Test Bank - Chapter17 Cash Flows

Chapter 17 “How Well Am I Doing?” Statement of Cash Flows

True/False 1. T Medium

Every transaction classified as "source" or "use" of cash for purposes of constructing a statement of cash flows involves a change in some noncash balance sheet account.

2. T Medium

In the statement of cash flows, increases in a company's capital stock accounts are generally treated as a "source" rather than as a "use" of cash.

3. F Hard

Dividends received on stock held as an investment should be treated as an investing activity on the statement of cash flows.

4. F Medium

A change in deferred taxes is considered to be a financing activity on the statement of cash flows.

5. T Hard

Under the indirect method of determining the net cash flow from operating activities on the statement of cash flows, a gain on the sale of equipment would be subtracted from net income.

6. T Medium

An increase in taxes payable between the beginning and the end of the year would be added to net income when determining the net cash provided by operating activities under the indirect method on the statement of cash flows.

7. F Medium

Under the indirect method of determining the net cash provided by operating activities on the statement of cash flows, increases in current liabilities such as accounts payable are subtracted from net income.

8. F Hard

If the income statement shows a loss for the period, then the net cash provided by operating activities on the statement of cash flows cannot be positive.

9. F Medium

Transactions that involve acquiring or disposing of noncurrent assets are generally classified as financing activities on the statement of cash flows.

10. T Medium

Cash dividends paid to the owners of a company would be classified as part of financing activities on the statement of cash flows.

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11. F Medium

(Appendix) If accounts receivable increase during a period, then the amount of cash collected from customers will be greater than the amount of sales reported on the income statement for the period.

12. F Medium

(Appendix) Under the direct method of determining net cash provided by operating activities on the statement of cash flows, the net income figure is adjusted for changes in current assets and liabilities.

13. F Hard

(Appendix) Under the direct method of determining the net cash provided by operating activities on the statement of cash flows, an increase in accounts payable would be added to cost of goods sold to convert cost of goods sold to a cash basis.

14. T Easy

The net cash provided by operating activities on the statement of cash flows will generally be different than net income.

15. T Easy

For external reporting purposes, the FASB recommends that the direct method of determining the net cash provided by operating activities be used for the statement of cash flows.

Multiple Choice 16. B Medium

An increase in the Inventory account of a company from $10,000 at the beginning of the year to $15,000 at the end of the year would be shown on the company's statement of cash flows prepared under the indirect method as: a. an addition to net income of $5,000 in order to arrive at cash flows from operating activities. b. a deduction from net income of $5,000 in order to arrive at cash flows from operating activities. c. an addition to net income of $15,000 in order to arrive at cash flows from operating activities. d. a deduction from net income of $10,000 in order to arrive at cash flows from operating activities.

17. C Hard

Under the indirect method of determining net cash provided by operating activities, which of the following would be recorded as a deduction from net income? a. A decrease in accounts receivable. b. An increase in salaries payable. c. A decrease in accounts payable. d. An increase in deferred tax liability.

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18. A Medium

An increase in the Interest Payable account of a company from $0 at the beginning of the year, to $1,000 at the end of the year, would be shown on the company's statement of cash flows prepared under the indirect method as: a. an addition to net income of $1,000 in order to arrive at cash flows from operating activities. b. a deduction from net income of $1,000 in order to arrive at cash flows from operating activities. c. a cash flow of $1,000 under the Investing Activities heading. d. a cash flow of $1,000 under the Financing Activities heading.

19. C Medium

Which of the following would be considered a "use" of cash for purpose of constructing a statement of cash flows? a. selling the company's own common stock to investors. b. issuing long-term debt. c. purchasing equipment. d. amortizing a patent.

20. A Medium

Which of the following would be considered a "use" of cash for purposes of constructing a statement of cash flows? a. an increase in accounts receivable. b. a decrease in prepaid expenses. c. an increase in bonds payable. d. an increase in accumulated depreciation.

21. B Medium

Which of the following would be considered a "use" of cash for purposes of constructing a statement of cash flows? a. an increase in accounts payable. b. an increase in prepaid expenses. c. an increase in accrued liabilities. d. an increase in accumulated depreciation.

22. B Medium

An increase in the prepaid expenses account of $1,000 over the course of a year would be shown on the company's statement of cash flows prepared under the indirect method as: a. an addition to net income of $1,000 in order to arrive at net cash provided by operating activities. b. a deduction from net income of $1,000 in order to arrive at net cash provided by operating activities. c. an addition of $1,000 under financing activities. d. a deduction of $1,000 under financing activities.

23. D Medium CMA adapted

When using the indirect method to prepare the statement of cash flows, amortization of goodwill should be presented as a(n): a. cash flow from investing activities. b. cash flow from financing activities. c. deduction from net income. d. addition to net income. e. investing and financing activity not affecting cash.

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24. D Hard

(Appendix) During the year the balance in the accounts payable account decreased by $8,000. In order to adjust the company's net income to a cash basis using the direct method on the statement of cash flows, it would be necessary to: a. deduct the $8,000 from the sales revenue reported on the income statement. b. add the $8,000 to the sales revenue reported on the income statement. c. deduct the $8,000 from the cost of goods sold reported on the income statement. d. add the $8,000 to the cost of goods sold reported on the income statement.

25. A Hard

(Appendix) During the year the balance in the accrued liabilities account increased by $12,000. In order to adjust the company's net income to a cash basis using the direct method on the statement of cash flows, it would be necessary to: a. deduct the $12,000 from the operating expenses on the income statement. b. add the $12,000 to the operating expenses on the income statement. c. deduct the $12,000 from the cost of goods sold reported on the income statement. d. add the $12,000 to the cost of goods sold reported on the income statement.

26. A Easy

In a statement of cash flows, a change in prepaid expenses would be classified as: a. an operating activity. b. a financing activity. c. an investing activity. d. a noncash item that need not appear on the statement of cash flows.

27. A Easy

In a statement of cash flows, a change in the inventories account would be classified as: a. an operating activity. b. a financing activity. c. an investing activity. d. a noncash item that need not appear on the statement of cash flows.

28. D Medium CMA adapted

All of the following should be classified under the operating section of the statement of cash flows EXCEPT: a. a decrease in inventory. b. an increase in accumulated depreciation. c. a decrease in prepaid insurance. d. a purchase of land in exchange for a long-term note. e. an increase in income tax payable.

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29. D Medium

An increase in the plant and equipment account of $100,000 over the course of a year would be shown on the company's statement of cash flows prepared under the indirect method as: a. an addition to net income of $100,000 in order to arrive at net cash provided by operating activities. b. a deduction from net income of $100,000 in order to arrive at net cash provided by operating activities. c. an addition of $100,000 under investing activities. d. a deduction of $100,000 under investing activities.

30. C Medium

An increase in the bonds payable account of $200,000 over the course of a year would be shown on the company's statement of cash flows prepared under the indirect method as: a. an addition of $200,000 under investing activities. b. a deduction of $200,000 under investing activities. c. an addition of $200,000 under financing activities. d. a deduction of $200,000 under financing activities.

31. D Medium

An decrease in the bonds payable account of $200,000 over the course of a year would be shown on the company's statement of cash flows prepared under the indirect method as: a. an addition of $200,000 under investing activities. b. a deduction of $200,000 under investing activities. c. an addition of $200,000 under financing activities. d. a deduction of $200,000 under financing activities.

32. B Hard CMA adapted

Which one of the following transactions should be classified as a financing activity on the statement of cash flows? a. Purchase of equipment. b. Purchase of the company's own stock. c. Sale of a patent. d. Payment of interest on a note. e. Receipt of an income tax refund.

33. B Hard

Which of the following would be classified as a Financing Activity on the statement of cash flows? a. Interest paid on bonds issued by the reporting company. b. Dividends paid to shareholders of the company on the company's common stock. c. Interest received on investments in another company's bonds. d. Dividends received on investments in another company's common stock.

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34. A Hard

The sale of equipment at a gain would be shown on the statement of cash flows prepared under the indirect method in which of the following manners? a. Cash received would be shown under Investing Activities and the gain would be deducted from net income. b. Cash received would be shown under Investing Activities and the gain would be added to net income. c. Cash received would be shown under Investing Activities and the gain would not appear on the statement of cash flows. d. Cash received would be shown as an adjustment to net income and the gain would not appear on the statement of cash flows.

35. C Hard

Which of the following presentations on the statement of cash flows of the transactions described is correct? a. A company that purchases $600,000 in property during a year, and sells other property for $400,000, shows a $200,000 net investment in property for the year as an Investing Activity. b. A company that receives $700,000 from the issuance of bonds, and pays $600,000 to retire other bonds, shows a $100,000 net amount from Financing Activities. c. A company has an increase of $400,000 in accounts receivable as a result of sales for the year, and a decrease of $300,000 in accounts receivable as a result of collections during the year, shows a $100,000 net difference in determining the cash flow from operating activities during the year. d. None of the above presentations is correct.

