Solutions Manual and Test Bank Intermediate Accounting Kieso Weygandt Warfield 14th edition

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CHAPTER 23

STATEMENT OF CASH FLOWS

MULTIPLE CHOICE—Conceptual

  21.     It is an objective of the statement of cash flows to
a.   disclose changes during the period in all asset and all equity accounts.
b.   disclose the change in working capital during the period.
c.   provide information about the operating, investing, and financing activities of an entity during a period.
d.   none of these.

  22.     The primary purpose of the statement of cash flows is to provide information
a.   about the operating, investing, and financing activities of an entity during a period.
b.   that is useful in assessing cash flow prospects.
c.   about the cash receipts and cash payments of an entity during a period.
d.   about the entity's ability to meet its obligations, its ability to pay dividends, and its needs for external financing.

S23.     Of the following questions, which one would not be answered by the statement of cash flows?
a.   Where did the cash come from during the period?
b.   What was the cash used for during the period?
c.   Were all the cash expenditures of benefit to the company during the period?
d.   What was the change in the cash balance during the period?

S24.     The first step in the preparation of the statement of cash flows requires the use of information included in which comparative financial statements?
a.   Statements of cash flows
b.   Balance sheets
c.   Income statements
d.   Statements of retained earnings
  25.     Cash equivalents are
a.   treasury bills, commercial paper, and money market funds purchased with excess cash.
b.   investments with original maturities of three months or less.
c.   readily convertible into known amounts of cash.
d.   all of these.

  26.     A company borrows $10,000 and signs a 90-day nontrade note payable. In preparing a statement of cash flows (indirect method), this event would be reflected as a(n)
a.   addition adjustment to net income in the cash flows from operating activities section.
b.   cash outflow from investing activities.
c.   cash inflow from investing activities.
d.   cash inflow from financing activities.

S27.     To arrive at net cash provided by operating activities, it is necessary to report revenues and expenses on a cash basis. This is done by
a.   re-recording all income statement transactions that directly affect cash in a separate cash flow journal.
b.   estimating the percentage of income statement transactions that were originally reported on a cash basis and projecting this amount to the entire array of income statement transactions.
c.   eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash.
d.   eliminating all transactions that have no current or future effect on cash, such as depreciation, from the net income computation.

  28.     An increase in inventory balance would be reported in a statement of cash flows using the indirect method (reconciliation method) as a(n)
a.   addition to net income in arriving at net cash flow from operating activities.
b.   deduction from net income in arriving at net cash flow from operating activities.
c.   cash outflow from investing activities.
d.   cash outflow from financing activities.

  29.     A statement of cash flows typically would not disclose the effects of
a.   capital stock issued at an amount greater than par value.
b.   stock dividends declared.
c.   cash dividends paid.
d.   a purchase and immediate retirement of treasury stock.

  30.     When preparing a statement of cash flows (indirect method), which of the following is not an adjustment to reconcile net income to net cash provided by operating activities?
a.   A change in interest payable
b.   A change in dividends payable
c.   A change in income taxes payable
d.   All of these are adjustments.


  31.     Declaration of a cash dividend on common stock affects cash flows from operating activities under the direct and indirect methods as follows:
       Direct Method       Indirect Method
a.         Outflow                   Inflow
b.           Inflow                     Inflow
c.         Outflow                  Outflow
d.        No effect                No effect

  32.     In a statement of cash flows, the cash flows from investing activities section should report
a.   the issuance of common stock in exchange for a factory building.
b.   stock dividends received.
c.   a major repair to machinery charged to accumulated depreciation.
d.   the assignment of accounts receivable.

P33.     Xanthe Corporation had the following transactions occur in the current year:
      1.    Cash sale of merchandise inventory.
      2.    Sale of delivery truck at book value.
      3.    Sale of Xanthe common stock for cash.
      4.    Issuance of a note payable to a bank for cash.
      5.    Sale of a security held as an available-for-sale investment.
      6.    Collection of loan receivable.
How many of the above items will appear as a cash inflow from investing activities on a statement of cash flows for the current year?
a.   Five items
b.   Four items
c.   Three items
d.   Two items

P34.     Which of the following would be classified as a financing activity on a statement of cash flows?
a.   Declaration and distribution of a stock dividend
b.   Deposit to a bond sinking fund
c.   Sale of a loan receivable
d.   Payment of interest to a creditor

S35.     The amortization of bond premium on long-term debt should be presented in a statement of cash flows (using the indirect method for operating activities) as a(n)
a.   addition to net income.
b.   deduction from net income.
c. investing activity.
d.   financing activity.


S36.     Crabbe Company reported $80,000 of selling and administrative expenses on its income statement for the past year. The company had depreciation expense and an increase in prepaid expenses associated with the selling and administrative expenses for the year. Assuming use of the direct method, how would these items be handled in converting the accrual based selling and administrative expenses to the cash basis?
                                                                     Increase in
                          Depreciation                 Prepaid Expenses
a.        Deducted From                 Deducted From
b.             Added To                           Added To
c.        Deducted From                      Added To
d.             Added To                      Deducted From

  37.     When preparing a statement of cash flows (indirect method), an increase in ending inventory over beginning inventory will result in an adjustment to reported net earnings because
a.   cash was increased while cost of goods sold was decreased.
b.   cost of goods sold on an accrual basis is lower than on a cash basis.
c.   acquisition of inventory is an investment activity.
d.   inventory purchased during the period was less than inventory sold resulting in a net cash increase.

  38.     When preparing a statement of cash flows, a decrease in accounts receivable during a period would cause which one of the following adjustments in determining cash flow from operating activities?
       Direct Method       Indirect Method
a.        Increase               Decrease
b.       Decrease               Increase
c.        Increase                Increase
d.       Decrease              Decrease

  39.     In determining net cash flow from operating activities, a decrease in accounts payable during a period
a.   means that income on an accrual basis is less than income on a cash basis.
b.   requires an addition adjustment to net income under the indirect method.
c.   requires an increase adjustment to cost of goods sold under the direct method.
d.   requires a decrease adjustment to cost of goods sold under the direct method.

  40.     When preparing a statement of cash flows, an increase in accounts payable during a period would require which of the following adjustments in determining cash flows from operating activities?
      Indirect Method       Direct Method
a.        Increase               Decrease
b.       Decrease               Increase
c.        Increase                Increase
d.       Decrease              Decrease


  41.     When preparing a statement of cash flows, a decrease in prepaid insurance during a period would require which of the following adjustments in determining cash flows from operating activities?
      Indirect Method       Direct Method
a.        Increase               Decrease
b.       Decrease               Increase
c.        Increase                Increase
d.       Decrease              Decrease

  42.     When preparing a statement of cash flows, the following are used for which method in determining cash flows from operating activities?
        Gross Accounts Receivable           Net Accounts Receivable
a.                     Indirect                                           Direct
b.                      Direct                                           Indirect
c.                      Direct                                            Direct
d.                     Neither                                           Indirect

  43.     Which of the following statements is correct?
a.   The indirect method starts with income before extraordinary items.
b.   The direct method is known as the reconciliation method.
c.   The direct method is more consistent with the primary purpose of the statement of cash flows.
d.   All of these.

  44.     When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is added to net income to compute cash provided by/used by operating activities?
a.   Increase in accounts receivable.
b.   Gain on sale of land.
c.   Amortization of patent.
d.   All of the above are added to net income to arrive at cash flow from operating activities.

  45.     When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is deducted from net income to compute cash provided by/used by operating activities?
a.   Decrease in accounts receivable.
b.   Gain on sale of land.
c.   Amortization of patent.
d.   All of the above are deducted from net income to arrive at cash flow from operating activities.

  46.     Which of the following is false concerning the statement of cash flows?
a.   When pension expense exceeds cash funding, the difference is deducted from investing activities on the statement of cash flows.
b.   The FASB requires companies to classify all income taxes paid as operating cash outflows.
c.   Under U.S. GAAP, the purchase of land by issuing stock will be shown as a cash outflow under investing activities and a cash inflow under financing activities.
d.   All of the above are true concerning the statement of cash flows.

