Test bank with answers intermediate accounting 12e by kieso chapter 23

To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com CHAPTER 23 STATEMENT OF CASH FLOWS TRUE-FALSE—Conceptual Answer F T T F T F T F T F T F F T F F T T F T No Description 10 11 12 13 14 15 16 17 18 19 20 Primary purpose of the statement of cash flows Information provided by statement of cash flows Classification of operating activities First step in cash flow statement preparation Reconciling beginning and ending cash balances Net income and net cash flow from operating activities Converting net income to net cash flow from operating activities Reporting cash receipts/disbursements in direct method Indirect method adjustments FASB’s recommended method Decrease in accounts receivable and cash-basis revenues Decrease in prepaid expenses Income from equity method investment Computing cash receipts from customers Computing cash payments for operating expenses Amortization of bond premium Purchases and sales of trading securities Disclosing noncash investing and financing activities Use of cash flow worksheet Reporting stock dividends on worksheet MULTIPLE CHOICE—Conceptual Answer c c c b d d c b b b d c c b b c b c c No 21 22 S 23 S 24 25 26 S 27 28 29 30 31 32 P 33 P 34 S 35 S 36 37 38 39 Description Objective of the statement of cash flows Primary purpose of the statement of cash flows Answers provided by the statement of cash flows First step in cash flow statement preparation Definition of cash equivalents Cash flow effect of a short-term nontrade note payable Reporting revenues and expenses on a cash basis The effect of an inventory increase on cash flows from operating activities Cash flow effects of a stock dividend Effect of a change in dividends payable Effect of cash dividend declaration on operating cash flows Cash flow effects of major repairs on machinery Classifying items as investing activities Classification of a financing activity Reporting amortization of bond premium Converting accrual based expense to cash basis Adjustment to income for inventory increase Adjustment under the direct and indirect methods Adjustment to cost of goods sold under the direct method To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 23 - Test Bank for Intermediate Accounting, Twelfth Edition MULTIPLE CHOICE—Conceptual (cont.) Answer a a b c d a d c P S No 40 41 42 43 44 45 46 S 47 Description Adjustment for an increase in accounts payable Adjustment for a decrease in prepaid insurance Direct method vs indirect method Direct method vs indirect method Adjustment for equity method investment income Reporting extraordinary transactions Events not shown on statement of cash flows Reporting significant noncash transactions These questions also appear in the Problem-Solving Survival Guide These questions also appear in the Study Guide MULTIPLE CHOICE—Computational Answer b b c d c a d a c b d c c c b c c b a c a b c d b d c a a a a c b d No Description 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 Determine net cash flow from investing activities Determine net cash flow from financing activities Determine net cash flow from operating activities Determine net cash flow from investing activities Determine net cash flow from financing activities Determine cash flows from investing activities Determine cash flows from financing activities Determine net cash flow from operating activities Determine net cash flow from investing activities Determine cash received from customers (direct method) Determine taxes paid (direct method) Determine net cash flow from financing activities Compute net cash used in financing activities Sale of fixed assets at a gain/cash flow effects Analysis of plant asset account/cash flow presentation Sale of equipment at a gain/cash flow effects Determine depreciation expense for the year Determine depreciation expense for the year Calculate equipment purchased during the year Calculate cost of equipment sold Determine book value of equipment at end of year Determine ending balance of accounts payable Determine ending balance of retained earnings Determine ending balance of capital stock Determine the amount of a cash dividend Reporting a stock dividend Compute proceeds from issuance of bonds payable Compute net cash provided by operating activities Determine net income for period Compute net cash provided by operating activities Compute net cash provided by operating activities Determine cash collected from accounts receivable Determine cash paid on accounts payable to suppliers Compute net cash provided by investing activities