36. C Hard

The data given below are from the accounting records of the Kuhn Company: Net Income (accrual basis) ............... $45,000 Depreciation Expense ..................... $ 9,000 Decrease in Accounts Payable ............. $ 2,500 Decrease in Merchandise Inventory ........ $ 3,000 Increase in Long-term Liabilities ........ $10,000 Sale of Capital Stock for cash ........... $30,000 Increase in Accounts Receivable .......... $ 4,500 Based on this information, the cash provided by operating activities using the indirect method would be: a. $55,000. b. $58,000. c. $50,000. d. $60,000.

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37. C Hard

Morey Company's net income last year was $27,000 and cash dividends declared and paid to the company's stockholders totaled $13,000. Changes in selected balance sheet accounts for the year appear below: Increases (Decreases) Debit balances: Accounts receivable ......... $ 8,000 Inventory ................... (3,000) Prepaid expenses ............ 4,000 Credit balances: Accumulated depreciation .... 18,000 Accounts payable ............ 6,000 Taxes payable ............... (4,000) Bonds payable ............... 10,000 Based solely on this information, the net cash provided by operations under the indirect method on the statement of cash flows would be: a. $16,000. b. $45,000. c. $38,000. d. $25,000.

38. B Hard

Moravec Company's net income last year was $46,000 and cash dividends declared and paid to the company's stockholders totaled $18,000. Changes in selected balance sheet accounts for the year appear below: Increases (Decreases) Debit balances: Accounts receivable ......... $ 8,000 Inventory ................... (5,000) Credit balances: Accumulated depreciation .... 26,000 Accounts payable ............ 10,000 Accrued liabilities ......... (9,000) Taxes payable ............... 4,000 Bonds payable ............... 60,000 Based solely on this information, the net cash provided by operations under the indirect method on the statement of cash flows would be: a. $126,000. b. $74,000. c. $72,000. d. $18,000.

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39. D Hard

Morera Company's net income last year was $37,000 and cash dividends declared and paid to the company's stockholders totaled $14,000. Changes in selected balance sheet accounts for the year appear below: Increases (Decreases) Debit balances: Accounts receivable ......... $ 6,000 Inventory ................... 5,000 Prepaid expenses ............ (3,000) Long term investments ....... 20,000 Credit balances: Accumulated depreciation .... 26,000 Accounts payable ............ (7,000) Taxes payable ............... 8,000 Based solely on this information, the net cash provided by operations under the indirect method on the statement of cash flows would be: a. $63,000. b. $32,000. c. $18,000. d. $56,000.

40. B Medium

Nordstrand Company's net income last year was $36,000. Changes in selected balance sheet accounts for the year appear below: Increases (Decreases) Debit balances: Accounts receivable ......... $(7,000) Inventory ................... (5,000) Prepaid expenses ............ 3,000 Credit balances: Accumulated depreciation .... 18,000 Accounts payable ............ 13,000 Accrued liabilities ......... (9,000) Taxes payable ............... -0Deferred taxes .............. 1,000 Based solely on this information, the net cash provided by operations under the indirect method on the statement of cash flows would be: a. $4,000. b. $68,000. c. $50,000. d. $54,000.

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41. C Medium

Nordquist Company's net income last year was $33,000. Changes in selected balance sheet accounts for the year appear below: Increases (Decreases) Debit balances: Accounts receivable ......... $12,000 Inventory ................... (4,000) Prepaid expenses ............ 8,000 Credit balances: Accumulated depreciation .... 23,000 Accounts payable ............ 14,000 Accrued liabilities ......... (9,000) Taxes payable ............... -0Deferred taxes .............. 3,000 Based solely on this information, the net cash provided by operations under the indirect method on the statement of cash flows would be: a. $80,000. b. $18,000. c. $48,000. d. $56,000.

42. A Medium

Norbury Company's net income last year was $34,000. Changes in selected balance sheet accounts for the year appear below: Increases (Decreases) Debit balances: Accounts receivable ......... $12,000 Inventory ................... (9,000) Prepaid expenses ............ 4,000 Credit balances: Accumulated depreciation .... 19,000 Accounts payable ............ 5,000 Accrued liabilities ......... 7,000 Taxes payable ............... (6,000) Deferred taxes .............. -0Based solely on this information, the net cash provided by operations under the indirect method on the statement of cash flows would be: a. $52,000. b. $66,000. c. $53,000. d. $16,000.

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43. A Medium CPA adapted

Lino Company's records reveal the following account balances at the close and beginning of last year: December 31 January 1 Accounts receivable $29,000 $23,000 Accumulated depreciation 1,000 800 Prepaid expenses 8,200 12,400 Accounts payable 22,400 19,400 Lino's net income last year was $150,000. The company uses the indirect method to determine the net cash provided by operating activities. Based solely upon this data, what amount should Lino include as net cash provided by operating activities in its statement of cash flows for the year? a. $151,400 b. $157,000 c. $148,600 d. $145,400

44. C Medium

(Appendix) Last year Cumley Company reported a cost of goods sold of $90,000. Inventories increased by $21,000 during the year, and accounts payable decreased by $14,000. The company uses the direct method to determine the net cash provided by operating activities on the statement of cash flows. The cost of goods sold adjusted to a cash basis would be: a. $55,000. b. $111,000. c. $125,000. d. $104,000.

45. D Medium

(Appendix) Last year Cumber Company reported a cost of goods sold of $70,000. Inventories decreased by $12,000 during the year, and accounts payable increased by $8,000. The company uses the direct method to determine the net cash provided by operating activities on the statement of cash flows. The cost of goods sold adjusted to a cash basis would be: a. $90,000. b. $62,000. c. $58,000. d. $50,000.

46. A Medium

(Appendix) Last year Cumberland Company reported a cost of goods sold of $120,000. Inventories increased by $35,000 during the year, and accounts payable increased by $20,000. The company uses the direct method to determine the net cash provided by operating activities on the statement of cash flows. The cost of goods sold adjusted to a cash basis would be: a. $135,000. b. $100,000. c. $155,000. d. $105,000.

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47. B Hard

(Appendix) Last year Lawton Company reported sales of $110,000 on its income statement. During the year, accounts receivable decreased by $10,000 and accounts payable decreased by $15,000. The company uses the direct method to determine the net cash provided by operating activities on the statement of cash flows. The sales revenue adjusted to a cash basis for the year would be: a. $125,000. b. $120,000. c. $115,000. d. $105,000.

48. C Hard

(Appendix) Last year Lawsby Company reported sales of $120,000 on its income statement. During the year, accounts receivable increased by $10,000 and accounts payable increased by $15,000. The company uses the direct method to determine the net cash provided by operating activities on the statement of cash flows. The sales revenue adjusted to a cash basis for the year would be: a. $105,000. b. $125,000. c. $110,000. d. $115,000.

49. A Hard

(Appendix) Last year Lawn Company reported sales of $115,000 on its income statement. During the year, accounts receivable decreased by $10,000 and accounts payable increased by $15,000. The company uses the direct method to determine the net cash provided by operating activities on the statement of cash flows. The sales revenue adjusted to a cash basis for the year would be: a. $125,000. b. $90,000. c. $140,000. d. $100,000.

50. B Medium

(Appendix) Last year Darrow Company reported sales of $600,000 on its income statement. During the year, accounts receivable increased by $30,000 and accounts payable decreased by $20,000. The company uses the direct method to determine the net cash provided by operating activities on the statement of cash flows. The sales revenue adjusted to a cash basis for the year would be: a. $630,000. b. $570,000. c. $610,000. d. $590,000.

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51. A Medium

(Appendix) Last year Madson company reported a cost of goods sold of $800,000 on its income statement. The following additional data were taken from the company's comparative balance sheet for the year: Ending Beginning Inventory ............. $120,000 $100,000 Accounts payable ...... $ 70,000 $ 80,000 The company uses the direct method to determine the net cash provided by operating activities on the statement of cash flows. The cost of goods sold adjusted to a cash basis would be: a. $830,000. b. $810,000. c. $770,000. d. $790,000.

52. A Medium

(Appendix) Cridge Company's operating expenses for last year totaled $170,000. During the year the company's prepaid expense account balance increased by $9,000 and accrued liabilities decreased by $13,000. Depreciation charges for the year were $15,000. Based on this information, operating expenses adjusted to a cash basis under the direct method on the statement of cash flows would be: a. $177,000. b. $207,000. c. $133,000. d. $163,000.

53. B Medium

(Appendix) Cridwell Company's operating expenses for last year totaled $210,000. During the year the company's prepaid expense account balance increased by $18,000 and accrued liabilities increased by $12,000. Depreciation charges for the year were $24,000. Based on this information, operating expenses adjusted to a cash basis under the direct method on the statement of cash flows would be: a. $180,000. b. $192,000. c. $228,000. d. $240,000.