  47.     Dolan Company reports its income from investments under the equity method and recognized income of $25,000 from its investment in Moss Co. during the current year, even though no dividends were declared or paid by Moss during the year. On Dolan's statement of cash flows (indirect method), the $25,000 should
a.   not be shown.
b.   be shown as cash inflow from investing activities.
c.   be shown as cash outflow from financing activities.
d.   be shown as a deduction from net income in the cash flows from operating activities section.

  48.     In reporting extraordinary transactions on a statement of cash flows (indirect method), the
a.   gross amount of an extraordinary gain should be deducted from net income.
b.   net of tax amount of an extraordinary gain should be added to net income.
c.   net of tax amount of an extraordinary gain should be deducted from net income.
d.   gross amount of an extraordinary gain should be added to net income.

  49.     Which of the following is shown on a statement of cash flows?
a.   A stock dividend
b.   A stock split
c.   An appropriation of retained earnings
d.   None of these

S50.     How should significant noncash transactions be reported in the statement of cash flows according to FASB Statement No. 95?
a.   They should be incorporated in the statement of cash flows in a section labeled, "Significant Noncash Transactions."
b.   Such transactions should be incorporated in the section (operating, financing, or investing) that is most representative of the major component of the transaction.
c.   These noncash transactions are not to be incorporated in the statement of cash flows. They may be summarized in a separate schedule at the bottom of the statement or appear in a separate supplementary schedule to the financials.
d.   They should be handled in a manner consistent with the transactions that affect cash flows.
MULTIPLE CHOICE—Computational

Use the following information for questions 51 and 52.
Napier Co. provided the following information on selected transactions during 2013:
Purchase of land by issuing bonds                                                 $500,000
Proceeds from issuing bonds                                                        1,000,000
Purchases of inventory                                                                   1,900,000
Purchases of treasury stock                                                             300,000
Loans made to affiliated corporations                                               700,000
Dividends paid to preferred stockholders                                          200,000
Proceeds from issuing preferred stock                                             800,000
Proceeds from sale of equipment                                                     100,000

  51.     The net cash provided (used) by investing activities during 2013 is
a.   $100,000.
b.   $(600,000).
c.   $(1,100,000).
d.   $(2,500,000).

  52.     The net cash provided by financing activities during 2013 is
a.   $1,100,000.
b.   $1,300,000.
c.   $1,600,000.
d.   $1,800,000.

Use the following information for questions 53 through 55.
The balance sheet data of Kohler Company at the end of 2013 and 2012 follow:
                                                                                                                     2013              2012 
Cash                                                                                                        $ 100,000        $ 140,000
Accounts receivable (net)                                                                           240,000           180,000
Merchandise inventory                                                                                280,000           180,000
Prepaid expenses                                                                                         40,000           100,000
Buildings and equipment                                                                            360,000           300,000
Accumulated depreciation—buildings and equipment                                (72,000)           (32,000)
Land                                                                                                           360,000          160,000
            Totals                                                                                         $1,308,000      $1,028,000
Accounts payable                                                                                     $272,000         $220,000
Accrued expenses                                                                                        48,000             72,000
Notes payable—bank, long-term                                                                                        160,000
Mortgage payable                                                                                        120,000
Common stock, $10 par                                                                             936,000           636,000
Retained earnings (deficit)                                                                         32,000          (60,000)
                                                                                                               $1,308,000      $1,028,000

Land was acquired for $200,000 in exchange for common stock, par $200,000, during the year; all equipment purchased was for cash. Equipment costing $20,000 was sold for $8,000; book value of the equipment was $16,000 and the loss was reported as an ordinary item in net income. Cash dividends of $40,000 were charged to retained earnings and paid during the year; the transfer of net income to retained earnings was the only other entry in the Retained Earnings account. In the statement of cash flows for the year ended December 31, 2013, for Naley Company:

  53.     The net cash provided by operating activities was
a.   $104,000.
b.   $132,000.
c.   $112,000.
d.   $96,000.

  54.     The net cash provided (used) by investing activities was
a.   $52,000.
b.   $(80,000).
c.   $(272,000).
d.   $(72,000).

  55.     The net cash provided (used) by financing activities was
a.   $ -0-.
b.   $(40,000).
c.   $(80,000).
d.   $120,000.

  56.     The following information on selected cash transactions for 2013 has been provided by Mancuso Company:
Proceeds from sale of land                                                       $190,000
Proceeds from long-term borrowings                                         400,000
Purchases of plant assets                                                           144,000
Purchases of inventories                                                             680,000
Proceeds from sale of Mancuso common stock                        240,000
What is the cash provided (used) by investing activities for the year ended December 31, 2013, as a result of the above information?
a.   $46,000
b.   $256,000.
c.   $190,000.
d.   $830,000.

  57.     Selected information from Dinkel Company's 2013 accounting records is as follows:
Proceeds from issuance of common stock                                     $   600,000
Proceeds from issuance of bonds                                                       1,800,000
Cash dividends on common stock paid                                                  240,000
Cash dividends on preferred stock paid                                                    90,000
Purchases of treasury stock                                                                   180,000
Sale of stock to officers and employees not included above                  150,000

Dinkel's statement of cash flows for the year ended December 31, 2013, would show net cash provided (used) by financing activities of
a.   $90,000.
b.   $(330,000).
c.   $240,000.
d.   $2,040,000.

Use the following information for questions 58 through 62.
Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Harlan Mining Co. for 2013 and 2012 are provided below.

BALANCE SHEETS
                                                                                                 12/31/13                            12/31/12
Cash                                                                                                            $306,000                      $ 144,000
Accounts receivable                                                                 270,000                             162,000
Merchandise inventory                                                              288,000                             360,000
Property, plant and equipment                           $456,000                           $720,000
Less accumulated depreciation                        (240,000)     216,000     (228,000)     492,000
                                                                                             $1,080,000                        $1,158,000

Accounts payable                                                                  $ 132,000                        $  72,000
Income taxes payable                                                               264,000                             294,000
Bonds payable                                                                          270,000                             450,000
Common stock                                                                         162,000                             162,000
Retained earnings                                                                   252,000                            180,000
                                                                                             $1,080,000                        $1,158,000

INCOME STATEMENT
For the Year Ended December 31, 2013
Sales                                                                                                                              $6,300,000
Cost of sales                                                                                                                  5,364,000
Gross profit                                                                                                                         936,000
Selling expenses                                                                                          $450,000
Administrative expenses                                                                             144,000     594,000
Income from operations                                                                                                      342,000
Interest expense                                                                                                               54,000
Income before taxes                                                                                                           192,000
Income taxes                                                                                                                    72,000
Net income                                                                                                                    $  216,000
The following additional data were provided:
    1.    Dividends for the year 2013 were $144,000.
    2.    During the year, equipment was sold for $180,000. This equipment cost $264,000 originally and had a book value of $216,000 at the time of sale. The loss on sale was incorrectly charged to cost of sales.
    3.    All depreciation expense is in the selling expense category.
Questions 58 through 62 relate to a statement of cash flows (direct method) for the year ended December 31, 2013, for Harlan Mining Company.

  58.     The net cash provided by operating activities is
a.   $306,000.
b.   $216,000.
c.   $180,000.
d.   $150,000.

  59.     The net cash provided (used) by investing activities is
a.   $(264,000).
b.   $36,000.
c.   $180,000.
d.   $(216,000).

  60.     Under the direct method, the cash received from customers is
a.   $6,408,000.
b.   $6,192,000.
c.   $6,300,000.
d.   $6,330,000.

  61.     Under the direct method, the total taxes paid is
a.   $72,000.
b.   $30,000.
c.   $42,000.
d.   $102,000.

  62.     The net cash provided (used) by financing activities is
a.   $(180,000).
b.   $36,000.
c.   $(324,000).
d.   $144,000.

  63.     During 2013, Stout Inc. had the following activities related to its financial operations:
Carrying value of convertible preferred stock in Stout,
  converted into common shares of Stout                                                  $   360,000
Payment in 2013 of cash dividend declared in 2012 to
  preferred shareholders                                                                                     186,000
Payment for the early retirement of long-term bonds payable
  (carrying amount $2,420,000)                                                                       2,450,000
Proceeds from the sale of treasury stock (on books at cost of $258,000)         300,000
The amount of net cash used in financing activities to appear in Stout's statement of cash flows for 2013 should be
a.   $1,790,000.
b.   $1,976,000.
c.   $2,336,000.
d.   $2,348,000.


