FAR #16

Amateur Auditor is preparing the statement of cash flows for Accounting, Inc., using the direct method and wants to make sure that the cash flow from the operating activities section is correct. Which section of the Accounting Standards Codification best describes the direct method of reporting net cash flow from operating activities? Enter your response in the answer fields below. Guidance on correctly structuring your response appears above and below the answer fields. Unless specifically requested, your response should not cite implementation guidance.

FASB ASC 230-10-45-25

While preparing the financial statements for Standards Corp., Ash Roe decided that the creation of a direct-method cash flow statement in addition to a reconciliation of net income to cash flow was of little additional use to investors. Ash believes the cost of preparing this statement outweighs any benefits the investors would receive. Accordingly, and in reliance upon authoritative literature, he prepared only the reconciliation. Which section of the authoritative guidance best provides guidance on the reconciliation of net income and cash flows from operations? Enter your response in the answer fields below. Guidance on correctly structuring your response appears above and below the answer fields. Unless specifically requested, your response should not cite implementation guidance.

FASB ASC 230-10-45-28

The controller of SFB, Inc. asked whether or not to include cash flow per share data in the company's financial statements. Which section of the authoritative guidance best addresses the presentation of cash flow per share data in the financial statements? Enter your response in the answer fields below. Guidance on correctly structuring your response appears above and below the answer fields. Unless specifically requested, your response should not cite implementation guidance.

FASB ASC 230-10-45-3

Presented below are the balance sheet accounts of Kern, Inc., as of December 31, Year 2 and Year 1, and their net changes. Year 2 Year 1 Net ChangeAssetsCash$ 471,000 $ 307,000 $164,000 Trading securities, at cost150,000 250,000 (100,000)Securities fair value adjustment (trading)(10,000)(25,000)15,000 Accounts receivable, net550,000 515,000 35,000 Inventories810,000 890,000 (80,000)Investments in Word Corp., at equity420,000 390,000 30,000 Property, plant, and equipment1,145,000 1,070,000 75,000 Accumulated depreciation(345,000)(280,000)(65,000)Patent, net 109,000 118,000 (9,000) Total assets$3,300,000 $3,235,000 $ 65,000 Liabilities and Shareholders' EquityAccounts payable and accrued liabilities$ 845,000 $ 960,000 $(115,000)Note payable, noncurrent600,000 900,000 (300,000)Deferred income taxes190,000 190,000 -- Common stock, $10 par value850,000 650,000 200,000 Additional paid-in capital230,000 170,000 60,000 Retained earnings 585,000 365,000 220,000 Total liabilities and shareholders' equity $3,300,000 $3,235,000 $ 65,000 Additional information: On January 2, Year 2, Kern sold equipment costing $45,000, with a carrying amount of $28,000, for $18,000 cash. On March 31, Year 2, Kern sold one of its trading security holdings for $119,000 cash. Cash flows from purchases, sales, and maturities of Kern's trading securities are from investing activities. No other transactions involved trading securities. On April 15, Year 2, Kern issued 20,000 shares of its common stock for cash at $13 per share. On July 1, Year 2, Kern purchased equipment for $120,000 cash. Kern's net income for Year 2 is $305,000. Kern paid a cash dividend of $85,000 on October 26, Year 2. Kern acquired a 20% interest in Word Corp.'s common stock during Year 1. There was no goodwill attributable to the investment, which is appropriately accounted for by the equity method. Word reported net income of $150,000 for the year ended December 31, Year 2. No dividend was paid on Word's common stock during Year 2. Complete Kern's statement of cash flows using the information above. Enter the appropriate amounts in the designated cells below. Indicate negative numbers by using a leading minus (-) sign. Cash flows from investing activities:1. Sale of trading securities2. Sale of equipment3. Purchase of equipment4. Net cash provided by (used in) investing activitiesCash flows from financing activities:5. Issuance of common stock6. Cash dividend paid7. Payment on note payable8. Net cash provided by (used in) financing activities

