Chapter 15

Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows

True/False Questions

1. An increase in inventory is classified as a “use” of cash for purposes of constructing the statement of cash flows.

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

2. In the statement of cash flows, dividend payments to the company's stockholders are treated as a “use” rather than as a “source” of cash.


3. 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 added to net income.

Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Hard

4. 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 added to net income.

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium

5. Under the indirect method of determining the net cash provided by operating activities on the statement of cash flows, dividends are added to net income.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium

6. Interest paid on borrowed funds would be included as part of a company's financing activities on the statement of cash flows.

Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Hard

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 15-5


7. The net cash provided by operating activities on the statement of cash flows would include interest paid to creditors and dividends paid to the company's own shareholders.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium

8. A change in deferred taxes is considered to be an operating activity on the statement of cash flows.

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium

9. Lending money to another company would be classified as a financing activity on the statement of cash flows.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium

10. The direct method of preparing the statement of cash flows will usually show a greater total increase in cash than the indirect method.

Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4 Level: Easy

11. Under the direct method of determining the net cash provided by operations on the statement of cash flows, the cost of goods sold is converted to a cash basis by adjusting it for changes in inventories and changes in accounts payable during the period.

Ans: True AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 4 Level: Medium

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

Ans: True AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 4 Level: Hard

15-6 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


13. Under the direct method of determining the net cash provided by operating activities on the statement of cash flows, an increase in prepaid expenses would be added to selling and administrative expenses to convert selling and administrative expenses to a cash basis.

Ans: True AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 4 Level: Hard

14. Accounts receivable is not considered to be a cash equivalent for purposes of preparing the statement of cash flows.

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Medium

15. The Financial Accounting Standards Board (FASB) recommends that companies use the direct method rather than the indirect method in preparing their statement of cash flows.


Multiple Choice Questions

16. Which of the following would be considered a “use” of cash for purposes of constructing a statement of cash flows?A) a decrease in accounts receivable.B) an increase in accounts payable.C) an increase in common stock.D) a decrease in bonds payable.

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium

17. Which of the following would be considered a “source” of cash for purposes of constructing a statement of cash flows?A) an increase in accounts payable.B) dividends paid to the company's own shareholders.C) a decrease in accrued liabilities.D) an increase in accounts receivable.

Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium



18. Evita Corporation prepares its statement of cash flows using the indirect method. Evita's statement showed “Net cash provided by operating activities” to be $46,000. Under the direct method, this number would have been:A) $0.B) $46,000.C) greater than $46,000.D) less than $46,000 but greater than $0.

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,3,4 Level: Easy

19. Under the indirect method, which item would be deducted from net income as part of the process of arriving at cash provided by operating activities on the statement of cash flows?A) Patent amortization expenseB) Increase in accounts payableC) Increase in prepaid expensesD) Decrease in accounts receivable

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium

20. A decrease 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.

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium



21. An increase in the taxes payable 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.


22. Luella Corporation prepares its statement of cash flows using the indirect method. Which of the following would be added to net income in the operating activities section of the statement?

Depreciation Loss on SaleExpense of Equipment

A) Yes YesB) Yes NoC) No YesD) No No


23. Gioja Corporation prepares its statement of cash flows using the indirect method. Which of the following would be deducted from net income in the operating activities section of the statement?

Increase in Taxes Payable Increase in Dividends PayableA) Yes YesB) Yes NoC) No YesD) No No

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Hard



24. Olaf Corporation prepares its statement of cash flows using the direct method. The following items were listed on Olaf's income statement. Which of these items would also be listed in the operating activities section of Olaf's statement of cash flows?

Depreciation Expense Gain on Sale of EquipmentA) Yes YesB) Yes NoC) No YesD) No No

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Medium

25. During the year the balance in the prepaid expenses account increased by $6,000. 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 $6,000 from the operating expenses reported on the income

statement.B) add the $6,000 to the operating expenses reported on the income statement.C) deduct the $6,000 from the cost of goods sold reported on the income statement.D) add the $6,000 to the cost of goods sold reported on the income statement.

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Hard

26. In a statement of cash flows, all of the following would be classified as operating activities except:A) interest paid to creditors.B) dividends received on stock in another company held as an investment.C) dividends paid to the company's own common stockholders.D) interest received on a long-term note receivable.

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium



27. In a statement of cash flows, a change in accounts payable 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.

Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy

28. A decrease 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.


29. Which of the following should be classified as an investing activity on a statement of cash flows?A) cash received from the sale of office equipment that was sold at a loss.B) cash used to purchase a long-term investment in bonds of another corporation.C) cash received from the issuance of Iguato Corporation common stock.D) both A and B aboveE) all of the above

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy

30. Which of the following should be classified as an investing activity on a statement of cash flows?A) cash paid for income taxes.B) cash paid for dividends to stockholders.C) cash paid to employees for services rendered.D) none of the above




31. A company declared and paid a cash dividend. The dividend would appear on the company's statement of cash flows as:A) an addition to net income in order to arrive at net cash provided by operating

activities under the indirect method.B) a deduction from net income in order to arrive at net cash provided by operating

activities under the indirect method.C) a deduction under investing activities.D) a deduction under financing activities.


32. Dividends paid to a company's own stockholders of $80,000 would be shown on the company's statement of cash flows prepared under the indirect method as:A) an addition of $80,000 under investing activities.B) a deduction of $80,000 under investing activities.C) an addition of $80,000 under financing activities.D) a deduction of $80,000 under financing activities.


33. Which of the following should be classified as a financing activity on a statement of cash flows?A) cash used to retire bonds payable.B) an increase in deferred income taxes.C) cash dividends received on an investment in stock.D) both A and C aboveE) none of the above

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Hard

34. Which of the following sections of the statement of cash flows will be prepared differently if the direct method is used instead of the indirect method?A) operating activities sectionB) investing activities sectionC) financing activities sectionD) all of the above

Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 3,4 Level: Easy



35. In the statement of cash flows, the sum total of the net cash provided by operating activities, investing activities, and financing activities would be equal to:A) zero.B) the beginning balance of cash and cash equivalents.C) the ending balance of cash and cash equivalents.D) the increase or decrease in cash and cash equivalents.

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy

36. Excerpts from Neuwirth Corporation's comparative balance sheet appear below:

Ending Balance Beginning BalanceCash and cash equivalents............. $37,000 $27,000Accounts receivable....................... $24,000 $28,000Inventory........................................ $65,000 $68,000

Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?A) The change in Accounts Receivable is a source; The change in Inventory is a

source.B) The change in Accounts Receivable is a use; The change in Inventory is a use.C) The change in Accounts Receivable is a source; The change in Inventory is a

use.D) The change in Accounts Receivable is a use; The change in Inventory is a

source.

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy



37. Excerpts from Deblois Corporation's comparative balance sheet appear below:

Ending Balance Beginning BalanceCash and cash equivalents................... $22,000 $28,000Accounts payable................................. $18,000 $17,000Accrued wages and salaries payable.... $34,000 $37,000

Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?A) The change in Accounts Payable is a source; The change in Accrued Wages and

Salaries payable is a source.B) The change in Accounts Payable is a use; The change in Accrued Wages and

Salaries payable is a source.C) The change in Accounts Payable is a source; The change in Accrued Wages and

Salaries payable is a use.D) The change in Accounts Payable is a use; The change in Accrued Wages and

Salaries payable is a use.

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

38. Excerpts from Aultman Corporation's comparative balance sheet appear below:

Ending Balance Beginning BalanceCash and cash equivalents................... $62,000 $29,000Property, plant, and equipment............ $371,000 $345,000Long-term debt..................................... $75,000 $73,000

Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?A) The change in Property, Plant, and Equipment is a use; The change in Long-

Term Debt is a source.B) The change in Property, Plant, and Equipment is a source; The change in Long-

Term Debt is a use.C) The change in Property, Plant, and Equipment is a use; The change in Long-

Term Debt is a use.D) The change in Property, Plant, and Equipment is a source; The change in Long-

Term Debt is a source.