  64.     Hager Company sold some of its plant assets during 2013. The original cost of the plant assets was $750,000 and the accumulated depreciation at date of sale was $700,000. The proceeds from the sale of the plant assets were $185,000. The information concerning the sale of the plant assets should be shown on Hager's statement of cash flows (indirect method) for the year ended December 31, 2013, as a(n)
a.   subtraction from net income of $35,000 and a $50,000 increase in cash flows from financing activities.
b.   addition to net income of $35,000 and a $85,000 increase in cash flows from investing activities.
c.   subtraction from net income of $35,000 and a $85,000 increase in cash flows from investing activities.
d.   addition of $85,000 to net income.

  65.     An analysis of the machinery accounts of Noller Company for 2013 is as follows:
                                                                                                                    Machinery, Net of
                                                                                             Accumulated      Accumulated
                                                                      Machinery                                  Depreciation Depreciation
Balance at January 1, 2013                           $500,000            $125,000            $375,000
Purchases of new machinery in 2013
   for cash                                                        200,000                   —                   200,000
Depreciation in 2013                                           —              100,000           (100,000)
Balance at Dec. 31, 2013                              $700,000            $225,000            $475,000

The information concerning Noller's machinery accounts should be shown in Noller's statement of cash flows (indirect method) for the year ended December 31, 2013, as a(n)
a.   subtraction from net income of $100,000 and a $200,000 decrease in cash flows from financing activities.
b.   addition to net income of $100,000 and a $200,000 decrease in cash flows from investing activities.
c.   $100,000 increase in cash flows from financing activities.
d.   $200,000 decrease in cash flows from investing activities.

  66.     Equipment which cost $213,000 and had accumulated depreciation of $114,000 was sold for $121,000. This transaction should be shown on the statement of cash flows (indirect method) as a(n)
a.   addition to net income of $22,000 and a $121,000 cash inflow from financing activities.
b.   deduction from net income of $22,000 and a $99,000 cash inflow from investing activities.
c.   deduction from net income of $22,000 and a $121,000 cash inflow from investing activities.
d.   addition to net income of $22,000 and a $99,000 cash inflow from financing activities.

  67.     During 2013, equipment was sold for $312,000. The equipment cost $504,000 and had a book value of $288,000. Accumulated Depreciation—Equipment was $1,374,000 at 12/31/12 and $1,470,000 at 12/31/13. Depreciation expense for 2013 was
a.   $120,000.
b.   $192,000.
c.   $312,000.
d.   $384,000.


Use the following information for questions 68 and 69.
Equipment that cost $350,000 and had a book value of $156,000 was sold for $180,000. Data from the comparative balance sheets are:
                                                                    12/31/13         12/31/12
            Equipment                                     $2,160,000      $1,950,000
            Accumulated Depreciation                660,000           570,000

  68.     Depreciation expense for 2013 was
a.   $308,000.
b.   $284,000.
c.   $54,000.
d.   $36,000.

  69.     Equipment purchased during 2013 was
a.   $560,000.
b.   $350,000.
c.   $210,000.
d.   $366,000.

Use the following information for questions 70 through 74.
Financial statements for Kiner Company are given below:
Kiner Company
Balance Sheet
January 1, 2013
                        Assets                                                                                Equities
Cash                                                 $   320,000            Accounts payable              $   152,000
Accounts receivable                                288,000
Buildings and equipment                      1,200,000
Accumulated depreciation—
     buildings and equipment                    (400,000)           Common stock                         920,000
Patents                                                 144,000            Retained earnings                 480,000
                                                            $1,552,000                                                         $1,552,000

Kiner Company
Statement of Cash Flows
For the Year Ended December 31, 2013
Increase (Decrease) in Cash
Cash flows from operating activities
         Net income                                                                                                               $400,000
         Adjustments to reconcile net income to net cash
              provided by operating activities:
                     Increase in accounts receivable                                      $(128,000)
                     Increase in accounts payable                                               64,000
                     Depreciation—buildings and equipment                             120,000
                     Gain on sale of equipment                                                   (48,000)
                     Amortization of patents                                                      16,000              24,000
Net cash provided by operating activities                                                                           424,000
Cash flows from investing activities
         Sale of equipment                                                                             96,000
         Purchase of land                                                                            (200,000)
         Purchase of buildings and equipment                                         (384,000)
Net cash used by investing activities                                                                               (488,000)
Cash flows from financing activities
         Payment of cash dividend                                                             (120,000)
         Sale of common stock                                                                  320,000
Net cash provided by financing activities                                                                          200,000
Net increase in cash                                                                                                           136,000
Cash, January 1, 2013                                                                                                      320,000
Cash, December 31, 2013                                                                                               $456,000
Total assets on the balance sheet at December 31, 2013 are $2,216,000. Accumulated deprecia-tion on the equipment sold was $112,000.

  70.     When the equipment was sold, the Buildings and Equipment account received a credit of
a.   $96,000.
b.   $208,000.
c.   $160,000.
d.   $112,000.

  71.     The book value of the buildings and equipment at December 31, 2013 was
a.   $1,016,000.
b.   $1,040,000.
c.   $1,424,000.
d.   $1,176,000.

  72.     The accounts payable at December 31, 2013 were
a.   $88,000.
b.   $216,000.
c.   $64,000.
d.   $296,000.


  73.     The balance in the Retained Earnings account at December 31, 2013 was
a.   $360,000.
b.   $880,000.
c.   $760,000.
d.   $1,000,000.

  74.     Capital stock (plus any additional paid-in capital) at December 31, 2013 was
a.   $800,000.
b.   $920,000.
c.   $520,000.
d.   $1,240,000.

Use the following information for questions 75 and 76.

The balance in retained earnings at December 31, 2012 was $720,000 and at December 31, 2013 was $582,000. Net income for 2013 was $500,000. A stock dividend was declared and distributed which increased common stock $250,000 and paid-in capital $110,000. A cash dividend was declared and paid.

  75.     The amount of the cash dividend was
a.   $248,000.
b.   $278,000.
c.   $388,000.
d.   $638,000.

  76.     The stock dividend should be reported on the statement of cash flows (indirect method) as
a.   an outflow from financing activities of $250,000.
b.   an outflow from financing activities of $360,000.
c.   an outflow from investing activities of $360,000.
d.   Stock dividends are not shown on a statement of cash flows.

  77.     The following information was taken from the 2013 financial statements of Dunlop Corporation:
Bonds payable, January 1, 2013                              $   500,000
Bonds payable, December 31, 2013                           3,000,000
During 2013
·      A $450,000 payment was made to retire bonds payable with a face amount of $500,000.
·      Bonds payable with a face amount of $200,000 were issued in exchange for equipment.
In its statement of cash flows for the year ended December 31, 2013, what amount should Dunlop report as proceeds from issuance of bonds payable?
a.   $2,500,000
b.   $2,750,000
c.   $2,800,000
d.   $3,200,000


  78.     Lindsay Corporation had net income for 2013 of $2,000,000. Additional information is as follows:
Depreciation of plant assets                           $1,200,000
Amortization of intangibles                                   240,000
Increase in accounts receivable                          420,000
Increase in accounts payable                              540,000
Lindsay's net cash provided by operating activities for 2013 was
a.   $3,560,000.
b.   $3,440,000.
c.   $3,320,000.
d.   $1,680,000.

  79.     Net cash flow from operating activities for 2013 for Spencer Corporation was $450,000. The following items are reported on the financial statements for 2013:
Cash dividends paid on common stock                            20,000
Depreciation and amortization                                           12,000
Increase in accounts receivables                                      24,000
Based on the information above, Spencer’s net income for 2013 was
a.   $462,000.
b.   $446,000.
c.   $414,000.
d.   $406,000.

  80.     During 2013, Orton Company earned net income of $434,000 which included deprecia-tion expense of $78,000. In addition, the company experienced the following changes in the account balances listed below:
                         Increases                                                       Decreases
Accounts payable                  $45,000            Accounts receivable                          $12,000
Inventory                                   36,000           Accrued liabilities                                 24,000
                                                                        Prepaid insurance                                33,000
Based upon this information what amount will be shown for net cash provided by operating activities for 2013?
a.   $542,000
b.   $515,000
c. $335,000
d.   $317,000

  81.     Minear Company reported net income of $390,000 for the year ended 12/31/13. Included in the computation of net income were: depreciation expense, $60,000; amortization of a patent, $32,000; income from an investment in common stock of Brett Inc., accounted for under the equity method, $48,000; and amortization of a bond discount, $12,000. Minear also paid an $80,000 dividend during the year. The net cash provided by operating activities would be reported at:
a.   $446,000.
b.   $366,000.
c.   $334,000.
d.   $254,000.