1. 119000 2. 18000 3. -120000 4. 17000 5. 260000 6. -85000 7. -300000 8. -125000

The following condensed trial balance of Gator Co., a publicly held company, has been adjusted except for income tax expense. Gator Co.CONDENSED TRIAL BALANCE 12/31/Year 512/31/Year 4NetBalancesBalancesChange Dr.(Cr.) Dr.(Cr.) Dr.(Cr.) Cash$ 413,000 $ 757,000 $(344,000)Accounts receivable, net670,000 610,000 60,000 Property, plant, and equipment1,070,000 995,000 75,000 Accumulated depreciation(345,000)(280,000)(65,000)Available-for-sale securities70,000 60,000 10,000 Dividends payable(25,000)(10,000)(15,000)Income taxes payable35,000 (150,000)185,000 Deferred income tax liability(42,000)(42,000)-- Bonds payable(500,000)(1,000,000)500,000 Unamortized premium on bonds(71,000)(150,000)79,000 Common stock(350,000)(150,000)(200,000)Additional paid-in capital(430,000)(375,000)(55,000)Retained earnings(185,000)(265,000)80,000 Accumulated other comprehensive income (10,000)(10,000)Sales(2,420,000)Cost of sales1,863,000 Selling and administrative expenses220,000 Interest income(14,000)Interest expense46,000 Depreciation88,000 Loss on sale of equipment7,000 Unusual in nature gain (90,000) $ 0 $ 0 $ 300,000 Additional InformationDuring Year 5, equipment with an original cost of $50,000 was sold for cash, and equipment costing $125,000 was purchased.On January 1, Year 5, bonds with a par value of $500,000 and related premium of $75,000 were redeemed. The $90,000 gain met the criteria for treatment as an extraordinary item. The $1,000 face amount, 10% stated rate, 20-year bonds had been issued 9 years ago, to yield 8%. Interest is paid on December 31.Gator's tax payments during Year 5 were debited to income taxes payable.On December 31, Year 4, 60,000 shares of common stock, $2.50 par, were outstanding. Gator issued an additional 80,000 shares on April 1, Year 5.There were no changes in retained earnings other than dividends declared. Enter the appropriate amount to be reported in Gator's Year 5 statement of cash flows prepared using the direct method in the designated cells below. Enter all amounts as positive values. TransactionAmount1. Cash paid for income taxes2. Cash paid for interest3. Redemption of bonds payable4. Issuance of common stock5. Cash dividends paid6. Proceeds from sale of equipment

1. 185000 2. 50000 3. 485000 4. 255000 5. 65000 6. 20000

Mantequilla, Inc., uses the indirect method to prepare its statement of cash flows. Mantequilla's balance sheets at December 31, Year 4 and Year 5, are as follows: 12/31/Year 5 12/31/Year 4 Net ChangeCash$ 935,000 $ 352,000 $ 583,000 Investment in trading debt securities53,000 113,000 (60,000)Accounts receivable (net)475,000 320,000 155,000 Inventories472,000 455,000 17,000 Property, plant, and equipment485,000 600,000 (115,000)Accumulated depreciation(310,000)(260,000)(50,000)Goodwill 260,000 360,000 (100,000) Total assets$2,070,000 $1,940,000 Accounts payable$ 650,000 $ 610,000 $ 40,000 Note payable300,000 300,000 -- Interest payable5,000 80,000 (75,000)Common stock, $10 par value700,000 600,000 100,000 Additional paid-in capital400,000 250,000 150,000 Retained earnings 315,000 100,000 215,000 Total liabilities and shareholders' equity$2,070,000 $1,940,000 Additional Information:During Year 5, Mantequilla sold equipment costing $115,000, with a carrying amount of $85,000, for $90,000 in cash.On November 15, Year 5, Mantequilla sold some of its trading security holdings for $50,000 in cash. Based on Mantequilla's accounting policy, cash flows from trading debt securities are classified as cash flows from investing activities. During 2015, there was no change in the fair value of trading debt securities.Goodwill was written down due to impairment on November 1, Year 5. The amount of this loss was included in net income.On July 11, Year 5, Mantequilla issued 10,000 shares of stock for cash at $25 per share.Mantequilla paid $15,000 of dividends in Year 5. For the following reconciling items, enter the amounts that will be reported in Mantequilla's statement of cash flows in the designated cells below. Indicate negative adjustments by using a leading minus (-) sign. Cash flows from operating activities:1. Net incomeAdjustments to reconcile net income to net cash provided by operating activities:2. Depreciation3. Impairment of goodwill4. Sale of equipment5. Sale of trading securities6. Change in accounts receivable7. Change in inventories8. Change in accounts payable9. Change in interest payable10. Net cash provided by operating activities

