Chapter 23 Statement of Cash Flows

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Chapter 23 Statement of Cash Flows

QUESTIONS
1. What is the purpose of the statement of cash flows? What information does it provide?
2. Of what use is the statement of cash flows?
3. Differentiate between investing activities, financing activities, and operating activities.
4. What are the major sources of cash (inflows) in a statement of cash flows? What are the major uses (outflows) of cash?
5. Identify and explain the major steps involved in preparing the statement of cash flows.

6. Identify the following items as (1) operating, (2) investing, or (3) financing activities: purchase of land, payment of dividends, cash sales, and purchase of treasury stock.
7. Unlike the other major financial statements, the statement of cash flows is not prepared from the adjusted trial balance. From what sources does the information to prepare this statement come, and what information does each source provide?
8. Why is it necessary to convert accrual-based net income to a cash basis when preparing a statement of cash flows?
9. Differentiate between the direct method and the indirect method by discussing each method.
10. Broussard Company reported net income of $3.5 million in 2014. Depreciation for the year was $520,000; accounts receivable increased $500,000; and accounts payable increased $300,000. Compute net cash flow from operating activities using the indirect method.
11. Collinsworth Co. reported sales on an accrual basis of $100,000. If accounts receivable increased $30,000 and the allowance for doubtful accounts increased $9,000 after a write-off of $2,000, compute cash sales.
12. Your roommate is puzzled. During the last year, the company in which she is a stockholder reported a net loss of $675,000, yet its cash increased $321,000 during the same period of time. Explain to your roommate how this situation could occur.
13. The board of directors of Gifford Corp. declared cash dividends of $260,000 during the current year. If dividends payable was $85,000 at the beginning of the year and $90,000 at the end of the year, how much cash was paid in dividends during the year?
14. Explain how the amount of cash payments to suppliers is computed under the direct method.
15. The net income for Letterman Company for 2014 was $320,000. During 2014, depreciation on plant assets was $124,000, amortization of patent was $40,000, and the company incurred a loss on sale of plant assets of $21,000.
Compute net cash flow from operating activities.
16. Each of the following items must be considered in preparing a statement of cash flows for Blackwell Inc. for the year ended December 31, 2014. State where each item is to be shown in the statement, if at all.
(a) Plant assets that had cost $18,000 6½ years before and were being depreciated on a straight-line basis over 10 years with no estimated scrap value were sold for $4,000.
(b) During the year, 10,000 shares of common stock with a stated value of $20 a share were issued for $41 a share.
(c) Uncollectible accounts receivable in the amount of $22,000 were written off against Allowance for Doubtful
Accounts.
(d) The company sustained a net loss for the year of $50,000. Depreciation amounted to $22,000, and a gain of $9,000 was realized on the sale of available-for-sale securities for $38,000 cash.
17. Classify the following items as (1) operating, (2) investing, (3) financing, or (4) significant non-cash investing and financing activities, using the direct method.
(a) Cash payments to employees.
(b) Redemption of bonds payable.
(c) Sale of building at book value.
(d) Cash payments to suppliers.
(e) Exchange of equipment for furniture.
(f) Issuance of preferred stock.
(g) Cash received from customers.
(h) Purchase of treasury stock.
(i) Issuance of bonds for land.
(j) Payment of dividends.
(k) Purchase of equipment.
(l) Cash payments for operating expenses.
18. Stan Conner and Mark Stein were discussing the presentation format of the statement of cash flows of Bombeck Co.
At the bottom of Bombeck’s statement of cash flows was a separate section entitled “Noncash investing and financing activities.” Give three examples of significant non-cash transactions that would be reported in this section.
19. During 2014, Simms Company redeemed $2,000,000 of bonds payable for $1,880,000 cash. Indicate how this transaction would be reported on a statement of cash flows, if at all.
20. What are some of the arguments in favor of using the indirect
(reconciliation) method as opposed to the direct method for reporting a statement of cash flows?
21. Why is it desirable to use a worksheet when preparing a statement of cash flows? Is a worksheet required to prepare a statement of cash flows?