  82.     In preparing Titan Inc.’s statement of cash flows for the year ended December 31, 2013, the following amounts were available:
Collect note receivable         $370,000
Issue bonds payable               426,000
Purchase treasury stock        210,000
            What amount should be reported on Titan, Inc.’s statement of cash flows for investing activities?
a.   $370,000
b.   $160,000
c.   $796,000
d.   $216,000

  83.     In preparing Titan Inc.’s statement of cash flows for the year ended December 31, 2013, the following amounts were available:
Collect note receivable         $370,000
Issue bonds payable               426,000
Purchase treasury stock        210,000
            What amount should be reported on Titan, Inc’s statement of cash flows for financing activities?
a.   $  56,000
b.   $796,000
c.   $216,000
d.   $160,000

  84.     Jarvis, Inc. reported net income of $39,000 for the year ended December 31, 2013 Included in net income were depreciation expense of $8,400 and a gain on sale of equipment of $1,700. Each of the following accounts increased during 2013:
Accounts receivable             $2,200
Inventory                  $4,500
Prepaid rent                   $6,800
Available-for-sale securities  $1,000
Accounts payable          $5,000
            What is the amount of cash provided by operating activities for Jarvis, Inc. for the year ended December 31, 2013?
a.   $36,200
b.   $38,900
c.   $27,200
d.   $37,200

  85.     Jarvis, Inc. reported net income of $39,000 for the year ended December 31, 2013 Included in net income were depreciation expense of $8,400 and a gain on sale of equipment of $1,700. The equipment had an historical cost of $40,000 and accumulated depreciation of $24,000. Each of the following accounts increased during 2013:
Patents                           $7,500
Prepaid rent                   $6,800
Available-for-sale securities  $1,000
Bonds payable               $5,000
           

What is the amount of cash provided by or used by investing activities for Jarvis, Inc. for the year ended December 31, 2013?
a. ( $  6,800)
b.   $16,700
c.   $  9,200
d.   $14,200

  86.     Jarvis, Inc. reported net income of $34,000 for the year ended December 31, 2013. Included in net income was a gain on early extinguishment of debt of $60,000 related to bonds payable with a book value of $1,200,000. Each of the following accounts increased during 2013:
Notes receivable     $45,000
Deferred tax liability $10,000
Treasury stock        $150,000
            What is the amount of cash used by financing activities for Jarvis, Inc. for the year ended December 31, 2013?
a.   $1,290,000
b.   $1,300,000
c.   $   220,000
d.   $   255,000

87.      During 2013, Greta Company earned net income of $172,000 which included depreciation expense of $39,000. In addition, the Company experienced the following changes in the account balances listed below:

Decreases                                   Increases
Accounts receivable.... $  6,000            Accounts payable…...       $22,500
........... Prepaid expenses..........   16,500       Inventory……………. ..18,000
Accrued liabilities............. 12,000

Based upon this information what amount will be shown for net cash provided by operating activities for 2013.
a.   $226,000.
b.   $212,500.
c.   $122,500.
d.   $113,500.

  88.     Cashman Company reported net income of $285,000 for the year ended 12/31/13. Included in the computation of net income were: depreciation expense, $45,000; amortization of a patent, $24,000; income from an investment in common stock of Linda Inc., accounted for under the equity method, $36,000; and amortization of a bond premium, $9,000. Cashman also paid a $60,000 dividend during the year. The net cash provided by operating activities would be reported at:
a.   $309,000.
b.   $261,000.
c.   $249,000.
d.   $201,000.


  89.     Net cash flow from operating activities for 2013 for Graham Corporation was $350,000. The following items are reported on the financial statements for 2013:
Depreciation and amortization            $ 20,000
Cash dividends paid on common stock       12,000
Increase in accounts receivable            24,000
Based only on the information above, Graham’s net income for 2013 was:
a.   $306,000.
b.   $314,000.
c.   $346,000.
d.   $354,000.

  90.     Donnegan Company reported operating expenses of $365,000 for 2013. The following data were extracted from the company’s financial records:
                12/31/12       12/31/13
Prepaid Expenses    $  60,000           $69,000
Accrued Expenses      210,000 255,000
            On a statement of cash flows for 2013, using the direct method, cash payments for operating expenses should be:
a.   $419,000.
b.   $401,000.
c.   $329,000.
d.   $311,000.

  91.     The following information was taken from the 2013 financial statements of Jenny Gardner Corporation:
Inventory, January 1, 2013                                          $   90,000
Inventory, December 31, 2013                                      120,000
Accounts payable, January 1, 2013                               75,000
Accounts payable, December 31, 2013                        120,000
Sales                                                                              600,000
Cost of goods sold                                                         420,000
            If the direct method is used in the 2013 statement of cash flows, what amount should Jenny Gardner report as cash payments to suppliers?
a.   $405,000
b.   $435,000
c.   $465,000
d.   $495,000

  92.     Alex Company prepares its statement of cash flows using the direct method for operating activities. For the year ended December 31, 2013, Alex Company reports the following activity:
Sales on account                                                        $1,200,000
Cash sales                                                                       740,000
Decrease in accounts receivable                                    610,000
Increase in accounts payable                                            72,000
Increase in inventory                                                          48,000
Cost of good sold                                                             900,000

What is the amount of cash collections from customers reported by Alex Company for the year ended December 31, 2013?
a.   $1,940,000
b.   $1,810,000
c.   $2,550,000
d.   $1,330,000

  93.     Alex Company prepares its statement of cash flows using the direct method for operating activities. For the year ended December 31, 2013, Alex Company reports the following activity:
Sales on account                                                        $1,200,000
Cash sales                                                                       740,000
Decrease in accounts receivable                                    610,000
Increase in accounts payable                                            72,000
Increase in inventory                                                          48,000
Cost of goods sold                                                           900,000
            What is the amount of cash payments to suppliers reported by Alex Company for the year ended December 31, 2013?
a.   $   876,000
b.   $   924,000
c.   $1,020,000
d.   $   780,000

Questions 94 through 97 are based on the data shown below related to the statement of cash flows for Putnam, Inc.:
Putnam, Inc.
Comparative Balance Sheets
                                                                                                                                December 31,
                                                                                                        2013                  2012   
Assets:
Current Assets:
      Cash                                                                                     $   690,000    $   540,000
      Accounts Receivable (net)                                                       1,560,000        1,080,000
      Inventory                                                                                    1,950,000        1,260,000
      Prepaid Expenses                                                                     351,000         315,000
            Total Current Assets                                                           4,551,000        3,195,000
Long-Term Investments                                                                    225,000
Plant Assets:
      Property, Plant & Equipment                                                    2,190,000        1,440,000
      Accumulated Depreciation                                                      (450,000)      (270,000)
            Total Plant Assets                                                             1,740,000       1,170,000
Total Assets                                                                                  $6,516,000      $4,365,000


Equities:
Current Liabilities:
      Accounts Payable                                                                   $1,275,000      $1,095,000
      Accrued Expenses                                                                      309,000           282,000
      Dividends Payable                                                                   201,000                       
            Total Current Liabilities                                                       1,785,000        1,377,000
Long-Term Notes Payable                                                                 825,000
Stockholders' Equity:
      Common Stock                                                                         3,000,000        2,400,000
      Retained Earnings                                                                   906,000        588,000
Total Equities                                                                                $6,516,000      $4,365,000

Putnam, Inc.
Comparative Income Statements
                                                                                                                   December 31,
                                                                                                           2013                  2012   
Net Credit Sales                                                                            $7,020,000      $3,753,000
Cost of Goods Sold                                                                       3,915,000       1,881,000
Gross Profit                                                                                     3,105,000        1,872,000
Expenses (including Income Tax)                                                 2,586,000       1,374,000
Net Income                                                                                 $   519,000    $   498,000

Additional Information:
a.   Accounts receivable and accounts payable relate to merchandise held for sale in the normal course of business. The allowance for bad debts was the same at the end of 2013 and 2012, and no receivables were charged against the allowance. Accounts payable are recorded net of any discount and are always paid within the discount period.
b.   The proceeds from the note payable were used to finance the acquisition of property, plant, and equipment. Capital stock was sold to provide additional working capital.