To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Statement of Cash Flows MULTIPLE CHOICE—Computational (cont.) Answer a b d b a c b c b No Description 82 83 84 85 86 87 88 89 90 Compute net cash provided by financing activities Compute net cash flow from investing activities Compute net cash flow from financing activities Determine net income for period Adjust net income for bad debt provision Reporting insurance proceeds from a flood loss Reporting a flood loss Determine net cash flow from operating activities Determine net cash flow from operating activities MULTIPLE CHOICE—CPA Adapted Answer a c c b b b c a a c b No 91 92 93 94 95 96 97 98 99 100 101 Description Determine cash flow from investing activities Determine cash flow from financing activities Determine net cash used in investing activities Determine net cash used in financing activities Determine net cash provided by investing activities Determine net cash provided by financing activities Determine net cash provided by operating activities Determine net cash used by investing activities Determine net cash provided by financing activities Determine depreciation charged to operations Cash disbursements for insurance (direct method) EXERCISES Item E23-102 E23-103 E23-104 E23-105 E23-106 E23-107 E23-108 E23-109 E23-110 E23-111 E23-112 Description Direct and indirect methods (essay) Classification of cash flows Classification of cash flows and transactions Effects of transactions on statement of cash flows Effects of transactions on statement of cash flows Effects of transactions on statement of cash flows Calculations for statement of cash flows Calculations for statement of cash flows Cash flows from operating activities (direct/indirect) Statement of cash flows (indirect method) Preparation of statement of cash flows (format provided) PROBLEMS Item P23-113 P23-114 P23-115 Description Statement of cash flows (indirect method) Statement of cash flows (direct/indirect) A complex statement of cash flows (indirect method) 23 - To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 23 - Test Bank for Intermediate Accounting, Twelfth Edition CHAPTER LEARNING OBJECTIVES Describe the purpose of the statement of cash flows Identify the major classifications of cash flows Differentiate between net income and net cash flows from operating activities Contrast the direct and indirect methods of calculating net cash flow from operating activities Determine net cash flows from investing and financing activities Prepare a statement of cash flows Identify sources of information for a statement of cash flows Discuss special problems in preparing a statement of cash flows Explain the use of a worksheet in preparing a statement of cash flows To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Statement of Cash Flows 23 - SUMMARY OF LEARNING OBJECTIVES BY QUESTIONS Item Type Item Type Item TF TF 21 TF TF TF TF TF MC 28 32 48 49 51 MC MC MC MC 52 53 54 56 MC MC MC MC 59 60 91 92 10 11 12 P 33 P 34 S 35 TF TF TF MC MC MC 36 55 57 58 61 62 MC MC MC MC MC MC 63 64 65 66 67 68 13 14 15 TF TF TF 37 38 39 MC MC MC 40 41 42 16 17 18 30 44 TF TF MC MC MC 45 46 S 47 50 73 MC MC MC MC MC 83 84 85 86 87 19 TF 20 TF Note: S S TF = True-False MC = Multiple Choice E = Exercise P = Problem 27 Type Item Type Item Learning Objective S MC 22 MC 23 Learning Objective S TF 24 MC 25 Learning Objective MC Learning Objective MC 29 MC 30 Learning Objective MC 93 MC 98 MC 94 MC 99 MC 95 MC 103 MC 96 MC 104 Learning Objective MC 69 MC 75 MC 70 MC 76 MC 71 MC 77 MC 72 MC 78 MC 73 MC 97 MC 74 MC 100 Learning Objective MC 43 MC 81 MC 79 MC 82 MC 80 MC 103 Learning Objective MC 88 MC 105 MC 89 MC 106 MC 90 MC 107 MC 103 E 110 MC 104 E 111 Learning Objective Type Item Type Item Type MC MC 26 MC 102 E MC 31 MC 102 E MC E E E 105 106 107 E E E MC MC MC MC MC MC 101 106 107 108 109 110 MC E E E E E 111 112 113 114 115 E E P P P MC MC E 105 E E E E E E 112 113 114 115 E P P P To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 23 - Test Bank for Intermediate Accounting, Twelfth Edition TRUE FALSE—Conceptual The primary purpose of the statement of cash flows is to provide cash-basis information about the company’s operating, investing, and financing activities The statement of cash flows provides information to help investors and creditors assess the cash and noncash investing and financing transactions during the period Companies classify some cash flows relating to investing or financing activities as operating activities The first step in the preparation of the statement of cash flows is to determine the net cash flow from