Managerial accounting 5th by jiambalvo test bank ch13

CHAPTER 13 Statement of Cash Flows Summary of Questions by Objectives and Bloom’s Taxonomy Item SO BT Item True-False Statements 1 K C K K 10 K 11 K 12 Multiple Choice Questions 31 K 49 32 K 50 33 2,3 AP 51 34 2,3 AP 52 35 2,3 AP 53 36 AP 54 37 AP 55 38 AP 56 39 AP 57 40 AP 58 41 AP 59 42 AP 60 43 2,3 AP 61 44 2,3 AP 62 45 AP 63 46 AP 64 47 AP 65 48 AP 66 Matching 115 K 116 Exercises 117 2,3 C 121 118 C 122 119 2,3 AP 123 120 C 124 Challenge Exercises 134 3,4 AP 135 Short-Answer Essays 138 K 139 SO BT 2 3 K K C K K K 4 5 2 2 4 AP AP AP AP K K AP C K AP K K K K K AP C C C 3 Item SO BT 13 14 15 16 17 18 3 3 K K K K K K 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 4 1 5 2 2,3 2 2 AP AP AP AP 125 126 127 128 AP K Item SO BT 19 20 21 22 23 24 4 4 K K K K K K AP K K K K K K K C K K AP K K K AP K K 85 86 87 88 89 90 91 92 93 94 95 96 iane 97 98 99 100 101 102 2 2 3 4 3 3 2,3 AP AP AN AP 129 130 131 132 136 AP 140 C Item SO BT 25 26 27 28 29 30 4 5 K K K C K K K AP K AP K K K K K C C K K AP K AP AP AP 103 104 105 106 107 108 109 110 111 112 113 114 3 2,3 3 3 4 AP AP AP AP AP AP AP AP AP K K AP 4 AP K AP C 133 AP 137 AP 141 C 13-2 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition TRUE-FALSE For purposes of a statement of cash flows, cash is defined to include cash and investments such as those in stock of other companies A firm may have a significant amount of net income, as computed under the accrual basis of accounting, yet have an insignificant net inflow of cash A statement of cash flows provides information on cash inflows and outflows for a specified period of time Cash equivalents are short-term investments that are highly liquid and can be readily converted into cash Cash proceeds from issuing a long-term note payable is classified as an operating activity Cash used to retire long-term debt that was used to build a new factory is classified as an investing activity Cash payments for salaries to employees are classified as an operating activity Financing activities are presented as the first classification on a statement of cash flows because a company must first obtain financing when it begins operations before it can acquire assets to start operations Financial statement users focus a great deal of attention on cash flows related to operating activities, because, over the long run, a business must generate positive cash flows from its profit-oriented activities to be successful 10 Cash received from customers includes cash from current period sales plus cash from customer payments on account 11 Cash paid for interest expense is shown as an operating activity under the direct method 12 Under the direct method, a gain on the sale of equipment is included in net income and subtracted in the operating activities section of the statement of cash flows because it is not a cash flow 13 The format of a statement of cash flows prepared using the direct method is much like an income statement prepared on the cash-flow basis 14 When the indirect method is used, GAAP requires a separate schedule reconciling cash flows from operating activities to net income 15 Cost of goods sold less any increase in accounts payable equals cash paid for inventory 16 A loss on the sale of a building is added to net income in the operating activities section of the statement of cash flows under the direct method 17 Cash paid for wages and salaries is determined by adding a decrease in wages payable or subtracting an increase in wages payable to the amount of wages and salaries expense Chapter 13 Statement of Cash Flows 13-3 18 When the direct method of preparing the statement of cash flows is used, the payment of dividends to stockholders appears in the operating activities section 19 Proceeds from the sale of equipment is reported as an investing activity when using the direct method to prepare the statement of cash flows 20 A decrease in inventory is added to net income when preparing the operating activities section under the indirect method 21 Issuing common stock is an investing activity 22 Depreciation expense is added to net income when determining net cash provided by operating activities under the indirect method 23 Under the indirect method of preparing the statement of cash flows, a loss on the sale of equipment is added to net income in the investing activities section 24 The presentation of each the three sections of the statement of cash flows will differ when comparing the format of the direct and indirect methods of preparing the statement of cash flows 25 Increases in receivables and prepaid expenses are added to net income to determine cash provided/ (used) by operating activities when using the indirect method 26 An increase in accounts receivable is