54. C Medium

(Appendix) Cridman Company's operating expenses for last year totaled $180,000. During the year the company's prepaid expense account balance decreased by $5,000 and accrued liabilities increased by $8,000. Depreciation charges for the year were $12,000. Based on this information, operating expenses adjusted to a cash basis under the direct method on the statement of cash flows would be: a. $205,000. b. $181,000. c. $155,000. d. $179,000.

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55. A Hard

(Appendix) The ending balance of accounts receivable was $52,500. Sales, adjusted to a cash basis using the direct method on the statement of cash flows, were $425,000. Sales reported on the income statement were $444,000. Based on this information, the beginning balance in accounts receivable was: a. $33,500. b. $66,500. c. $71,500. d. $39,500.

56. C Hard

(Appendix) During the year just completed, Anderson Company reported a cost of goods sold of $100,000. The company's inventory at the beginning of the year was $11,000, and its inventory at the end of the year was $19,000. The Prepaid Expense account increased by $2,000 between the beginning and end of the year, and the Accounts Payable account decreased by $4,000. Cost of goods sold adjusted to the cash basis under the direct method would be: a. $94,000. b. $106,000. c. $112,000. d. $110,000.

57. A Hard

(Appendix) Carlton Company reported on its income statement sales for the year just ended of $435,000. Sales during the year adjusted to the cash basis on its statement of cash flows constructed using the direct method were $460,000. Carlton Company recorded the following account balances: Balance o Account o Beginning of the Year End of the Year Accounts Receivable ...... ? $35,000 Prepaid Expenses ......... $12,000 $16,000 Inventory ................ $22,000 $19,000 Based on this information, the balance in Accounts Receivable at the beginning of the year was: a. $60,000. b. $63,000. c. $59,000. d. $10,000.

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58. B Hard

(Appendix) LFM Company reported Cost of Goods Sold on its income statement of $15,000 for the year just ended, as well as the balances shown in the following accounts at the respective yearends: Beginning of Year End of Year Inventory ............... $30,000 $33,000 Accounts Payable ........ $21,000 $23,000 Using the direct method of constructing the statement of cash flows, the cost of goods sold adjusted to a cash basis would be: a. $14,000. b. $16,000. c. $10,000. d. $15,000.

59. C Hard

(Appendix) During the year just completed, Blume Company reported total cost of goods sold on the income statement as $140,000. During the year, the balance in Accounts Payable decreased $25,000 and the balance in Inventory increased $10,000. Under the direct method, cost of goods sold adjusted to the cash basis would be: a. $105,000. b. $125,000. c. $175,000. d. $155,000.

60. C Hard

Last year Marmin Company sold equipment with a net book value of $120,000 for $160,000 in cash. This equipment was originally purchased for $230,000. What will be the net effect of this transaction on the net cash provided by investing activities on the statement of cash flows? a. A net deduction of $40,000 from cash. b. A net addition of $40,000 to cash. c. A net deduction of $70,000 from cash. d. A net addition of $70,000 to cash.

61. B Hard

Last year Marlstrom Company sold equipment with a net book value of $110,000 for $90,000 in cash. This equipment was originally purchased for $280,000. What will be the net effect of this transaction on the net cash provided by investing activities on the statement of cash flows? a. A net addition of $190,000 to cash. b. A net deduction of $190,000 from cash. c. A net addition of $20,000 to cash. d. A net deduction of $20,000 from cash.

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62. D Hard

Last year Marty Company sold equipment with a net book value of $125,000 for $110,000 in cash. This equipment was originally purchased for $275,000. What will be the net effect of this transaction on the net cash provided by investing activities on the statement of cash flows? a. A net addition of $15,000 to cash. b. A net deduction of $15,000 from cash. c. A net addition of $165,000 to cash. d. A net deduction of $165,000 from cash.

63. C Hard

The following events occurred last year for the Cashback Company: Issuance of Common Stock ................ $46,000 Dividends paid to shareholders .......... 11,000 Dividends received from investments ..... 4,000 Interest paid on Bonds Payable .......... 14,000 Proceeds from sale of used equipment .... 19,000 Repurchase of preferred stock ........... 10,000 Based solely on the above information, the net cash provided by financing activities for the year on the statement of cash flows was: a. $44,000. b. $48,000. c. $25,000. d. $15,000.

64. C Hard

The following transactions occurred last year at Jowlson Company: Issuance of shares of the company's own common stock ............. $ 40,000 Dividends paid to the company's own shareholders ............. 3,000 Dividends received from investments in other companies' shares ............. 5,000 Interest paid on the company's own bonds .. 22,000 Repayment of principal on the company's own bonds ................ 100,000 Proceeds from sale of the company's used equipment ............... 29,000 Purchase of land .......................... 80,000 Based solely on the above information, the net cash provided by financing activities for the year on the statement of cash flows would be: a. $(131,000). b. $279,000. c. $(63,000). d. $(85,000).

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65. D Hard

The following transactions occurred last year at Jogger Company: Issuance of shares of the company's own common stock ............. $110,000 Dividends paid to the company's own shareholders ............. 3,000 Dividends received from investments in other companies' shares ............. 4,000 Interest paid on the company's own bonds .. 8,000 Repayment of principal on the company's own bonds ................ 100,000 Proceeds from sale of the company's used equipment ............... 29,000 Purchase of land .......................... 170,000 Based solely on the above information, the net cash provided by financing activities for the year on the statement of cash flows would be: a. $424,000. b. $(138,000). c. $(1,000). d. $7,000.

66. B Hard

The following transactions occurred last year at Jolly Company: Issuance of shares of the company's own common stock ............. $120,000 Dividends paid to the company's own shareholders ............. 1,000 Dividends received from investments in other companies' shares ............. 7,000 Interest paid on the company's own bonds .. 13,000 Repayment of principal on the company's own bonds ................ 60,000 Proceeds from sale of the company's used equipment ............... 8,000 Purchase of land .......................... 170,000 Based solely on the above information, the net cash provided by financing activities for the year on the statement of cash flows would be: a. $379,000. b. $59,000. c. $(109,000). d. $46,000.

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67. D Hard

Grading Company's cash and cash equivalents consist of cash and marketable securities. Last year the company's cash account decreased by $14,000 and its marketable securities account increased by $18,000. Cash provided by operating activities was $21,000. Net cash used for financing activities was $22,000. Based on this information, the net cash flow from investing activities on the statement of cash flows was: a. a net $13,000 decrease. b. a net $1,000 increase. c. a net $3,000 decrease. d. a net $5,000 increase.

68. A Medium

Last year Burbach Company's cash account increased by $10,000. Net cash provided by investing activities was $16,000. Net cash used in financing activities was $34,000. On the statement of cash flows, the net cash flow provided by (used in) operating activities was: a. $28,000. b. $(8,000). c. $10,000. d. $(18,000).

69. B Medium

Last year Burford Company's cash account decreased by $19,000. Net cash used in investing activities was $9,000. Net cash provided by financing activities was $16,000. On the statement of cash flows, the net cash flow provided by (used in) operating activities was: a. $(19,000). b. $(26,000). c. $(12,000). d. $7,000.

70. D Medium

Last year Burch Company's cash account decreased by $6,000. Net cash provided by investing activities was $13,000. Net cash used in financing activities was $30,000. On the statement of cash flows, the net cash flow provided by (used in) operating activities was: a. $(23,000). b. $(17,000). c. $(6,000). d. $11,000.

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Reference: 17-1 (Appendix) Balance sheet accounts for Hollis, Inc. contained the following amounts at the ends of years 1 and 2: Year 2 Year 1 Debit balances Cash .......................... $ 7,500 $ 5,000 Accounts Receivable ........... 21,000 15,000 Inventory ..................... 37,000 28,000 Prepaid Expenses .............. 2,500 2,000 Long-term Investments ......... 21,000 25,000 Plant and Equipment ........... 196,000 175,000 Totals .............. $285,000 $250,000 Credit balances Accumulated Depreciation ...... $ 41,000 $ 32,000 Accounts Payable .............. 24,000 28,000 Accrued Liabilities ........... 9,000 5,000 Bonds Payable ................. 30,000 35,000 Common Stock .................. 75,000 60,000 Retained Earnings ............. 106,000 90,000 Totals .............. $285,000 $250,000 The company's income statement for year 2 follows: Sales .................. $126,000 Cost of Goods Sold ..... 77,000 Gross profit ........... 49,000 Operating Expense ...... 28,000 Net Income ............. $ 21,000 There were no sales or retirements of plant and equipment in Year 2. Cash dividends of $5,000 were paid during Year 2. The company pays no income taxes. The company uses the direct method to determine the net cash provided by operating activities on the statement of cash flows. 71. B Medium Refer To: 171

For Year 2, sales adjusted to a cash basis would be: a. $111,000. b. $120,000. c. $126,000. d. $132,000.