operating activities The net increase (decrease) in cash reported on the statement of cash flows should reconcile the beginning and ending cash balances reported in the comparative balance sheets Under the accrual basis of accounting, net income is usually the same as net cash flow from operating activities A company can convert net income to net cash flow from operating activities through either the direct method or the indirect method The direct method, also called the reconciliation method, reports cash receipts and cash disbursements from operating activities The indirect method adjusts net income for items that affected reported net income but did not affect cash 10 The FASB encourages the use of the indirect method over the direct method 11 When accounts receivable decrease during a period, cash-basis revenues are higher than revenues reported on an accrual basis 12 When prepaid expenses decrease during a period, expenses on the accrual-basis are lower than they are on a cash-basis 13 Income from an investment in common stock using the equity method is added to net income in computing net cash provided from operating activities 14 Cash receipts from customers are computed by adding a decrease in accounts receivable to revenue from sales 15 Cash payments for operating expenses are computed by subtracting an increase in prepaid expenses and a decrease in accrued expenses payable from operating expenses 16 A company should add back bond premium amortization to net income to arrive at net cash flow from operating activities To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Statement of Cash Flows 23 - 17 Companies report the cash flows from purchases and sales of trading securities as cash flows from operating activities 18 Noncash investing and financing activities are disclosed either in a separate schedule or in a separate note to the financial statements 19 When numerous adjustments are necessary, companies often use a cash flow worksheet instead of preparing a statement of cash flows 20 The issuance of stock dividends is entered on the cash flow worksheet, but is not reported in the statement of cash flows True-False Answers—Conceptual Item Ans F T T F T Item 10 Ans F T F T F Item 11 12 13 14 15 Ans T F F T F Item 16 17 18 19 20 Ans F T T F T 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 S 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? S 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 23 24 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 23 - Test Bank for Intermediate Accounting, Twelfth Edition 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 S 27 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 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Statement of Cash Flows 31 Declaration of a cash dividend on common stock affects cash flows from operating activities under the direct and indirect methods as follows: a b c d 32 P 33 23 - Direct Method Outflow Inflow Outflow No effect Indirect Method Inflow Inflow Outflow No effect 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 Xanthe Corporation had the following transactions occur in the current year: Cash sale of merchandise inventory Sale of delivery truck at book value Sale of Xanthe common stock for cash Issuance of a note payable to a bank for cash Sale of a security held as an available-for-sale investment 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 P 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 S 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 S 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? 34 35 36 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 23 - 10 Test Bank for Intermediate Accounting, Twelfth Edition a b c d Depreciation Deducted From Added To Deducted From Added To Increase in Prepaid Expenses Deducted From Added To 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? a b c d Direct Method Increase Decrease Increase Decrease Indirect Method Decrease Increase Increase 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? a b c d 41 Indirect Method Increase Decrease Increase Decrease Direct Method Decrease Increase Increase Decrease 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? a b c d Indirect Method Increase Decrease Increase Decrease Direct Method Decrease Increase Increase Decrease To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 23 - 36 Test Bank for Intermediate Accounting, Twelfth Edition Solution 23-108 (1) Cash inflow from investing activities $75,000 (2) Sales price Book value Gain on sale $75,000 70,000 $ 5,000 Deduct from net income (3) Cost Book value