  94.     What amount of cash was collected from 2013 accounts receivable?
a.   $7,500,000.
b.   $7,020,000.
c.   $6,540,000.
d.   $3,270,000.

  95.     What amount of cash was paid on accounts payable to suppliers during 2013?
a.   $4,605,000.
b.   $4,425,000.
c.   $4,095,000.
d.   $3,735,000.

  96.     The amount to be shown on the cash flow statement as net cash provided by investing activities would total what amount?
a.   $225,000.
b.   $750,000.
c.   $795,000.
d.   $975,000.

  97.     The amount to be shown on the cash flow statement as net cash provided by financing activities would total what amount?
a.   $1,425,000.
b.   $825,000.
c.   $600,000.
d.   $408,000.

Use the following information for questions 98 and 99.

Fleming Company provided the following information on selected transactions during 2013:
Dividends paid to preferred stockholders                                   $   150,000
Loans made to affiliated corporations                                               700,000
Proceeds from issuing bonds                                                           800,000
Proceeds from issuing preferred stock                                          1,050,000
Proceeds from sale of equipment                                                     450,000
Purchases of inventories                                                                1,200,000
Purchase of land by issuing bonds                                                   300,000
Purchases of treasury stock                                                             600,000

  98.     The net cash provided (used) by investing activities during 2013 is
a.   $(600,000).
b.   $(250,000).
c.   $100,000.
d.   $450,000.

  99.     The net cash provided (used) by financing activities during 2013 is
a.   $(1,650,000).
b.   $450,000.
c.   $750,000.
d.   $1,100,000.

100.     The net cash provided by operating activities in Sosa Company's statement of cash flows for 2013 was $135,000. For 2013, depreciation on plant assets was $45,000, amortization of patent was $8,000, and cash dividends paid on common stock was $54,000. Based only on the information given above, Sosa’s net income for 2013 was
a.   $135,000.
b.   $82,000.
c.   $8,000.
d.   $136,000.

101.     During 2013, Oldham Corporation, which uses the allowance method of accounting for doubtful accounts, recorded a provision for bad debt expense of $30,000 and in addition it wrote off, as uncollectible, accounts receivable of $10,000. As a result of these transactions, net cash flows from operating activities would be calculated (indirect method) by adjusting net income with a
a.   $30,000 increase.
b.   $10,000 increase.
c.   $20,000 increase.
d.   $20,000 decrease.


Use the following information for questions 102 and 103.
A flood damaged a building and contents. Floods are unusual and infrequent in this area. The receipts from insurance companies totaled $400,000, which was $120,000 less than the book values. The tax rate is 30%.

102.     On the statement of cash flows (indirect method), the receipts from insurance companies should
a.   be shown as an addition to net income of $280,000.
b.   be shown as an inflow from investing activities of $280,000.
c.   be shown as an inflow from investing activities of $400,000.
d.   not be shown.

103.     On the statement of cash flows (indirect method), the flood loss should
a.   be shown as an addition to net income of $84,000.
b.   be shown as an addition to net income of $120,000.
c.   be shown as an inflow from investing activities of $84,000.
d.   not be shown.

104.     Zook Incorporated, had net income for 2013 of $4,000,000. Additional information is as follows:
Amortization of patents                                                       $     45,000
Depreciation on plant assets                                                    1,650,000
Long-term debt:
      Bond premium amortization                                                    65,000
      Interest paid                                                                           900,000
Provision for doubtful accounts:
      Current receivables                                                                 80,000
      Long-term nontrade receivables                                              30,000
What should be the net cash provided by operating activities in the statement of cash flows for the year ended December 31, 2013, based solely on the above information?
a.   $5,820,000.
b.   $5,870,000.
c.   $5,740,000.
d.   $5,840,000.

105.     The net income for the year ended December 31, 2013, for Oliva Company was $1,500,000. Additional information is as follows:
Depreciation on plant assets                                                                 $600,000
Amortization of leasehold improvements                                                340,000
Provision for doubtful accounts on short-term receivables                     120,000
Provision for doubtful accounts on long-term receivables                      100,000
Interest paid on short-term borrowings                                                     80,000
Interest paid on long-term borrowings                                                       60,000
Based solely on the information given above, what should be the net cash provided by operating activities in the statement of cash flows for the year ended December 31, 2013?
a.   $2,560,000.
b.   $2,660,000.
c.   $2,640,000.
d.     $2,800,000.

MULTIPLE CHOICE—CPA Adapted

Use the following information for questions 106 and 107.
A company acquired a building, paying a portion of the purchase price in cash and issuing a mortgage note payable to the seller for the balance.

106.     In a statement of cash flows, what amount is included in investing activities for the above transaction?
a.   Cash payment
b.   Acquisition price
c.   Zero
d.   Mortgage amount

107.     In a statement of cash flows, what amount is included in financing activities for the above transaction?
a.   Cash payment
b.   Acquisition price
c.   Zero
d.   Mortgage amount

Use the following information for questions 108 and 109.
Smiley Corp.'s transactions for the year ended December 31, 2013 included the following:
·         Purchased real estate for $575,000 cash which was borrowed from a bank.
·         Sold available-for-sale securities for $500,000.
·         Paid dividends of $600,000.
·         Issued 500 shares of common stock for $250,000.
·         Purchased machinery and equipment for $125,000 cash.
·         Paid $450,000 toward a bank loan.
·         Reduced accounts receivable by $100,000.
·         Increased accounts payable $200,000.


108.     Smiley's net cash used in investing activities for 2013 was
a.   $700,000.
b.   $375,000.
c.   $200,000.
d.   $75,000.

109.     Smiley's net cash used in financing activities for 2013 was
a.   $25,000.
b.   $225,000.
c.   $450,000.
d.   $475,000.

Use the following information for questions 110 and 111.
Peavy Corp.'s transactions for the year ended December 31, 2013 included the following:
·         Acquired 50% of Gant Corp.'s common stock for $160,000 cash which was borrowed from a bank.
·         Issued 5,000 shares of its preferred stock for land having a fair value of $320,000.
·         Issued 500 of its 11% debenture bonds, due 2018, for $392,000 cash.
·         Purchased a patent for $220,000 cash.
·         Paid $120,000 toward a bank loan.
·         Sold available-for-sale securities for $796,000.
·         Had a net increase in returnable customer deposits (long-term) of $88,000.

110.     Peavy’s net cash provided by investing activities for 2013 was
a.   $316,000.
b.   $416,000.
c.   $476,000.
d.   $636,000.

111.     Peavy’s net cash provided by financing activities for 2013 was
a.   $432,000.
b.   $520,000.
c.   $552,000.
d.   $640,000.

Use the following information for questions 112 through 114.
Jamison Corp.'s balance sheet accounts as of December 31, 2013 and 2012 and information relating to 2013 activities are presented below.
                                                                                                                     December 31,   
                                                                                                          2013                   2012  
         Assets
         Cash                                                                                                                $   440,000    $   200,000
         Short-term investments                                                            600,000                      —
         Accounts receivable (net)                                                      1,020,000              1,020,000
         Inventory                                                                                 1,380,000              1,200,000
         Long-term investments                                                             400,000                 600,000
         Plant assets                                                                           3,400,000              2,000,000
         Accumulated depreciation                                                       (900,000)               (900,000)
         Patent                                                                                    180,000             200,000
                  Total assets                                                                $6,520,000            $4,320,000
         Liabilities and Stockholders' Equity
         Accounts payable and accrued liabilities                             $1,660,000            $1,440,000
         Notes payable (nontrade)                                                         580,000                      —
         Common stock, $10 par                                                        1,600,000              1,400,000
         Additional paid-in capital                                                           800,000                 500,000
         Retained earnings                                                                1,880,000             980,000
                  Total liabilities and stockholders' equity                      $6,520,000            $4,320,000

Information relating to 2013 activities:
·         Net income for 2013 was $1,500,000.
·         Cash dividends of $600,000 were declared and paid in 2013.
·         Equipment costing $1,000,000 and having a carrying amount of $320,000 was sold in 2013 for $360,000.
·         A long-term investment was sold in 2013 for $320,000. There were no other transactions affecting long-term investments in 2013.
·         20,000 shares of common stock were issued in 2013 for $25 a share.
·         Short-term investments consist of treasury bills maturing on 6/30/14.