72. D Medium Refer To: 171

Cost of goods sold adjusted to a cash basis for Year 2 would be: a. $64,000. b. $72,000. c. $82,000. d. $90,000.

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73. A Medium Refer To: 171

The net cash provided by operating activities for Year 2 would be: a. $14,500. b. $30,000. c. $18,500. d. $27,500.

74. C Medium Refer To: 171

Net cash used for investing activities for Year 2 would be: a. $12,000. b. $21,000. c. $17,000. d. $22,000.

75. C Medium Refer To: 171

Net cash provided by financing activities for Year 2 would be: a. $6,000. b. $10,000. c. $5,000. d. $11,000.

Reference: 17-2 Watley Company's comparative balance sheet and income statement for last year appear below: Statement of Financial Position Ending Beginning Balance Balance Cash ....................... $ 27,000 $ 21,000 Accounts receivable ........ 28,000 35,000 Inventory .................. 48,000 36,000 Prepaid expenses ........... 8,000 13,000 Long-term investments ...... 290,000 230,000 Plant and equipment ........ 440,000 440,000 Accumulated depreciation ... (237,000) (202,000) Total assets ............. $604,000 $573,000 Accounts payable ........... $ 47,000 $ 32,000 Accrued liabilities ........ 24,000 16,000 Taxes payable .............. -010,000 Bonds payable .............. 100,000 180,000 Deferred taxes ............. 28,000 17,000 Common stock ............... 80,000 50,000 Retained earnings .......... 325,000 268,000 Total liabilities and owners' equity ........ $604,000 $573,000

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116

Income Statement Sales ........................ $770,000 Less: costs of goods sold .... 350,000 Gross margin ................. 420,000 Less: operating expenses ..... 260,000 Net operating income ......... 160,000 Less: income taxes ........... 48,000 Net income ................... $112,000 The company declared and paid $55,000 in cash dividends during the year. The following questions pertain to the company's statement of cash flows. 76. A Medium Refer To: 172

The net cash provided by (used in) operating activities last year was: a. $171,000. b. $146,000. c. $53,000. d. $112,000.

77. D Medium Refer To: 172

The net cash provided by (used in) investing activities last year was: a. $30,000. b. $(30,000). c. $60,000. d. $(60,000).

78. B Medium Refer To: 172

The net cash provided by (used in) financing activities last year was: a. $105,000. b. $(105,000). c. $(50,000). d. $50,000.

117Managerial Accounting, 9/e

Reference: 17-3 Wabash Company's comparative balance sheet and income statement for last year appear below: Statement of Financial Position Ending Beginning Balance Balance Cash ....................... $ 30,000 $ 38,000 Accounts receivable ........ 76,000 64,000 Inventory .................. 38,000 44,000 Prepaid expenses ........... 18,000 9,000 Long-term investments ...... 240,000 200,000 Plant and equipment ........ 430,000 430,000 Accumulated depreciation ... (220,000) (190,000) Total assets ............. $612,000 $595,000 Accounts payable ........... $ 51,000 Accrued liabilities ........ 10,000 Taxes payable .............. 31,000 Bonds payable .............. 60,000 Deferred taxes ............. 21,000 Common stock ............... 110,000 Retained earnings .......... 329,000 Total liabilities and owners' equity ........ $612,000

$ 37,000 25,000 21,000 110,000 17,000 90,000 295,000 $595,000

Income Statement Sales ........................ $710,000 Less: costs of goods sold .... 410,000 Gross margin ................. 300,000 Less: operating expenses ..... 190,000 Net operating income ......... 110,000 Less: income taxes ........... 33,000 Net income ................... $ 77,000 The company declared and paid $43,000 in cash dividends during the year. The following questions pertain to the company's statement of cash flows. 79. C Medium Refer To: 173

The net cash provided by (used in) operating activities last year was: a. $107,000. b. $49,000. c. $105,000. d. $77,000.

80. D Medium Refer To: 173

The net cash provided by (used in) investing activities last year was: a. $(20,000). b. $20,000. c. $40,00). d. $(40,000).

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81. B Medium Refer To: 173

The net cash provided by (used in) financing activities last year was: a. $73,000. b. $(73,000). c. $30,000. d. $(30,000).

Reference: 17-4 Megan Company's net income last year was $98,000. Changes in the company's balance sheet accounts for the year appear below: Increases (Decreases) Debit balances: Cash ........................ $ (3,000) Accounts receivable ......... (14,000) Inventory ................... 3,000 Prepaid expenses ............ (7,000) Long-term investments ....... 80,000 Plant and equipment ......... 55,000 Credit balances: Accumulated depreciation .... 58,000 Accounts payable ............ -0Accrued liabilities ......... 15,000 Taxes payable ............... (13,000) Bonds payable ............... (30,000) Deferred taxes .............. 2,000 Common stock ................ 20,000 Retained earnings ........... 62,000 The company declared and paid cash dividends of $36,000 last year. The following questions pertain to the company's statement of cash flows. 82. B Medium Refer To: 174

The net cash provided by (used in) operating activities last year was: a. $98,000. b. $178,000. c. $156,000. d. $120,000.

83. D Medium Refer To: 174

The net cash provided by (used in) investing activities last year was: a. $,000. b. $(115,000). c. $135,000. d. $(135,000).

119Managerial Accounting, 9/e

84. A Medium Refer To: 174

The net cash provided by (used in) financing activities last year was: a. $(46,000). b. $46,000. c. $(10,000). d. $10,000.

Reference: 17-5 (Appendix) Van Ardhom Company's comparative balance sheet and income statement for last year appear below: Statement of Financial Position Ending Beginning Balance Balance Cash ....................... $ 25,000 $ 40,000 Accounts receivable ........ 56,000 34,000 Inventory .................. 71,000 52,000 Prepaid expenses ........... 7,000 13,000 Long-term investments ...... 310,000 240,000 Plant and equipment ........ 420,000 420,000 Accumulated depreciation ... (236,000) (208,000) Total assets ............. $635,000 $591,000 Accounts payable ........... $ 78,000 Accrued liabilities ........ 6,000 Taxes payable .............. 30,000 Bonds payable .............. 70,000 Deferred taxes ............. 34,000 Common stock ............... 100,000 Retained earnings .......... 335,000 Total liabilities and owners' equity ........ $653,000

$ 57,000 21,000 19,000 110,000 22,000 70,000 292,000 $591,000

Income Statement Sales ........................ $670,000 Less: costs of goods sold .... 310,000 Gross margin ................. 360,000 Less: operating expenses ..... 230,000 Net operating income ......... 130,000 Less: income taxes ........... 39,000 Net income ................... $ 91,000 The company declared and paid $48,000 in cash dividends during the year. The company uses the direct method to determine the net cash provided by operating activities.

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85. A Hard Refer To: 175

On the statement of cash flows, the sales revenue adjusted to a cash basis would be: a. $648,000. b. $667,000. c. $670,000. d. $692,000.

86. B Hard Refer To: 175

On the statement of cash flows, the cost of goods sold adjusted to a cash basis would be: a. $289,000. b. $308,000. c. $310,000. d. $312,000.

87. B Hard Refer To: 175

On the statement of cash flows, the operating expenses adjusted to a cash basis would be: a. $239,000. b. $211,000. c. $230,000. d. $249,000.

88. D Hard Refer To: 175

On the statement of cash flows, the income tax expense adjusted to a cash basis would be: a. $39,000. b. $62,000. c. $28,000. d. $16,000.

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Reference: 17-6 (Appendix) Van Broder Company's comparative balance sheet and income statement for last year appear below: Statement of Financial Position Ending Beginning Balance Balance Cash ....................... $ 46,000 $ 27,000 Accounts receivable ........ 56,000 46,000 Inventory .................. 53,000 66,000 Prepaid expenses ........... 8,000 13,000 Long-term investments ...... 280,000 210,000 Plant and equipment ........ 510,000 510,000 Accumulated depreciation ... (267,000) (235,000) Total assets ............. $686,000 $637,000 Accounts payable ........... $ 12,000 Accrued liabilities ........ 35,000 Taxes payable .............. 32,000 Bonds payable .............. 70,000 Deferred taxes ............. 30,000 Common stock ............... 80,000 Retained earnings .......... 427,000 Total liabilities and owners' equity ........ $686,000

$ 27,000 21,000 14,000 130,000 25,000 50,000 370,000 $637,000

Income Statement Sales ........................ $640,000 Less: costs of goods sold .... 300,000 Gross margin ................. 340,000 Less: operating expenses ..... 230,000 Net operating income ......... 110,000 Less: income taxes ........... 33,000 Net income ................... $ 77,000 The company declared and paid $20,000 in cash dividends during the year. The company uses the direct method to determine the net cash provided by operating activities. 89. D Hard Refer To: 176

On the statement of cash flows, the sales revenue adjusted to a cash basis would be: a. $640,000. b. $650,000. c. $617,000. d. $630,000.