1. 230000 2. 80000 3. 100000 4. -5000 5. 10000 6. -155000 7. -17000 8. 40000 9. -75000 10. 208000

Using the direct method, complete Jupiter Corp.'s December 31, Year 5, operating activities section of the statement of cash flows using the information below. Enter the appropriate amounts in the designated cells below. Enter all amounts as positive values. ItemAmount1. Jupiter reported cost of goods sold for Year 5 of $275,000. Jupiter's inventory increased by $95,000 for Year 5, and accounts payable to suppliers increased by $25,000. In Year 5, Jupiter paid what amount of cash to suppliers?2. Jupiter's prepaid insurance on January 1 was $60,000, and it was $50,000 on December 31. Insurance expense was $25,000 for Year 5 and $9,000 for Year 4. Determine the amount of cash Jupiter paid for insurance in Year 5.3. The beginning balance of accounts receivable was $20,500, and the ending balance is $33,000. No accounts were written off or recovered during the year. For the year, Jupiter had sales on account and cash sales of $450,000. How much cash did Jupiter collect from customers for Year 5?4. Calculate Jupiter's Year 5 cash disbursement for income taxes, using the following information: Income tax expense for Year 5 is $20,400; income taxes payable balance on January 1 was $29,100 and on December 31 is $21,000; balance on January 1 for deferred income taxes was $4,600 and on December 31 is $5,300.

1. 345000 2.15000 3. 437500 4. 27800

The following is Aerie Corp.'s comparative balance sheet accounts worksheet at December 31, Year 8 and Year 7, with a column showing the increase (decrease) from Year 7 to Year 8.Comparative balance sheet worksheet Year 8 Year 7 Net ChangeCash$ 800,000 $ 700,000 $100,000 Accounts receivable1,128,000 1,168,000 (40,000)Inventories1,850,000 1,715,000 135,000 Property, plant, and equipment3,307,000 2,967,000 340,000 Accumulated depreciation(1,165,000)(1,040,000)(125,000)Investment in Acme, Inc., at equity305,000 275,000 30,000 Loan receivable 270,000 0 270,000 Total assets$6,495,000 $5,785,000 $710,000 Accounts payable$1,015,000 $ 955,000 $ 60,000 Income taxes payable30,000 50,000 (20,000)Dividends payable80,000 90,000 (10,000)Capital lease obligation400,000 0 400,000 Capital stock, common, $1 par500,000 500,000 0 Additional paid-in capital1,500,000 1,500,000 0 Retained earnings2,970,000 2,690,000 280,000 Total liabilities and shareholders' equity $6,495,000 $5,785,000 $710,000 Additional information: On December 31, Year 7, Aerie acquired 25% of Acme's common stock for $275,000. There is no goodwill attributable to the investment, which is appropriately accounted for by the equity method. Acme reported income of $120,000 for the year ended December 31, Year 8. No dividend was paid on Acme's common stock during the year. During Year 8, Aerie loaned $300,000 to Sky Co., an unrelated company. Sky made the first semi-annual principal payment of $30,000 on October 1, Year 8. On January 2, Year 8, Aerie sold equipment costing $60,000, with a carrying amount of $35,000, for $40,000 cash. On December 31, Year 8, Aerie entered into a capital lease for an office building. The present value of the annual rental payments is $400,000, which equals the fair value of the building. Aerie made the first rental payment of $60,000 when due on January 2, Year 9. Net income for Year 8 was $360,000. Aerie declared and paid cash dividends for both Year 7 and Year 8. For Year 7, Aerie declared a $90,000 dividend and paid it on February 28, Year 8. For Year 8, Aerie declared an $80,000 dividend to be paid on February 8, Year 9. Using the indirect method, complete Aerie's statement of cash flows for the year ended December 31, Year 8, using the information above. Enter the appropriate amounts in the designated cells below. Indicate negative numbers by using a leading minus (-) sign. Aerie Corp.Statement of Cash FlowsFor the year ended December 31, Year 8 Cash flows from operating activities:Net incomeAdjustments to reconcile net income to net cash provided by operating activities:Depreciation expenseGain on sale of equipmentEquity in income of Acme, Inc.Change in accounts receivableChange in inventoriesChange in accounts payableChange in income taxes payableNet cash provided by operating activitiesCash flows from investing activities:Proceeds from equipment saleLoan to Sky Co.Proceeds from principal payment on loan receivableNet cash used in investing activitiesCash flows from financing activities:Dividends paidNet cash used in financing activitiesNet increase in cashBeginning balanceEnding balance