subtracted from net income to determine cash provided/(used) by operating activities when using the indirect method 27 An increase in accounts payable is added to net income to determine cash provided/(used) by operating activities when using the indirect method 28 Both the direct and indirect method yield the same total amount for net cash provided or used by operating activities 29 Generally, the most important section of the statement of cash flows is operating activities because a company is required to have positive cash flows according to GAAP 30 If cash flows provided by operating activities are a relatively small amount, a company may offset this problem on a short-term basis by cutting back on capital expenditures or by borrowing funds or issuing stock Answers F T T T F F 10 11 12 T F T T T F 13 14 15 16 17 18 T F F F T F 19 20 21 22 23 24 T T F T F F 25 26 27 28 29 30 F T T T F T 13-4 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition MULTIPLE CHOICE 31 What primary information is provided in the statement of cash flows? A The amount of profits earned during a period B The source and uses of a company’s money C Estimates of future cash flows D Cash receipts and cash payments of an entity’s profitable activities during a period 32 Which one of the following is an important reason to evaluate a company’s cash flow? A Without positive cash flows, a company is unable to recognize a positive net income B Minimum cash balances must be maintained by all companies C Stockholders want to know that the company can generate cash consistent with earning a reasonable return on their investments D Creditors want to be assured that the company has significant cash inflows from financing activities 33 Watley Surf Shop provided the following information for the current year: Proceeds from sale of equipment Dividends paid to stockholders Purchase of inventories on account Borrowing a long-term loan Loan principal payments made Interest paid on loan payments Purchase of land for cash Payment for inventory previously acquired on account Cash collected from customers $120,000 16,000 92,000 60,000 14,000 1,000 65,000 85,000 450,000 How much is the net cash provided/(used) by investing activities during the year? A $55,000 B $115,000 C $100,000 D $40,000 34 Watley Surf Shop provided the following information for the current year: Proceeds from sale of equipment Dividends paid to stockholders Purchase of inventories on account Borrowing a long-term loan Loan principal payments made Interest paid on loan payments Purchase of land for cash Payment for inventory previously acquired on account Cash collected from customers $120,000 16,000 92,000 60,000 14,000 1,000 65,000 85,000 450,000 How much is the net cash provided/(used) by financing activities during the year? A $29,000 B ($56,000) C ($90,000) D $30,000 Chapter 13 Statement of Cash Flows 35 13-5 Randolph Retail reported the following results during 2014: Cash collected from accounts receivable Cash paid to purchase office supplies Cash collected from customers for current period sales Cash paid for dividends Cash paid for inventory acquisitions Cash collected from the issuance of common stock Cash paid to purchase equipment with a 5-year life $56,000 2,000 98,000 12,000 87,000 50,000 80,000 How much is the company’s net cash provided by operating activities? A $23,000 B $103,000 C $65,000 D $53,000 36 Speedy Supermarket reported net income of $24,000 in 2014 No dividends were declared nor paid during the year Changes in the selected accounts during the year are: Accounts receivable Inventory Prepaid expenses Accounts payable Salaries payable Increase/(Decrease) $16,200 11,800 (4,000) 27,300 (3,000) How much is the company’s net cash provided by operating activities? A $24,300 B $72,300 C $300 D $48,300 37 Harnett Enterprises had a net loss of $14,000 in 2014 Dividends of $15,000 were declared and paid during the year and the company reported depreciation expense of $15,000 Changes in the following selected accounts occurred during the year: Accounts receivable Long-term investments Interest payable Notes payable Property, plant, and equipment Increase/(Decrease) ($3,000) 16,000 (2,000) 65,000 42,000 No property, plant, and equipment items were sold during the year How much is the company’s net cash provided/(used) by financing activities? A $2,000 B ($65,000) C ($79,000) D ($80,000) 13-6 38 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition Harnett Enterprises had a net loss of $14,000 in 2014 Dividends of $15,000 were declared and paid during the year and the company reported depreciation expense of $15,000 Changes in the following selected accounts occurred during the year: Accounts receivable Long-term investments Interest payable Notes payable Property, plant, and