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90. B Hard Refer To: 176

On the statement of cash flows, the cost of goods sold adjusted to a cash basis would be: a. $315,000. b. $302,000. c. $300,000. d. $298,000.

91. C Hard Refer To: 176

On the statement of cash flows, the operating expenses adjusted to a cash basis would be: a. $281,000. b. $211,000. c. $179,000. d. $230,000.

92. A Hard Refer To: 176

On the statement of cash flows, the income tax expense adjusted to a cash basis would be: a. $10,000. b. $33,000. c. $56,000. d. $15,000.

Reference: 17-7 The changes in Northrup Company's balance sheet account balances for last year appear below: Increases (Decreases) Debit balances: Cash ........................ $ 4,000 Accounts receivable ......... (4,000) Inventory ................... (2,000) Prepaid expenses ............ 2,000 Long-term investments ....... 40,000 Plant and equipment ......... 25,000 Credit balances: Accumulated depreciation .... 68,000 Accounts payable ............ (6,000) Accrued liabilities ......... 8,000 Taxes payable ............... (10,000) Bonds payable ............... (70,000) Deferred taxes .............. 2,000 Common stock ................ 10,000 Retained earnings ........... 63,000

123Managerial Accounting, 9/e

The company's income statement for the year appears below: Income Statement Sales ........................ $980,000 Less: costs of goods sold .... 540,000 Gross margin ................. 440,000 Less: operating expenses ..... 310,000 Net operating income ......... 130,000 Less: income taxes ........... 39,000 Net income ................... $ 91,000 The company declared and paid $28,000 in cash dividends during the year. The company uses the direct method to determine the net cash provided by operating activities. 93. C Hard Refer To: 177

On the statement of cash flows, the sales revenue adjusted to a cash basis would be: a. $976,000. b. $982,000. c. $984,000. d. $980,000.

94. C Hard Refer To: 177

On the statement of cash flows, the cost of goods sold adjusted to a cash basis would be: a. $546,000. b. $536,000. c. $544,000. d. $540,000.

95. D Hard Refer To: 177

On the statement of cash flows, the operating expenses adjusted to a cash basis would be: a. $304,000. b. $384,000. c. $310,000. d. $236,000.

96. A Hard Refer To: 177

On the statement of cash flows, the income tax expense adjusted to a cash basis would be: a. $47,000. b. $39,000. c. $31,000. d. $49,000.

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Reference: 17-8 Spats Company recorded the following events last year: Issuance of shares of the company's own common stock ........... $120,000 Purchase of bonds issued by other companies ...................... 30,000 Dividends paid to the company's own shareholders ..................... 10,000 Dividends received from investments in other companies' shares ........... 12,000 Repayment of principal on the company's own bonds .................. 300,000 Interest paid on the company's own bonds ............................ 19,000 Collection of the principal amount of a loan made to another company .... 220,000 Purchase of equipment .................. 360,000 On the statement of cash flows, some of these events are classified as operating activities, some are classified as investing activities, and some are classified as financing activities. 97. B Hard Refer To: 178

Based solely on the information above, the net cash provided by (used in) financing activities on the statement of cash flows would be: a. $1,071,000. b. $(190,000). c. $13,000. d. $(209,000).

98. C Hard Refer To: 178

Based solely on the information above, the net cash provided by (used in) investing activities on the statement of cash flows would be: a. $(1,071,000). b. $(390,000). c. $(170,000). d. $(690,000).

125Managerial Accounting, 9/e

Reference: 17-9 Spawle Company recorded the following events last year: Issuance of shares of the company's own common stock ........... $200,000 Purchase of bonds issued by other companies ...................... 50,000 Dividends paid to the company's own shareholders ..................... 39,000 Dividends received from investments in other companies' shares ........... 14,000 Repayment of principal on the company's own bonds .................. 270,000 Interest paid on the company's own bonds ............................ 18,000 Collection of the principal amount of a loan made to another company .... 70,000 Purchase of equipment .................. 280,000 On the statement of cash flows, some of these events are classified as operating activities, some are classified as investing activities, and some are classified as financing activities. 99. C Hard Refer To: 179

Based solely on the information above, the net cash provided by (used in) financing activities on the statement of cash flows would be: a. $(15,000). b. $941,000. c. $(109,000). d. $(127,000).

100. D Hard Refer To: 179

Based solely on the information above, the net cash provided by (used in) investing activities on the statement of cash flows would be: a. $(941,000). b. $(320,000). c. $(600,000). d. $(260,000).

Reference: 17-10 Lucas Company recorded the following events for the year just ended: Retirement of preferred stock .......................... $50,000 Sale of bonds issued by other companies ................ $75,000 Interest paid on notes payable ......................... $35,000 Dividends paid to shareholders ......................... $90,000 Collection by Lucas of a loan made to a subsidiary ..... $55,000 Payment of deferred taxes .............................. $45,000

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126

101. D Medium Refer To: 1710

The net decrease in cash resulting from financing activities for the year was: a. $45,000. b. $35,000. c. $85,000. d. $140,000.

102. A Medium Refer To: 1710

The net change in cash resulting from investing activities for the year was: a. $130,000. b. $40,000. c. ($5,000). d. $10,000.

Reference: 17-11 Crandall Company recorded the following activity for the year just ended: Proceeds from sale of plant equipment ............. $400,000 Dividends received from investments ............... $ 30,000 Common stock issued ............................... $200,000 Notes issued to creditors for borrowed funds ...... $ 80,000 Dividends paid to stockholders .................... $ 20,000 Purchase of plant equipment ....................... $120,000 103. D Medium Refer To: 1711

The net cash provided by financing activities for the year was: a. $280,000. b. $200,000. c. $300,000. d. $260,000.

104. C Hard Refer To: 1711

The net cash provided by investing activities for the year was: a. $400,000. b. $410,000. c. $280,000. d. $380,000.

127Managerial Accounting, 9/e

Essay 105. Medium

Recent balance sheets of Warnick Co. appear below, together with an income statement for the latest year. WARNICK CO. Balance Sheets May 31, 19x2 and 19x1 19x2 19x1 Cash ............................... $22,300 $24,000 Accounts receivable ................ 6,400 7,500 Inventories......................... 39,900 30,100 Long-term investments .............. -8,000 Plant and equipment ................ 132,500 120,000 Less accumulated depreciation ...... ( 50,800) ( 46,800) Total assets .................... $150,300 $142,800 Accounts payable ................... $ 1,600 Accrued liabilities ................ 2,100 Common stock ....................... 108,000 Retained earnings .................. 38,600 Total liabilities and stockholders' equity ...... $153,300

$ 2,400 1,800 100,000 38,600 $142,800

WARNICK CO. Income Statement and For the Year Ended May 31, 19x2 Sales ............................ $102,000 Less cost of goods sold .......... 73,000 Gross margin ..................... 29,000 Less operating expenses:.......... 14,000 Income before taxes .............. 15,000 Less income taxes ................ 4,500 Net income ....................... $ 10,500 Note: Stock in Bowen Co., held as a long-term investment, was sold for $8,000 cash. Dividends of $10,500 were declared and paid during the year.

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128

Required: Prepare a statement of cash flows for Warnick Co. for the year ended May 31, 19x2. Use the indirect method. Answer: Operating activities: Net income ................................ $10,500 Adjustments to convert to cash basis: Depreciation charges .................... 4,000 Decrease in accounts receivable ......... 1,100 Increase in inventories ................. (9,800) Decrease in accounts payable ............ (800) Increase in accrued liabilities ......... 300 Net cash provided by operating activities $5,300 Investing activities: Sale of long-term investment ............. 8,000 Purchase of equipment .................... (12,500) Net cash used for investing activities ... (4,500) Financing activities: Cash dividends ........................... (10,500) Increase in common stock ................. 8,000 Net cash used for financing activities ... (2,500) Net decrease in cash ........................ 106. Medium

$(1,700)

Burg Company's net income last year was $91,000. Changes in the company's balance sheet accounts for the year appear below: Increases (Decreases) Debit balances: Cash ........................ $(13,000) Accounts receivable ......... 16,000 Inventory ................... 21,000 Prepaid expenses ............ (8,000) Long-term investments ....... 30,000 Plant and equipment ......... 60,000 Credit balances: Accumulated depreciation .... 36,000 Accounts payable ............ (21,000) Accrued liabilities ......... 14,000 Taxes payable ............... 24,000 Bonds payable ............... (50,000) Deferred taxes .............. 18,000 Common stock ................ 20,000 Retained earnings ........... 65,000 The company declared and paid cash dividends of $26,000 last year.

