Chapter 12
Rent Receivable *Prior Year-End = $100,000 *Current Year-End = $125,000 Rent Revenue *Prior Year-End = $500,000 *Current Year-End = $550,000 The cash received from rent revenue during the current year was:
$525,000 Cash received from rent revenue is computed as current year-end Rent Revenue of $550,000 minus the increase in Rent Receivable of $25,000 ($100,000 - $125,000) = $525,000.
In preparing a company's statement of cash flows using the indirect method, the following information is available: *Net income $55,000 *Accounts payable increased by $21,000 *Accounts receivable decreased by $31,000 *Inventories decreased by $8,000 *Cash dividends paid $17,000 *Depreciation expense $26,000 Net cash provided by operating activities was:
$141,000 Net income $55,000 + Depreciation exp. $26,000 + Decrease in A/R $31,000 + Decrease in Inventories $8,000 + Increase in A/P $21,000 = $141,000
A company reported that its bonds with a par value of $40,000 and a carrying value of $52,000 are retired for $60,000 cash, resulting in a loss of $8,000. The amount to be reported under cash flows from financing activities is ______.
$(60,000) Cash flows from financing activities should include the cash paid to retire the bonds of $60,000.
The Will Company reported the following data for last year: *Decrease in the cash account = $25,000 *Net cash provided by operating activities = $20,000 *Net cash provided by investing activities = $15,000 Based solely on this information, the net cash provided (used) by financing activities on the statement of cash flows would be:
$(60,000) Net cash provided (or used) by operating activities + Net cash provided (or used) by investing activities + Net cash provided (or used) by financing activities = Net increase (or decrease) in cash for the period. The net cash provided (or used) by financing activities (the unknown) would be determined as follows: $20,000 + $15,000 + x(the unknown) = ($25,000) $35,000 + x(the unknown) = $(25,000) Subtract $35,000 from both sides of the equation: x = $(60,000)
A company reported that its bonds with a par value of $50,000 and a carrying value of $64,500 are retired for $69,000 cash, resulting in a loss of $4,500. The amount to be reported under cash flows from financing activities is:
$(69,000)
A machine with a cost of $139,000 and accumulated depreciation of $89,500 is sold for $59,000 cash. The amount that should be reported in the operating activities section reported under the direct method is:
$0
Salud Company reports the following information. SELECTED ANNUAL INCOME STATEMENT DATA: *Net income $490,000 *Depreciation expense $95,000 *Gain on sale of machinery SELECTED YEAR-END BALANCE SHEET DATA: *Accounts receivable increase $51,200 *Prepaid expenses decrease $17,100 *Accounts payable increase $6,800 Wages payable decrease $2,200 Use the INDIRECT method to prepare the operating activities section of its statement of cash flows for the year ended December 31.
STATEMENT OF CASH FLOWS: CASH FLOWS FROM OPERATING ACTIVITIES *Net income $490,000 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES INCOME STATEMENT ITEMS NOT AFFECTING CASH: *Depreciation $95,000 *Gain on sale of machinery ($23,300) CHANGES IN CURRENT OPERATING ASSETS AND LIABILITIES: *Accounts receivable increase ($51,200) *Prepaid expenses decrease $17,100 *Accounts payable increase $6,800 *Wages payable decrease ($2,200) *Net cash provided by operating activities $532,200
Russel Company reports sales revenue of $34,000 and interest revenue of $9,000. Its comparative balance sheet shows that accounts receivable decreased $8,000 and interest receivable increased $2,000. Compute cash provided by operating activities using the DIRECT method
Sales revenue $34,000 Interest revenue $9,000 Decrease in accounts receivable $8,000 Increase in interest receivable ($2,000) Cash provided by operating activities $49,000
Each of the following are classified as a financing activity except. Payment of short-term debt Reissuing treasury stock Issuance of common stock Purchase of long-term investments
The purchase of long-term investments is a cash outflow from investing activities, not financing.
Fitz Company reports the following information SELECTED ANNUAL INCOME STATEMENT DATA: *Net income $374,000 *Depreciation expense $44,000 *Amortization expense $7,200 *Gain on sale of plant assets $6,000 SELECTED YEAR-END BALANCE SHEET DATA: *Accounts receivable decrease $17,100 *Inventory decrease $42,000 *Prepaid expenses increase $4,700 *Accounts payable decrease $8,200 *Salaries payable increase $1,200 Use the INDIRECT method to prepare the operating activities section of its statement of cash flows for the year ended December 31.
STATEMENT OF CASH FLOWS (partial) CASH FLOWS FROM OPERATING ACTIVITIES *Net income $374,000 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES INCOME STATEMENT ITEMS NOT AFFECTING CASH *Depreciation expense $44,000 *Amortization expense $7,200 *Gain on sale of plant assets ($6,000) CHANGES IN CURRENT OPERATING ASSETS AND LIABILITIES *Decrease in accounts receivable $17,100 *Decrease in inventory $42,000 *Increase in prepaid expenses ($4,700) *Decrease in accounts payable ($8,200) *Increase in salaries payable $1,200 *Net cash provided by operating activities $466,600
All of the following statements regarding the use of a spreadsheet to prepare a statement of cash flows are correct except. *Analyzing noncash accounts can be challenging when a company has a large number of accounts and many operating, investing, and financing transactions. *The use of a spreadsheet is an optional step in the preparation of statement of cash flows. *The use of a spreadsheet to prepare the statement of cash flows is a required step in the accounting cycle. *The beginning and ending balance sheet amounts are entered on the spreadsheet before any of the other procedures for completing the spreadsheet are performed.
The use of a spreadsheet to prepare the statement of cash flows is a required step in the accounting cycle. A spreadsheet can help organize the information needed to prepare a statement of cash flows, but it is not a required step.