Accumulated depreciation Deduct decrease in accumulated depreciation Depreciation expense $120,000 70,000 50,000 (15,000) $ 35,000 Add to net income Ex 23-109—Calculations for statement of cash flows Vinson Co sold a machine that cost $74,000 and had a book value of $44,000 for $50,000 Data from Vinson's comparative balance sheets are: 12/31/08 12/31/07 Machinery $800,000 $690,000 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 Solution 23-109 (1) Cash inflow from investing activities $50,000 (2) Sales price Book value Gain on sale $50,000 44,000 $ 6,000 Deduct from net income (3) Cost Book value Accumulated depreciation Add increase in accumulated depreciation Depreciation expense $74,000 44,000 30,000 54,000 $84,000 Add to net income (4) Cost of machine sold Add increase in machinery Purchase of machinery $ 74,000 110,000 $184,000 Cash outflow from investing activities To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Statement of Cash Flows 23 - 37 Ex 23-110—Cash flows from operating activities (indirect and direct methods) Presented below is the income statement of Foley, Inc.: Sales Cost of goods sold Gross profit Operating expenses Income before income taxes Income taxes Net income $380,000 225,000 $155,000 85,000 70,000 28,000 $ 42,000 In addition, the following information related to net changes in working capital is presented: Cash Trade accounts receivable Inventories Salaries payable (operating expenses) Trade accounts payable Income tax payable Debit $12,000 15,000 Credit $19,400 8,000 12,000 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 Solution 23-110 (a) Foley, Inc Statement of Cash Flows (Partial) (Indirect Method) Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Increase in trade accounts receivable Decrease in inventories Decrease in salaries payable (operating expenses) Increase in trade accounts payable Decrease in income taxes payable Depreciation expense Increase in deferred tax liability Net cash provided by operating activities $42,000 $(15,000) 19,400 (8,000) 12,000 (3,000) 16,700 2,600 24,700 $66,700 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 23 - 38 Test Bank for Intermediate Accounting, Twelfth Edition Solution 23-110 (cont.) (b) Foley, Inc Statement of Cash Flows (Partial) (Direct Method) Cash flows from operating activities Cash received from customers ($380,000 – $15,000) Cash paid to suppliers ($225,000 – $19,400 – $12,000) Operating expenses paid ($85,000 + $8,000 – $16,700) Taxes paid ($28,000 + $3,000 – $2,600) Net cash provided by operating activities $365,000 $193,600 76,300 28,400 298,300 $ 66,700 Ex 23-111—Statement of cash flows (indirect method) The following information is taken from Reyser Corporation's financial statements: Cash Accounts receivable Allowance for doubtful accounts Inventory Prepaid expenses Land Buildings Accumulated depreciation Patents Accounts payable Accrued liabilities Bonds payable Common stock Retained earnings—appropriated Retained earnings—unappropriated Treasury stock, at cost Net income Depreciation expense Amortization of patents Cash dividends declared and paid Gain or loss on sale of patents December 31 2008 2007 $90,000 $ 27,000 92,000 80,000 (4,500) (3,100) 155,000 175,000 7,500 6,800 90,000 60,000 287,000 244,000 (32,000) (13,000) 20,000 35,000 $705,000 $611,700 $ 90,000 54,000 125,000 100,000 80,000 271,000 (15,000) $705,000 $ 84,000 63,000 60,000 100,000 10,000 302,700 (8,000) $611,700 For 2008 Year $58,300 19,000 5,000 20,000 none Instructions Prepare a statement of cash flows for Reyser Corporation for the year 2008 (Use the indirect method.) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Statement of Cash Flows 23 - 39 Solution 23-111 Reyser Corporation Statement of Cash Flows For the Year Ended December 31, 2008 Increase (Decrease) in Cash Cash flows from operating activities Net income Adjust to reconcile net income to net cash provided by operating activities: Depreciation expense Patent amortization Increase in accounts receivable Decrease in inventory Increase in prepaid expenses Increase in accounts payable Decrease in accrued liabilities $58,300 $19,000 5,000 (10,600) 20,000 (700) 6,000 (9,000) Net cash provided by operating activities Cash flows from investing activities Purchase of land Purchase of buildings Sale of patents 88,000 (30,000) (43,000) 10,000 Net cash used by investing activities Cash flows from financing activities Sale of bonds Purchase of treasury stock Payment of cash dividends Net cash provided by financing activities Net increase in cash Cash, January 1, 2008 Cash, December 31, 2008 29,700 (63,000) 65,000 (7,000) (20,000) 38,000 $63,000 27,000 $90,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 23 - 40 Test Bank for Intermediate Accounting, Twelfth Edition Ex 23-112—Preparation of statement of cash flows (format provided) The balance sheets for Hafner Company showed the following information Additional information concerning transactions and events during 2008 are presented below Hafner Company Balance Sheet Cash Accounts receivable (net) Inventory Long-term investments Property, plant & equipment Accumulated depreciation Accounts payable Accrued liabilities Long-term notes payable Common stock Retained earnings December 31 2008 2007 $ 30,900 $ 10,200 43,300 20,300 35,000 42,000 15,000 236,500 150,000 (37,700) (25,000) $308,000 $212,500 $ 17,000 21,000 70,000 130,000 70,000 $308,000 $ 26,500 17,000 50,000 90,000 29,000 $212,500 Additional data: Net income for the year 2008, $76,000 Depreciation on plant assets for the year, $12,700 Sold the long-term investments for $28,000 (assume gain or loss is ordinary) Paid dividends of $35,000 Purchased machinery costing $26,500, paid cash Purchased machinery and gave a $60,000 long-term note payable 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 2008 for Hafner Company To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Statement of Cash Flows 23 - 41 Ex 23-112 (cont.) Hafner Company Statement of Cash Flows For the Year Ended December 31, 2008 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, 2008 Cash, December 31, 2008 $ To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 23 - 42 Test Bank for Intermediate Accounting, Twelfth Edition Solution 23-112 Hafner Company Statement of Cash Flows For the Year Ended December 31, 2008 Increase (Decrease) in Cash Cash flows from operating activities Net income Adjustment to reconcile net income to net cash provided by operating activities: Depreciation expense Gain on sale of investments Increase in accounts receivable Decrease in inventory Decrease in accounts payable Increase in accrued liabilities $ 76,000 $ 12,700 (13,000) (23,000) 7,000 (9,500) 4,000 (21,800) Net cash provided by operating activities Cash flows from investing activities Sale of long-term investments Purchase of machinery 54,200 28,000 (26,500) Net cash provided by investing activities Cash flows from financing activities Paid dividends Net cash used by financing activities Net increase (decrease) in cash Cash, January 1, 2008 Cash, December 31, 2008 1,500 (35,000) (35,000) $ 20,700 10,200 $ 30,900 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Statement of Cash Flows 23 - 43 PROBLEMS Pr 23-113—Statement of cash flows (indirect method) The net changes in the balance sheet accounts of Windsor Corporation for the year 2008 are shown below Account Cash Short-term investments Accounts receivable Allowance for doubtful accounts Inventory Prepaid expenses Investment in subsidiary (equity method) Plant and equipment Accumulated depreciation Accounts payable Accrued liabilities Deferred tax liability 8% serial bonds Common stock, $10 par Additional paid-in capital Retained earnings—Appropriation for bonded indebtedness Retained earnings—Unappropriated Debit $ 82,000 Credit $121,000 83,200 13,300 74,200 17,800 20,000 210,000 130,000 80,700 21,500 15,500 80,000 90,000 150,000 60,000 38,000 $643,600 $643,600 An analysis of the Retained Earnings—Unappropriated account follows: Retained earnings unappropriated, December 31, 2007 Add: Net income Transfer from appropriation for bonded indebtedness Total Deduct: Cash dividends Stock dividend Retained earnings unappropriated, December 31, 2008 $1,300,000 327,000 60,000 $1,687,000 $185,000 240,000 425,000 $1,262,000 On January 2, 2008 short-term investments (classified as available-for-sale) costing $121,000 were sold for $155,000 The company paid a cash dividend on February 1, 2008 Accounts receivable of $16,200 and $19,400 were considered uncollectible and written off in 2008 and 2007, respectively Major repairs of $33,000 to the equipment were debited to the Accumulated Depreciation account during the year No assets were retired during 2008 The wholly owned subsidiary reported a net loss for the year of $20,000 The loss was recorded by the parent At January 1, 2008, the cash balance was $166,000 Instructions Prepare a statement of cash flows (indirect method) for the year ended December 31, 2008 Windsor Corporation has no securities which are classified as cash equivalents To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 23 - 44 Test Bank for Intermediate Accounting, Twelfth Edition Solution 23-113 