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy



39. Swinger Corporation's comparative balance sheet appears below:

Ending Balance

Beginning Balance

Assets:Current assets:

Cash and cash equivalents......................... $ 47,000 $ 31,000Accounts receivable................................... 23,000 22,000Inventory.................................................... 66,000 64,000

Total current assets....................................... 136,000 117,000 Property, plant, and equipment..................... 356,000 338,000

Less accumulated depreciation.................. 184,000 161,000 Net property, plant, and equipment.............. 172,000 177,000 Total assets.................................................... $308,000 $294,000

Liabilities and Stockholders’ EquityCurrent liabilities:

Accounts payable....................................... $ 17,000 $ 16,000Accrued wages and salaries payable......... 32,000 31,000Accrued income taxes payable.................. 25,000 27,000Notes payable............................................ 11,000 13,000

Total current liabilities.................................. 85,000 87,000Long-term debt............................................. 83,000 80,000Deferred income taxes.................................. 38,000 34,000 Total liabilities.............................................. 206,000 201,000 Stockholders’ equity:

Common stock........................................... 27,000 24,000Retained earnings...................................... 75,000 69,000

Total stockholders’ equity............................ 102,000 93,000 Total liabilities and stockholders’ equity...... $308,000 $294,000

The company's net income (loss) for the year was $10,000 and its cash dividends were $4,000. The total dollar amount of all of the items that would be classified as sources when compiling a simplified statement of cash flows is:A) $29,000B) $16,000C) $45,000D) $25,000




Solution:

SourcesNet income............................................................. $10,000Increases in liabilities (and contra asset accounts):

Increase in accumulated depreciation................. 23,000Increase in accounts payable............................... 1,000Increase in accrued wages and salaries payable.. 1,000Increase in long-term debt................................... 3,000Increase in deferred income taxes....................... 4,000

Increases in capital stock accounts:Increase in common stock................................... 3,000

Total sources.......................................................... $45,000



40. Illies Corporation's comparative balance sheet appears below:

Ending Balance

Beginning Balance


Cash and cash equivalents......................... $ 40,000 $ 33,000Accounts receivable................................... 19,000 21,000Inventory.................................................... 67,000 69,000


Less accumulated depreciation.................. 156,000 132,000 Net property, plant, and equipment............... 202,000 207,000 Total assets.................................................... $328,000 $330,000


Accounts payable....................................... $ 18,000 $ 19,000Accrued wages and salaries payable.......... 35,000 37,000Accrued income taxes payable.................. 23,000 19,000Notes payable............................................. 19,000 22,000

Total current liabilities.................................. 95,000 97,000Long-term debt.............................................. 82,000 86,000Deferred income taxes.................................. 25,000 23,000 Total liabilities.............................................. 202,000 206,000 Stockholders’ equity:

Common stock........................................... 23,000 22,000Retained earnings....................................... 103,000 102,000

Total stockholders’ equity............................. 126,000 124,000 Total liabilities and stockholders’ equity...... $328,000 $330,000

The company's net income (loss) for the year was $5,000 and its cash dividends were $4,000. The total dollar amount of all of the items that would be classified as uses when compiling a simplified statement of cash flows is:A) $7,000B) $40,000C) $29,000D) $33,000

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium



Solution:

UsesIncreases in noncash assets:

Increase in property, plant, and equipment.......... $19,000Decreases in liabilities:

Decrease in accounts payable............................... 1,000Decrease in accrued wages and salaries payable.. 2,000Decrease in notes payable.................................... 3,000Decrease in long-term debt................................... 4,000

Dividends paid......................................................... 4,000Total uses................................................................. $33,000



41. The following information relates to Penha, Inc. for last year:

Net income............................................................. $117,000Net increase in all current assets except cash........ $31,000Net increase in current liabilities........................... $45,000Dividends paid on common stock.......................... $20,000Depreciation expense............................................. $8,000Gain on sale of investments................................... $3,000

What is Penha's net cash provided by operating activities for last year on the statement of cash flows? (Assume that current liabilities do not contain any notes payable.)A) $108,000B) $116,000C) $136,000D) $139,000


Solution:

Net income............................................................................ $117,000Adjustments needed to convert net income to a cash basis:

Depreciation charges.......................................................... 8,000Add (deduct) changes in current asset accounts affecting

revenue or expense:Increase in all current assets except cash........................... ( 31,000)

Add (deduct) changes in current liability accounts affecting revenue or expense:Increase in current liabilities.............................................. 45,000

Add (deduct) gains or losses on sale of assets:Gain on sale of investments............................................... ( 3,000)

Net cash provided by operating activities............................. $136,000



42. 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................. $8,000Inventory.................................. $(3,000)Prepaid expenses...................... $4,000

Credit balances:Accumulated depreciation....... $18,000Accounts payable..................... $6,000Taxes 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) $16,000B) $45,000C) $38,000D) $25,000

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Hard

Solution:

Net income......................................................................... $27,000Adjustments needed to convert net income to cash basis:

Depreciation charges....................................................... 18,000Add (deduct) changes in current asset accounts

affecting revenue or expense:Increase in accounts receivable................................... ( 8,000)Decrease in inventory.................................................. 3,000Increase in prepaid expenses....................................... ( 4,000)

Add (deduct) changes in current liability accounts affecting revenue or expense:Increase in accounts payable....................................... 6,000Decrease in taxes payable............................................ ( 4,000)

Net cash provided by operating activities.......................... $38,000



43. Norlund Company's net income last year was $21,000. Changes in selected balance sheet accounts for the year appear below:


Debit balances:Accounts receivable................. $8,000Inventory.................................. $9,000Prepaid expenses...................... $(3,000)

Credit balances:Accumulated depreciation....... $15,000Accounts payable..................... $(5,000)Accrued liabilities.................... $11,000Taxes payable.......................... $7,000Deferred taxes.......................... $0

Based solely on this information, the net cash provided by operations under the indirect method on the statement of cash flows would be:A) $63,000B) $36,000C) $7,000D) $35,000

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium



Solution:

Net income......................................................................... $21,000Adjustments needed to convert net income to cash basis:

Depreciation charges....................................................... 15,000Add (deduct) changes in current asset accounts

affecting revenue or expense:Increase in accounts receivable................................... ( 8,000)Increase in inventory.................................................... ( 9,000)Decrease in prepaid expenses...................................... 3,000

Add (deduct) changes in current liability accounts affecting revenue or expense:Decrease in accounts payable...................................... ( 5,000)Increase in accrued liabilities....................................... 11,000Increase in taxes payable............................................. 7,000

Net cash provided by operating activities.......................... $35,000

44. Alaric Corporation recently sold equipment for $16,000. The equipment was purchased five years ago for $100,000. The accumulated depreciation on the equipment on the date of sale was $75,000. Alaric uses the indirect method to prepare its statement of cash flows. What net effect will this sale have on the investing activities section of Alaric's statement of cash flows for the current year?A) no effectB) $7,000 increaseC) $9,000 decreaseD) $16,000 increase




45. Roble Corporation's balance sheet and income statement appear below:Comparative Balance Sheet

Ending Balance

Beginning Balance

Assets:Cash and cash equivalents......................... $ 28 $ 22Accounts receivable................................... 65 61Inventory.................................................... 45 47Plant and equipment................................... 658 520Accumulated depreciation......................... ( 296 ) ( 288 )Total assets................................................. $500 $362

Liabilities and stockholders’ equity:Accounts payable....................................... $ 28 $ 29Wages payable........................................... 22 20Taxes payable............................................. 28 24Bonds payable............................................ 151 200Deferred taxes............................................ 16 17Common stock........................................... 55 50Retained earnings....................................... 200 22 Total liabilities and stockholders’ equity... $500 $362

Income StatementSales........................................................... $1,485Cost of goods sold...................................... 989 Gross margin.............................................. 496Selling and administrative expense............ 172 Net operating income................................. 324Gain on sale of plant and equipment.......... 19 Income before taxes................................... 343Income taxes.............................................. 103 Net income................................................. $ 240

Cash dividends were $62. The company sold equipment for $19 that was originally purchased for $5 and that had accumulated depreciation of $5. The net cash provided by (used by) operations for the year was:A) $255B) $236C) $324D) $298

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium



Solution:

Net income.................................................................................. $240Adjustments needed to convert net income to cash basis:

Depreciation charges................................................................ 13Add (deduct) changes in current asset accounts affecting

revenue or expense:Increase in accounts receivable............................................ ( 4)Decrease in inventory........................................................... 2

Add (deduct) changes in current liability accounts affecting revenue or expense:Decrease in accounts payable............................................... ( 1)Increase in wages payable.................................................... 2Increase in taxes payable...................................................... 4

Add (deduct) gains or losses on sales of assets:Gain on sale of plant and equipment.................................... ( 19)

Add (deduct) changes in the Deferred Income Taxes account:Decreases in deferred taxes liability..................................... ( 1)

Net cash provided by operating activities................................... $236



46. Ivory Corporation's balance sheet and income statement appear below:Comparative Balance Sheet

Ending Balance

Beginning Balance



Income StatementSales........................................................... $386Cost of goods sold...................................... 239 Gross margin.............................................. 147Selling and administrative expense............ 185 Net operating income................................. ( 38)Gain on sale of plant and equipment.......... 8 Income before taxes................................... (30)Income taxes.............................................. 0 Net income................................................. ($ 30 )

Cash dividends were $1. The company sold equipment for $19 that was originally purchased for $15 and that had accumulated depreciation of $4. The net cash provided by (used by) investing activities for the year was:A) ($18)B) ($1)C) $1D) $19




Solution:

Additions to plant and equipment.............. ($18) *Proceeds from sale of equipment............... 19Net cash provided by investing activities. . $ 1

*$443 + $15 − $440 = $18

47. Daubenspeck Corporation's balance sheet and income statement appear below:

Comparative Balance SheetEnding Balance

Beginning Balance






Cash dividends were $45. The company sold equipment for $20 that was originally purchased for $12 and that had accumulated depreciation of $12. The net cash provided by (used by) financing activities for the year was:A) ($74)B) ($33)C) ($45)D) $4


Solution:

Financing ActivitiesDecrease in bonds payable......................... ($33)Increase in common stock.......................... 4 Cash dividends paid................................... ( 45)Net cash used in financing activities.......... ($74)



48. The most recent balance sheet and income statement of Helle Corporation appear below:


Beginning Balance



Income StatementSales........................................................... $532Cost of goods sold...................................... 324 Gross margin.............................................. 208Selling and administrative expense............ 137 Net operating income................................. 71Income taxes.............................................. 21 Net income................................................. $ 50

Cash dividends were $9. The net cash provided by (used by) operations for the year was:A) $46B) $71C) $54D) $4




Solution:

Net income............................................................. $50Adjustments to convert net income to cash basis:

Depreciation charges........................................... 23Increase in accounts receivable........................... ( 2)Increase in inventory........................................... ( 8)Decrease in accounts payable............................. ( 9)Increase in wages payable................................... 2Decrease in taxes payable................................... ( 3)Increase in deferred taxes liability...................... 1

Net cash provided by operating activities.............. $54



49. Guzzi Corporation's most recent balance sheet appears below:


Beginning Balance



Net income for the year was $129. Cash dividends were $27. The net cash provided by (used by) operations for the year was:A) $184B) $147C) $111D) $18

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Easy



Solution:


Depreciation charges........................................... 27Increase in accounts receivable........................... ( 5)Increase in inventory........................................... ( 4)Increase in accounts payable............................... 6Decrease in wages payable................................. ( 2)Increase in taxes payable.................................... 1Decrease in deferred taxes liability..................... ( 5)


50. Isenberg Corporation's most recent balance sheet appears below:


Beginning Balance



The net income for the year was $159. Cash dividends were $34. The net cash provided by (used by) investing activities for the year was:A) ($159)B) ($113)C) $159D) $113



Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Easy

Solution:

Investing ActivitiesAdditions to plant and equipment.............. ($159) *Net cash used by investing activities......... ($159)

*$689 − $530

51. Minshall Corporation's most recent balance sheet appears below:


Beginning Balance



The net income for the year was $26. Cash dividends were $6. The net cash provided by (used by) financing activities for the year was:A) $2B) $8C) $12D) ($6)




Solution:

Financing ActivitiesIncrease in bonds payable.......................... $12Increase in common stock.......................... 2Cash dividends paid................................... ( 6)Net cash used in financing activities.......... $ 8

52. Chain Corporation's most recent balance sheet appears below:


Beginning Balance


Liabilities and stockholders’ equity:Accounts payable....................................... $ 51 $ 46Long-term debt........................................... 77 110Common stock........................................... 22 20Retained earnings....................................... 299 208 Total liabilities and stockholders’ equity... $449 $384

The net income for the year was $121. Cash dividends were $30. The net cash provided by (used by) operations for the year was:A) $173B) $138C) $17D) $104




Solution:


Depreciation charges........................................... 5Decrease in accounts receivable......................... 1Decrease in inventory......................................... 6Increase in accounts payable............................... 5


53. La Corporation's most recent balance sheet appears below:


Beginning Balance


Liabilities and stockholders’ equity:Accounts payable....................................... $ 48 $ 47Long-term debt........................................... 214 250Common stock........................................... 32 30Retained earnings....................................... 47 ( 20 )Total liabilities and stockholders’ equity... $341 $307

The net income for the year was $91. Cash dividends were $24. The net cash provided by (used by) investing activities for the year was:A) $26B) $62C) ($26)D) ($62)

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Easy



Solution:

Investing ActivitiesAdditions to plant and equipment.............. ($62) *Net cash used by investing activities......... ($62)

*$552 − $490

54. Hanna Corporation's most recent balance sheet appears below:


Beginning Balance



The net income for the year was $84. Cash dividends were $21. The net cash provided by (used by) financing activities for the year was:A) ($9)B) $1C) ($21)D) $11




Solution:

Financing ActivitiesIncrease in long-term debt......................... $11Increase in common stock.......................... 1Cash dividends paid................................... ( 21)Net cash used by financing activities......... ($ 9)

55. Last year Cummins Company reported a cost of goods sold of $50,000. Inventories increased by $10,000 during the year, and accounts payable increased by $2,000. 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) $42,000B) $58,000C) $48,000D) $60,000

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Medium

Solution:

Cost of goods sold (as reported)................ $50,000Adjustments to a cash basis:

Increase in inventory............................... 10,000Increase in accounts payable................... ( 2,000)

Cost of goods sold (adjusted)..................... $58,000



56. Last year Lawmond Company reported sales of $120,000 on its income statement. During the year, accounts receivable increased by $20,000 and accounts payable decreased by $10,000. 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) $100,000B) $90,000C) $130,000D) $150,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Hard

Solution:

Sales revenue (as reported)........................ $120,000Adjustments to a cash basis:

Increase in accounts receivable............... ( 20,000)Sales revenue (adjusted)............................ $100,000

57. Cridge Company's selling and administrative 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, selling and administrative expenses adjusted to a cash basis under the direct method on the statement of cash flows would be:A) $177,000B) $207,000C) $133,000D) $163,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Medium



Solution:

Selling and administrative expenses (as reported)......................................... $170,000

Adjustments to a cash basis:Increase in prepaid expenses................ 9,000Decrease in accrued liabilities............. 13,000Period’s depreciation charges.............. ( 15,000)

Selling and administration expenses (adjusted)............................................. $177,000



58. Pietras Corporation's balance sheet and income statement appear below:


Beginning Balance






Cash dividends were $57. The company sold equipment for $18 that was originally purchased for $11 and that had accumulated depreciation of $6. The net cash provided by (used by) operations for the year was:A) $213B) $257C) $284D) $200

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Medium

Solution:

Sales revenue (as reported).................................... $1,264Adjustments to a cash basis:

Decrease in accounts receivable...................... 1Total....................................................................... $1,265

Cost of goods sold (as reported)............................ 828Adjustments to a cash basis:

Increase in inventory........................................ 6Increase in accounts payable........................... ( 2)

Total....................................................................... 832

Selling and administrative expenses (as reported) 152Adjustments to a cash basis:

Decrease in accrued wages payable................. 1Period’s depreciation charges.......................... ( 12)

Total....................................................................... 141

Income tax expense................................................ 89Adjustments to a cash basis:

Decrease in accrued taxes payable.................. 1Decrease in deferred income taxes.................. 2

Total....................................................................... 92

Net cash provided by operating activities.............. $ 200



59. The most recent balance sheet and income statement of Ganim Corporation appear below:


Beginning Balance


Liabilities and stockholders’ equity:Accounts payable....................................... $61 $63Wages payable........................................... 20 21Taxes payable............................................. 14 16Bonds payable............................................ 80 110Deferred taxes............................................ 11 15Common stock........................................... 24 20Retained earnings....................................... 178 88 Total liabilities and stockholders’ equity... $388 $333

Income StatementSales........................................................... $920Cost of goods sold...................................... 606 Gross margin.............................................. 314Selling and administrative expense............ 157 Net operating income................................. 157Income taxes.............................................. 47 Net income................................................. $110


Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Medium



Solution:

Sales revenue (as reported).................................... $920Adjustments to a cash basis:

Decrease in accounts receivable...................... 2Total....................................................................... $922

Cost of goods sold (as reported)............................ 606Adjustments to a cash basis:

Decrease in inventory...................................... ( 9)Decrease in accounts payable.......................... 2

Total....................................................................... 599


Decrease in accrued wages payable................ 1Period’s depreciation charges.......................... ( 13)

Total....................................................................... 145

Income tax expense................................................ 47Adjustments to a cash basis:

Decrease in accrued taxes payable.................. 2Decrease in deferred income taxes.................. 4

Total....................................................................... 53




60. Ostiguy Corporation's most recent comparative balance sheet and income statement appear below:


Beginning Balance





Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Easy



Solution:

Sales revenue (as reported)....................................... $883Adjustments to a cash basis:

Decrease in accounts receivable......................... 4Total.......................................................................... $887

Cost of goods sold (as reported)............................... 580Adjustments to a cash basis:

Decrease in inventory......................................... ( 2)Increase in accounts payable.............................. ( 1)

Total.......................................................................... 577


Depreciation charges.......................................... ( 49)Total.......................................................................... 115

Income tax expense (as reported)............................. 42

Net cash provided by operating activities................. $153

61. Last year Martson Company sold equipment with a net book value of $110,000 for $130,000 in cash. This equipment was originally purchased for $200,000. 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 $70,000 from cash.B) A net addition of $70,000 to cash.C) A net deduction of $20,000 from cash.D) A net addition of $20,000 to cash.