A statement of cash flows helps answer all of the following: What explains the changes in the cash account? Where does a company spend its cash? How can the company improve its operations? How does a company receive its cash? What are the changes in the non-cash accounts?
What explains the changes in the cash account? Where does a company spend its cash? How does a company receive its cash?
In preparing a company's statement of cash flows for the most recent year, the following information is available: *Loss on the sale of equipment $14,700 *Purchase of equipment $152,000 *Proceeds from the sale of equipment $133,000 *Repayment of outstanding bonds $90,500 *Purchase of treasury stock $65,500 *Issuance of common stock $99,500 *Purchase of land $122,000 *Increase in accounts receivable during the year $46,500 *Decrease in accounts payable during the year $78,500 *Payment of cash dividends $38,500 Net cash flows from investing activities for the year were:
$141,000 of net cash used Purchase of equipment ($152,000) - Purchase of land ($122,000) + Proceeds from sale of equipment $133,000 = ($141,000) net cash used
Jordan's net income for the year ended December 31, Year 2 was $203,000. Information from Jordan's comparative balance sheets is given below. Compute the cash received from the sale of its common stock during Year 2 At December 31 *Common Stock, $5 par value Year 2 $518,000 Year 1 $466,200 *Paid-In capital in excess of par Year 2 966,000 Year 1 869,200 *Retained earnings Year 2 $706,000 Year 2 $598,200
$148,600 Common Stock, $5 par value: Year 1 $466,200 - Year 2 $518,000 = Issuance of stock $51,800 Paid-in capital excess of par: Year 1 $869,200 - Year 2 $966,000 = Issuance of stock $96,800 Credit Common Stock, $5 par $51,800 Credit Paid-in Capital in Excess of par $96,800 Debit Cash for $148,600 (51,800 + 96,800)
Cost of Goods Sold *Prior Year-End = $160,000 *Current Year-End = $152,000 Merchandise Inventory *Prior Year-End = $34,400 *Current Year-End = $41,900 During the current year, purchases of inventory was:
$159,500 Purchases = cost of goods sold of $152,000 + increase in merchandise inventory of $7,500 (or $41,900 - $34,400) = $159,500.
Accounts Payable *Prior Year-End = $19,800 *Current Year-End = $17,900 Cost of Goods Sold *Prior Year-End = $160,000 *Current Year-End = $152,000 Merchandise Inventory *Prior Year-End = $34,400 *Current Year-End = $41,900 During the current year, the cash paid for merchandise was:
$161,500 Purchases = cost of goods sold of $152,000 + increase in merchandise inventory of $7,500 (or $41,900 - $34,400) = $159,500 Cash paid = purchases of $159,500 + decrease in accounts payable of $2,000 (or $19,800 - $17,800) = $161,500.
The accountant for TI Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available: *Retained earnings balance at the beginning of the year $161,000 *Cash dividends declared for the year $50,000 *Net income for the year $97,000 What is the ending balance for retained earnings?
$208,000 Beginning balance $161,000 + Net income for the year $97,000 - Cash dividends declared ($50,000) = Ending balance $208,000
Prepaid Expenses *Prior Year-End = $5,000 *Current Year-End = $6,000 Other operating Expenses Prior Year-End = $225,000 Current Year-End = $215,000 The cash payments for other operating expenses was:
$216,000 Cash paid for other operating expenses is computed as current year-end balance of Other Operating Expenses, $215,000 + the increase in Prepaid Expenses of $1,000 ($5,000 - $6,000) = $216,000.
Mayweather reports net income of $337,500 for the year ended December 31. It also reports $110,600 depreciation expense and a $11,950 loss on the sale of equipment. Its comparative balance sheet reveals a $48,000 increase in accounts receivable, a $12,150 decrease in prepaid expenses, a $18,450 increase in accounts payable, a $15,100 decrease in wages payable, a $89,300 increase in equipment, and a $19,500 decrease in notes payable. Calculate the net increase in cash for the year.
$218,750 $337,500 + $110,600 + $11,950 + $12,150 + $18,450 - $48,000 - $15,100 = $427,550 $427,550 - $89,300 - $119,500 = $218,750
Alfredo Inc. reports net income of $247,000 for the year ended December 31. It also reports $95,100 depreciation expense and a $5,850 gain on the sale of equipment. Its comparative balance sheet reveals a $38,900 decrease in accounts receivable, a $17,450 increase in accounts payable, and a $13,650 decrease in wages payable, Calculate the cash provided (used) in operating activities using the indirect method.
$378,950 $247,000 + $95,100 + $38,900 + $17,450 - $13,650 - $5,850 = $378,950
Montego Company's Cash account had a balance of $14,000 on January 1. Analysis of the company's Cash account during the year revealed the following information: *Decrease in interest payable = $1,000 *Depreciation expense = $30,900 *Gain on retirement of bonds = $32,300 *Increase in accounts receivable = $40,000 *Loss on sale of plant assets $5,900 *Net income = $78,000 The net cash provided (used) by operating activities is:
$41,500 Net income $78,000 - increase in accounts receivable $40,000 - Decrease in interest payable $1,000 + Depreciation expense $30,900 + Loss on sale of plant assets $5,900 - Gain on retirement of bonds $32,300 = Net cash provided by operations $41,500.