equipment Increase/(Decrease) ($3,000) 16,000 (2,000) 65,000 42,000 No property, plant, and equipment were sold during the year How much is the company’s net cash provided(used) by investing activities? A $7,000 B $60,000 C $18,000 D ($58,000) 39 Marquette Décor is a merchandiser that operates a small retail store Comparative balance sheets for the years ending December 31, 2014 and 2013 and its income statement for 2014 follow: Assets Cash Accounts receivable Merchandise inventories Equipment Accumulated depreciation Total assets December 31 2014 2013 $ 35,400 $ 45,300 11,400 14,500 36,500 34,100 90,000 66,000 (28,600) (31,400) $144,700 $128,500 Liabilities and Stockholders' Equity Accounts payable Income taxes payable Long-term notes payable Common stock, $2 par Retained earnings Total liabilities and stockholders' equity $ 14,300 4,500 16,500 88,200 21,200 $144,700 Sales Cost of goods sold Depreciation expense Other expenses Gain on sale of equipment Income taxes Net income $224,000 123,000 14,000 56,000 3,400 16,000 $ 18,400 $ 12,500 8,800 23,000 65,300 18,900 $128,500 During the year, equipment with an original cost of $17,000, and accumulated depreciation totaling $16,800 was sold for $3,600 Dividends were declared and paid during the year How much cash did Marquette collect from customers during the year? A $227,100 B $224,000 C $235,400 D $220,900 Chapter 13 Statement of Cash Flows 40 A 41 13-7 Marquette Décor is a merchandiser that operates a small retail store Comparative balance sheets for the years ending December 31, 2014 and 2013 and its income statement for 2014 follow: Assets Cash Accounts receivable Merchandise inventories Equipment Accumulated depreciation Total assets December 31 2014 2013 $ 35,400 $ 45,300 11,400 14,500 36,500 34,100 90,000 66,000 (28,600) (31,400) $144,700 $128,500 Liabilities and Stockholders' Equity Accounts payable Income taxes payable Long-term notes payable Common stock, $2 par Retained earnings Total liabilities and stockholders' equity $ 14,300 4,500 16,500 88,200 21,200 $144,700 Sales Cost of goods sold Depreciation expense Other expenses Gain on sale of equipment Income taxes Net income $224,000 123,000 14,000 56,000 3,400 16,000 $ 18,400 $ 12,500 8,800 23,000 65,300 18,900 $128,500 How much cash did Marquette pay for inventory purchases during the year? $122,400 B $125,400 C $123,600 D $118,800 Bath Works had a net loss of $5,100 in 2014 During the year, a gain of $4,000 was recognized on the sale of fully depreciated equipment that had cost $14,000 and had no salvage value Depreciation expense during the year totaled $17,400 Changes in the following selected accounts occurred during the year: Accounts receivable Inventory Interest payable Accounts payable Accumulated depreciation Notes payable Long-term investments Increase/(Decrease) $6,500 (3,200) 1,200 (1,000) 3,400 (6,400) (9,000) Using the indirect method, how much is the company’s net cash provided(used) by operating activities? A $15,800 B $9,200 13-8 42 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition C $8,800 D $5,200 Marquette Décor is a merchandiser that operates a small retail store Comparative balance sheets for the years ending December 31, 2014 and 2013 and its income statement for 2014 follow: Assets Cash Accounts receivable Merchandise inventories Equipment Accumulated depreciation Total assets December 31 2014 2013 $ 35,400 $ 45,300 11,400 14,500 36,500 34,100 90,000 66,000 (28,600) (31,400) $144,700 $128,500 Liabilities and Stockholders' Equity Accounts payable Income taxes payable Long-term notes payable Common stock, $2 par Retained earnings Total liabilities and stockholders' equity $ 14,300 4,500 16,500 88,200 21,200 $144,700 Sales Cost of goods sold Depreciation expense Other expenses Gain on sale of equipment Income taxes Net income $224,000 123,000 14,000 56,000 3,400 16,000 $ 18,400 $ 12,500 8,800 23,000 65,300 18,900 $128,500 During the year, equipment with an original cost of $17,000, and accumulated depreciation totaling $16,800 was sold for $3,600 Dividends were declared and paid during the year The company uses the indirect method How much is cash provided/(used) by operating activities? A $27,200 B $30,600 C $29,000 D $30,800 43 Econ Services’ statement of cash flows indicates a $73,000 increase in cash during the year The statement also indicates that the company used $42,000 for operating activities and $89,000 was provided by financing activities How much was net cash provided/(used) by investing activities? A $204,000 B ($58,000) C $26,000 D ($47,000) 44 Thomas Electric’s statement of cash flows indicates a $12,000 decrease in cash during the year The statement also indicates that $28,000 was provided by operating activities and $15,000 was used by investing