Solution:

Investing ActivitiesDisposal of equipment............................... ($200,000)Proceeds from sale of equipment............... 130,000Net cash used in investing activities.......... ($ 70,000)



62. The following transactions occurred last year at Jobb Company:

Issuance of shares of the company’s own common stock................ $100,000Dividends paid to the company’s own shareholders......................... $7,000Dividends received from investments in other companies’ shares... $2,000Interest paid on the company’s own bonds....................................... $25,000Repayment of principal on the company’s own bonds..................... $90,000Proceeds from sale of the company’s used equipment..................... $9,000Purchase of land................................................................................ $120,000

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) $3,000B) $(131,000)C) $(22,000)D) $353,000


Solution:

Financing ActivitiesIncrease in common stock.......................... $100,000Cash dividends paid................................... ( 7,000)Decrease in bonds payable......................... ( 90,000)Net cash provided by financing activities. . $ 3,000

63. Last year Burdic Company's cash account decreased by $4,000. Net cash provided by investing activities was $31,000. Net cash used in financing activities was $38,000. On the statement of cash flows, the net cash flow provided by (used in) operating activities was:A) $(4,000)B) $(11,000)C) $(7,000)D) $3,000




Solution:

Decrease in cash.................................................. ($ 4,000)Less: Net cash provided by investing activities. . ( 31,000)Add: Net cash used in financing activities.......... 38,000Net cash provided by operating activities........... $ 3,000

Use the following to answer questions 64-68:

Krech Corporation's comparative balance sheet appears below:

Ending Balance

Beginning Balance


Cash and cash equivalents........................ $ 31,000 $ 28,000Accounts receivable................................. 18,000 20,000Inventory.................................................. 70,000 66,000

Total current assets...................................... 119,000 114,000 Property, plant, and equipment.................... 374,000 354,000

Less accumulated depreciation................. 190,000 165,000 Net property, plant, and equipment............. 184,000 189,000 Total assets.................................................. $303,000 $303,000


Accounts payable..................................... $ 13,000 $ 9,000Accrued wages and salaries payable........ 31,000 33,000Accrued income taxes payable................. 28,000 29,000Notes payable........................................... 21,000 20,000

Total current liabilities................................ 93,000 91,000Long-term debt............................................ 76,000 73,000Deferred income taxes................................. 39,000 40,000 Total liabilities............................................. 208,000 204,000 Stockholders’ equity:...................................

Common stock.......................................... 28,000 26,000Retained earnings..................................... 67,000 73,000

Total stockholders’ equity........................... 95,000 99,000 Total liabilities and stockholders’ equity... . $303,000 $303,000

The company's net income (loss) for the year was ($3,000) and its cash dividends were $3,000.



64. Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?A) The change in Accounts Receivable is a source; The change in Inventory is a

sourceB) The change in Accounts Receivable is a source; The change in Inventory is a

useC) The change in Accounts Receivable is a use; The change in Inventory is a useD) The change in Accounts Receivable is a use; The change in Inventory is a

source

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

65. Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?A) The change in Accounts Payable is a use; The change in Accrued Wages and

Salaries payable is a sourceB) The change in Accounts Payable is a source; The change in Accrued Wages and

Salaries payable is a useC) The change in Accounts Payable is a source; The change in Accrued Wages and

Salaries payable is a sourceD) The change in Accounts Payable is a use; The change in Accrued Wages and

Salaries payable is a use


66. Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?A) The change in Property, Plant, and Equipment is a source; The change in Long-

Term Debt is a sourceB) The change in Property, Plant, and Equipment is a use; The change in Long-

Term Debt is a useC) The change in Property, Plant, and Equipment is a source; The change in Long-

Term Debt is a useD) The change in Property, Plant, and Equipment is a use; The change in Long-

Term Debt is a source

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy



67. The total dollar amount of all of the items that would be classified as sources when compiling a simplified statement of cash flows is:A) $34,000B) $3,000C) $28,000D) $37,000


Solution:

SourcesDecreases in noncash assets:

Decrease in accounts receivable............................ $ 2,000Increases in liabilities (and contra asset accounts):

Increase in accumulated depreciation.................... 25,000Increase in accounts payable................................. 4,000Increase in notes payable....................................... 1,000Increase in long-term debt..................................... 3,000

Increases in capital stock accounts:Increase in common stock..................................... 2,000

Total sources............................................................. $37,000

68. The total dollar amount of all of the items that would be classified as uses when compiling a simplified statement of cash flows is:A) $34,000B) $3,000C) $37,000D) $28,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium



Solution:

UsesNet loss $ 3,000Increases in noncash assets:

Increase in inventory.............................................. 4,000Increase in property, plant, and equipment............ 20,000

Decreases in liabilities:Decrease in accrued wages and salaries payable... 2,000Decrease in accrued income taxes payable............ 1,000Decrease in deferred income taxes........................ 1,000

Dividends.................................................................. 3,000Total uses.................................................................. $34,000


The most recent comparative balance sheet of Giacomelli Corporation appears below:

Ending Balance

Beginning Balance


Cash and cash equivalents..........................................................................$ 37,000 $ 29,000Accounts receivable................................... 20,000 24,000Inventory.................................................... 70,000 68,000







Total current liabilities.................................. 98,000 86,000Long-term debt.............................................. 77,000 80,000Deferred income taxes.................................. 26,000 24,000 Total liabilities.............................................. 201,000 190,000 Stockholders’ equity:



69. Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?A) The change in Accounts Receivable is a source; The change in Inventory is a

sourceB) The change in Accounts Receivable is a source; The change in Inventory is a

useC) The change in Accounts Receivable is a use; The change in Inventory is a

sourceD) The change in Accounts Receivable is a use; The change in Inventory is a use


70. Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?A) The change in Accounts Payable is a source; The change in Accrued Wages and

Salaries payable is a useB) The change in Accounts Payable is a use; The change in Accrued Wages and

Salaries payable is a useC) The change in Accounts Payable is a source; The change in Accrued Wages and

Salaries payable is a sourceD) The change in Accounts Payable is a use; The change in Accrued Wages and

Salaries payable is a source




71. Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?A) The change in Property, Plant, and Equipment is a use; The change in Long-

Term Debt is a sourceB) The change in Property, Plant, and Equipment is a source; The change in Long-

Term Debt is a sourceC) The change in Property, Plant, and Equipment is a use; The change in Long-

Term Debt is a useD) The change in Property, Plant, and Equipment is a source; The change in Long-

Term Debt is a use





Hirshberg Corporation's comparative balance sheet appears below:

Ending Balance

Beginning Balance


Cash and cash equivalents..........................................................................$ 42,000 $ 31,000Accounts receivable................................... 22,000 18,000Inventory.................................................... 66,000 70,000





Total current liabilities.................................. 84,000 83,000 Long-term debt.............................................. 83,000 81,000Deferred income taxes.................................. 29,000 33,000 Total liabilities.............................................. 196,000 197,000 Stockholders’ equity:



The company's net income (loss) for the year was $11,000 and its cash dividends were $4,000.



72. The total dollar amount of all of the items that would be classified as sources when compiling a simplified statement of cash flows is:A) $11,000B) $39,000C) $43,000D) $54,000


Solution:

SourcesNet income $11,000

Decreases in noncash assets:Decrease in inventory............................................ 4,000

Increases in liabilities (and contra asset accounts):Increase in accumulated depreciation.................... 30,000Increase in wages and salaries payable.................. 4,000Increase in notes payable....................................... 3,000Increase in long-term debt..................................... 2,000

Total sources................................................................ $54,000

73. The total dollar amount of all of the items that would be classified as uses when compiling a simplified statement of cash flows is:A) $11,000B) $39,000C) $54,000D) $43,000




Solution:

UsesIncreases in noncash assets:

Increase in accounts receivable................................. $ 4,000Increase in property, plant, and equipment............... 24,000

Decreases in liabilities:Decrease in accounts payable................................... 2,000Decrease in accrued income taxes payable............... 4,000Decrease in deferred income taxes........................... 4,000

Decrease in capital stock accounts:Decrease in common stock....................................... 1,000

Dividends..................................................................... 4,000Total uses..................................................................... $43,000




Waite Company's comparative balance sheet and income statement for last year appear below:

Statement of Financial Position

Ending BeginningBalance Balance

Cash...................................................... $ 27,000 $ 22,000Accounts receivable............................. 56,000 60,000Inventory.............................................. 48,000 36,000Prepaid expenses.................................. 14,000 11,000Long-term investments........................ 270,000 230,000Plant and equipment............................. 440,000 440,000Accumulated depreciation................... ( 306,000 ) ( 276,000 )Total assets........................................... $549,000 $523,000

Accounts payable................................. $ 43,000 $ 33,000Accrued liabilities................................ 20,000 25,000Taxes payable....................................... 6,000 9,000Bonds payable...................................... 130,000 150,000Deferred taxes...................................... 22,000 20,000Common stock..................................... 120,000 110,000Retained earnings................................. 208,000 176,000 Total liabilities and owners’ equity...... $549,000 $523,000

Income Statement

Sales........................................................... $510,000Cost of goods sold...................................... 280,000 Gross margin.............................................. 230,000Selling and administrative expense............ 150,000 Net operating income................................. 80,000Income taxes.............................................. 24,000 Net income................................................. $ 56,000

The company declared and paid $24,000 in cash dividends during the year. The following questions pertain to the company's statement of cash flows.