Barclays Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available: *Retained earnings balance at the beginning of the year $238,000 *Cash dividends declared for the year $51,250 *Proceeds from the sale of equipment $87,200 *Gain on the sale of equipment $4,650 *Cash dividends payable at the beginning of the year $22,550 *Cash dividends payable at the end of the year $30,500 *Net income for the year $112,750 The amount of cash paid for dividends was:
$43,300 $51,250 + $22,550 - $30,500 = $43,300
The accountant for Walter Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available: *Retained earnings balance at the beginning of the year $127,000 *Cash dividends declared for the year $47,000 *Proceeds from the sale of equipment $82,000 *Gain on the sale of equipment $7,200 *Cash dividends payable at the beginning of the year $19,000 *Cash dividends payable at the end of the year $21,200 *Net income for the year $93,000 The amount of cash dividends paid during the year would be:
$44,800 Cash dividends payable at the beginning of the year $19,000 + Cash dividends declared during the year $47,000 - Cash dividends payable at the end of the year ($21,200) = Cash dividends paid during the year $44,800
A machine with the cost of $156,000, accumulated depreciation of $98,000, and current year depreciation expense of $23,500 is sold for $50,400 cash. The amount that should be reported as a source of cash under cash flows from investing activities is:
$50,400
Montego Company's Cash account had a balance of $14,000 on January 1. Analysis of the company's Cash account during the year revealed the following information. Receipts from customers = $50,000 Payments for dividends = $10,000 Receipts of dividends = $5,000 Payments for merchandise = $25,000 Receipts from issuance of stock = $20,000 On December 31, the company's Cash account had a balance of _______.
$54,000 Beginning balance of $14,000 + Receipts from customers $50,000 - Payments for dividends $10,000 + Receipts of dividends $5,000 - Payments for merchandise $25,000 + Receipts from issuance of stock $20,000 = Ending balance of $54,000
A machine with a cost of $141,000 and accumulated depreciation of $96,000 is sold for $55,500 cash. The amount that should be reported as a source of cash under cash flows from investing activities is:
$55,500
Use the following information about the current year's operations of a company to calculate the cash paid for merchandise. *Cost of Goods Sold $530,000 *Merchandise inventory, January 1 $88,000 *Merchandise inventory, December 31 $103,000 *Accounts payable, January 1 $74,000 *Accounts payable, December 31 $63,000
$556,000 *Increase in inventory = $103,000 - $88,000 = $15,000 *Purchases = COGS $530,000 + $15,000 = $545,000 *Decrease in Accounts payable = $74,000 - $63,000 = $11,000 *Cash paid for Merchandise = $545,000 + $11,000 = $556,000
A machine with a cost of $100,000 and accumulated depreciation of $98 ,000 is sold for $70,000 cash. The amount that should be reported as a source of cash under cash flows from investing activities is ______.
$70,000 Cash flows from investing activities should include the proceeds of the sale of the machine of $70,000
A company's inventory balance at the end of the year was $188,900 and $201,000 at the beginning of the year. Its Accounts Payable balance at the end of the year was $85,000 and $80,900 at the beginning of the year, and its cost of goods sold for the year was $721,000. The company's total amount of cash payments for merchandise during the year equals:
$704,800 Decrease in merchandise = $201,000 - $188,900 = $12,100 Purchases = $721,000 - $12,100 = $708,900 Increase in Accounts Payable = $85,000 - $80,900 = $4,100 CASH PAID FOR MERCHANDISE = $708,900 - $4,100 = $704,800
Accounts Receivable *Prior Year-End = $90,000 *Current Year-End = $160,000 Sales *Prior Year-End = $480,000 *Current Year-End = $850,000 Increase in accounts receivable *Prior Year-End = ---- *Current Year-End = $70,000 During the current year, the cash received from customers was:
$780,000 Cash received from customers = sales of $850,000 - increase in accounts receivables of $70,000 (or $160,000 - $90,000) = $780,000
Background information as of 12/31/20 *Cash and currency in cash registers = $50,000 *An investment in a debt security maturing on 2/15/21 = 25,000 *An investment in an equity security = 10,000 *Checking account balance = 20,000 *Petty cash = 1,000 At December 31, 2020, the amount of cash and cash equivalents that will be reported on the company's balance sheet is?
$96,000 A cash equivalent must satisfy two criteria: (1) be readily convertible to a known amount of cash and (2) be sufficiently close to its maturity so its market value is unaffected by interest rate changes. Cash and cash equivalents equal $96,000 comprised of cash and currency in cash registers of $50,000, an investment in a debt security maturing on February 15, 2021 of $25,000, the checking account balance of $20,000, and petty cash of $1,000.
Use the following information and the indirect method to calculate the net cash provided or used by operating activities: *Net income $87,000 *Depreciation expense $13,700 *Gain on sale of land $6,600 *Increase in merchandise inventory $3,750 *Increase in accounts payable $7,850
$98,200 Net income $87,000 + Depreciation expense $13,700 - Gain on sale of land ($6,600) - Increase in merchandise inventory ($3,750) + Increase in accounts payable $7,850 = Net cashed used by operation $98,200
Cain incorporated reports net income of $15,000. Its comparative balance sheet shows the following changes: accounts receivable increased $6,000; Inventory decreased $8,000; prepaid insurance decreased $1,000; accounts payable increased $3,000; and taxes payable decreased $2,000. Compute cash flows from operations using the INDIRECT method.
*Net income = $15,000 Adjustments to reconcile net income to net cash provided by operating activities Changes in current assets and liabilities *Increase in accounts receivable = ($6,000) *Decrease in inventory = $8,000 *Decrease in prepaid insurance = $1,000 *Increase in accounts payable = $3,000 *Decrease in taxes payable = ($2,000) *Net cash provided by (used for) operating = $19,000
Bryant Company reports net income of $20,000. For the year, depreciation expense is $7,000 and the company reports a gain of $3,000 from sale of machinery. It also had a $2,000 loss from retirement of notes. Compute cash flows from operations using the INDIRECT method.