activities How much is net cash provided/(used) by financing activities? A ($25,000) B ($1,000) C ($31,000) Chapter 13 Statement of Cash Flows D $42,000 13-9 13-10 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 45 The accounting records of Snapdog Enterprises include the following information: Accounts payable Accounts receivable December 31, 2014 2013 $12,800 $13,200 24,000 21,700 The company’s income statement for 2014 appears below Sales $280,000 Cost of goods sold 150,000 Depreciation expense 15,000 Other operating expenses 68,000 Loss on sale of plant asset 10,200 Income taxes 24,000 Net income $ 12,800 What amount of net cash provided by operating activities will Snapdog Enterprises report for 2014 using the indirect method? A $35,300 B $25,900 C $36,100 D $39,900 46 Kingston Jerk Factory reported the following results for 2014: Property, plant, and equipment Accumulated depreciation Net property, plant, and equipment December 31 $420,000 (189,000) $231,000 January $405,000 (180,000) $225,000 During 2014, the company sold equipment that had an original cost of $39,000 and accumulated depreciation of $31,000 for $13,000 New equipment was purchased for cash during the year How much gain/(loss) will Kingston add or subtract from net income when preparing the operating activities section of the statement of cash flows using the indirect method for 2014? A Subtract $5,000 B Add $2,000 C Subtract $26,000 D There is not enough information provided to answer this question 47 Kingston Jerk Factory reported the following results for 2014: Property, plant, and equipment Accumulated depreciation Net property, plant, and equipment December 31 $420,000 (189,000) $231,000 January $405,000 (180,000) $225,000 During 2014, the company sold equipment that had an original cost of $39,000 and accumulated depreciation of $31,000 for $13,000 New equipment was purchased for cash during the year How much is reported for cash paid to acquire property, plant, and equipment on the statement of cash flows for 2014? A $5,000 B $54,000 C $28,000 D There is not enough information provided to answer this question 13-40 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 124 The income statement for 2014 and comparative balance sheets of Daniel Divers for 2013 and 2014 appear below Dividends totaling $51,200 were paid during the year Equipment costing $21,500 with a book value of $19,200 was sold for $8,900 cash during the year Assets Cash Accounts receivable Merchandise inventories Equipment Accumulated depreciation Total assets December 31 2014 2013 $ 56,800 $ 58,300 14,500 12,200 22,600 30,000 112,000 98,700 (35,600) (28,400) $170,30 $170,800 Liabilities and Stockholders' Equity Accounts payable Income taxes payable Long-term notes payable Common stock, $0.50 par Retained earnings Total liabilities and stockholders' equity Sales Cost of goods sold Depreciation expense Interest expense Other expenses Gain on sale of equipment Income taxes expense Net income $ 31,500 8,900 46,700 37,600 45,600 $170,30 $ 34,700 7,400 52,300 32,100 44,300 $170,800 $389,00 178,000 24,000 2,700 109,700 6,600 28,700 $ 52,500 Prepare the financing activities section of the 2014 statement of cash flows using the indirect method.  You may omit the statement heading.  Answer Financing Activities Payment of long-term note payable Dividends paid Issuance of common stock Net cash used by financing activities ($ 5,600) (51,200) 5,500 ($51,300) Chapter 13 Statement of Cash Flows 13-41 13-42 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 125 Wallerton Industries experienced the following during 2014: Issued preferred stock for $250,000 Repurchased $140,000 of its own common stock Borrowed $200,000 from a bank by issuing a 5–year note Retired bonds by paying $55,000 Declared dividends of $135,000 payable on March 1, 2015 Prepare the financing activities section of the statement of cash flows for Wallerton Industries for 2014 You may omit the statement heading Answer Financing Activities Issue preferred stock Purchase treasury stock Proceeds from borrowing Retirement of bonds Net cash from financing activities 126 $250,000 (140,000) 200,000 (55,000) $ 255,000 Indicate whether each of the following items will be added to or deducted from net income to arrive at net cash provided/(used) from operating activities under the indirect method A B C D E Answer A B C D E Gain on sale of an asset Decrease in accrued wages payable Increase in accounts receivable Increase in accounts payable Depreciation expense Subtract Subtract Subtract Add Add Chapter 13 Statement of Cash Flows 127 13-43 The following data were included in a recent annual report of Reward Shopping: Net income Net cash flow from operating activities Net cash flow from investing activities Net cash