1. 360000 2. 150000 3. -5000 4. -30000 5. 40000 6. -135000 7. 60000 8. -20000 9. 60000 10. 420000 11. 40000 12. -300000 13. 30000 14.-230000 15. -90000 16. -90000 17. 100000 18. 700000 19. 800000

Steppenwolf Co. uses the direct method to prepare its statement of cash flows. Steppenwolf's financial statements are as follows: Comparative Balance Sheet12/31/Year 212/31/Year 1Cash$10,000 $20,500 Accounts receivable17,000 13,000 Inventory25,000 20,000 Supplies900 500 Prepaid insurance800 2,000 Equipment, net of accumulated depreciation 36,000 40,000 Total assets$89,700 $96,000 Accounts payable25,000 31,000 Salaries payable13,000 16,000 Common stock, $10 par value25,000 25,000 Additional paid-in capital14,000 14,000 Retained earnings 12,700 10,000 Total liabilities and stockholders' equity$89,700 $96,000 Income Statement For Year Ended 12/31/Year 2 Sales$50,000 Cost of goods sold 31,000 Gross profit19,000 Salary expense10,000 Supplies expense1,000 Insurance expense1,300 Depreciation expense 4,000 Net income$ 2,700 Using the direct method, prepare the operating activities section of the statement of cash flows for Steppenwolf for the year ended December 31, Year 2. Enter the appropriate amounts in the designated cells below. Indicate negative numbers using a leading minus (-) sign. Cash flows from operating activitiesAmount1. Cash received from customers2. Cash paid to purchase inventory3. Cash wages paid to employees4. Cash paid for supplies5. Cash paid for insurance6. Net cash flow from operating activities