74. The net cash provided by (used in) operating activities last year was:A) $56,000B) $79,000C) $86,000D) $33,000


Solution:

Operating ActivitiesNet income................................................................ $56,000Adjustments to convert net income to a cash basis:

Depreciation charges............................................. $30,000Decrease in accounts receivable............................ 4,000Increase in inventory............................................. ( 12,000)Increase in prepaid expenses................................. ( 3,000)Increase in accounts payable................................. 10,000Decrease in accrued liabilities............................... ( 5,000)Decrease in taxes payable...................................... ( 3,000)Increase in deferred taxes...................................... 2,000 23,000

Net cash provided by operating activities................. $79,000

75. The net cash provided by (used in) investing activities last year was:A) $(40,000)B) $40,000C) $(30,000)D) $30,000


Solution:

Investing ActivitiesIncrease in long-term investments............. ($40,000)Net cash used in investing.......................... ($40,000)



76. The net cash provided by (used in) financing activities last year was:A) $10,000B) $(10,000)C) $(34,000)D) $34,000


Solution:

Financing ActivitiesDecrease in bonds payable......................... ($20,000)Increase in common stock.......................... 10,000Cash dividends paid................................... ( 24,000)Net cash used in financing activities.......... ($34,000)




Meganas Company's net income last year was $183,000. Changes in the company's balance sheet accounts for the year appear below:


Debit balances:Cash............................................ $(4,000)Accounts receivable.................... $(8,000)Inventory..................................... $13,000Prepaid expenses......................... $(9,000)Long-term investments............... $60,000Plant and equipment.................... $45,000

Credit balances:Accumulated depreciation.......... $56,000Accounts payable........................ $3,000Accrued liabilities....................... $8,000Taxes payable............................. $(2,000)Bonds payable............................. $(60,000)Deferred taxes............................. $6,000Common stock............................ $20,000Retained earnings........................ $66,000

The company declared and paid cash dividends of $117,000 last year. The following questions pertain to the company's statement of cash flows.

77. The net cash provided by (used in) operating activities last year was:A) $258,000B) $183,000C) $239,000D) $202,000




Solution:

Operating ActivitiesNet income............................................................. $183,000Adjustments to convert net income to a cash basis:

Depreciation charges........................................... $56,000Decrease in accounts receivable......................... 8,000Increase in inventory........................................... ( 13,000)Decrease in prepaid expenses............................. 9,000Increase in accounts payable............................... 3,000Increase in accrued liabilities.............................. 8,000Decrease in taxes payable................................... ( 2,000)Increase in deferred income taxes....................... 6,000 75,000

Net cash provided by operating activities.............. $258,000

78. The net cash provided by (used in) investing activities last year was:A) $(105,000)B) $105,000C) $(85,000)D) $85,000


Solution:

Investing ActivitiesAdditions to plant and equipment.............. ($ 45,000)Additions to long-term investments........... ( 60,000)Net cash used by investing activities......... ($105,000)



79. The net cash provided by (used in) financing activities last year was:A) $40,000B) $(40,000)C) $157,000D) $(157,000)


Solution:

Financing ActivitiesDecrease in bonds payable......................... ($ 60,000)Increase in common stock.......................... 20,000Cash dividends paid................................... ( 117,000)Net cash used in financing activities.......... ($157,000)


Sparks Company recorded the following events last year:

Issuance of shares of the company’s own common stock............. $170,000Purchase of bonds issued by other companies............................... $90,000Dividends paid to the company’s own shareholders..................... $33,000Dividends received from investments in other companies’ shares $13,000Repayment of principal on the company’s own bonds.................. $370,000Interest paid on the company’s own bonds.................................... $5,000Collection of the principal amount of a loan made to another

company..................................................................................... $210,000Purchase of equipment................................................................... $430,000

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.



80. Based solely on the information above, the net cash provided by (used in) financing activities on the statement of cash flows would be:A) $(39,000)B) $1,321,000C) $(233,000)D) $(238,000)


Solution:

Financing ActivitiesIssuance of common stock......................... $170,000Cash dividends paid................................... ( 33,000)Repayment of bonds.................................. ( 370,000)Net cash used by financing activities......... ($233,000)

81. Based solely on the information above, the net cash provided by (used in) investing activities on the statement of cash flows would be:A) $(310,000)B) $(1,321,000)C) $(520,000)D) $(890,000)

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Hard

Solution:

Investing ActivitiesPurchase of bonds...................................... ($ 90,000)Collection of loan....................................... 210,000Purchase of equipment............................... ( 430,000)Net cash used by investing activities......... ($310,000)




Bebout Corporation's balance sheet and income statement appear below:


Beginning Balance




Cash dividends were $40. The company sold equipment for $14 that was originally purchased for $9 and that had accumulated depreciation of $7.



82. The net cash provided by (used by) operations for the year was:A) $180B) $168C) $208D) $221


Solution:

Operating ActivitiesNet income............................................................. $163Adjustments to convert net income to a cash basis:

Depreciation charges.......................................... $25Increase in accounts receivable.......................... ( 8)Decrease in inventory......................................... 9Increase in accounts payable.............................. 3Decrease in wages payable................................. ( 4)Decrease in taxes payable................................... ( 2)Decrease in deferred income taxes..................... ( 6)Gain on sale of plant and equipment.................. ( 12) 5


83. The net cash provided by (used by) investing activities for the year was:A) ($88)B) $14C) ($74)D) $74


Solution:

Investing ActivitiesProceeds from sale of equipment............... $14 Purchase of plant and equipment............... ( 88) *Net cash used by investing activities......... ($74)

*$619 − ($540 − $9) = $619 − $531 = $88



84. The net cash provided by (used by) financing activities for the year was:A) $1B) ($40)C) ($50)D) ($89)


Solution:

Financing ActivitiesDecrease in bonds payable......................... ($50)Increase in common stock.......................... 1Cash dividends paid................................... ( 40)Net cash used by financing activities......... ($89)




The most recent balance sheet and income statement of Cowger Corporation appear below:


Beginning Balance




Cash dividends were $9.





Solution:

Operating ActivitiesNet income............................................................... $50Adjustments to convert net income to a cash basis:

Depreciation charges............................................ $20Decrease in accounts receivable.......................... 3Increase in inventory............................................ ( 6)Decrease in accounts payable.............................. ( 7)Increase in wages payable.................................... 2Increase in income taxes payable......................... 1Increase in deferred income taxes payable.......... 2 15

Net cash provided by operating activities............... $65

86. The net cash provided by (used by) investing activities for the year was:A) ($8)B) $8C) $28D) ($28)


Solution:

Investing ActivitiesAdditions to plant and equipment.............. ($28)Net cash used by investing activities......... ($28)

87. The net cash provided by (used by) financing activities for the year was:A) ($36)B) ($32)C) $5D) ($9)




Solution:



Karner Corporation's most recent balance sheet appears below:


Beginning Balance



Net income for the year was $76. Cash dividends were $19.





Solution:

Operating ActivitiesNet income................................................................ $76Adjustments to convert net income to a cash basis:

Depreciation charges............................................. $32Increase in accounts receivable............................. ( 10)Increase in inventory............................................. ( 7)Decrease in accounts payable............................... ( 7)Decrease in wages payable................................... ( 1)Decrease in income taxes payable......................... ( 1)Decrease in deferred income taxes payable.......... ( 4) 2


89. The net cash provided by (used by) investing activities for the year was:A) ($27)B) $27C) $59D) ($59)


Solution:




90. The net cash provided by (used by) financing activities for the year was:A) ($14)B) $4C) ($19)D) $1


Solution:

Financing ActivitiesIncrease in bonds payable.......................... $ 4Increase in common stock.......................... 1Cash dividends paid................................... ( 19)Net cash used by financing activities......... ($14)




Financial statements of Casagrande Corporation follow:


Beginning Balance









Solution:

Operating ActivitiesNet income................................................................ $105Adjustments to convert net income to a cash basis:

Depreciation charges............................................. $29Increase in accounts receivable............................. ( 7)Decrease in inventory............................................ 2Increase in accounts payable................................. 5 29


92. The net cash provided by (used by) investing activities for the year was:A) $40B) ($40)C) ($69)D) $69

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Easy

Solution:


93. The net cash provided by (used by) financing activities for the year was:A) ($63)B) ($27)C) ($38)D) $2


Solution:

Financing ActivitiesDecrease in long-term debt........................ ($38)Increase in common stock.......................... 2Cash dividends paid................................... ( 27)Net cash used by financing activities......... ($63)




Kozusko Corporation's most recent comparative balance sheet appears below:


Beginning Balance




94. The net cash provided by (used by) operations for the year was:A) $44B) ($39)C) $101D) $70

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Easy



Solution:

Operating ActivitiesNet income............................................................. $31Adjustments to convert net income to a cash basis:

Depreciation charges.......................................... $69Increase in accounts receivable.......................... ( 8)Decrease in inventory......................................... 1Increase in accounts payable.............................. 8 70


95. The net cash provided by (used by) investing activities for the year was:A) $89B) ($89)C) $20D) ($20)


Solution:


96. The net cash provided by (used by) financing activities for the year was:A) ($2)B) $1C) ($6)D) ($7)


Solution:

Financing ActivitiesDecrease in long-term debt........................ ($2)Increase in common stock.......................... 1Cash dividends paid................................... ( 6)Net cash used by financing activities......... ($7)




(Appendix) Van Wyck Company's comparative balance sheet and income statement for last year appear below:

Statement of Financial PositionEnding BeginningBalance Balance

Cash............................................................ $ 63,000 $ 30,000Accounts receivable................................... 91,000 68,000Inventory.................................................... 26,000 44,000Prepaid expenses........................................ 13,000 19,000Long-term investments.............................. 260,000 190,000Plant and equipment................................... 460,000 460,000Accumulated depreciation......................... ( 298,000 ) ( 260,000 )Total assets................................................. $615,000 $551,000

Accounts payable....................................... $ 35,000 $ 57,000Accrued liabilities...................................... 25,000 17,000Taxes payable............................................. 12,000 19,000Bonds payable............................................ 110,000 150,000Deferred taxes............................................ 36,000 19,000Common stock........................................... 100,000 70,000Retained earnings....................................... 297,000 219,000 Total liabilities and owners’ equity............ $615,000 $551,000

Income StatementSales........................................................... $900,000Cost of goods sold...................................... 490,000 Gross margin.............................................. 410,000Selling and administrative expense............ 270,000 Net operating income................................. 140,000Income taxes.............................................. 42,000 Net income................................................. $ 98,000

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.