flow from financing activities a b c Answer a Year $ 5,200,000 6,300,000 (7,900,000) 15,200,000 Year $ 5,900,000 11,100,000 (37,600,000) 19,590,000 Year $ 11,700,000 15,400,000 (31,850,000) 16,090,000 Why is a company’s net income typically less than its net cash flow provided/(used) by operating activities? Why most companies, including Reward Shopping, typically have negative cash flows from investing activities? Over the three-year period, what type of activity was the largest source of funds for Reward Shopping? For what purpose were these funds used? Net income includes many large non-cash deductions such as depreciation and bad debt expense While these items are reported as part of net income, they are not cash flows and must be removed from the amount of net income Net income is typically, but certainly not always, less than cash flow from operating activities b Cash flows from investing activities are associated with long-term assets When a company is growing (or even remaining at a relatively constant size), it usually acquires more long-term assets than it sells producing a net investing cash outflow c The largest source of funds appears to be from financing activities To fund investments, a company will use either internally generated funds or funds provided by creditors or stockholders It appears that the company is using the funds provided by the latter to finance growth as indicate by the large investments in years and 13-44 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 128 The following information concerning property, plant, and equipment appeared in Quick Wash Laundry’s 2014 balance sheet: Equipment Accumulated depreciation Net property, plant, and equipment December 31 $228,000 (48,900) $179,100 January $211,000 (42,600) $168,400 During 2014, Quick Wash sold equipment that had an original cost of $23,000 and a current book value of $3,500 for a loss of $2,100 In addition, the company purchased a new machine by making a down payment of $6,000 and financing the balance by issuing a long-term note payable Net income for 2014 was $89,000 a b c How much depreciation expense did Quick Wash Laundry record during 2014? Prepare the investing activities section of the statement of cash flows for Quick Wash Laundry for 2014 Show how the effects of the transactions related to the accounts of the Quick Wash Laundry presented will be reported in the operating activities section of the statement of cash flows for 2014 Answer a $42,600 – $48,900 – $19,500 = $25,800 b Purchase of equipment: $211,000 – $23,000 – $228,000 = $40,000 Proceeds from sale of equipment: $2,100 + ($23,000 – $3,500) – $23,000 = $1,400 Investing Activities Proceeds from sale of equipment Purchase of equipment (down payment) Net cash used by investing activities $ 1,400 (6,000) ($4,600) c Operating Activities Net income Depreciation expense Loss on sale of equipment Net cash provided by operating activities $ 89,000 25,800 2,100 $116,900 Chapter 13 Statement of Cash Flows 129 13-45 The income statement for Roofer’s Supply House for 2014 is as follows: Roofer’s Supply House Income Statement For the Year Ended December 31, 2014 Sales Cost of goods sold Gross profit Less: Depreciation expense Amortization of patent Wages expense Insurance expense Income before taxes Less income taxes Net income $1,025,000 620,000 405,000 $70,000 6,500 61,000 12,000 149,500 255,500 91,175 $ 164,325 Other information is as follows: a Accounts receivable decreased by $20,000 during the year b Accounts payable increased by $7,500 c Wages payable had a balance of $0 at the beginning of the year; at the end of the year, the balance was $4,500 d Prepaid insurance increased by $9,500 during the year Prepare the operating activities section of the statement of cash flows for 2014 for Roofer’s Supply House using the indirect method Answer Net income Adjustments of net income to cash basis: Depreciation expense Amortization expense Decrease in receivables Increase in accounts payable Increase in wages payable Increase in prepaid insurance Net cash provided by operating activities $164,325 $70,000 6,500 20,000 7,500 4,500 (9,500) 76,500 22,500 $ 263,325 13-46 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 130 Walsh Company uses the indirect method to prepare the operating activities section of the statement of cash flows Indicate the proper treatment of each item in the statement of cash flows by writing the respective letter of the treatment in the blank adjacent to each item appearing in A through I A D N A Proceeds from the sale of old warehouse B Decrease in accounts payable C Increase in prepaid insurance D Depreciation expense E Decrease in inventory F Amortization of patents G Gain on the retirement of bonds H Loss on the sale of a used delivery truck