*Net income = $20,000 Adjustments to reconcile net income to net cash provided by operating activities. Income statement items not affecting cash *Depreciation expense = $7,000 *Gain on sale of machinery ($3,000) *Loss on retirement of notes = $2,000 *Cash provided by (used for) operating activities = $26,000
The following information is from Princeton company's comparative balance sheets. Common Stock, $10 par value *Current Year $105,000 *Prior Year $100,000 Paid-in capital in excess of par *Current Year $567,000 *Prior Year $342,000 Retained Earnings *Current Year $313,500 *Prior Year $287,500 The company's net income for the current year ended December 31 was $48,000. 1. Complete the T-accounts to calculate the cash received from the sale of its common stock during the current year. 2. Complete the T-account to calculate the cash paid for dividend during the current year.
1. Increase in Common stock ($105,000 - $100,000) = $5,000 Increase in Paid-in capital in excess of par ($567,000 - $342,000) = $225,000 Cash received from the sale of common stock ($5,000 + $225,000) = $230,000 2. *Beginning retained earnings $287,500 *Net income $48,000 *Total "expected" retained earnings ($287,500 + $48,000) = $335,500 *Actual ending retained earnings (313,500) *Cash paid for dividends ($335,500 - $313,500) = $22,000
Revo Company reports average total assets of $200,000, revenue of $90,000, net income of $30,000, and cash flow from operations of $38,000. 1. Compute its cash flow on total assets. 2. Is Revo's cash flow on total assets better than the 8% for its competitor, Epix Company?
1. 19% = $38,000 cash flow from operations / $200,000 average total assets. 2. Better. Revo's cash flow on total assets ratio exceeds Epix's ratio. This suggests that Revo did a better job of generating operating cash flows given its average assets.
CRUZ, INCORPORATED Comparative Balance Sheets ASSETS *Cash (2021) $63,600 (2020) $15,900 *Accounts Receivable, net (2021) $27,400 (2020) $33,700 *Inventory (2021) $57,400 (2020) $63,300 *Prepaid expenses (2021) $3,500 (2020) $2,900 TOTAL CURRENT ASSETS = (2021) $151,900 (2020) $115,800 *Furniture (2021) $70,500 (2020) $82,200 *Accumulated depreciation-Furniture 2021 (10,900) 2020 (6,200) TOTAL ASSETS (2021) $211,500 (2020) $191,800 LIABILITIES AND EQUITY *Accounts payable (2021) $10,000 (2020) $14,100 *Wages payable (2021) $6,000 (2020) $3,300 *Income taxes payable (2021) $1,000 (2020) $1,800 TOTAL CURRENT LIABILITIES (2021) $17,000 (2020) $19,200 *Notes payable (long-term) (2021) $20,700 (2020) $47,800 TOTAL LIABILITIES (2021) $37,700 (2020) $67,000 EQUITY *Common stock, $5 par value (2021) $153,600 (2020) $124,000 *Retained earnings (2021) $20,200 (2020) $800 TOTAL LIABILITIES AND EQUITY (2021) $211,500 (2020) $191,800 CRUZ, INCORPORATED Income Statement *Sales $328,400 *Cost of Goods Sold $211,300 *GROSS PROFIT = $117,100 *Operating Expenses (excluding depreciation) $60,000 *Depreciation expense $25,300 *INCOME BEFORE TAXES $31,800 *Income taxes expense $11,600 *NET INCOME $20,200 1. How much cash is received from sales to customers for year 2021? Assume all the sales were made on credit basis. 2. What is the net increase or decrease in the Cash account for year 2021?
1. Cash received from customers = Sales + Accounts receivable decrease = $328,400 ($33,700 - $27,400) = $334,700 2. Net increase in cash = $63,600 - $15,900 = $47,700
The plant assets section of the comparative balance sheets of Anders Company is reported below *Equipment (2021) $180,000 (2020) $270,000 *Accumulated depreciation-Equipment 2021 ($100,000) 2020 ($210,000) *Equipment, net (Eqmt - Dep) (2021) $80,000 (2020) $60,000 *Buildings (2021) $380,000 (2020) $400,000 *Accumulated depreciation - Buildings 2021 ($100,000) 2020 ($285,000) *Buildings, net (Bld - Dep) (2021) $280,000 (2020) $115,000 During 2021, a building with a book value of $70,000 and an original cost of $300,000 was sold at a gain of $60,000. 1. How much cash did Anders receive from the sale of the building? 2. How much depreciation expenses was recorded on buildings during 2021? 3. What was the cost buildings purchased by Anders during 2021?
1. Cash received from the sale of the building = $130,000 Book Value + Gain = Cash received from sale. ($70,000 + $60,000 = $130,000) *Book Value = Cost - Accumulated Depreciation *Accumulated Depreciation = Cost - Book Value Reconstructed journal entry for building sale: *Debit Cash $130,000 *Debit Accumulated Depreciation-building for $230,000 ($300,000 - $70,000) *Credit Gain on Sale of Building for $60,000 *Credit Building for $300,000 2. Depreciation expense = $45,000 We reconstruct the T-account for Accumulated Depreciation-Building to determine its Depreciation Expense of $45,000. Credit balance, 2020 $285,000 *Debit Sale $230,000 *Credit Depreciation Expense $45,000 (285,000 - 230,000 = 55,000 then 100,000 - 55,000= $45,000) *Balance, 2021 = $100,000 3. Purchase of building = $280,000 We reconstruct the T-account for Building to determine its purchases of buildings of $280,000 *Debit Balance, 2020 $400,000 *Credit Sale $300,000 *Debit Purchases $280,000 (400,000 - 300,000 = 100,000 then balance, 2021 of 380,000 - 100,000 = Purchases of $280,000 *Ending Debit balance, 2021 $380,000
Place the steps to preparing the statement of cash flows in the correct order.
1. Compute net increases or decreases in cash. 2. Compute net cash from or for operating activities. 3. Compute net cash from or for investing activities. 4. Compute net cash from or for financing activities. 5. Compute net cash from all sources, then prove it.