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Required: a. Construct in good form the operating activities section of flows for the year. (Use the indirect method.)

the company's statement of cash

b. Construct in good form the investing activities section of flows for the year.

the company's statement of cash

c. Construct in good form the financing activities section of flows for the year.

the company's statement of cash

Answer: a. Operating activities Net income ................................ $ 91,000 Adjustments: Depreciation charges .................... 36,000 Increase in accounts receivable ......... (16,000) Increase in inventory ................... (21,000) Decrease in prepaid expenses ............ 8,000 Decrease in accounts payable ............ (21,000) Increase in accrued liabilities ......... 14,000 Increase in taxes payable ............... 24,000 Increase in deferred taxes .............. 18,000 Net cash provided by operating activities . $133,000 b. Investing activities: Increase in long-term investments ......... $(30,000) Increase in plant & equipment ............. (60,000) Net cash used for investing activities .... $(90,000) c. Financing activities: Decrease in bonds payable ................. $(50,000) Increase in common stock .................. 20,000 Cash dividends ............................ (26,000) Net cash used in financing activities ..... $(56,000)

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107. Medium

Burdge Company's net income last year was $77,000. Changes in the company's balance sheet accounts for the year appear below: Increases (Decreases) Debit balances: Cash ........................ $ 11,000 Accounts receivable ......... (13,000) Inventory ................... 19,000 Prepaid expenses ............ (4,000) Long-term investments ....... 40,000 Plant and equipment ......... 80,000 Credit balances: Accumulated depreciation .... 38,000 Accounts payable ............ 23,000 Accrued liabilities ......... 8,000 Taxes payable ............... (11,000) Bonds payable ............... (40,000) Deferred taxes .............. 14,000 Common stock ................ 30,000 Retained earnings ........... 71,000 The company declared and paid cash dividends of $6,000 last year. Required: a. Construct in good form the operating activities section of flows for the year. (Use the indirect method.)

the company's statement of cash

b. Construct in good form the investing activities section of flows for the year.

the company's statement of cash

c. Construct in good form the financing activities section of flows for the year.

the company's statement of cash

Answer: a. Operating activities Net income ................................ $ 77,000 Adjustments: Depreciation charges .................... 38,000 Decrease in accounts receivable ......... 13,000 Increase in inventory ................... (19,000) Decrease in prepaid expenses ............ 4,000 Increase in accounts payable ............ 23,000 Increase in accrued liabilities ......... 8,000 Decrease in taxes payable ............... (11,000) Increase in deferred taxes .............. 14,000 Net cash provided by operating activities $147,000

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b. Investing activities: Increase in long-term investments ......... $ (40,000) Increase in plant & equipment ............. (80,000) Net cash used for investing activities .... $(120,000) c. Financing activities: Decrease in bonds payable ................. $ (40,000) Increase in common stock .................. 30,000 Cash dividends ............................ (6,000) Net cash used in financing activities ..... $ (16,000) 108. Hard

(Appendix) Cavett Company's comparative balance sheet and income statement for last year appear below: Statement of Financial Position Ending Beginning Balance Balance Cash ....................... $ 45,000 $ 30,000 Accounts receivable ........ 38,000 40,000 Inventory .................. 67,000 60,000 Long-term investments ...... 162,000 200,000 Plant and equipment ........ 278,000 150,000 Accumulated depreciation ... (52,000) (50,000) Total assets ............. $538,000 $430,000 Accounts payable ........... $ 36,000 $ 40,000 Accrued liabilities......... 24,000 30,000 Bonds payable...... ........ 20,000 30,000 Mortgage payable............ 100,000 Deferred taxes ............. 15,000 20,000 Common stock ............... 295,000 270,000 Retained earnings .......... 48,000 40,000 Total liabilities and stock holders' equity . $538,000 $430,000 Income Statement Sales .......................................... $250,000 Less costs of goods sold ....................... 100,000 Gross margin ................................... $150,000 Less operating expenses (including depreciation) 90,000 Net operating income before taxes .............. $ 60,000 Loss on sale of investments .................... 5,000 Income before taxes ............................ $ 55,000 Less income taxes .............................. 22,000 Net income ..................................... $ 33,000 The following additional information is available for the year: a. During the year, the company sold long-term investments with a cost of $38,000 when purchased for $33,000 in cash. b. All sales were on credit. c. The company paid a cash dividend of $25,000. d. Bonds payable of $25,000 were retired by issuing common stock for $25,000. e. An addition to one of the company's buildings was completed on December 31, at a

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132

cost of $128,000. The company paid for the addition with a $100,000 mortgage and $28,000 in cash. f. The company raised $15,000 in cash by issuing additional bonds payable. Required: a. Using the direct method, determine the net cash provided by operating activities for the year. b. Using the indirect method, determine the net cash provided by operating activities for the year. c. Using the net cash provided by operating activities figure from either part a or b, prepare a statement of cash flows for the year. Answer: a. Sales ..................................... $250,000 Adjustment to a cash basis: Decrease in accounts receivable ......... + 2,000 $252,000 Cost of goods sold ........................ 100,000 Adjustments to a cash basis: Increase in inventory ................... + 7,000 Decrease in accounts payable ............ + 4,000 Decrease in accrued liabilities.......... + 6,000 117,000 Operating expenses ........................ 90,000 Adjustment to a cash basis: Depreciation charges .................... - 2,000 88,000 Income tax expense ........................ 22,000 Adjustment to a cash basis: Decrease in deferred taxes .............. + 5,000

27,000

Net cash provided by operating activities

$ 20,000

b. Operating activities: Net income .............................. $33,000 Adjustments to convert to cash basis: Depreciation charges .................. 2,000 Decrease in accounts receivable ....... 2,000 Increase in inventories ............... (7,000) Decrease in accounts payable .......... (4,000) Decrease in accrued liabilities ....... (6,000) Loss on sale of investments ........... 5,000 Decrease in deferred taxes ............ (5,000) Net cash provided by operating activities $20,000

133Managerial Accounting, 9/e

c. Net cash provided by operating activities

$20,000

Investing activities: Sale of long-term investment ........... 33,000 Purchase of equipment .................. (28,000) Net cash used for investing activities 5,000 Financing activities: Cash dividends ......................... (25,000) Sale of bonds payable .................. 15,000 Net cash used for financing activities Net increase in cash .................... 109. Hard.

(10,000)

$15,000

(Appendix) Comparative financial statements for Parr Company follow: Statement of Financial Position Ending Beginning Balance Balance Cash ............................. $ 15,000 $ 18,000 Accounts receivable .............. 22,000 25,000 Inventory ........................ 20,000 22,000 Prepaid expenses ................. 14,000 10,000 Long-term investments ............ 7,000 25,000 Plant and equipment .............. 77,000 80,000 Accumulated depreciation ......... (61,000) (64,000) Total assets ................... $ 94,000 $116,000 Accounts payable ................. $ 6,000 $ 8,000 Accrued liabilities............... 6,400 15,000 Bonds payable..................... 12,000 18,000 Deferred taxes ................... 4,000 15,000 Common stock ..................... 30,000 20,000 Retained earnings ................ 35,600 40,000 Total liabilities and stockholders' equity ......... $ 94,000 $116,000 Income Statement Sales .......................................... $85,000 Less costs of goods sold ....................... 45,000 Gross margin ................................... $40,000 Less operating expenses (including depreciation) 30,000 Net operating income before taxes............... $10,000 Gain on sale of investments..................... 4,000 Income before taxes............................. $ 6,000 Less income taxes .............................. 2,400 Net income ..................................... $ 3,600

Additional data for the year included: Managerial Accounting, 9/e

134

a. During the year, Parr Company sold equipment for $3,000 that on which there was accumulated depreciation of $8,000. b. Equipment was purchased for $12,000 cash. c. Cash dividends totaling $8,000 were paid. d. Long-term investments that cost $18,000 when purchased were e. Common stock was issued for $10,000. f. Depreciation expense for the year was $5,000. Required: Prepare a statement of cash flows using the direct method. Answer: Parr Company Statement of Cash Flows Sales ..................................... $85,000 Adjustment to a cash basis: Decrease in accounts receivable ......... +3,000 $88,000 Cost of goods sold ........................ 45,000 Adjustments to a cash basis: Decrease in inventory ................... - 2,000 Decrease in accounts payable ............ + 2,000 45,000 Operating expenses ........................ 30,000 Adjustments to a cash basis: Increase in prepaid expenses ............ + 4,000 Depreciation charges .................... - 5,000 Decrease in accrued liabilities.......... + 8,600 37,600 Income tax expense ........................ 2,400 Adjustment to a cash basis: Decrease in deferred taxes .............. +11,000 13,400 Net cash consumed by operating activities

$(8,000)

Investing activities: Sale of long-term investment ........... $18,000 Sale of equipment ...................... 3,000 Purchase of equipment .................. (12,000) Net cash provided by investing activities 9,000 Financing activities: Sale of common stock ................... 10,000 Cash dividends ......................... (8,000) Payment of bonds ....................... (6,000) Net cash used for financing activities (4,000) Net decrease in cash ...................... Cash, beginning of the year ............... Cash, end of the year .....................