97. On the statement of cash flows, the sales revenue adjusted to a cash basis would be:A) $900,000B) $877,000C) $923,000D) $859,000

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Hard

Solution:

Sales revenue (as reported)........................ $900,000Adjustments to a cash basis:Increase in accounts receivable.............. ( 23,000)

Sales revenue (adjusted)............................ $877,000

98. On the statement of cash flows, the cost of goods sold adjusted to a cash basis would be:A) $494,000B) $490,000C) $486,000D) $512,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Hard

Solution:

Cost of goods sold (as reported)................ $490,000Adjustments to a cash basis:Decrease in inventory............................. ( 18,000)Decrease in accounts payable................. 22,000




99. On the statement of cash flows, the operating expenses adjusted to a cash basis would be:A) $270,000B) $218,000C) $256,000D) $322,000


Solution:

Operating expenses (as reported)............... $270,000Adjustments to a cash basis:Decrease in prepaid expenses................. ( 6,000)Increase in accrued liabilities................. ( 8,000)Period’s depreciation charges................. ( 38,000)

Total........................................................... $218,000

100. On the statement of cash flows, the income tax expense adjusted to a cash basis would be:A) $42,000B) $36,000C) $49,000D) $32,000


Solution:

Income tax expense (as reported).............. $42,000Adjustments to a cash basis:Decrease in accrued taxes payable......... 7,000Decrease in deferred income taxes......... ( 17,000)

Income tax expense (adjusted)................... $32,000




(Appendix) The changes in Tencate Company's balance sheet account balances for last year appear below:


Debit balances:Cash............................................ $8,000Accounts receivable.................... $(6,000)Inventory..................................... $2,000Prepaid expenses......................... $(13,000)Long-term investments............... $70,000Plant and equipment.................... $55,000

Credit balances:Accumulated depreciation.......... $67,000Accounts payable........................ $(14,000)Accrued liabilities....................... $2,000Taxes payable............................. $7,000Bonds payable............................. $(60,000)Deferred taxes............................. $(7,000)Common stock............................ $20,000Retained earnings........................ $101,000

The company’s income statement for the year appears below:

Sales..................................................... $970,000Cost of goods sold................................ 530,000 Gross margin........................................ 440,000Selling and administrative expense...... 290,000 Net operating income........................... 150,000Income taxes........................................ 45,000 Net income........................................... $105,000

The company declared and paid $4,000 in cash dividends during the year. The company uses the direct method to determine the net cash provided by operating activities.



101. On the statement of cash flows, the sales revenue adjusted to a cash basis would be:A) $978,000B) $976,000C) $970,000D) $964,000


Solution:

Sales revenue (as reported)........................ $970,000Adjustments to a cash basis:Decrease in accounts receivable............. 6,000

Sales revenue (adjusted)............................ $976,000

102. On the statement of cash flows, the cost of goods sold adjusted to a cash basis would be:A) $514,000B) $544,000C) $546,000D) $530,000


Solution:

Cost of goods sold (as reported)................ $530,000Adjustments to a cash basis:Increase in inventory.............................. 2,000Decrease in accounts payable................. 14,000




103. On the statement of cash flows, the operating expenses adjusted to a cash basis would be:A) $290,000B) $372,000C) $275,000D) $208,000


Solution:

Operating expenses (as reported)............... $290,000Adjustments to a cash basis:Decrease in prepaid expenses................. ( 13,000)Increase in accrued liabilities................. ( 2,000)Period’s depreciation charges................. ( 67,000)

Total........................................................... $208,000

104. On the statement of cash flows, the income tax expense adjusted to a cash basis would be:A) $40,000B) $42,000C) $45,000D) $46,000


Solution:

Income tax expense (as reported).............. $45,000Adjustments to a cash basis:Increase in accrued taxes payable.......... ( 7,000)Decrease in deferred income taxes......... 7,000

Income tax expense (adjusted)................... $45,000




(Appendix) Cliburn Corporation's balance sheet and income statement appear below:


Beginning Balance



Income StatementSales........................................................... $690Cost of goods sold...................................... 456 Gross margin.............................................. 234Selling and administrative expense............ 150 Net operating income................................. 84Gain on sale of plant and equipment.......... 9 Income before taxes................................... 93Income taxes.............................................. 28 Net income................................................. $ 65






Solution:

Sales revenue (as reported).................................... $690Adjustments to a cash basis:Increase in accounts receivable.......................... ( 2)

Total....................................................................... $688

Cost of goods sold (as reported)............................ 456Adjustments to a cash basis:Increase in inventory.......................................... 5Increase in accounts payable.............................. ( 7)

Total....................................................................... 454

Selling and administrative expenses (as reported) 150Adjustments to a cash basis:Increase in wages payable.................................. ( 3)Period’s depreciation charges............................. ( 10)

Total....................................................................... 137

Income tax expense................................................ 28Adjustments to a cash basis:Decrease in accrued taxes payable..................... 2Decrease in deferred income taxes..................... 3

Total....................................................................... 33

Net cash provided by operating activities.............. $ 64





Solution:

Investing ActivitiesAdditions to plant and equipment.............. ($67) *Proceeds from sale of equipment............... 11Net cash used by investing activities......... ($56)

*($564 + $3) − $500

107. The net cash provided by (used by) financing activities for the year was:A) $3B) $4C) ($15)D) ($8)


Solution:

Financing ActivitiesIncrease in bonds payable.......................... $ 4Increase in common stock.......................... 3Cash dividends paid................................... ( 15)Net cash used by financing activities......... ($ 8)




(Appendix) The most recent balance sheet and income statement of Spadafino Corporation appear below:


Beginning Balance









Solution:

Sales revenue (as reported)................................... $722Adjustments to a cash basis:Increase in accounts receivable......................... ( 1)

Total...................................................................... $721

Cost of goods sold (as reported)........................... 465Adjustments to a cash basis:Decrease in inventory....................................... ( 11)Decrease in accounts payable........................... 1

Total...................................................................... 455

Selling and administrative expenses (as reported) 146Adjustments to a cash basis:Increase in wages payable................................. ( 3)Period’s depreciation charges........................... ( 14)

Total...................................................................... 129

Income tax expense.............................................. 33Adjustments to a cash basis:Increase in accrued taxes payable..................... ( 1)Increase in deferred income taxes..................... ( 1)

Total...................................................................... 31

Net cash provided by operating activities............ $106





Solution:




Solution:





(Appendix) Karpinski Corporation's most recent comparative balance sheet and income statement appear below:


Beginning Balance



Income StatementSales........................................................... $1,087Cost of goods sold...................................... 724 Gross margin.............................................. 363Selling and administrative expense............ 179 Net operating income................................. 184Income taxes.............................................. 55 Net income................................................. $ 129






Solution:

Sales revenue (as reported)................................... $1,087Adjustments to a cash basis:Increase in accounts receivable......................... ( 9)

Total...................................................................... $1,078

Cost of goods sold (as reported)........................... 724Adjustments to a cash basis:Decrease in inventory....................................... ( 2)Decrease in accounts payable........................... 1

Total...................................................................... 723

Selling and administrative expenses (as reported) 179Adjustments to a cash basis:Period’s depreciation charges........................... ( 42)

Total...................................................................... 137

Income tax expense.............................................. 55

Net cash provided by operating activities............ $ 163

112. The net cash provided by (used by) investing activities for the year was:A) $82B) ($124)C) ($82)D) $124


Solution:






Solution:

Financing ActivitiesDecrease in bonds payable......................... ($ 5)Increase in common stock.......................... 4Cash dividends paid................................... ( 31)Net cash used by financing activities......... ($32)



Essay Questions

114. Manila Corporation's comparative balance sheet appears below:

Ending Balance

Beginning Balance


Cash and cash equivalents...................... $ 42,000 $ 26,000Accounts receivable................................ 22,000 26,000Inventory................................................. 77,000 75,000

Total current assets.................................... 141,000 127,000 Property, plant, and equipment.................. 340,000 315,000

Less accumulated depreciation............... 218,000 187,000 Net property, plant, and equipment............ 122,000 128,000 Total assets................................................. $263,000 $255,000


Accounts payable.................................... $ 13,000 $ 14,000Wages and salaries payable.................... 32,000 33,000Income taxes payable.............................. 28,000 30,000Notes payable.......................................... 16,000 15,000

Total current liabilities............................... 89,000 92,000Long-term debt........................................... 77,000 78,000Deferred income taxes............................... 28,000 25,000 Total liabilities........................................... 194,000 195,000 Stockholders’ equity:

Common stock........................................ 28,000 24,000Retained earnings.................................... 41,000 36,000

Total stockholders’ equity.......................... 69,000 60,000 Total liabilities and stockholders’ equity... $263,000 $255,000


Required:

Classify the change for the year in each balance sheet account as a source, use, or neither a source nor a use. (Do this only for the individual accounts-not for totals or subtotals.)