Windsor Corporation Statement of Cash Flows For the Year Ended December 31, 2008 Increase (Decrease) in Cash Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Equity in subsidiary loss Depreciation expense Gain on sale of short-term investments Decrease in deferred tax liability Increase in accounts receivable (net) Increase in inventory Decrease in prepaid expenses Decrease in accounts payable Increase in accrued liabilities $327,000 $ 20,000 163,000 (34,000) (15,500) (69,900) (74,200) 17,800 (80,700) 21,500 Net cash provided by operating activities Cash flows from investing activities Sale of short-term investments Purchase of plant and equipment Major repairs to equipment 275,000 155,000 (210,000) (33,000) Net cash provided by investing activities Cash flows from financing activities Payment of cash dividend Sale of serial bonds (52,000) (88,000) (185,000) 80,000 Net cash used by financing activities (105,000) Net increase in cash Cash, January 1, 2008 Cash, December 31, 2008 82,000 166,000 $248,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Statement of Cash Flows 23 - 45 Pr 23-114—Statement of cash flows (direct and indirect methods) Donelly, Inc has prepared the following comparative balance sheets for 2007 and 2008: Cash Receivables Inventory Prepaid expenses Plant assets Accumulated depreciation Patent Accounts payable Accrued liabilities Mortgage payable Preferred stock Additional paid-in capital—preferred Common stock Retained earnings 2008 $ 297,000 159,000 150,000 18,000 1,260,000 (450,000) 153,000 $1,587,000 2007 $ 153,000 117,000 180,000 27,000 1,050,000 (375,000) 174,000 $1,326,000 $ 153,000 60,000 — 525,000 120,000 600,000 129,000 $1,587,000 $ 168,000 42,000 450,000 — — 600,000 66,000 $1,326,000 The Accumulated Depreciation account has been credited only for the depreciation expense for the period The Retained Earnings account has been charged for dividends of $138,000 and credited for the net income for the year The income statement for 2008 is as follows: Sales Cost of sales Gross profit Operating expenses Net income $1,980,000 1,089,000 891,000 690,000 $ 201,000 Instructions (a) From the information above, prepare a statement of cash flows (indirect method) for Donelly, Inc for the year ended December 31, 2008 (b) From the information above, prepare a schedule of cash provided by operating activities using the direct method To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 23 - 46 Test Bank for Intermediate Accounting, Twelfth Edition Solution 23-114 (a) Donelly, Inc Statement of Cash Flows For the Year Ended December 31, 2008 Increase (Decrease) in Cash Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense Patent amortization Increase in receivables Decrease in inventory Decrease in prepaid expenses Decrease in accounts payable Increase in accrued liabilities $201,000 $ 75,000 21,000 (42,000) 30,000 9,000 (15,000) 18,000 96,000 Net cash provided by operating activities 297,000 Cash used in investing activities Purchase of plant assets (210,000) Cash flows from financing activities Payment of cash dividend Retirement of mortgage payable Sale of preferred stock (138,000) (450,000) 645,000 Net cash provided by financing activities 57,000 Net increase in cash Cash, January 1, 2008 Cash, December 31, 2008 (b) Donelly, Inc Schedule of Cash Provided by Operating Activities For Year Ended December 31, 2008 Cash flows from operating activities Cash received from customers (1) Cash paid to suppliers (2) Operating expenses paid (3) Net cash provided by operating activities (1) (2) (3) 144,000 153,000 $297,000 $1,980,000 – $42,000 $1,089,000 – $30,000 + $15,000 $690,000 – $75,000 – $21,000 – $9,000 – $18,000 $1,938,000 $1,074,000 567,000 1,641,000 $ 297,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Statement of Cash Flows 23 - 47 Pr 23-115—A complex statement of cash flows (indirect method) The net changes in the balance sheet accounts of Lenon, Inc for the year 2008 are shown below: Debit Credit Account Cash $ 125,600 Accounts receivable $ 64,000 Allowance for doubtful accounts 14,000 Inventory 217,200 Prepaid expenses 20,000 Long-term investments 144,000 Land 300,000 Buildings 600,000 Machinery 100,000 Office equipment 28,000 Accumulated depreciation: Buildings 24,000 Machinery 20,000 Office equipment 12,000 Accounts payable 183,200 Accrued liabilities 72,000 Dividends payable 128,000 Premium on bonds 32,000 Bonds payable 800,000 Preferred stock ($50 par) 60,000 Common stock ($10 par) 156,000 Additional paid-in capital—common 223,200 Retained earnings 87,200 $1,705,200 $1,705,200 Additional information: Income Statement Data for Year Ended December 31, 2008 Income before extraordinary item Extraordinary loss: Condemnation of land Net income $272,000 132,000 $140,000 Cash dividends of $128,000 were declared December 15, 2008, payable January 15, 2009 A 5% stock dividend was issued March 31, 2008, when the market value was $22.00 per share The long-term investments were sold for $140,000 A building and land which cost $480,000 and had a book value of $300,000 were sold for $400,000 The cost of the land, included in the cost and book value above, was $20,000 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 A fully depreciated copier machine which cost $28,000 was written off Preferred stock of $60,000 par value was redeemed for $80,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 23 - 48 Test Bank for Intermediate Accounting, Twelfth Edition Pr 23-115 (cont.) The company sold 12,000 shares of its common stock ($10 par) on June 15, 2008 for $25 a share There were 87,600 shares outstanding on December 31, 2008 Bonds were sold at 104 on December 31, 2008 10 Land that was condemned had a book value of $240,000 Instructions Prepare a statement of cash flows (indirect method) Ignore tax effects Solution 23-115 Lenon, Inc Statement of Cash Flows For the Year Ended December 31, 2008 Increase (Decrease) in Cash Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense—buildings Depreciation expense—machinery Depreciation expense office equipment Gain on sale of building and land Loss on sale of long-term investments Decrease in accounts receivable (net) Increase in inventory Increase in prepaid expenses Decrease in accounts payable Increase in accrued liabilities Loss on condemnation of land $ 140,000 $204,000 60,000 16,000 (100,000) 4,000 78,000 (217,200) (20,000) (183,200) 72,000 132,000 (1) (2) (3) (4) (5) Net cash provided by operating activities Cash flows from investing activities Sale of long-term investments Proceeds from condemnation of land Purchase of land Sale of building and land Purchase of building Purchase of machinery 185,600 140,000 (6) 108,000 (7) (560,000) (8) 400,000 (9) (1,060,000) (10) (140,000) (11) Net cash used by investing activities Cash flows from financing activities Sale of bonds Retirement of preferred stock Sale of common stock Net cash provided by financing activities Net increase in cash 45,600 (1,112,000) 832,000 (12) (80,000) (13) 300,000 (14) 1,052,000 $ 125,600 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Statement of Cash Flows Solution 23-115 (cont.) (1) Net change Debit to accumulated depreciation Depreciation expense $ 24,000 180,000 $204,000 (2) Net change Debit to accumulated depreciation Depreciation expense $20,000 40,000 $60,000 (3) Net change Write-off Depreciation expense $(12,000) 28,000 $ 16,000 (4) Sale price of building and land Book value of building and land Gain on sale $400,000 300,000 $100,000 (5) Carrying value of long-term investments Sale price of long-term investments Loss on sale $144,000 140,000 $ 4,000 (6) Given (7) Condemned land (at cost) Extraordinary loss $240,000 132,000 $108,000 (8) Net change Condemned land and land sold (at cost) $300,000 260,000 $560,000 (9) Given (10) Net change Building sold (at cost) (11) Given (exchange) (12) Bonds Payable Add Premium (13) Given (14) 12,000 × $25 = $300,000 $ 600,000 460,000 $1,060,000 $800,000 32,000 $832,000 23 - 49 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 23 - 50 Test Bank for Intermediate Accounting, Twelfth Edition Solution 23-115 (cont.) Other important reconciliations: Shares outstanding at various times 87,600 December 31, 2008 12,000 Issued June 15, 2008 75,600 Outstanding after stock dividend March 31, 2008 75,600 ÷ 1.05 = 72,000 shares Common Stock Issuance 12,000 × $10 Stock dividend 3,600 × $10 Additional Paid-in Capital Issuance 12,000 × $15 Stock dividend 3,600 × $12 Retained Earnings Net income Dividends (cash) Dividends (stock) Preferred stock redemption = $120,000 = 36,000 $156,000 = $180,000 = 43,200 $223,200 $140,000 (128,000) 12,000 (79,200) (67,200) (20,000) $(87,200) ... by financing activities Determine depreciation charged to operations Cash disbursements for insurance (direct method) EXERCISES Item E23-102 E23-103 E23-104 E23-105 E23-106 E23-107 E23-108 E23-109... download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 23 - Test Bank for Intermediate Accounting, Twelfth Edition CHAPTER LEARNING OBJECTIVES Describe the... Statements of retained earnings 23 24 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 23 - Test Bank for Intermediate Accounting, Twelfth Edition