112.     Net cash provided by Jamison’s 2013 operating activities was
a.   $1,500,000.
b.   $2,120,000.
c.   $2,080,000.
d.   $2,160,000.

113.     Net cash used in Jamison’s 2013 investing activities was
a.   $2,320,000.
b.   $1,820,000.
c.   $1,680,000.
d.   $1,720,000.

114.     Net cash provided by Jamison’s 2013 financing activities was
a.   $480,000.
b.   $520,000.
c.   $1,080,000.
d.   $1,680,000.

115.     Foxx Corp.'s comparative balance sheet at December 31, 2013 and 2012 reported accumulated depreciation balances of $850,000 and $600,000, respectively. Property with a cost of $50,000 and a carrying amount of $38,000 was the only property sold in 2013. Depreciation charged to operations in 2013 was
a.   $238,000.
b.   $250,000.
c.   $262,000.
d.   $212,000.



116.     Nagel Co.'s prepaid insurance was $90,000 at December 31, 2013 and $45,000 at December 31, 2012. Insurance expense was $31,000 for 2013 and $27,000 for 2012. What amount of cash disbursements for insurance would be reported in Nagel's 2013 net cash provided by operating activities presented on a direct basis?
a.   $94,000.
b.   $76,000.
c.   $59,000.
d.   $31,000.



EXERCISES

Ex. 23-117—Direct and indirect methods.

Compare the direct method and the indirect method by explaining each method.


Ex. 23-118—Classification of cash flows.

Note that X in the following statement of cash flows identifies a dollar amount and the letters (A) through (F) identify specific items which appear in the major sections of the statement prepared using the indirect method.
Statement of Cash Flows

      Cash flows from operating activities
              Net income                                                                                                              X
              Adjustments to reconcile net income to net cash
                 provided by operating activities:
                        Add                                                                                                             +X     (A)
                        Deduct                                                                                                        –X     (B)

      Net cash provided by operating activities                                                                       X

      Cash flows from investing activities
              Inflows                                                                                      +X     (C)
              Outflows                                                                                   –X    (D)

      Net cash provided (used) by investing activities                                                            X

      Cash flows from financing activities
              Inflows                                                                                      +X    (E)
              Outflows                                                                                   –X     (F)

      Net cash provided (used) by financing activities                                                            X

      Net increase (decrease) in cash                                                                                    X

Instructions
For each of the following items, indicate by letter in the blank spaces below, the section or sections where the effect would be reported. Use the code (A through F) from above. If the item is not required to be reported on the statement of cash flows, write the word "none" in the blank. Assume that generally accepted accounting principles have been followed in determining net income and that there are no short-term securities which are considered cash equivalents.
____     1.   After the retirement of an officer, the insurance policy was canceled, and a cash settlement was received by the firm. These proceeds were in excess of the book value of the policy.
____     2.   Sales discounts lapsed and not taken by customers. (Sales recorded at net originally.)
____     3.   Accrued estimated income taxes for the period. These taxes will be paid next year.
____     4.   Amortization of premium on bonds payable.
____     5.   Premium amortized on investment in bonds.
____     6.   The book value of trading securities was reduced to fair value.
____     7.   Purchase of available-for-sale securities.
____     8.   Declaration of stock dividends (not yet issued).
____     9.   Issued preferred stock in exchange for equipment.
Ex. 23-118  (cont.)
____   10.   Bad debts (under allowance method) estimated and recorded for the period (receivables classified as current).
____   11.   Gain on disposal of old machinery.
____   12.   Payment of cash dividends (previously declared in a prior period).
____   13.   Trading securities are sold at a loss.
____   14.   Two-year notes issued at discount for a patent.
____   15.   Amortization of Discount on Notes Receivable (long-term).
____   16.   Decrease in Retained Earnings Appropriated for Self-insurance.



Ex. 23-119—Classification of cash flows and transactions.

Give:
(a)   Three distinct examples of investing activities.
(b)   Three distinct examples of financing activities.
(c)   Three distinct examples of significant noncash transactions.
(d)   Two examples of transactions not shown on a statement of cash flows.



Ex. 23-120—Effects of transactions on statement of cash flows.

Any given transaction may affect a statement of cash flows (using the indirect method) in one or more of the following ways:

Cash flows from operating activities
      a.   Net income will be increased or adjusted upward.
      b.   Net income will be decreased or adjusted downward.

Cash flows from investing activities
      c.   Increase as a result of cash inflows.
      d.   Decrease as a result of cash outflows.

Cash flows from financing activities
      e.   Increase as a result of cash inflows.
      f.    Decrease as a result of cash outflows.

The statement of cash flows is not affected
      g.   Not required to be reported in the body of the statement.

Instructions
For each transaction listed below, list the letter or letters from above that describe(s) the effect of the transaction on a statement of cash flows for the year ending December 31, 2013. (Ignore any income tax effects.)
____     1.   Preferred stock with a carrying value of $44,000 was redeemed for $50,000 on January 1, 2013.
____     2.   Uncollectible accounts receivable in the amount of $3,000 were written off against the allowance for doubtful accounts balance of $12,200 on December 31, 2013.
____     3.    Machinery which originally cost $3,000 and has a book value of $1,800 is sold for $1,400 on December 31, 2013.
____     4.    Land is acquired through the issuance of bonds payable on July 1, 2013.
____     5.    1,000 shares of stock, stated value $10 per share, are issued for $25 per share in 2013.
____     6.    An appropriation of retained earnings for treasury stock in the amount of $35,000 is established in 2013.
____     7.    A cash dividend of $8,000 is paid on December 31, 2013.
____     8.    The portfolio of long-term investments (available-for-sale) is at an aggregate market value higher than aggregate cost at December 31, 2013.



Ex. 23-121—Effects of transactions on statement of cash flows.

Indicate for each of the following what should be disclosed on a statement of cash flows (indirect method). If not disclosed, write "Not shown." There may be more than one answer for some items. For an item that is added to net income, write "Add," and for an item that is deducted from net income, write "Deduct." Show financing and investing outflows in parentheses. For example, an answer might be: Deduct $4,700 or Investing ($31,000). If the item is a noncash transaction that should be disclosed separately, write "Noncash."

 (a)  The deferred tax liability increased $10,000.
(b)    The balance in Investment in Hoyt Co. Stock increased $12,000 as a result of using the equity method.
(c)    Issuance of a stock dividend increased common stock $40,000 and paid-in capital $16,000.
(d)    Amortization of bond discount, $1,600.
(e)    Machinery that cost $100,000 and had accumulated depreciation of $48,000 was sold for $53,000.
(f)     Issued 8,000 shares of common stock ($10 par) with a market value of $15 per share for machinery. (Show the amount, too.)
(g)    Amortization of patents, $3,000.
(h)    Cash dividends paid, $60,000.



Ex. 23-122—Effects of transactions on statement of cash flows.

Indicate for each of the following what should be disclosed on a statement of cash flows (SCF) (indirect method). If not disclosed, write "Not shown." If an item is a noncash transaction that should be shown separately, write "noncash." If an item is added to net income, write "Add," and if an item is deducted from net income, write "Deduct." Show financing and investing outflows in parentheses. For example, an answer might be: Deduct $4,700 or Investing ($31,000). There is more than one answer for some items.
Ex. 23-122  (cont.)
(a)    For 2013, income before an extraordinary loss was $460,000. A tornado damaged a building and its contents. The proceeds from insurance companies totaled $120,000, which was $40,000 less than the book values. The tax rate was 30%. (Show the calculation of the net income shown on the SCF, and indicate how other items should be shown on the SCF.)
(b)    Amortization of bond premium, $1,100.
(c)    The balance in Retained Earnings was $875,000 on December 31, 2012 and $1,310,000 on December 31, 2013. Net income was $1,170,000. A stock dividend was declared and distributed which increased common stock $325,000 and paid-in capital $150,000. (Show calculation of the cash dividend and indicate how it and the stock dividend would be shown on the SCF.)
(d)    Equipment, which cost $115,000 and had accumulated depreciation of $53,000, was sold for $65,000.
(e)    The deferred tax liability increased $18,000.
(f)     Issued 3,000 shares of preferred stock, $50 par, with a market value of $110 per share for land. (Show the amount, too.)