1. 46000 2. -42000 3. -13000 4. -1400 5. -100 6. -10500

Presented below are the balance sheet accounts of Kern, Inc., as of December 31, Year 2 and Year 1, and their net changes. Year 2 Year 1 Net ChangeAssetsCash$ 471,000 $ 307,000 $ 164,000 Trading debt securities, at cost150,000 250,000 (100,000)Securities fair value adjustment (trading) (10,000)(25,000)15,000 Accounts receivable, net550,000 515,000 35,000 Inventories810,000 890,000 (80,000)Investments in Word Corp., at equity420,000 390,000 30,000 Property, plant, and equipment1,145,000 1,070,000 75,000 Accumulated depreciation(345,000)(280,000)(65,000)Patent, net 109,000 118,000 (9,000) Total assets$3,300,000 $3,235,000 $ 65,000 ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ Liabilities and Shareholders' EquityAccounts payable and accrued liabilities$ 845,000 $ 960,000 $(115,000)Note payable, noncurrent600,000 900,000 (300,000)Deferred income taxes190,000 190,000 --- Common stock, $10 par value850,000 650,000 200,000 Additional paid-in capital230,000 170,000 60,000 Retained earnings 585,000 365,000 220,000 Total liabilities and stockholders' equity$3,300,000 $3,235,000 $ 65,000 ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ Additional Information: On January 2, Year 2, Kern sold equipment costing $45,000, with a carrying amount of $28,000, for $18,000 cash. On March 31, Year 2, Kern sold one of its trading security holdings for $119,000 cash. Cash flows from purchases, sales, and maturities of Kern's trading securities are from investing activities. No other transactions involved trading securities. On April 15, Year 2, Kern issued 20,000 shares of its common stock for cash at $13 per share. On July 1, Year 2, Kern purchased equipment for $120,000 cash. Kern's net income for Year 2 is $305,000. Kern paid a cash dividend of $85,000 on October 26, Year 2. Kern acquired a 20% interest in Word Corp.'s common stock during Year 1. There was no goodwill attributable to the investment, which is appropriately accounted for by the equity method. Word reported net income of $150,000 for the year ended December 31, Year 2. No dividend was paid on Word's common stock during Year 2. For the following operating cash flow items, enter in the designated cells the amounts that will be reported in Kern's statement of cash flows. Indicate negative numbers by using a leading minus (-) sign. Cash flows from operating activities:Amount Net income$305,000Adjustments to reconcile net income to net cash provided by operating activities:1. Depreciation2. Amortization of patent3. Loss on sale of equipment4. Equity in income of Word Corp.5. Gain on sale of trading securities6. Decrease in securities fair value adjustment7. Increase in accounts receivable8. Decrease in inventories9. Decrease in accounts payable and accrued liabilities10. Net cash provided by operating activities

1. 82000 2. 9000 3. 10000 4. -30000 5.-19000 6. -15000 7. -35000 8. 80000 9. -115000 10. 272000

Using the direct method, and the information in the exhibits, prepare the financing activities section of the statement of cash flows for Alaskan Travels, Inc., as of December 31, Year 2. In the first column, from the option list provided, select the description for cash flows that are clearly from financing activities. In the second column, enter the amounts that will be reported in the financing activities section of thterm-1e statement of cash flows. Indicate negative numbers by using a leading minus (-) sign. Cash flows from financing activities: Net cash provided by (used in) financing activities: 1.2.3.4.5.Total:

1. Dividends paid, $(80,000) 2. Payment for treasury stock, $(100,000) 3. Payment of note payable, $(310,000) 4. Proceeds from issuance of preferred stock, $550,000 5. $60,000

Naud Co. is in the process of preparing its cash flow statement for the year ended December 31, Year 1, using the direct method. Naud did not elect the fair value option. For each transaction, select from the option list provided the appropriate cash flow statement classification, if any. An option may be used once, more than once, or not at all. TransactionClassification1. Proceeds from issuance of long-term debt2. Issued shares of common stock to purchase land3. Purchase of treasury stock4. Cash paid to employees for general and administrative expenses5. Proceeds from sales of available-for-sale securities6. Dividends received from investments

1. Financing section 2. Included in supplemental disclosures 3. Financing section 4. Operating section 5. Investing section 6. Operating section

Select from the option list provided the proper classification, using the indirect method, for the items below. Each choice may be used once, more than once, or not at all. ItemClassification1. Purchase of equipment2. Bond redemption3. Sale of building4. Loss on sale of building5. Patent amortization6. Purchase of treasury stock7. Issuance of bonds for land8. Decrease in wages payable9. Depreciation10. Decrease in accounts receivable

1. Investing 2. Financing 3. Investing 4. Operating - add to net income 5. Operating - add to net income 6. Financing 7. Noncash investing and financing 8. Operating - subtract from net income 9. Operating - add to net income 10. Operating - Add to net income