Blue, Incorporated, reported net cash flows from operating activities of $120,000, cash flows from investing activities of $300,000, cash flows from financing activities of $80,000, and average total assets of $2,500,000. The company's cash flow on total assets ratio (stated as a percentage rounded to one decimal point) is _____.
4.8% Cash Flow on Total Assets = Cash flow from Operations of $120,000 / Average total assets of $2,500,000 = 0.048 = 4.8%
For each of the following separate transactions: 1. Sold a building costing $35,500, with $22,200 of accumulated depreciation, for $10,200 cash, resulting in a $3,100 loss. 2. Acquired machinery worth $12,200 by issuing $12,200 in notes payable. 3. Issued 1,220 shares of common stock at par for $2 per share. 4. Long-term notes payable with a carrying value of $41,100 were retired for $49,200 cash, resulting in a $8,100 loss. (a) Prepare the reconstructed journal entry. (b) Identify the effect it has, if any, on the INVESTING SECTION or FINANCING SECTION of the statement of cash flows
A. (1) *Debit Accumulated depreciation-Building for $22,200 *Debit Loss on sale of building for $3,100 *Debit Cash for $10,200 *Credit Building for $35,500 (2) *Debit Machinery for $12,200 *Credit Notes payable for $12,200 (3) *Debit Cash for $2,440 *Credit Common stock for $2,440 (4) *Debit Notes payable for $41,100 *Debit Loss on retirement of debt $8,100 *Credit Cash for $49,200 B. 1. $10,200 increase in cash flows from investing activities. 2. No effect on cash flows from investing or financing activities. 3. $2,440 increase in cash flows financing activities. 4. $49,200 decrease in cash flows from financing activities.
CASH: Debit: *Balance, December 31, prior year $13,200 *Receipts from customers $79,200 *Receipts from equipment sale $34,000 *Receipts from issuing stock $52,800 Credit: *Payments for inventory $40,600 *Payments for salaries $26,400 *Payments for land $66,000 *Payment for a copyright $21,800 *Payment for dividends $4,600 Balance, December 31, current year is a debit balance of $19,800 Use the above Cash account to determine (a) cash flows used by investing activities and (b) cash flows provided by financing activities.
A. Investing activities *Cash received from equipment sale $34,000 *Cash paid for land ($66,000) *Cash paid for copyright ($21,800) *CASH USED BY INVESTING ACTIVITIES = ($53,800) B. Financing Activities *Cash received from issuing stock $52,800 *Cash dividends paid ($4,600) CASH PROVIDED BY FINANCING ACTIVITIES = $48,200
Under the indirect method of preparing the statement of cash flows, decreases in noncash current operating assets should be:
Added to net income Decreases in noncash current operating assets should be added to net income under the indirect method of reporting cash flows.
Under the indirect mothed of preparing the statement of cash flows, depreciation and amortization should be: Deducted from net income Added to net income Neither added to or deducted from net income
Added to net income Expenses and losses which are not cash outflows should be added back to net income.
CASE A: COMPUTE CASH INTEREST RECEIVED *Interest revenue $5,500 *Interest receivable, beginning of year $700 *Interest receivable, end of year $1,950 CASE B: COMPUTE CASH PAID FOR WAGES Wages expense $10,000 Wages payable, beginning of year $3,200 Wages payable, end of year $2,000 For each separate case, compute the required cash flow information for BioClean.
CASE A: *Interest revenue $5,500 *Interest receivable, beginning of year $700 *Interest receivable, end of year ($1,950) *Less increase in interest receivable ($1,250 Cash interest received $4,250 (5,500 + 700 - 1,950) CASE B: *Wages expense $10,000 *Wages payable, beginning of year $3,200 *Wages payable, end of year ($2,000) *Plus decrease in wages payable $1,200 Cash paid for wages = $11,200 (10,000 + 3,200 - 2,000)
CASE X: Compute cash received from customers *Sales $515,000 *Accounts receivable, Beginning balance $27,200 *Accounts receivable, Ending balance $33,600 CASE Y: Compute cash paid for rent *Rent expense $139,800 *Rent payable, Beginning balance $7,800 *Rent payable, Ending balance $6,200 CASE Z: Compute cash paid for inventory *Cost of goods sold $525,000 *Inventory, Beginning balance $158,600 *Accounts payable, Beginning balance $66,700 *Inventory, Ending balance $130,400 *Accounts payable, Ending balance $82,000 For each of the above three separate cases, use the information provided about the current-year operations of Sahim company to compute the required cash flow information. Assume all purchases and sales of inventory are on credit.