Ex. 23-123—Calculations for statement of cash flows.

During 2013 equipment was sold for $73,000. This equipment cost $120,000 and had a book value of $70,000. Accumulated depreciation for equipment was $325,000 at 12/31/12 and $310,000 at 12/31/13.

Instructions
What three items should be shown on a statement of cash flows (indirect method) from this information? Show your calculations.


Ex. 23-124—Calculations for statement of cash flows.

Milner Co. sold a machine that cost $74,000 and had a book value of $44,000 for $48,000. Data from Milner's comparative balance sheets are:
                                                                      12/31/13          12/31/12
            Machinery                                         $800,000         $670,000
            Accumulated depreciation                 190,000           136,000

Instructions
What four items should be shown on a statement of cash flows (indirect method) from this information?  Show your calculations.



Ex. 23-125—Cash flows from operating activities (indirect and direct methods).

Presented below is the income statement of Cowan, Inc.:
         Sales                                                                                       $380,000
         Cost of goods sold                                                                  225,000
         Gross profit                                                                             $155,000
         Operating expenses                                                                85,000
         Income before income taxes                                                      70,000
         Income taxes                                                                           28,000
         Net income                                                                            $  42,000

In addition, the following information related to net changes in working capital is presented:
                                                                                                              Debit                  Credit   
         Cash                                                                                         $12,000
         Accounts receivable                                                                   25,000
         Inventories                                                                                                               $19,400
         Salaries payable (operating expenses)                                        8,000
         Accounts payable                                                                                                     12,000
         Income taxes payable                                                                   3,000

The company also indicates that depreciation expense for the year was $16,700 and that the deferred tax liability account increased $2,600.

Instructions
Prepare a schedule computing the net cash flow from operating activities that would be shown on a statement of cash flows:
(a)   using the indirect method.
(b)   using the direct method.

Ex. 23-126—Statement of cash flows (indirect method).

The following information is taken from French Corporation's financial statements:

                                                                                                                         December 31 
                                                                                                                   2013                2012
Cash                                                                                                        $70,000           $  27,000
Accounts receivable                                                                                102,000                80,000
Allowance for doubtful accounts                                                                 (4,500)                (3,100)
Inventory                                                                                                   155,000              175,000
Prepaid expenses                                                                                        7,500                  6,800
Land                                                                                                         100,000                60,000
Buildings                                                                                                  287,000              244,000
Accumulated depreciation                                                                        (32,000)              (13,000)
Patents                                                                                                    20,000             35,000
                                                                                                               $705,000            $611,700


Ex. 23-126  (cont.)
Accounts payable                                                                                 $  90,000           $  84,000
Accrued liabilities                                                                                       54,000                63,000
Bonds payable                                                                                         125,000                60,000
Common stock                                                                                        100,000              100,000
Retained earnings—appropriated                                                              80,000                10,000
Retained earnings—unappropriated                                                        271,000              302,700
Treasury stock, at cost                                                                           (15,000)            (8,000)
                                                                                                               $705,000            $611,700

                                                                                                                           For 2013 Year
Net income                                                                                                              $63,300
Depreciation expense                                                                                               19,000
Amortization of patents                                                                                               5,000
Cash dividends declared and paid                                                                           25,000
Gain or loss on sale of patents                                                                                    none

Instructions
Prepare a statement of cash flows for French Corporation for the year 2013. (Use the indirect method.)



Ex. 23-127—Preparation of statement of cash flows (format provided).

The balance sheets for Kinder Company showed the following information. Additional information concerning transactions and events during 2013 are presented below.

Kinder Company
Balance Sheet
                                                                                                                          December 31
                                                                                                                   2013                2012
         Cash                                                                                             $  40,900         $  10,200
         Accounts receivable (net)                                                                 38,300                20,300
         Inventory                                                                                            35,000                42,000
         Long-term investments                                                                              0                15,000
         Property, plant & equipment                                                           231,500              150,000
         Accumulated depreciation                                                             (37,700)           (25,000)
                                                                                                               $308,000            $212,500

         Accounts payable                                                                        $  17,000           $  26,500
         Accrued liabilities                                                                              21,000                17,000
         Long-term notes payable                                                                  70,000                50,000
         Common stock                                                                               130,000                90,000
         Retained earnings                                                                          70,000             29,000
                                                                                                               $308,000            $212,500

Additional data:
1.   Net income for the year 2013, $66,000.
2.   Depreciation on plant assets for the year, $12,700.
3.   Sold the long-term investments for $28,000 (assume gain or loss is ordinary).
4.   Paid dividends of $25,000.
5.   Purchased machinery costing $21,500, paid cash.
6.   Purchased machinery and gave a $60,000 long-term note payable.
7.   Paid a $40,000 long-term note payable by issuing common stock.


Instructions
Using the format provided on the next page, prepare a statement of cash flows (using the indirect method) for 2013 for Kinder Company.

Kinder Company
Statement of Cash Flows
For the Year Ended December 31, 2013
Increase (Decrease) in Cash

Cash flows from operating activities
Net income                                                                                                                  $__________
         Adjustments to reconcile net income to net cash
            provided by operating activities:
                  __________________________________                     $__________

                  __________________________________                       __________

                  __________________________________                       __________

                  __________________________________                       __________

                  __________________________________                       __________

                  __________________________________                       __________

                  __________________________________                       __________      __________

Net cash provided (used) by operating activities                                                          __________

Cash flows from investing activities

         ___________________________________                             __________

         ___________________________________                              __________

         ___________________________________                              __________

Net cash provided (used) by investing activities                                                           __________

Cash flows from financing activities

         ___________________________________                              __________

         ___________________________________                              __________

         ___________________________________                              __________

Net cash provided (used) by financing activities                                 __________

Net increase (decrease) in cash                                                                                  $                  

Cash, January 1, 2013                                                                                                                     

Cash, December 31, 2013                                                                                           $                  

 PROBLEMS

Pr. 23-128—Statement of cash flows (indirect method).

The net changes in the balance sheet accounts of Keating Corporation for the year 2013 are shown below.
                     Account                                                                                Debit                Credit
Cash                                                                                                      $  82,000
Short-term investments                                                                                                    $121,000
Accounts receivable                                                                                  83,200
Allowance for doubtful accounts                                                                                           13,300
Inventory                                                                                                     74,200
Prepaid expenses                                                                                                                 22,800
Investment in subsidiary (equity method)                                                                             25,000
Plant and equipment                                                                                210,000
Accumulated depreciation                                                                                                  130,000
Accounts payable                                                                                      80,700
Accrued liabilities                                                                                                                  21,500
Deferred tax liability                                                                                    15,500
8% serial bonds                                                                                                                    70,000
Common stock, $10 par                                                                                                       90,000
Additional paid-in capital                                                                                                     150,000
Retained earnings—Appropriation for bonded indebtedness                    60,000
Retained earnings—Unappropriated                                                      38,000                          
                                                                                                               $643,600            $643,600

An analysis of the Retained Earnings—Unappropriated account follows:
Retained earnings unappropriated, December 31, 2012                                              $1,300,000
Add:   Net income                                                                                                               327,000
           Transfer from appropriation for bonded indebtedness                                         60,000
                       Total                                                                                                         $1,687,000
Deduct:  Cash dividends                                                                       $185,000
               Stock dividend                                                                         240,000         425,000
Retained earnings unappropriated, December 31, 2013                                              $1,262,000

1.   On January 2, 2013 short-term investments (classified as available-for-sale) costing $121,000 were sold for $145,000.
2.   The company paid a cash dividend on February 1, 2013.
3.   Accounts receivable of $16,200 and $19,400 were considered uncollectible and written off in 2013 and 2012, respectively.
4.   Major repairs of $33,000 to the equipment were debited to the Accumulated Depreciation account during the year. No assets were retired during 2013.
5.   The wholly owned subsidiary reported a net loss for the year of $20,000. The loss was recorded by the parent.
6.   At January 1, 2013, the cash balance was $166,000.

Instructions
Prepare a statement of cash flows (indirect method) for the year ended December 31, 2013. Keating Corporation has no securities which are classified as cash equivalents.