Select from the option list provided the best classification for each activity below. Each choice may be used once, more than once, or not at all. Cash flowClassification1. Purchase of available-for-sale debt securities2. Purchase of land3. Dividends distributed to shareholders4. Equipment acquired through capital lease5. Sale of trading securities6. Collection of trade receivables7. Equipment acquired through purchase8. Dividends received9. Interest paid10. Interest received11. Retirements of bond principal12. Issuance of preferred shares

1. Investing activity 2. Investing activity 3. Financing activity 4. Noncash investing and financing activities 5. Depends on nature and purpose 6. Operating activity 7. Investing activity 8. Operating activity 9. Operating activity 10. Operating activity 11. Financing activity 12. Financing activity

Bald Eagle, Inc., had the following transactions for the year ended December 31, Year 7. Select from the options list provided the best classification for each activity. Each choice may be used once, more than once, or not at all. Cash flowClassification1. Purchased equipment for $30,0002. Sold available-for-sale securities for $7,0003. Paid income taxes of $40,0004. Issued 40,000 shares of common stock, $2.50 par5. Paid $2,000 interest6. Paid $10,000 cash dividends to shareholders7. Received $1,500 interest8. Sold land for $17,0009. Paid $7,000 to vendors for inventory10. Purchased treasury stock for $20,000

1. Investing activity 2. Investing activity 3. Operating activity 4. Financing activity 5. Operating activity 6. Financing activity 7. Operating activity 8. Investing activity 9. Operating activity 10. Financing activity

Using the direct method, and the information in the exhibits, prepare the investing section of the statement of cash flows for Alaskan Travels, Inc., as of December 31, Year 2. In the first column, select from the option list provided the description for cash flows that are clearly from investing activities. In the second column, enter the amounts that will be reported in the investing activities section of the statement of cash flows. Indicate negative numbers by using a leading minus (-) sign. Cash flows from investing activities: Net cash provided by (used in) investing activities:1.2.3.4.Total:

1. Payment for purchase of land, -150000 2. Purchase of available-for-sale securities, -75000 3. Payment for purchase of airplane, -27500 4. -252500

Using the indirect method, and the information in the exhibits, complete Bayshore's operating portion of the statement of cash flows for the year ended December 31, Year 2. Select from the option list provided the activity name for each operating activity in the statement of cash flows. Each choice may be used once, more than once, or not at all. Then, enter the appropriate amounts in the designated cells. Indicate negative numbers by using a leading minus (-) sign. Bayshore Industries, Inc.Statement of Cash FlowsFor the year ended December 31, Year 2 Operating activity nameAmountCash flows from operating activities CLICK/TAP HERE T

1. Payment for purchase of land, -150000 2. Purchase of available-for-sale securities, -75000 3. Payment for purchase of airplane, -27500 4. -252500

For each of the following, select from the option list provided where the specific item should be separately reported on the statement of cash flows prepared using the indirect method. A choice may be used once, more than once, or not at all. TransactionAnswer1. Cash paid for income taxes2. Cash paid for interest3. Redemption of bonds payable4. Issuance of common stock5. Cash dividends paid6. Proceeds from sale of equipment

1. Supplementary information 2. Supplementary information 3. Financing 4. Financing 5. Financing 6. Investing

Gascony Corporation is in the process of preparing its financial statements. In order to prepare the management, discussion, and analysis portion of the financial statements, Marcus Trevill, Gascony's Chief Financial Officer, asked for some specific information. After an initial review of the documentation, a staff associate prepared a draft letter to Mr. Trevill. He has asked you to review the documentation and revise the document, correcting any errors. To revise the document, click on each segment of underlined text below and select the needed correction, if any, from the list provided. If the underlined text is already correct in the context of the document, select [Original Text] from the list. If removal of the underlined text is the best revision to the document, select [Delete Text] from the list if available. To: Marcus Trevill, CFO

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