BRIEF EXERCISES

BE23-1 Wainwright Corporation had the following activities in 2014.
1. Sale of land $180,000. 4. Purchase of equipment $415,000.
2. Purchase of inventory $845,000. 5. Issuance of common stock $320,000.
3. Purchase of treasury stock $72,000. 6. Purchase of available-for-sale securities $59,000.
Compute the amount Wainwright should report as net cash provided (used) by investing activities in its 2014 statement of cash flows.

BE23-2 Stansfield Corporation had the following activities in 2014.
1. Payment of accounts payable $770,000. 4. Collection of note receivable $100,000.
2. Issuance of common stock $250,000. 5. Issuance of bonds payable $510,000.
3. Payment of dividends $350,000. 6. Purchase of treasury stock $46,000.
Compute the amount Stansfield should report as net cash provided (used) by financing activities in its 2014 statement of cash flows.

BE23-3 Novak Corporation is preparing its 2014 statement of cash flows, using the indirect method. Presented below is a list of items that may affect the statement. Using the code below, indicate how each item will affect Novak’s 2014 statement of cash flows.
Code Letter Effect
A Added to net income in the operating section
D Deducted from net income in the operating section
R-I Cash receipt in investing section
P-I Cash payment in investing section
R-F Cash receipt in financing section
P-F Cash payment in financing section
N Noncash investing and financing activity
Items ____ (a) Purchase of land and building. ____ (j) Increase in accounts payable. ____ (b) Decrease in accounts receivable. ____ (k) Decrease in accounts payable. ____ (c) Issuance of stock. ____ (l) Loan from bank by signing note. ____ (d) Depreciation expense. ____ (m) Purchase of equipment using a note. ____ (e) Sale of land at book value. ____ (n) Increase in inventory. ____ (f) Sale of land at a gain. ____ (o) Issuance of bonds. ____ (g) Payment of dividends. ____ (p) Redemption of bonds payable. ____ (h) Increase in accounts receivable. ____ (q) Sale of equipment at a loss. ____ (i) Purchase of available-for-sale investment. ____ (r) Purchase of treasury stock.

BE23-4 Bloom Corporation had the following 2014 income statement.
Sales revenue $200,000
Cost of goods sold 120,000
Gross profit 80,000
Operating expenses (includes depreciation of $21,000) 50,000
Net income $ 30,000
The following accounts increased during 2014: Accounts Receivable $12,000; Inventory $11,000; Accounts
Payable $13,000. Prepare the cash flows from operating activities section of Bloom’s 2014 statement of cash flows using the direct method.

BE23-5 Use the information from BE23-4 for Bloom Corporation. Prepare the cash flows from operating activities section of Bloom’s 2014 statement of cash flows using the indirect method.

BE23-6 At January 1, 2014, Eikenberry Inc. had accounts receivable of $72,000. At December 31, 2014, accounts receivable is $54,000. Sales revenue for 2014 total $420,000. Compute Eikenberry’s 2014 cash receipts from customers.

BE23-7 Moxley Corporation had January 1 and December 31 balances as follows.
1/1/14 12/31/14
Inventory $95,000 $113,000
Accounts payable 61,000 69,000
For 2014, cost of goods sold was $500,000. Compute Moxley’s 2014 cash payments to suppliers.

BE23-8 In 2014, Elbert Corporation had net cash provided by operating activities of $531,000; net cash used by investing activities of $963,000; and net cash provided by financing activities of $585,000. At January 1,
2014, the cash balance was $333,000. Compute December 31, 2014, cash.

BE23-9 Loveless Corporation had the following 2014 income statement.
Revenues $100,000
Expenses 60,000 $ 40,000
In 2014, Loveless had the following activity in selected accounts.
Prepare Loveless’s cash flows from operating activities section of the statement of cash flows using (a) the direct method and (b) the indirect method.

BE23-10 Hendrickson Corporation reported net income of $50,000 in 2014. Depreciation expense was $17,000. The following working capital accounts changed.
Accounts receivable $11,000 increase
Available-for-sale securities 16,000 increase
Inventory 7,400 increase
Nontrade note payable 15,000 decrease
Accounts payable 12,300 increase
Compute net cash provided by operating activities.

BE23-11 In 2014, Wild Corporation reported a net loss of $70,000. Wild’s only net income adjustments were depreciation expense $81,000, and increase in accounts receivable $8,100. Compute Wild’s net cash provided (used) by operating activities.