Ans:Ending Balance

Beginning Balance Change

Cash and cash equivalents........... 42,000 26,000 +16,000 NeitherAccounts receivable..................... 22,000 26,000 -4,000 SourceInventory...................................... 77,000 75,000 +2,000 UseProperty, plant, and equipment.... 340,000 315,000 +25,000 UseLess accumulated depreciation.... 218,000 187,000 +31,000 Source

Accounts payable......................... 13,000 14,000 -1,000 UseWages and salaries payable......... 32,000 33,000 -1,000 UseIncome taxes payable................... 28,000 30,000 -2,000 UseNotes payable............................... 16,000 15,000 +1,000 SourceLong-term debt............................. 77,000 78,000 -1,000 UseDeferred income taxes................. 28,000 25,000 +3,000 SourceCommon stock............................. 28,000 24,000 +4,000 SourceRetained earnings......................... 41,000 36,000 +5,000 *

*The change in retained earnings consists of two elements: net income (loss) and dividends. The net income of $7,000 is classified as a source and the dividends of $2,000 are classified as a use.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy



115. The ending and beginning balances of Diogo Corporation's balance sheet accounts for the most recent year are listed below:

Ending Balance

Beginning Balance

Assets & Contra-Assets:Cash and cash equivalents......................... $40,000 $28,000Accounts receivable................................... $17,000 $14,000Inventory.................................................... $60,000 $62,000Property and buildings............................... $406,000 $383,000Accumulated depreciation......................... $234,000 $205,000

Liabilities and Stockholders’ EquityAccounts payable....................................... $15,000 $12,000Wages and salaries payable....................... $35,000 $38,000Income taxes payable................................. $22,000 $18,000Notes payable............................................. $28,000 $24,000Long-term debt........................................... $81,000 $85,000Deferred income taxes............................... $27,000 $24,000Common stock........................................... $39,000 $36,000Retained earnings....................................... $42,000 $45,000


Required:

Classify the change for the year in each balance sheet account as a source, use, or neither a source nor a use.



Ans:Ending Balance

Beginning Balance Change

Cash and cash equivalents..... 40,000 28,000 +12,000 NeitherAccounts receivable............... 17,000 14,000 +3,000 UseInventory................................ 60,000 62,000 -2,000 SourceProperty and buildings........... 406,000 383,000 +23,000 UseAccumulated depreciation..... 234,000 205,000 +29,000 Source

Accounts payable................... 15,000 12,000 +3,000 SourceWages and salaries payable. . . 35,000 38,000 -3,000 UseIncome taxes payable............. 22,000 18,000 +4,000 SourceNotes payable......................... 28,000 24,000 +4,000 SourceLong-term debt....................... 81,000 85,000 -4,000 UseDeferred income taxes........... 27,000 24,000 +3,000 SourceCommon stock....................... 39,000 36,000 +3,000 SourceRetained earnings................... 42,000 45,000 -3,000 *

*The change in retained earnings consists of two elements: net income (loss) and dividends. The net income of $1,000 is classified as a source and the dividends of $4,000 are classified as a use.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy



116. Burch Company's net income last year was $119,000. Changes in the company's balance sheet accounts for the year appear below:


Debit balances:Cash...................................... $29,000Accounts receivable.............. $(21,000)Inventory............................... $12,000Prepaid expenses................... $(8,000)Long-term investments......... $80,000Plant and equipment.............. $10,000

Credit balances:Accumulated depreciation.... $26,000Accounts payable.................. $23,000Accrued liabilities................. $14,000Taxes payable....................... $(9,000)Bonds payable....................... $(50,000)Deferred taxes....................... $4,000Common stock...................... $20,000Retained earnings.................. $74,000

The company declared and paid cash dividends of $45,000 last year.

Required:

a. Construct in good form the operating activities section of the company's statement of cash flows for the year. (Use the indirect method.)

b. Construct in good form the investing activities section of the company's statement of cash flows for the year.

c. Construct in good form the financing activities section of the company's statement of cash flows for the year.



Ans:

a. Operating activitiesNet income.................................................... $119,000Adjustments:

Depreciation charges.................................. $26,000Decrease in accounts receivable................ 21,000Increase in inventory.................................. (12,000)Decrease in prepaid expenses.................... 8,000Increase in accounts payable...................... 23,000Increase in accrued liabilities..................... 14,000Decrease in taxes payable.......................... (9,000)Increase in deferred taxes.......................... 4,000 75,000

Net cash provided by operating activities..... $194,000

b. Investing activities:Increase in long-term investments................ $(80,000)Increase in plant & equipment...................... (10,000 )Net cash used for investing activities............ $(90,000)

c. Financing activities:Decrease in bonds payable............................ $(50,000)Increase in common stock............................. 20,000Cash dividends.............................................. (45,000 )Net cash used in financing activities............. $(75,000)

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement LO: 2,3 Level: Medium



117. Biven Corporation's balance sheet and income statement appear below:


Beginning Balance



Income StatementSales........................................................... $620Cost of goods sold...................................... 381 Gross margin.............................................. 239Selling and administrative expense............ 103 Net operating income................................. 136Gain on sale of plant and equipment.......... 20 Income before taxes................................... 156Income taxes.............................................. 47 Net income................................................. $109


Required:

Prepare a statement of cash flows for the year using the indirect method.



Ans:

Net income...................................................................... $109Adjustments to convert net income to a cash basis:

Depreciation charges.................................................... 17Increase in accounts receivable.................................... (5)Increase in inventory.................................................... (9)Decrease in accounts payable...................................... (6)Increase in wages payable............................................ 2Increase in taxes payable............................................. 1Increase in deferred taxes............................................ 1Gain on sale of plant and equipment........................... (20 )

Net cash provided by operations..................................... 90 Investing activities:

Proceeds from sale of plant and equipment................. 20Increase in plant and equipment.................................. (64 )

Net cash used for investing activities.............................. (44 )Financing activities:

Decrease in bonds payable........................................... (13)Increase in common stock............................................ 3Cash dividends............................................................. (31 )

Net cash used by financing activities.............................. (41 )Net increase (decrease) in cash and cash equivalents..... 5Cash balance, beginning................................................. 30 Cash balance, end............................................................ $35




118. Danford Corporation's balance sheet and income statement appear below:


Beginning Balance



Income StatementSales........................................................... $546Cost of goods sold...................................... 363 Gross margin.............................................. 183Selling and administrative expense............ 134 Net operating income................................. 49Gain on sale of plant and equipment.......... 8 Income before taxes................................... 57Income taxes.............................................. 17 Net income................................................. $ 40


Required:

Determine the net cash provided by (used by) operating activities for the year using the indirect method.



Ans:

Net income....................................................................... $40Adjustments to convert net income to a cash basis:

Depreciation charges.................................................... 48Decrease in accounts receivable................................... 5Decrease in inventory................................................... 9Decrease in accounts payable....................................... (12)Decrease in wages payable........................................... (2)Increase in taxes payable.............................................. 3Decrease in deferred taxes............................................ (3)Gain on sale of plant and equipment............................ ( 8 )

Net cash provided by operations..................................... $80

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium



119. 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.---------------------------------------------------------------------

Dano Company's comparative balance sheet and income statement for last year appear below:







The company declared and paid $34,000 in cash dividends during the year.

Required:

a. Construct in good form the operating activities section of the company's statement of cash flows for the year.

b. Construct in good form the investing activities section of the company's statement of cash flows for the year.

c. Construct in good form the financing activities section of the company's statement of cash flows for the year.