Pr. 23-129—Statement of cash flows (direct and indirect methods).

Hartman, Inc. has prepared the following comparative balance sheets for 2012 and 2013:
                                                                                                          2013                   2012  
         Cash                                                                                  $   287,000            $  153,000
         Accounts receivable                                                                 149,000                 117,000
         Inventory                                                                                    150,000                 180,000
         Prepaid expenses                                                                       18,000                   27,000
         Plant assets                                                                           1,280,000              1,050,000
         Accumulated depreciation                                                       (450,000)               (375,000)
         Patent                                                                                    153,000             174,000
                                                                                                      $1,587,000            $1,326,000

         Accounts payable                                                              $   153,000          $   168,000
         Accrued liabilities                                                                        60,000                   42,000
         Mortgage payable                                                                          —                      450,000
         Preferred stock                                                                         525,000                      —
         Additional paid-in capital—preferred                                         120,000                      —
         Common stock                                                                         600,000                 600,000
         Retained earnings                                                                 129,000              66,000
                                                                                                      $1,587,000            $1,326,000

1.   The Accumulated Depreciation account has been credited only for the depreciation expense for the period.
2.   The Retained Earnings account has been charged for dividends of $158,000 and credited for the net income for the year.

      The income statement for 2013 is as follows:

Sales                                                   $1,980,000
Cost of sales                                       1,089,000
Gross profit                                              891,000
Operating expenses                            670,000
Net income                                       $   221,000

Instructions
(a)    From the information above, prepare a statement of cash flows (indirect method) for Hartman, Inc. for the year ended December 31, 2013.
(b)    From the information above, prepare a schedule of cash provided by operating activities using the direct method.




 Pr. 23-130—A complex statement of cash flows (indirect method).

The net changes in the balance sheet accounts of Eusey, Inc. for the year 2013 are shown below:
                  Account                                                                          Debit                      Credit  
Cash                                                                                                                              $   95,600
Accounts receivable                                                                                                   $     64,000
Allowance for doubtful accounts                                                                                           10,000
Inventory                                                                                             197,200
Prepaid expenses                                                                                20,000
Long-term investments                                                                                                       144,000
Land                                                                                                   400,000
Buildings                                                                                            650,000
Machinery                                                                                           100,000
Office equipment                                                                                                                  28,000
Accumulated depreciation:
         Buildings                                                                                                                      24,000
         Machinery                                                                                                                     20,000
         Equipment                                                                                   12,000
Accounts payable                                                                              183,200
Accrued liabilities                                                                                                                  72,000
Dividends payable                                                                                                               128,000
Premium on bonds                                                                                                               36,000
Bonds payable                                                                                                                    900,000
Preferred stock ($50 par)                                                                    60,000
Common stock ($10 par)                                                                                                   156,000
Additional paid-in capital—common                                                                                   223,200
Retained earnings                                                                          87,200                                
                                                                                                      $1,805,200               $1,805,200

Additional information:
    1.                            Income Statement Data for Year Ended December 31, 2013       
         Income before extraordinary item                                                                            $272,000
         Extraordinary loss:  Condemnation of land                                                            132,000
         Net income                                                                                                               $140,000
    2.  Cash dividends of $128,000 were declared December 15, 2013, payable January 15, 2014. A 5% stock dividend was issued March 31, 2013, when the market value was $22.00 per share.
    3.  The long-term investments were sold for $140,000.
    4.  A building and land which cost $480,000 and had a book value of $350,000 were sold for $400,000. The cost of the land, included in the cost and book value above, was $20,000.
    5.  The following entry was made to record an exchange of an old machine for a new one:
                           Machinery ....................................................................      160,000
                           Accumulated Depreciation—Machinery.......................        40,000
                           ...................................................................... Machinery                                       60,000
                           ............................................................................. Cash                                       140,000
    6.  A fully depreciated copier machine which cost $28,000 was written off.
    7.  Preferred stock of $60,000 par value was redeemed for $80,000.


Pr. 23-130  (cont.)

    8.  The company sold 12,000 shares of its common stock ($10 par) on June 15, 2013 for $25 a share. There were 87,600 shares outstanding on December 31, 2013.
    9.  Bonds were sold at 104 on December 31, 2013.
  10.  Land that was condemned had a book value of $240,000.

Instructions
Prepare a statement of cash flows (indirect method). Ignore tax effects.


IFRS QUESTIONS

True/False

1.   Under IFRS, companies are not required to prepare a statement of cash flows if the transactions are reported elsewhere in the financial statements.

2.   A statement of cash flows prepared according to IFRS requirements must be prepared using the direct method for operating activities.

3.   IFRS encourages companies to disclose the aggregate amount of cash flows attributable to the increase in operating capacity separately from cash flows required to maintain operating capacity.

4.   In certain circumstances under IFRS, bank overdrafts are considered part of cash and cash equivalents.

5.   IFRS requires that noncash investing and financing activities be excluded from the statement of cash flows.

Multiple Choice Questions

1.   Which of the following is false with regard to IFRS and the statement of cash flows?
a.   The IASB is strongly in favor of requiring use of the direct method for operating activities.
b.   In certain circumstances under IFRS, bank overdrafts are considered part of cash and cash equivalents.
c.   IFRS requires that noncash investing and financing activities be excluded from the statement of cash flows.
d.   All of the above statements are false with regard to IFRS and the statement of cash flows.

2.   Ocean Company follows IFRS for its external financial reporting. Which of the following methods of reporting are acceptable under IFRS for the items shown?
Interest paid                        Dividends paid
a.     Operating                        Investing
b.     Investing                          Financing
c.     Financing                        Investing
d.     Operating                        Financing


3.   Ocean Company follows IFRS for its external financial reporting. Which of the following methods of reporting are acceptable under IFRS for the items shown?
      Interest received          Dividends received
a.        Operating                         Investing
b.        Investing                           Financing
c.        Financing                         Investing
d.        Operating                         Financing

4.   Wave, Inc. follows IFRS for its external financial reporting. The statement of cash flows reports changes in cash and cash equivalents, which of the following is not considered cash or a cash equivalent under IFRS?
a.   Coin.
b.   Bank overdrafts.
c.   Commercial paper.
d.   Accounts receivable.

5.   Surf Company follows IFRS for its external financial reporting. The following amounts were available at December 31, 2013:
Interest paid                           $22,000
        Dividends paid         16,000
        Taxes paid                   37,000
      Under IFRS, what is the maximum amount that could be reported for cash used by operating activities for Surf Company for the year ended December 31, 2013?
a.     $59,000
b.     $38,000
c.     $53,000
d.     $75,000

6.   Surf Company follows IFRS for its external financial reporting. The following amounts were available at December 31, 2013:
      Interest received                      $22,000
      Dividends received                   16,000
      Under IFRS, what is the maximum amount that could be reported for cash provided by operating activities for Surf Company for the year ended December 31, 2013?
a.     $-0-
b.     $22,000
c.     $16,000
d.     $38,000

7.   Surf Company follows IFRS for its external financial reporting. The following amounts were available at December 31, 2013:
            Interest paid                           $22,000
            Dividends paid                          16,000
            Taxes paid on operations       37,000
      Under IFRS, what is the maximum amount that could be reported for cash used by financing activities for Surf Company for the year ended December 31, 2013?
a.   $59,000
b.   $38,000
c.   $53,000
d.   $75,000

8.   In the “On the Horizon” feature in the text, which of the following is discussed regarding convergence of U.S. GAAP with IFRS?
a.   Noncash investing and financing activities will be disclosed only in the notes.
b.   Bank overdrafts will be classified as part of financing activities.
c.   The statement of cash flows will present only changes in cash and will exclude changes in cash equivalents.
d.   All of the above are in “On the Horizon” regarding converging U.S. GAAP and IFRS.

9.   Which of the following is true regarding the statement of cash flows and IFRS?
a.   Cash and cash equivalents are defined differently under IFRS than under U.S. GAAP.
b.   Companies preparing a complete set of financial statements under IFRS may exclude the statement of cash flows if the cash flow activity is reported in the notes to the financial statements.
c.   Under IFRS most companies choose to use the direct method of reporting cash flows from operating activities.
d. Under IFRS noncash investing and financing activities are excluded from the statement of cash flows and instead are presented in the notes to the financial statements..