BE23-12 In 2014, Leppard Inc. issued 1,000 shares of $10 par value common stock for land worth $40,000.
(a) Prepare Leppard’s journal entry to record the transaction.
(b) Indicate the effect the transaction has on cash.
(c) Indicate how the transaction is reported on the statement of cash flows.

BE23-13 Indicate in general journal form how the items below would be entered in a worksheet for the preparation of the statement of cash flows.
(a) Net income is $317,000.
(b) Cash dividends declared and paid totaled $120,000.
(c) Equipment was purchased for $114,000.
(d) Equipment that originally cost $40,000 and had accumulated depreciation of $32,000 was sold for $10,000.
Allowance for
Accounts Receivable Doubtful Accounts
1/1/14 20,000 1,200 1/1/14
Revenues 100,000 1,000 Write-offs Write-offs 1,000 1,840 Bad debt expense
90,000 Collections
12/31/14 29,000 2,040 12/31/14


EXERCISES
 
E23-1 (Classification of Transactions) Red Hot Chili Peppers Co. had the following activity in its most recent year of operations.
(a) Purchase of equipment. (g) Amortization of intangible assets.
(b) Redemption of bonds payable. (h) Purchase of treasury stock.
(c) Sale of building. (i) Issuance of bonds for land.
(d) Depreciation. (j) Payment of dividends.
(e) Exchange of equipment for furniture. (k) Increase in interest receivable on notes receivable.
(f) Issuance of capital stock. (l) Pension expense exceeds amount funded.
Instructions

Classify the items as (1) operating—add to net income; (2) operating—deduct from net income; (3) investing;
(4) financing; or (5) significant non-cash investing and financing activities. Use the indirect method.

E23-2 (Statement Presentation of Transactions—Indirect Method) Each of the following items must be considered in preparing a statement of cash flows (indirect method) for Turbulent Indigo Inc. for the year ended December 31, 2014.
(a) Plant assets that had cost $20,000 6 years before and were being depreciated on a straight-line basis over 10 years with no estimated scrap value were sold for $5,300.
(b) During the year, 10,000 shares of common stock with a stated value of $10 a share were issued for $43 a share.
(c) Uncollectible accounts receivable in the amount of $27,000 were written off against Allowance for
Doubtful Accounts.
(d) The company sustained a net loss for the year of $50,000. Depreciation amounted to $22,000, and a gain of $9,000 was realized on the sale of land for $39,000 cash.
(e) A 3-month U.S. Treasury bill was purchased for $100,000. The company uses a cash and cash equivalent basis for its cash flow statement.
(f) Patent amortization for the year was $20,000.
(g) The company exchanged common stock for a 70% interest in Tabasco Co. for $900,000.
(h) During the year, treasury stock costing $47,000 was purchased.
Instructions

State where each item is to be shown in the statement of cash flows, if at all.

E23-3 (Preparation of Operating Activities Section—Indirect Method, Periodic Inventory) The income statement of Vince Gill Company is shown below.
VINCE GILL COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2014
Sales revenue $6,900,000
Cost of goods sold
Beginning inventory $1,900,000
Purchases 4,400,000
Goods available for sale 6,300,000
Ending inventory 1,600,000
Cost of goods sold 4,700,000
Gross profit 2,200,000
Operating expenses
Selling expenses 450,000
Administrative expenses 700,000 1,150,000
Net income $1,050,000
Additional information:
1. Accounts receivable decreased $360,000 during the year.
2. Prepaid expenses increased $170,000 during the year.
3. Accounts payable to suppliers of merchandise decreased $275,000 during the year.
4. Accrued expenses payable decreased $100,000 during the year.
5. Administrative expenses include depreciation expense of $60,000.
Instructions

Prepare the operating activities section of the statement of cash flows for the year ended December 31,
2014, for Vince Gill Company, using the indirect method.