Ans:

a. Operating activities

INDIRECT METHOD

Net income..................................................... $84,000Adjustments:

Depreciation charges................................... $29,000Decrease in accounts receivable................. 14,000Increase in inventory................................... (13,000)Increase in prepaid expenses....................... (3,000)Increase in accounts payable....................... 18,000Decrease in accrued liabilities.................... (5,000)Increase in taxes payable............................ 17,000Increase in deferred taxes........................... 4,000 61,000

Net cash provided by operating activities...... $145,000



DIRECT METHOD

Sales............................................................... $540,000Adjustments to a cash basis:

Decrease in accounts receivable................. +14,000 $554,000

Cost of goods sold.......................................... 220,000Adjustments to a cash basis:

Increase in inventory................................... +13,000Increase in accounts payable....................... -18,000 215,000

Selling and administrative expense................ 200,000Adjustments to a cash basis:

Increase in prepaid expenses....................... +3,000Decrease in accrued liabilities.................... +5,000Depreciation charges................................... -29,000 179,000

Income tax expense........................................ 36,000Adjustments to a cash basis:

Increase in taxes payable............................ -17,000Increase in deferred taxes........................... -4,000 15,000

Net cash provided by operating activities...... $145,000

b. Investing activities:Increase in long-term investments............. $(70,000)Net cash used for investing activities......... $(70,000)

c. Financing activities:Decrease in bonds payable......................... $(40,000)Increase in common stock.......................... 20,000Cash dividends........................................... ( 34,000 )Net cash used in financing activities.......... $(54,000)

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement LO: 2,3 Level: Hard



120. Sary Corporation's balance sheet and income statement appear below:


Beginning Balance





Required:

Prepare a statement of cash flows in good form using the indirect method.



Ans:

Net income.................................................................... $113Adjustments to convert net income to a cash basis:

Depreciation charges.................................................. 49Increase in accounts receivable.................................. (4)Increase in inventory.................................................. (7)Decrease in accounts payable.................................... (9)Decrease in wages payable........................................ (4)Decrease in taxes payable.......................................... (3)Decrease in deferred taxes......................................... ( 4 )

Net cash provided by operations................................... 131 Investing activities:

Increase in plant and equipment................................ ( 105 )Net cash used for investing activities............................ ( 105 )Financing activities:

Increase in bonds payable.......................................... 1Increase in common stock.......................................... 2Cash dividends........................................................... ( 28 )

Net cash used by financing activities............................ ( 25 )Net change in cash and cash equivalents...................... 1Cash balance, beginning............................................... 26 Cash balance, end.......................................................... $ 27




121. Boscia Corporation's balance sheet appears below:


Beginning Balance



The net income for the year was $108. Cash dividends were $28.

Required:




Ans:

Net income................................................................... $108Adjustments to convert net income to a cash basis:

Depreciation charges................................................. 39Increase in accounts receivable................................. (13)Increase in inventory................................................. (2)Increase in accounts payable..................................... 10Increase in wages payable......................................... 3Decrease in taxes payable......................................... (3)Increase in deferred taxes......................................... 1

Net cash provided by operations.................................. 143 Investing activities:

Increase in plant and equipment............................... ( 37 )Net cash used for investing activities........................... ( 37 )Financing activities:

Decrease in bonds payable........................................ (74)Increase in common stock......................................... 2Cash dividends.......................................................... ( 28 )

Net cash used by financing activities........................... ( 100 )Net change in cash and cash equivalents..................... 6Cash balance, beginning.............................................. 38 Cash balance, end......................................................... $ 44

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement LO: 2,3 Level: Easy



122. Fryberger Corporation's balance sheet and income statement appear below:


Beginning Balance

Assets:Cash and cash equivalents............................. $ 36 $ 33Accounts receivable....................................... 46 41Inventory........................................................ 53 59Plant and equipment....................................... 472 460Accumulated depreciation............................. ( 218 ) ( 214 )Total assets..................................................... $389 $379

Liabilities and stockholders’ equity:Accounts payable........................................... $ 52 $ 62Long-term debt............................................... 289 330Common stock............................................... 84 80Retained earnings........................................... ( 36 ) ( 93 )Total liabilities and stockholders’ equity....... $389 $379

Income StatementSales............................................................... $737Cost of goods sold.......................................... 454 Gross margin.................................................. 283Selling and administrative expense................ 173 Net operating income..................................... 110Income taxes.................................................. 33 Net income..................................................... $ 77


Required:




Ans:

Net income................................................................ $77Adjustments to convert net income to a cash basis:

Depreciation charges.............................................. 4Increase in accounts receivable.............................. (5)Decrease in inventory............................................ 6Decrease in accounts payable................................ ( 10 )

Net cash provided by operations............................... 72 Investing activities:

Increase in plant and equipment............................ ( 12 )Net cash used for investing activities........................ ( 12 )Financing activities:

Decrease in long-term debt.................................... ( 41)Increase in common stock...................................... 4Cash dividends....................................................... ( 20 )

Net cash used by financing activities........................ ( 57 )Net cash flow............................................................ 3Cash balance, beginning........................................... 33 Cash balance, end...................................................... $36




123. Solmonson Corporation's balance sheet appears below:


Beginning Balance

Assets:Cash and cash equivalents............................. $ 29 $ 27Accounts receivable....................................... 21 25Inventory........................................................ 49 56Plant and equipment....................................... 524 420Accumulated depreciation............................. ( 283 ) ( 251 )Total assets..................................................... $340 $277

Liabilities and stockholders’ equity:Accounts payable........................................... $ 28 $ 34Long-term debt............................................... 84 100Common stock............................................... 51 50Retained earnings........................................... 177 93 Total liabilities and stockholders’ equity....... $340 $277


Required:




Ans:

Net income..................................................................... $105Adjustments to convert net income to a cash basis:

Depreciation charges.................................................. 32Decrease in accounts receivable................................. 4Decrease in inventory................................................. 7Decrease in accounts payable..................................... ( 6 )

Net cash provided by operations................................... 142 Investing activities:

Increase in plant and equipment................................. ( 104 )Net cash used for investing activities............................ ( 104 )Financing activities:

Decrease in long-term debt......................................... (16)Increase in common stock.......................................... 1Cash dividends........................................................... ( 21 )

Net cash used by financing activities............................ ( 36 )Net cash flow................................................................. 2Cash balance, beginning................................................ 27 Cash balance, end.......................................................... $ 29




124. Carman Company's comparative balance sheet and income statement for last year appear below:





The company declared and paid $8,000 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.



Ans:

Sales................................................................. $610,000Adjustments to a cash basis:Increase in accounts receivable........................ -24,000 $586,000

Cost of goods sold 310,000Adjustments to a cash basis:Decrease in inventory -18,000Decrease in accounts payable +22,000 314,000

Selling and administrative expense 190,000Adjustments to a cash basis:Decrease in prepaid expenses -8,000Increase in accrued liabilities -9,000Depreciation charges -48,000 125,000

Income tax expense 33,000Adjustments to a cash basis:Decrease in taxes payable +7,000Increase in deferred taxes -13,000 27,000

Net cash provided by operating activities $120,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Appendix: 15 LO: 2,4 Level: Hard



125. Boehning Corporation's balance sheet and income statement appear below:


Beginning Balance



Income StatementSales........................................................... $954Cost of goods sold...................................... 606 Gross margin.............................................. 348Selling and administrative expense............ 162 Net operating income................................. 186Gain on sale of plant and equipment.......... 10 Income before taxes................................... 196Income taxes.............................................. 59 Net income................................................. $137


Required:

Using the direct method, determine the net cash provided by (used by) operating activities.



Ans:

Sales.............................................................. $954Increase in accounts receivable..................... ( 5 ) $949

Cost of sales.................................................. 606Decrease in inventory................................... (6)Increase in accounts payable......................... ( 1 ) 599

Selling and administrative expense............... 162Decrease in wages payable........................... 4Depreciation charges..................................... ( 28 ) 138

Income taxes................................................. 59Increase in taxes payable.............................. (1)Decrease in deferred taxes............................ 4 62

Net cash provided by operating activities..... $150

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Appendix: 15 LO: 2,4 Level: Medium



126. May Corporation's balance sheet and income statement appear below:


Beginning Balance





Required:

Prepare the operating activities section of the statement of cash flows using the direct method. In other words, determine the net cash provided by or used by operating activities using the direct method.



Ans:

Sales................................................................. $606Decrease in accounts receivable...................... 1 $607

Cost of goods sold............................................ 396Decrease in inventory...................................... (5)Decrease in accounts payable.......................... 7 398

Selling and administrative expense.................. 174Decrease in wages payable.............................. 2Depreciation charges........................................ ( 24 ) 152

Income taxes.................................................... 11Increase in taxes payable................................. (2)Decrease in deferred taxes............................... 1 10

Net cash provided by operating activities........ $ 47




127. Heckler Corporation's balance sheet and income statement appear below:


Beginning Balance


Liabilities and stockholders’ equity:Accounts payable....................................... $ 31 $ 29Long-term debt........................................... 198 240Common stock........................................... 74 70Retained earnings....................................... ( 13 ) ( 48 )Total liabilities and stockholders’ equity... $290 $291



Required:

Prepare the operating activities section of the statement of cash flows in good form using the direct method.



Ans:

Sales.............................................................. $618Decrease in accounts receivable................... 3 $621

Cost of goods sold......................................... 398Increase in inventory..................................... 1Increase in accounts payable......................... ( 2 ) 397

Selling and administrative expense............... 156Depreciation charges..................................... ( 39 ) 117

Income taxes................................................. 19

Net cash provided by operating activities..... $ 88





Documents

Chapter 15