I Bad debt expense Answer A B C D E F G H I 131 Added to net income Deducted from net income Not reported in the operating activities section of the statement of cash flows prepared using the indirect method N D D A A A D A A The following information was selected from Save Mart’s accounting records during 2014: Cash provided by operations Long-term note payable issued to acquire land and building Common stock issued to retire preferred stock Proceeds from sale of long-term investment Cost of machinery purchased $1,400,000 1,800,000 200,000 340,000 320,000 The machinery purchased required a 10% down payment with the balance due during 2015 How must is Save Mart’s net increase(decrease) in cash and cash equivalents for 2014? Answer $1,400,000 + $340,000 – (10% × $320,000) = $1,708,000 Chapter 13 Statement of Cash Flows 132 13-47 Below are items from the accounting records of a national retailer For each item, fill in the chart by indicating in which section of the statement of cash flows it would appear assuming the indirect method is used For amounts you identified as operating, indicate whether the amount would have been added to or subtracted from net income in the operating activities section of the statement of cash flows Any item that is not reported in any of the cash flow sections under the indirect method should be answered as ‘none’ Items Section A Accounts payable, increase B Accounts receivable, decrease C Accrued expenses payable, decrease D Capital expenditures made for cash E Income taxes payable, increase F Depreciation expense G Dividends paid H Interest payable, decrease I Issuance of common stock J Issuance of a long-term note payable K Cash received from customers L Merchandise inventories, decrease M Cash paid to buy a patent N Proceeds from the sale of equipment O Purchase another company P Purchase of treasury stock Q Repayment of long-term debt Add/Subtract Answer A B C D E F G H I Operating Operating Operating Investing Operating Operating Financing Operating Financing Added Added Subtracted Added Added Subtracted J K L M N O P Q Financing None Operating Investing Investing Investing Financing Financing Added 13-48 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 133 During the year, Macklin Grill earned net income of $11,800 during the year Beginning and ending balances for the year for selected accounts follow: Ending Beginning Cash $21,000 $19,400 Accounts receivable 18,900 21,100 Inventory 36,000 33,500 Prepaid insurance 4,000 1,200 Accumulated depreciation 6,500 3,200 Accounts payable 13,500 17,000 Wages payable 2,100 1,900 Prepare the operating activities section of the statement of cash flows using the indirect method for the year No long-term assets were acquired or sold during the year Answer Operating Activities Net income Adjustments of net income to cash basis: Depreciation expense Decrease in receivables Increase in inventory Increase in prepaid insurance Decrease in accounts payable Increase in wages payable Net cash provided by operating activities $11,800 3,300 2,200 (2,500) (2,800) (3,500) 200 $ 8,700 Chapter 13 Statement of Cash Flows 13-49 CHALLENGE EXERCISES 134 The excerpts below were taken from Sonata, Inc.'s comparative balance sheet follows December 31, 2014 Property, plant, & equipment Land Equipment Accumulated depreciation $ 94,000 580,000 216,000 December 31, 2013 $116,000 576,000 219,000 New equipment purchased during 2014 totaled $44,000, paid for with a 20% down payment and the balance paid with a long-term note payable over years Land with an original cost of $22,000 was sold for $52,000 during 2014 Sonata’s 2014 income statement disclosed net income totaling $54,000, equipment depreciation expense of $31,000, a $2,000 loss on the sale of equipment, and a gain on the sale of land Show how the effects of the transactions on the property, plant, and equipment classification will appear on a statement of cash flows prepared using the indirect method for 2014 Answer Cost of equipment sold: $576,000 + $44,000 – $580,000 = $40,000 Accumulated depreciation of equipment sold: $219,000 + $31,000 – $216,000 = $34,000 Cash proceeds from sale of equipment: $40,000 – $34,000 – $2,000 = $4,000 Operating Activities Net income Adjustment of net income to cash basis: Depreciation expense Gain on sale of land Loss on sale of equipment Investing Activities Down payment on equipment ($44,000 × 20%) Sale of land Sale of equipment $54,000 31,000 (30,000) 2,000 ($ 8,800) 52,000 4,000 13-50 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 135 The following selected information is taken from the accounting records of Metro Communications for the years ending December 31, 2014 and 2013: Amounts in millions Accumulated depreciation Net income (loss) Accounts payable Building