E23-4 (Preparation of Operating Activities Section—Direct Method) Data for the Vince Gill Company are presented in E23-3.
Instructions

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

E23-5 (Preparation of Operating Activities Section—Direct Method) Krauss Company’s income statement for the year ended December 31, 2014, contained the following condensed information.
Service revenue $840,000
Operating expenses (excluding depreciation) $624,000
Depreciation expense 60,000
Loss on sale of equipment 26,000 710,000
Income before income taxes 130,000
Income tax expense 40,000
Net income $ 90,000
Krauss’s balance sheet contained the following comparative data at December 31.
2014 2013
Accounts receivable $37,000 $54,000
Accounts payable 41,000 31,000
Income taxes payable 4,000 8,500
(Accounts payable pertains to operating expenses.)
Instructions

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

E23-6 (Preparation of Operating Activities Section—Indirect Method) Data for Krauss Company are presented in E23-5.
Instructions

Prepare the operating activities section of the statement of cash flows using the indirect method.

E23-7 (Computation of Operating Activities—Direct Method) Presented below are two independent situations.
Situation A: Annie Lennox Co. reports revenues of $200,000 and operating expenses of $110,000 in its first year of operations, 2014. Accounts receivable and accounts payable at year-end were $71,000 and $29,000, respectively. Assume that the accounts payable related to operating expenses. (Ignore income taxes.)
Instructions

Using the direct method, compute net cash provided by operating activities.
Situation B: The income statement for Blues Traveler Company shows cost of goods sold $310,000 and operating expenses (exclusive of depreciation) $230,000. The comparative balance sheet for the year shows that inventory increased $26,000, prepaid expenses decreased $8,000, accounts payable (related to merchandise) decreased $17,000, and accrued expenses payable increased $11,000.
Instructions

Compute (a) cash payments to suppliers and (b) cash payments for operating expenses.

E23-8 (Schedule of Net Cash Flow from Operating Activities—Indirect Method) Ballard Co. reported $145,000 of net income for 2014. The accountant, in preparing the statement of cash flows, noted the following items occurring during 2014 that might affect cash flows from operating activities.
1. Ballard purchased 100 shares of treasury stock at a cost of $20 per share. These shares were then resold at $25 per share.
2. Ballard sold 100 shares of IBM common at $200 per share. The acquisition cost of these shares was $145 per share. This investment was shown on Ballard’s December 31, 2013, balance sheet as an available-for-sale security.
3. Ballard revised its estimate for bad debts. Before 2014, Ballard’s bad debt expense was 1% of its net sales. In 2014, this percentage was increased to 2%. Net sales for 2014 were $500,000, and net accounts receivable decreased by $12,000 during 2014.
4. Ballard issued 500 shares of its $10 par common stock for a patent. The market price of the shares on the date of the transaction was $23 per share.
5. Depreciation expense is $39,000.
6. Ballard Co. holds 40% of the Nirvana Company’s common stock as a long-term investment. Nirvana
Company reported $27,000 of net income for 2014.
7. Nirvana Company paid a total of $2,000 of cash dividends to all investees in 2014.
8. Ballard declared a 10% stock dividend. One thousand shares of $10 par common stock were distributed.
The market price at date of issuance was $20 per share.
Instructions

Prepare a schedule that shows the net cash flow from operating activities using the indirect method.
Assume no items other than those listed above affected the computation of 2014 net cash flow from operating activities.

E23-9 (SCF—Direct Method) Los Lobos Corp. uses the direct method to prepare its statement of cash flows. Los Lobos’s trial balances at December 31, 2014 and 2013, are as follows.
2014 2013
Debits
Cash $ 35,000 $ 32,000
Accounts receivable 33,000 30,000
Inventory 31,000 47,000
Property, plant, and equipment 100,000 95,000
Unamortized bond discount 4,500 5,000
Cost of goods sold 250,000 380,000
Selling expenses 141,500 172,000
General and administrative expenses 137,000 151,300
Interest expense 4,300 2,600
Income tax expense 20,400 61,200 $756,700 $976,100
Credits
Allowance for doubtful accounts $ 1,300 $ 1,100
Accumulated depreciation—plant assets 16,500 15,000
Accounts payable 25,000 15,500
Income taxes payable 21,000 29,100
Deferred tax liability 5,300 4,600
8% callable bonds payable 45,000 20,000
Common stock 50,000 40,000
Paid-in capital in excess of par 9,100 7,500
Retained earnings 44,700 64,600
Sales revenue 538,800 778,700 $756,700 $976,100
Additional information:
1. Los Lobos purchased $5,000 in equipment during 2014.
2. Los Lobos allocated one-third of its depreciation expense to selling expenses and the remainder to general and administrative expenses.
3. Bad debt expense for 2014 was $5,000, and write-offs of uncollectible accounts totaled $4,800.
Instructions

Determine what amounts Los Lobos should report in its statement of cash flows for the year ended December 31, 2014, for the following items.
(a) Cash collected from customers. (d) Cash paid for income taxes.
(b) Cash paid to suppliers. (e) Cash paid for selling expenses.
(c) Cash paid for interest.