135Managerial Accounting, 9/e

(3,000) 18,000 $15,000

had cost $15,000 and

sold for $22,000.

110. Medium

(Appendix) The changes in each balance sheet account for Carver Company during the year just completed are as follows: Increase Decrease Cash ....................... $ 3,000 $ Accounts receivable ........ 5,000 Inventory .................. 6,000 Prepaid expenses ........... 3,000 Long-term investments ...... 17,000 Plant and equipment ........ 11,000 Accumulated depreciation ... 9,000 Accounts payable ........... 8,000 Accrued liabilities......... 5,000 Bonds payable...... ........ 12,000 Common stock ............... 3,000 Retained earnings .......... 2,000 Carver Company's income statement for the year just ended shows the following: Sales ..................... $350,000 Cost of goods sold ........ 190,000 Gross margin .............. $160,000 Operating expense ......... 158,000 Net income ................ $ 2,000 There were no sales or retirements of equipment and no dividends paid during the year. Carver Company uses the direct method to construct its statement of cash flows. Required: a. Determine the sales adjusted to the cash basis. b. Determine the cost of goods sold adjusted to the cash basis. c. Determine the operating expenses adjusted to the cash basis. d. Determine the net cash provided (used) by operating activities. e. Determine the net cash provided (used) by investing activities. f. Determine the net cash provided (used) by financing activities.

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136

Answer: Requirements a through d: Sales ................................... $350,000 Adjustments to a cash basis: Increase in accounts receivable ....... - 5,000 $345,000 Cost of goods sold ...................... 190,000 Adjustments to a cash basis: Decrease in inventory ................. - 6,000 Decrease in accounts payable .......... + 8,000 192,000 Operating expenses ...................... 158,000 Adjustments to a cash basis: Increase in prepaid expenses .......... + 3,000 Increase in accrued liabilities........ - 5,000 Depreciation charges .................. - 9,000 147,000 Net cash provided by operating activities e. Investing activities: Sale of long-term investment ......... $17,000 Purchase of equipment ................ (11,000) Net cash provided by investing activities f. Financing activities: Sale of common stock ................. $ 3,000 Payment of bonds ..................... (12,000) Net cash used for financing activities 111. Medium

$ 6,000

$6,000

($9,000)

(Appendix) The changes in each balance sheet account for Bryan Company during the year just completed are as follows: Increase Decrease Cash ....................... $ $ 3,000 Accounts receivable ........ 2,000 Inventory .................. 3,000 Prepaid expenses ........... 5,000 Long-term investments ...... 15,000 Plant and equipment ........ 14,000 Accumulated depreciation ... 8,000 Accounts payable ........... 10,000 Accrued liabilities......... 6,000 Bonds payable...... ........ 13,000 Common stock ............... 5,000 Retained earnings .......... 4,000

137Managerial Accounting, 9/e

Bryan Company's income statement for the year just ended shows the following: Sales .................... $300,000 Cost of goods sold ....... 180,000 Gross margin ............. $120,000 Operating expense ........ 116,000 Net income ............... $ 4,000 There were no sales or retirements of equipment and no dividends paid during the year. Bryan Company uses the direct method to construct its statement of cash flows. Required: a. Determine the sales adjusted to the cash basis. b. Determine the cost of goods sold adjusted to the cash basis. c. Determine the operating expenses adjusted to the cash basis. d. Determine the net cash provided (used) by operating activities. e. Determine the net cash provided (used) by investing activities. f. Determine the net cash provided (used) by financing activities. Answer: Requirements a through d: Sales ..................................... $300,000 Adjustments to a cash basis: Increase in accounts receivable ......... - 2,000 $298,000 Cost of goods sold ........................ 180,000 Adjustments to a cash basis: Decrease in inventory ................... - 3,000 Decrease in accounts payable ............ +10,000 187,000 Operating expenses ........................ 116,000 Adjustments to a cash basis: Increase in prepaid expenses ............ + 5,000 Increase in accrued liabilities.......... - 6,000 Depreciation charges .................... - 8,000 107,000 Net cash provided by operating activities

$ 4,000

e. Investing activities: Sale of long-term investment ........... $15,000 Purchase of equipment .................. (14,000) Net cash provided by investing activities $1,000

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138

f. Financing activities: Sale of common stock ................... $ 5,000 Payment of bonds ....................... (13,000) Net cash used for financing activities ($8,000) 112. Hard

NOTES TO THE INSTRUCTOR: * The problem requirement does not indicate whether the indirect or direct method must be used to determine the net cash provided by operating activities. You can, if you choose, specify that either (or even both) methods be used. The solution contains solutions for both methods. * Due to the length of the problem, you may want to eliminate one or more of the requirements. --------------------------------------------------------------Dabney Company's comparative balance sheet and income statement for last year appear below: Statement of Financial Position Ending Beginning Balance Balance Cash ....................... $ 64,000 $ 26,000 Accounts receivable ........ 24,000 48,000 Inventory .................. 52,000 70,000 Prepaid expenses ........... 14,000 4,000 Long-term investments ...... 310,000 220,000 Plant and equipment ........ 560,000 560,000 Accumulated depreciation ... (424,000) (378,000) Total assets ............. $600,000 $550,000 Accounts payable ........... $ 49,000 Accrued liabilities ........ 12,000 Taxes payable .............. 23,000 Bonds payable .............. 140,000 Deferred taxes ............. 29,000 Common stock ............... 160,000 Retained earnings .......... 186,000 Total liabilities and owners' equity ........ $600,000

$ 35,000 17,000 10,000 190,000 21,000 140,000 137,000 $550,000 Income Statement

Sales ........................ $510,000 Less: costs of goods sold .... 290,000 Gross margin ................. 220,000 Less: operating expenses ..... 140,000 Net operating income ......... 80,000 Less: income taxes ........... 24,000 Net income ................... $ 56,000 The company declared and paid $7,000 in cash dividends during the year.

Required:

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a. Construct in good form the operating activities section of flows for the year. b. Construct in good form the investing activities section of flows for the year. c. Construct in good form the financing activities section of flows for the year.

the company's statement of cash the company's statement of cash the company's statement of cash

Answer: a. Operating activities INDIRECT METHOD Net income ................................ $ 56,000 Adjustments: Depreciation charges .................... 46,000 Decrease in accounts receivable ......... 24,000 Decrease in inventory ................... 18,000 Increase in prepaid expenses ............ (10,000) Increase in accounts payable ............ 14,000 Decrease in accrued liabilities ......... (5,000) Increase in taxes payable ............... 13,000 Increase in deferred taxes .............. 9,000 Net cash provided by operating activities $165,000 DIRECT METHOD Sales ..................................... $510,000 Adjustments to a cash basis: Decrease in accounts receivable ......... +24,000 $534,000 Cost of goods sold ........................ 290,000 Adjustments to a cash basis: Decrease in inventory ................... -18,000 Increase in accounts payable ............ -14,000 258,000 Operating expenses ........................ 140,000 Adjustments to a cash basis: Increase in prepaid expenses ............ +10,000 Decrease in accrued liabilities ......... + 5,000 Depreciation charges .................... -46,000 109,000 Income tax expense ........................ 24,000 Adjustments to a cash basis: Increase in taxes payable ............... -13,000 Increase in deferred taxes .............. - 9,000 2,000 Net cash provided by operating activities

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$165,000

140

b. Investing activities: Increase in long-term investments ......... $(90,000) Net cash used for investing activities .... $(90,000) c. Financing activities: Decrease in bonds payable ................. $(50,000) Increase in common stock .................. 20,000 Cash dividends ............................ ( 7,000) Net cash used in financing activities ..... $(37,000) 113. Hard

NOTES TO THE INSTRUCTOR: * The problem requirement does not indicate whether the indirect or direct method must be used to determine the net cash provided by operating activities. You can, if you choose, specify that either (or even both) methods be used. The solution contains solutions for both methods. * Due to the length of the problem, you may want to eliminate one or more of the requirements. ---------------------------------------------------------------Dauber Company's comparative balance sheet and income statement for last year appear below: Ending Beginning Balance Balance Cash ....................... $ 64,000 $ 39,000 Accounts receivable ........ 57,000 44,000 Inventory .................. 58,000 70,000 Prepaid expenses ........... 18,000 10,000 Long-term investments ...... 290,000 230,000 Plant and equipment ........ 520,000 520,000 Accumulated depreciation ... (390,000) (358,000) Total assets ............. $617,000 $555,000 Accounts payable ........... $ 14,000 Accrued liabilities ........ 35,000 Taxes payable .............. 33,000 Bonds payable .............. 160,000 Deferred taxes ............. 36,000 Common stock ............... 140,000 Retained earnings .......... 199,000 Total liabilities and owners' equity ........ $617,000