CASE X: *Sales revenue $515,000 *Accounts receivable, Beginning balance $27,200 *Accounts receivable, Ending balance ($33,600) *Less increase in accounts receivable ($6,400) *CASH RECEIVED FROM CUSTOMERS = $508,600 CASE Y: *Rent expense $139,800 *Rent payable, Beginning balance $7,800 *Rent payable, Ending balance ($6,200) *Plus decrease in rent payable $1,600 CASH PAID FOR RENT = $141,400 CASE Z: *Cost of goods sold $525,000 *Inventory, Ending balance $130,400 *Inventory, Beginning balance ($158,600) *Less decrease in inventory ($28,200) *Cost of goods purchased = $469,800 *Accounts payable, Ending balance $82,000 *Accounts payable, Beginning balance ($66,700) *Less increase in accounts payable ($15,300) CASH PAID FOR INVENTORY = $481,500
CRUZ, INCORPORATED Comparative Balance Sheets ASSETS *Cash (2021) $73,200 (2020) $18,300 *Accounts Receivable, net (2021) $31,400 (2020) $38,800 *Inventory (2021) $65,700 (2020) $72,800 *Prepaid expenses (2021) $4,100 (2020) $3,300 TOTAL CURRENT ASSETS = (2021) $244,300 (2020) $219,600 LIABILITIES AND EQUITY *Accounts payable (2021) $11,500 (2020) $16,200 *Wages payable (2021) $6,800 (2020) $3,800 *Income taxes payable (2021) $1,100 (2020) $2,100 TOTAL CURRENT LIABILITIES (2021) $19,400 (2020) $22,100 *Notes payable (long-term) (2021) $22,700 (2020) $55,700 TOTAL LIABILITIES (2021) $42,100 (2020) $77,800 EQUITY *Common stock, $5 par value (2021) $173,100 (2020) $134,500 *Retained earnings (2021) $29,100 (2020) $7,300 TOTAL LIABILITIES AND EQUITY (2021) $244,300 (2020) $219,600 CRUZ, INCORPORATED Income Statement *Sales $375,900 *Cost of Goods Sold $241,900 *GROSS PROFIT = $134,000 (375,900 - 241,900) *Operating Expenses (excluding depreciation) $68,600 *Depreciation expense $28,900 *INCOME BEFORE TAXES $36,500 (134,000 - 68,600 - 28,900) *Income taxes expense $13,300 *NET INCOME $23,200 (36,500 - 13,300) Use the indirect method to prepare the operating activities section of Cruz's statement of cash flows
CASH FLOWS FROM OPERATING ACTIVITIES Net income $23,200 ADJUSTMENT TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES INCOME STATEMENT ITEMS NOT AFFECTING CASH *Depreciation $28,900 CHANGES IN CURRENT OPERATING ASSETS AND LIABILITIES *Accounts receivable decreases $7,400 (38,800 - 31,400) *Inventory decrease 7,100 (72,800 - 65,700) *Prepaid expense increase (800) (3,300 - 4,100) *Accounts payable decrease (4,700) (16,200 - 11,500) *Wages payable increase $3,000 (3,800 - 6,800) *Income taxes payable decrease ($1,000) (2,100 - 1,100) Net cash provided by operating activities = $63,100
Hampton Company reports the following information for its recent calendar year. INCOME STATEMENT DATA: *Sales $71,000 EXPENSES: *Cost of goods sold $40,000 *Salaries expense $12,000 *Depreciation expense $8,000 NET INCOME = $11,000 SELECTED YEAR-END BALANCE SHEET DATA: *Accounts receivable increase $7,000 *Inventory decrease $3,000 *Salaries payable increase $800 Prepare the operating activities section of the statement of cash flows using the INDIRECT method.
CASH FLOWS FROM OPERATING ACTIVITIES - INDIRECT METHOD *Net income $11,000 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES INCOME STATEMENT ITEMS NOT AFFECTING CASH *Depreciation expense $8,000 CHANGES IN CURRENT OPERATING ASSETS AND LIABILITIES *Accounts receivable increase ($7,000) *Inventory decrease $3,000 Salaries payable increase $800 *Net cash provided by operating activities $15,800
Arundel Company disclosed the following information for its recent calendar year. INCOME STATEMENT DATA: *Revenues $100,000 EXPENSES: *Salaries expense $84,000 *Utilities expense $14,000 *Depreciation expenses $14,600 *Interest expense $3,400 NET LOSS = $(16,000) SELECTED YEAR-END BALANCE SHEET DATA: *Accounts receivable decrease $24,000 *Purchased a machine for cash $10,000 *Salaries payable increase $14,000 *Interest payable decrease $8,000 Prepare the operating activities section of the statement of cash flows using the INDIRECT method.
CASH FLOWS FROM OPERATING ACTIVITIES - INDIRECT METHOD *Net loss $(16,000) ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: INCOME STATEMENT ITEMS NOT AFFECTING CASH *Depreciation expense $14,600 CHANGES IN CURRENT OPERATING ASSETS AND LIABILITIES *Accounts receivable decrease $24,000 *Salaries payable increase $18,000 *Interest payable decrease $(8,000) *Net cash provided by operating activities $32,600
The following information was reported by three competitors: Cash flows provided (used by) operating activities Armor = $3,000 Biloxi = $(5,000) Calliope = $75,000. Cash flows provided (used by) investing activities *Proceeds from sale of plant assets Armor = $29,000 Biloxi = 20,000 *Purchase of plant assets Calliope = $(40,000) Cash flows provided (used by) financing activities *Proceeds from issuance of debt Biloxi = $10,000 *Repayments of debt Armor = $(6,000) Biloxi $(5,000) Calliope = $(15,000) The company(s) most capable of generating future cash flows in (are):
Calliope Each company generates an identical $20,000 net increase in cash, but its sources and uses of cash flows are very different. Calliope's operating activities provide net cash flows of $75,000, allowing it to purchase plant assets of $40,000 and repay $15,000 of its debt. Armor used $3,000 in its operating activities and generated $29,000 through the sale of plant assets but used $6,000 to retire debt. Biloxi used $5,000 on its operating activities, generated $20,000 through the sale of plant assets, and generated a net $5,000 by issuing and retiring debt. Overall, analysis of these cash flows reveals that Calliope is more capable of generating future cash flows than its competitors.
All of the following are correct forms of the accounting equations except. Cash = Liabilities + Equity + Noncash assets Assets = Liabilities + Equity Cash + Noncash assets = Liabilities + Equity Cash = Liabilities + Equity - Noncash assets
Cash = Liabilities +Equity + Noncash assets The accounting equation states that Assets = Liabilities +Equity. Assets are comprised of cash and noncash assets and, as such, can be replaced by these two components in the accounting equation so that it reads Cash + Noncash assets = Liabilities + Equity. Cash = Liabilities + Equity + Noncash assets is not a correct form of the accounting equation.