E23-10 (Classification of Transactions) Following are selected balance sheet accounts of Allman Bros.
Corp. at December 31, 2014 and 2013, and the increases or decreases in each account from 2013 to 2014. Also presented is selected income statement information for the year ended December 31, 2014, and additional information.
Increase
Selected balance sheet accounts 2014 2013 (Decrease)
Assets
Accounts receivable $ 34,000 $ 24,000 $ 10,000
Property, plant, and equipment 277,000 247,000 30,000
Accumulated depreciation—plant assets (178,000) (167,000) (11,000)
Liabilities and stockholders’ equity
Bonds payable $ 49,000 $ 46,000 $ 3,000
Dividends payable 8,000 5,000 3,000
Common stock, $1 par 22,000 19,000 3,000
Additional paid-in capital 9,000 3,000 6,000
Retained earnings 104,000 91,000 13,000
Selected income statement information for the year ended December 31, 2014
Sales revenue $ 155,000
Depreciation 33,000
Gain on sale of equipment 14,500
Net income 31,000
Additional information:
1. During 2014, equipment costing $45,000 was sold for cash.
2. Accounts receivable relate to sales of merchandise.
3. During 2014, $20,000 of bonds payable were issued in exchange for property, plant, and equipment.
There was no amortization of bond discount or premium.
Instructions

Determine the category (operating, investing, or financing) and the amount that should be reported in the statement of cash flows for the following items.
(a) Payments for purchase of property, plant, and equipment.
(b) Proceeds from the sale of equipment.
(c) Cash dividends paid.
(d) Redemption of bonds payable.

E23-11 (SCF—Indirect Method) Condensed financial data of Pat Metheny Company for 2014 and 2013 are presented below.
PAT METHENY COMPANY
COMPARATIVE BALANCE SHEET
AS OF DECEMBER 31, 2014 AND 2013
2014 2013
Cash $1,800 $1,150
Receivables 1,750 1,300
Inventory 1,600 1,900
Plant assets 1,900 1,700
Accumulated depreciation (1,200) (1,170)
Long-term investments (held-to-maturity) 1,300 1,420 $7,150 $6,300
Accounts payable $1,200 $ 900
Accrued liabilities 200 250
Bonds payable 1,400 1,550
Capital stock 1,900 1,700
Retained earnings 2,450 1,900 $7,150 $6,300
PAT METHENY COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2014
Sales revenue $6,900
Cost of goods sold 4,700
Gross margin 2,200
Selling and administrative expense 930
Income from operations 1,270
Other revenues and gains
Gain on sale of investments 80
Income before tax 1,350
Income tax expense 540
Net income 810
Cash dividends 260
Income retained in business $ 550
Additional information:
During the year, $70 of common stock was issued in exchange for plant assets. No plant assets were sold in 2014.
Instructions

Prepare a statement of cash flows using the indirect method.

E23-12 (SCF—Direct Method) Data for Pat Metheny Company are presented in E23-11.
Instructions

Prepare a statement of cash flows using the direct method. (Do not prepare a reconciliation schedule.)