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$ 38,000 17,000 19,000 180,000 21,000 110,000 170,000 $555,000

Income Statement           Sales ........................ $580,000 Less: costs of goods sold .... 250,000 Gross margin ................. 330,000 Less: operating expenses ..... 210,000 Net operating income ......... 120,000 Less: income taxes ........... 36,000 Net income ................... $ 84,000 The company declared and paid $55,000 in cash dividends during the year. Required: a. Construct in good form the operating activities section of flows for the year. b. Construct in good form the investing activities section of flows for the year. c. Construct in good form the financing activities section of flows for the year.

the company's statement of cash the company's statement of cash the company's statement of cash

Answer: a. Operating activities INDIRECT METHOD Net income ................................ $ 84,000 Adjustments: Depreciation charges .................... 32,000 Increase in accounts receivable ......... (13,000) Decrease in inventory ................... 12,000 Increase in prepaid expenses ............ ( 8,000) Decrease in accounts payable ............ (24,000) Increase in accrued liabilities ......... 18,000 Increase in taxes payable ............... 14,000 Increase in deferred taxes .............. 15,000 Net cash provided by operating activities $130,000

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142

DIRECT METHOD Sales ..................................... $580,000 Adjustments to a cash basis: Increase in accounts receivable ......... -13,000 $567,000 Cost of goods sold ........................ 250,000 Adjustments to a cash basis: Decrease in inventory ................... -12,000 Decrease in accounts payable ............ +24,000 262,000 Operating expenses ........................ 210,000 Adjustments to a cash basis: Increase in prepaid expenses ............ + 8,000 Increase in accrued liabilities ......... -18,000 Depreciation charges .................... -32,000 168,000 Income tax expense ........................ 36,000 Adjustments to a cash basis: Increase in taxes payable ............... -14,000 Increase in deferred taxes .............. -15,000 Net cash provided by operating activities

7,000 $130,000

b. Investing activities: Increase in long-term investments ......... $(60,000) Net cash used for investing activities .... $(60,000) c. Financing activities: Decrease in bonds payable ................. $(20,000) Increase in common stock .................. 30,000 Cash dividends ............................ (55,000) Net cash used in financing activities ..... $(45,000)

143Managerial Accounting, 9/e

114. Hard

(Appendix) Carson Company's comparative balance sheet and income statement for last year appear below: Statement of Financial Position Ending Beginning Balance Balance Cash ....................... $ 20,000 $ 15,000 Accounts receivable ........ 27,000 25,000 Inventory .................. 32,000 35,000 Prepaid expenses ........... 8,000 5,000 Long-term investments ...... 36,000 38,000 Plant and equipment ........ 108,000 92,000 Accumulated depreciation ... (49,000) (30,000) Total assets ............. $182,000 $180,000 Accounts payable ........... $ 30,000 $ 38,000 Notes payable...... ........ 40,000 32,000 Deferred taxes ............. 17,000 35,000 Common stock ............... 45,000 40,000 Retained earnings .......... 50,000 35,000 Total liabilities and stock holders' equity . $182,000 $180,000 Income Statement Sales .......................................... $200,000 Less costs of goods sold ....................... 100,000 Gross margin ................................... 100,000 Less operating expenses (including depreciation) 52,000 Net operating income before taxes............... 48,000 Gain on sale of investments..................... 2,000 Income before taxes............................. 50,000 Less income taxes .............................. 20,000 Net income ..................................... $ 30,000 Carson Company constructs its statement of cash flows using the direct method. Required: a. Calculate the sales revenue adjusted to a cash basis. b. Calculate the cost of goods sold adjusted to a cash basis. c. Calculate the operating expenses adjusted to a cash basis. d. Calculate the net cash provided by operating activities.

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144

Answer: Sales ..................................... $200,000 Adjustment to a cash basis: Increase in accounts receivable ......... - 2,000 $198,000 Cost of goods sold ........................ 100,000 Adjustments to a cash basis: Decrease in inventory ................... - 3,000 Decrease in accounts payable ............ + 8,000 105,000 Operating expenses ........................ 52,000 Adjustments to a cash basis: Increase in prepaid expenses ............ + 3,000 Depreciation charges .................... -19,000 36,000

115. Hard

Income tax expense ........................ 20,000 Adjustment to a cash basis: Decrease in deferred taxes .............. +18,000

38,000

Net cash provided by operating activities

$ 19,000

(Appendix) Carston Company's comparative balance sheet and income statement for last year appear below: Statement of Financial Position Ending Beginning Balance Balance Cash ....................... $ 58,000 $ 24,000 Accounts receivable ........ 55,000 69,000 Inventory .................. 51,000 42,000 Prepaid expenses ........... 5,000 10,000 Long-term investments ...... 270,000 210,000 Plant and equipment ........ 530,000 500,000 Accumulated depreciation ... (299,000) (263,000) Total assets ............. $670,000 $592,000 Accounts payable ........... $ 63,000 Accrued liabilities ........ 41,000 Taxes payable .............. 14,000 Bonds payable .............. 100,000 Deferred taxes ............. 27,000 Common stock ............... 90,000 Retained earnings .......... 335,000 Total liabilities and owners' equity ........ $670,000

145Managerial Accounting, 9/e

$ 40,000 22,000 23,000 160,000 19,000 50,000 278,000 $592,000

Income Statement                Sales ........................ $710,000 Less: costs of goods sold .... 350,000 Gross margin ................. 360,000 Less: operating expenses ..... 240,000 Net operating income ......... 120,000 Less: income taxes ........... 36,000 Net income ................... $ 84,000 The company declared and paid $27,000 in cash dividends during the year. Required: Construct in good form the operating activities section of the company's statement of cash flows for the year using the direct method. Answer: Sales ..................................... $710,000 Adjustments to a cash basis: Decrease in accounts receivable ......... +14,000 $724,000 Cost of goods sold ........................ 350,000 Adjustments to a cash basis: Increase in inventory ................... + 9,000 Increase in accounts payable ............ -23,000 336,000 Operating expenses ........................ 240,000 Adjustments to a cash basis: Decrease in prepaid expenses ............ - 5,000 Increase in accrued liabilities ......... -19,000 Depreciation charges .................... -36,000 180,000 Income tax expense ........................ 36,000 Adjustments to a cash basis: Decrease in taxes payable ............... + 9,000 Increase in deferred taxes .............. - 8,000 37,000 Net cash provided by operating activities

Managerial Accounting, 9/e

$171,000

146

116. Hard

(Appendix) Carpp Company's comparative balance sheet and income statement for last year appear below: Statement of Financial Position Ending Beginning Balance Balance Cash ....................... $ 58,000 $ 38,000 Accounts receivable ........ 39,000 51,000 Inventory .................. 57,000 46,000 Prepaid expenses ........... 22,000 17,000 Long-term investments ...... 290,000 230,000 Plant and equipment ........ 470,000 460,000 Accumulated depreciation ... (285,000) (257,000) Total assets ............. $651,000 $585,000 Accounts payable ........... $ 64,000 Accrued liabilities ........ 12,000 Taxes payable .............. 34,000 Bonds payable .............. 140,000 Deferred taxes ............. 21,000 Common stock ............... 140,000 Retained earnings .......... 240,000 Total liabilities and owners' equity ........ $651,000

$ 48,000 17,000 16,000 170,000 15,000 120,000 199,000 $585,000 Income Statement

Sales ........................ $610,000 Less: costs of goods sold .... 260,000 Gross margin ................. 350,000 Less: operating expenses ..... 220,000 Net operating income ......... 130,000 Less: income taxes ........... 39,000 Net income ................... $ 91,000 The company declared and paid $50,000 in cash dividends during the year. Required: Construct in good form the operating activities section of the company's statement of cash flows for the year using the direct method.

147Managerial Accounting, 9/e

Answer: Sales ..................................... $610,000 Adjustments to a cash basis: Decrease in accounts receivable ......... +12,000 $622,000 Cost of goods sold ........................ 260,000 Adjustments to a cash basis: Increase in inventory ................... +11,000 Increase in accounts payable ............ -16,000 255,000 Operating expenses ........................ 220,000 Adjustments to a cash basis: Increase in prepaid expenses ............ + 5,000 Decrease in accrued liabilities ......... + 5,000 Depreciation charges .................... -28,000 202,000 Income tax expense ........................ 39,000 Adjustments to a cash basis: Increase in taxes payable ............... -18,000 Increase in deferred taxes .............. - 6,000 15,000 Net cash provided by operating activities

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$150,000

148