Cash flow on total assets is computed as:
Cash flow from operations divided by average total assets. Cash flow on total assets is computed as cash flow from operations divided by average total assets.
Cash received from long-term notes payable $67,000 Purchase of investments $16,900 Cash dividends paid $54,200 Interest paid $27,100 Compute cash flows from financing activities using the above company information.
Cash received from long-term notes payable $67,000 Cash dividends paid ($54,200) Cash provided by financing $12,800 ($67,000 - $54,200)
Bioware Company reports costs of goods sold of $42,000. Its comparative balance sheet shows that inventory decreased $7,000 and accounts payable increased $5,000. Compute cash payments to suppliers using the DIRECT method.
Cost of goods sold $42,000 Decrease in inventory ($7,000) Increase in accounts payable ($5,000) Cash paid for inventory $30,000
Under the indirect method of preparing the statement of cash flows, increase in current assets should be:
Deducted from net income Increase in current assets are subtracted from net income decreases in current assets are added to net income.
Under the indirect method of preparing the statement of cash flows, decreases in current liabilities should be:
Deducted from net income Increases in current liabilities are added to net income Decreases in current liabilities are subtracted from net income.
CRUZ, INCORPORATED Comparative Balance Sheets ASSETS *Cash (2021) $94,800 (2020) $24,000 *Accounts Receivable, net (2021) $41,000 (2020) $51,000 *Inventory (2021) $85,800 (2020) $95,800 *Prepaid expenses (2021) $5,400 (2020) $4,200 TOTAL CURRENT ASSETS = (2021) $227,000 (2020) $175,000 *Furniture (2021) $109,000 (2020) $119,000 *Accumulated depreciation-Furniture 2021 (17,000) 2020 (9,000) TOTAL ASSETS (2021) $319,000 (2020) $285,000 LIABILITIES AND EQUITY *Accounts payable (2021) $15,000 (2020) $21,000 *Wages payable (2021) $9,000 (2020) $5,000 *Income taxes payable (2021) $1,400 (2020) $2,600 TOTAL CURRENT LIABILITIES (2021) $25,400 (2020) $28,600 *Notes payable (long-term) (2021) $29,000 (2020) $69,000 TOTAL LIABILITIES (2021) $54,400 (2020) $97,600 EQUITY *Common stock, $5 par value (2021) $229,000 (2020) $179,000 *Retained earnings (2021) $35,600 (2020) $8,400 TOTAL LIABILITIES AND EQUITY (2021) $319,000 (2020) $285,000 CRUZ, INCORPORATED Income Statement *Sales $488,000 *Cost of Goods Sold $314,000 *GROSS PROFIT = $174,000 (488,000 - 314,000) *Operating Expenses (excluding depreciation) $89,100 *Depreciation expense $37,600 *INCOME BEFORE TAXES $47,300 (174,000 - 89,100 - 37,600) *Income taxes expense $17,300 *NET INCOME $30,000 (47,300 - 17,300) Furniture costing $55,000 is sold at its book value in 2021. Acquisitions of furniture total $45,000 cash, on which no depreciation is necessary because it is acquired at year-end. Complete the general ledger accounts to calculate cash received from the sale of furniture.
FURNITURE: *Debit Beginning balance $119,000 *Credit Sale of assets (55,000) *Debit Purchase of assets $45,000 ENDING BALANCE = Debit of$109,000 ACCUMULATED DEPRECIATION *Credit Beginning balance $9,000 *Credit 2021 Depreciation $37,600 *Debit Sale of assets $29,600 ENDING BALANCE = Credit of 17,000 *Cost = $55,000 *Accumulated Depreciation = $29,600 *Book Value (Cash received) = $25,400
The correct order of the three-stop analysis of determining cash provided or used by investing activities is:
Identify changes in investing accounts, determine the cash effects, report the cash flow effects. The three-step analysis to determine cash provided or used by investing activities is 1. Identify changes in investing-related accounts. 2. Determine the cash effects using T-accounts and reconstructed entries. 3. Report the cash flow effects.
Each of the following are classifications in the statement of cash flows except.
Income The three sections in the statement of cash flows includes operating, investing, and financing.
The issuance of common stock and declaration and payment of cash dividends will result in the following:
Increase in financing activities for the issuance and a decrease in financing activities for the dividends. Issuance of stock will result in a cash inflow (increase) from financing activities and a declaration and payment of cash dividends will result in a cash outflow (decrease) from financing activities.
The _______ method of reporting adjusts net income to get the net cash provided or used by operating activities.
Indirect The indirect method reports net income and then adjusts for items that do not affect cash to determine the cash inflows and outflows from operating activities.
Depreciation expense, loss on sale of assets and gain on retirement of debt are:
Never reported on the statement of cash flows using the direct method. Using the direct method of reporting operating activities, depreciation expense is a non-cash expense, so it is never reported on the statement of cash flows using the direct method. Gains and losses from sale of assets do not impact cash, so the loss or gain is never reported on the statement of cash flows using the direct method. Retirement of debt may yield a gain or loss but the gain or loss does not impact cash so it, also, is never reported on a statement of cash flows using the direct method.