E23-13 (SCF—Direct Method) Brecker Inc., a greeting card company, had the following statements prepared as of December 31, 2014.
BRECKER INC.
COMPARATIVE BALANCE SHEET
AS OF DECEMBER 31, 2014 AND 2013
12/31/14 12/31/13
Cash $ 6,000 $ 7,000
Accounts receivable 62,000 51,000
Short-term investments (available-for-sale) 35,000 18,000
Inventory 40,000 60,000
Prepaid rent 5,000 4,000
Equipment 154,000 130,000
Accumulated depreciation—equipment (35,000) (25,000)
Copyrights 46,000 50,000
Total assets $313,000 $295,000
Accounts payable $ 46,000 $ 40,000
Income taxes payable 4,000 6,000
Salaries and wages payable 8,000 4,000
Short-term loans payable 8,000 10,000
Long-term loans payable 60,000 69,000
Common stock, $10 par 100,000 100,000
Contributed capital, common stock 30,000 30,000
Retained earnings 57,000 36,000
Total liabilities and stockholders’ equity $313,000 $295,000
BRECKER INC.
INCOME STATEMENT
FOR THE YEAR ENDING DECEMBER 31, 2014
Sales revenue $338,150
Cost of goods sold 175,000
Gross profit 163,150
Operating expenses 120,000
Operating income 43,150
Interest expense $11,400
Gain on sale of equipment 2,000 9,400
Income before tax 33,750
Income tax expense 6,750
Net income $ 27,000
Additional information:
1. Dividends in the amount of $6,000 were declared and paid during 2014.
2. Depreciation expense and amortization expense are included in operating expenses.
3. No unrealized gains or losses have occurred on the investments during the year.
4. Equipment that had a cost of $20,000 and was 70% depreciated was sold during 2014.
Instructions

Prepare a statement of cash flows using the direct method. (Do not prepare a reconciliation schedule.)

E23-14 (SCF—Indirect Method) Data for Brecker Inc. are presented in E23-13.
Instructions

Prepare a statement of cash flows using the indirect method.

E23-15 (SCF—Indirect Method) Presented below are data taken from the records of Alee Company.
December 31, December 31,
2014 2013
Cash $ 15,000 $ 8,000
Current assets other than cash 85,000 60,000
Long-term investments 10,000 53,000
Plant assets 335,000 215,000 $445,000 $336,000
Accumulated depreciation $ 20,000 $ 40,000
Current liabilities 40,000 22,000
Bonds payable 75,000 202
Capital stock 254,000 254,000
Retained earnings 56,000 20,000 $445,000 $336,000
Additional information:
1. Held-to-maturity securities carried at a cost of $43,000 on December 31, 2013, were sold in
2014 for $34,000. The loss (not extraordinary) was incorrectly charged directly to Retained
Earnings.
2. Plant assets that cost $50,000 and were 80% depreciated were sold during 2014 for $8,000. The loss
(not extraordinary) was incorrectly charged directly to Retained Earnings.
3. Net income as reported on the income statement for the year was $57,000.
4. Dividends paid amounted to $10,000.
5. Depreciation charged for the year was $20,000.
Instructions

Prepare a statement of cash flows for the year 2014 using the indirect method.

E23-16 (Cash Provided by Operating, Investing, and Financing Activities) The balance sheet data of
Brown Company at the end of 2014 and 2013 follow.
2014 2013
Cash $ 30,000 $ 35,000
Accounts receivable (net) 55,000 45,000
Inventory 65,000 45,000
Prepaid expenses 15,000 25,000
Equipment 90,000 75,000
Accumulated depreciation—equipment (18,000) (8,000)
Land 70,000 40,000 $307,000 $257,000
Accounts payable $ 65,000 $ 52,000
Accrued expenses 15,000 18,000
Notes payable—bank, long-term 202 23,000
Bonds payable 30,000 202
Common stock, $10 par 189,000 159,000
Retained earnings 8,000 5,000 $307,000 $257,000
Land was acquired for $30,000 in exchange for common stock, par $30,000, during the year; all equipment purchased was for cash. Equipment costing $10,000 was sold for $3,000; book value of the equipment was $6,000. Cash dividends of $10,000 were declared and paid during the year.
Instructions

Compute net cash provided (used) by:
(a) Operating activities.
(b) Investing activities.
(c) Financing activities.

E23-17 (SCF—Indirect Method and Balance Sheet) Jobim Inc. had the following condensed balance sheet at the end of operations for 2013.
JOBIM INC.
BALANCE SHEET
DECEMBER 31, 2013
Cash $ 8,500 Current liabilities $ 15,000
Current assets other than cash 29,000 Long-term notes payable 25,500
Investments 20,000 Bonds payable 25,000
Plant assets (net) 67,500 Capital stock 75,000
Land 40,000 Retained earnings 24,500 $165,000 $165,000
During 2014, the following occurred.
1. A tract of land was purchased for $9,000.
2. Bonds payable in the amount of $15,000 were redeemed at par.
3. An additional $10,000 in capital stock was issued at par.
4. Dividends totaling $9,375 were paid to stockholders.
5. Net income was $35,250 after allowing depreciation of $13,500.
6. Land was purchased through the issuance of $22,500 in bonds.
7. Jobim Inc. sold part of its investment portfolio for $12,875. This transaction resulted in a gain of $2,000 for the company. The company classifies the investments as available-for-sale.
8. Both current assets (other than cash) and current liabilities remained at the same amount.
Instructions

(a) Prepare a statement of cash flows for 2014 using the indirect method.
(b) Prepare the condensed balance sheet for Jobim Inc. as it would appear at December 31, 2014.

