash provided by operating activities ………………..
Cash flows from investing activities
Sale of investments
[$200 – $50] ……………………………………………………….
150
Net cash used by investing activities ………………………
Cash flows from financing activities
Retirement of bonds payable ………………………………….
Payment of cash dividends …………………………………….
Net cash used by financing activities ……………………..
(800)
Net increase in cash ………………………………………………………
Cash, January 1, 2014 ……………………………………………………
Noncash investing and financing activities
Issuance of common stock for land ………………………..
$100