Indicate where each item would appear on a statement of cash flows using the INDIRECT method. A. Paid cash to settle long-term notes payable B. Inventory increased in the year C. Issued common stock for cash D. Accounts payable decreased in the year E. Income taxes payable increased in the year F. Retired bonds payable by issuing stock G. Sold merchandise to customer for cash H. Sold land in return for cash I. Received a cash dividend from investment J. Recorded depreciation expense
Operating Activities: B, D, E, G, I, and J Investing Activities: H Financing Activities: A and C Noncash Investing & Financing Activities: F
Indicate where each item would appear on a statement of cash flows using the DIRECT METHOD by selecting an X in the appropriate column. A. Retired long-term notes payable by issuing common stock B. Paid cash toward wages owed C. Paid cash for interest owed D. Paid cash toward accounts payable E. Accepted note receivable in exchange for plant assets F. Recorded depreciation exception G. Sold inventory for cash. H. Paid cash toward taxes owed I. Issued common stock for cash J. Collected principal on notes receivable
Operating activities: B, C, D, G, and H Investing activities: J Financing activities: I Noncash Investing and Financing activities: A and E Not reported on Statement or in Notes: F
All of the following are sources of information to prepare the statement of cash flows except. Prior year's income statement Current year's income statement Comparative balance sheets Additional information
Prior year's Income statement Sources used to prepare the statement of cash flows includes comparative balance sheets, the current year's income statement, and additional information. The prior year's income statement is not used.
Each of the following are classified as an operating activity except. Payment of salaries Collection of credit sales Receipts of dividend revenue Purchase of short-term investments
Purchase of short-term investments. The purchase of short-term investments is classified as a cash outflow from investing activities, not operating.
Each of the following are classified as an investing activity except. Receipt of interest revenue Selling long-term investments Purchase of intangible assets Purchase of short-term investments
Receipt of interest revenue The receipt of cash from interest revenue is a cash inflow from operating activities, not investing.
CRUZ, INCORPORATED Comparative Balance Sheets ASSETS *Cash (2021) $63,600 (2020) $15,900 *Accounts Receivable, net (2021) $27,400 (2020) $33,700 *Inventory (2021) $57,400 (2020) $63,300 *Prepaid expenses (2021) $3,500 (2020) $2,900 TOTAL CURRENT ASSETS = (2021) $151,900 (2020) $115,800 *Furniture (2021) $70,500 (2020) $82,200 *Accumulated depreciation-Furniture 2021 (10,900) 2020 (6,200) TOTAL ASSETS (2021) $211,500 (2020) $191,800 LIABILITIES AND EQUITY *Accounts payable (2021) $10,000 (2020) $14,100 *Wages payable (2021) $6,000 (2020) $3,300 *Income taxes payable (2021) $1,000 (2020) $1,800 TOTAL CURRENT LIABILITIES (2021) $17,000 (2020) $19,200 *Notes payable (long-term) (2021) $20,700 (2020) $47,800 TOTAL LIABILITIES (2021) $37,700 (2020) $67,000 EQUITY *Common stock, $5 par value (2021) $153,600 (2020) $124,000 *Retained earnings (2021) $20,200 (2020) $800 TOTAL LIABILITIES AND EQUITY (2021) $211,500 (2020) $191,800 CRUZ, INCORPORATED Income Statement *Sales $328,400 *Cost of Goods Sold $211,300 *GROSS PROFIT = $117,100 *Operating Expenses (excluding depreciation) $60,000 *Depreciation expense $25,300 *INCOME BEFORE TAXES $31,800 *Income taxes expense $11,600 *NET INCOME $20,200 Use the above balance sheet and income statement to prepare the operating activities section by DIRECT method. Assume all the sales were made on credit basis.
Receipts from sales to customers = Sales + Accounts receivable decrease = $328,400 + ($33,700 - $27,400) = $334,700 Payments for inventory = Cost of goods sold - Inventory decrease + Accounts payable decrease = $211,300 - ($63,300 - $57,400) + ($14,100 - $10,000_ = $57,900 Payments for other expenses = Operating expenses (excluding depreciation) + Prepaid expenses increase - Wages payable increase = $60,000 + ($3,500 - $2,900) - ($6,000 - $3,300) = $57,900 Payments for taxes = $11,600 (income tax expense) + $800 (decrease in income taxes payable) = $12,400
Each of the following are classified as a noncash investing or financing activity except. Retirement of debt by issuing stock Reissuing treasury stock Purchase of long-term assets by issuing bonds Purchase of noncash assets by issuing equity
Reissuing treasury stock Reissuing treasury stock is a cash inflow from financing activity.
The formula to compute cash receipts or cash payments for operating cash flows using the direct method is:
Revenue or expense + or - adjustments for changes in related balance sheet accounts. Using the direct method of reporting operating cash flows, the formula to compute cash receipts or cash payments is revenue or expense plus or minus adjustments for changes in related balance sheet accounts equals cash receipts or cash payments.
Use the following information of VPI Company to prepare a statement of cash flows for the year ended December 31 using the INDIRECT method. *Cash balance at prior year-end $40,000 *Increase in inventory $5,000 *Depreciation expense $4,000 *Cash received from issuing stock $8,000 *Cash paid for dividends $1,000 *Gain on sale of machinery $2,000 *Cash received from sale of machinery $9,500 *Increase in accounts payable $1,500 *Net income $23,000 *Decrease in accounts receivable $3,000
VPI COMPANY Statement of Cash Flows (Indirect Method) CASH FLOWS FROM OPERATING EXPENSES *Net income $23,000 -ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY. -OPERATING ACTIVITES INCOME STATEMENT ITEMS NOT AFFECTING CASH. *Depreciation expense $4,000 *Gain on sale of machinery ($2,000) CHANGES IN CURRENT OPERATING ASSETS AND LIABILITIES *Increase in accounts payable $1,500 *Decrease in accounts receivable $3,000 *Increase in inventory ($5,000) *Net cash provided by operating activities $24,500 CASH FLOWS FROM INVESTING ACTIVITIES *Cash received from sale of machinery $9,500 *Net cash provided by investing activities $9,500 CASH FLOWS FROM FINANCING ACTIVITIES *Cash received from issuing stock $8,000 Cash paid for dividends ($1,000) *Net cash provided by financing activities $7,000 *Net increase in cash $41,000 *Cash balance at prior year-end $40,000 *Cash balance at current year-end $81,000