E23-18 (Partial SCF—Indirect Method) The accounts below appear in the ledger of Anita Baker Company.
Retained Earnings Dr. Cr. Bal.
Jan. 1, 2014 Credit Balance $ 42,000
Aug. 15 Dividends (cash) $15,000 27,000
Dec. 31 Net Income for 2014 $40,000 67,000
Equipment Dr. Cr. Bal.
Jan. 1, 2014 Debit Balance $140,000
Aug. 3 Purchase of Equipment $62,000 202,000
Sept. 10 Cost of Equipment Constructed 48,000 250,000
Nov. 15 Equipment Sold $56,000 194,000
Accumulated Depreciation—
Equipment Dr. Cr. Bal.
Jan. 1, 2014 Credit Balance $ 84,000
Apr. 8 Extraordinary Repairs $21,000 63,000
Nov. 15 Accum. Depreciation on
Equipment Sold 25,200 37,800
Dec. 31 Depreciation for 2014 $16,800 54,600
Instructions

From the postings in the accounts above, indicate how the information is reported on a statement of cash flows by preparing a partial statement of cash flows using the indirect method. The loss on sale of equipment (November 15) was $5,800.

E23-19 (Worksheet Analysis of Selected Accounts) Data for Anita Baker Company are presented in E23-18.
Instructions

Prepare entries in journal form for all adjustments that should be made on a worksheet for a statement of cash flows.

E23-20 (Worksheet Analysis of Selected Transactions) The transactions below took place during the year
2014.
1. Convertible bonds payable with a par value of $300,000 were exchanged for unissued common stock with a par value of $300,000. The market price of both types of securities was par.
2. The net income for the year was $410,000.
3. Depreciation expense for the building was $90,000.
4. Some old office equipment was traded in on the purchase of some dissimilar office equipment, and the following entry was made.
Equipment 50,000
Accum. Depreciation—Equipment 30,000
Equipment 40,000
Cash 34,000
Gain on Disposal of Plant Assets 6,000
The Gain on Disposal of Plant Assets was credited to current operations as ordinary income.
5. Dividends in the amount of $123,000 were declared. They are payable in January of next year.
Instructions

Show by journal entries the adjustments that would be made on a worksheet for a statement of cash flows.

E23-21 (Worksheet Preparation) Below is the comparative balance sheet for Stevie Wonder Corporation.
Dec. 31, Dec. 31,
2014 2013
Cash $ 16,500 $ 21,000
Short-term investments 25,000 19,000
Accounts receivable 43,000 45,000
Allowance for doubtful accounts (1,800) (2,000)
Prepaid expenses 4,200 2,500
Inventory 81,500 65,000
Land 50,000 50,000
Buildings 125,000 73,500
Accumulated depreciation—buildings (30,000) (23,000)
Equipment 53,000 46,000
Accumulated depreciation—equipment (19,000) (15,500)
Delivery equipment 39,000 39,000
Accumulated depreciation—delivery equipment (22,000) (20,500)
Patents 15,000 202 $379,400 $300,000
Dec. 31, Dec. 31,
2014 2013
Accounts payable $ 26,000 $ 16,000
Short-term notes payable (trade) 4,000 6,000
Accrued payables 3,000 4,600
Mortgage payable 73,000 53,400
Bonds payable 50,000 62,500
Capital stock 140,000 102,000
Paid-in capital in excess of par 10,000 4,000
Retained earnings 73,400 51,500 $379,400 $300,000
Dividends in the amount of $15,000 were declared and paid in 2014.
Instructions

From this information, prepare a worksheet for a statement of cash flows. Make reasonable assumptions as appropriate. The short-term investments are considered available-for-sale and no unrealized gains or losses have occurred on these securities.

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