Dividends payable Retained earnings Depreciation expense Loss on sale of building December 31, 2014 $1,110 2,600 650 2,300 240 780 220 20 December 31, 2013 $1,100 2,800 700 1,840 150 350 210 During 2014, Metro Communications sold a building with a book value of $990 and an original cost of $1,200 The company also purchased a new building during 2014 for cash Prepare the investing and financing activities sections of the statement of cash flows for the year ending December 31, 2014 Answer Investing Activities Sale of building Purchase building Net cash used by investing activities Financing Activities Dividends paid $ 970 (1,660) $ (690) $(2,080) Accumulated depreciation on old building sold: $1,2100– $990 = $210 Cash from the sale of building: $1,200 – $210 –$20 = $970 Cash paid for new building: $1,840 – $2,300 – $1,200 = $1,660 Dividends paid = $350 – $780 + $2,600 + $150 – $240 = $2,080 Chapter 13 Statement of Cash Flows 136 13-51 Turner Pest Control has the following selected account balances for the beginning and end of the 2014: January December 31 Cash $2,000 $17,000 Accounts receivable 6,500 12,500 Inventories 8,000 3,500 Plant and equipment 2,000 1,500 Accounts payable 1,000 6,700 Salaries payable 1,800 Dividends payable 1,200 1,800 Income taxes payable 1,000 5,500 Common stock 2,000 3,000 Additional paid-in capital 5,500 9,000 Retained earnings 6,000 13,500 Sales $69,500 Cost of goods sold 16,000 Other operating expenses 19,000 Interest expense 5,000 Depreciation expense 2,000 Income tax expense 11,000 Net income $16,500 Use the direct method to prepare the operating activities section of Turner Pest Control’s statement of cash flows for the year All amounts owed to creditors pertain to merchandise sold Answer Operating Activities Cash from customers $ 63,500 Cash paid to suppliers (5,800) Cash paid for interest (5,000) Cash paid for income taxes (6,500) Cash paid for other expenses (20,800) Net cash provided by operating activities $ 25,400 Received from customers: $69,500 – $6,000 = $63,500 Cash payments for inventory: $16,000 – $4,500 – $5,700 = $5,800 Cash payments for income taxes: $11,000 – $4,500 = $6,500 Cash payments for other operating expenses: $19,000 + $1,800 = $20,800 13-52 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 137 A portion of Ring Power comparative balance sheets follows: Land Equipment Note payable Retained earnings Additional paid in capital Common stock, $1 par value      December 31 2014 2013 $100,000 $ 40,000 564,000 500,000 92,000 115,000 120,000 45,000 20,000 90,000 85,000 New equipment purchased during 2014 totaled $100,000 in exchange for a $92,000, 12%, 5-year term note and the balance in cash Old equipment with a book value of $2,000, an original cost of $36,000, and a 10-year useful life was sold for a gain of $7,000 during 2014 Land was acquired for cash During 2014, a cash dividend was declared and paid Net income for 2014 was $40,000 Prepare the investing and financing sections of Ring Power’s statement of cash flows for 2014 Dividends paid: $120,000 + $40,000 – $115,000 = $40,000 Stock issuance: $$90,000 + 45,000 – $85,000 – $20,000 = $30,000 Investing Activities Sale of equipment Purchase equipment (partial payment) Purchase land Net cash used by investing activities $ 9,000 (8,000) (60,000) ($59,000) Financing Activities Issuance of stock Dividends paid Net cash used by financing activities $ 30,000 (45,000) ($15,000) SHORT-ANSWER ESSAYS 138 Identify the primary cash inflows and cash outflows under the investing activities section of the statement of cash flows Answer Cash Outflows: Cash paid to buy property, plant, and equipment Cash paid to buy a business or an investment in a business Cash Inflows: Cash received on the sale of property, plant, and equipment Chapter 13 Statement of Cash Flows Cash received to buy a business or an investment in a business 13-53 13-54 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 139 Identify the primary cash inflows and cash outflows under the financing activities section of the statement of cash flows Answer Cash Inflows: Cash received from selling/issuing bonds or other debt obligations Cash received from using a line of credit Cash received from issuing stock Cash Outflows: Cash paid to retire long-term debt Cash paid for dividends Cash paid to acquire treasury stock 140 Explain the difference between the direct and indirect methods of calculating the net cash flows from operating activities Answer The direct method is much like an income statement prepared on a cash flow basis in that it lists specific cash inflows and outflows from operating activities The indirect method reconciles net income to cash flow from operating activities by adding and deducting adjustments to net income to arrive at net cash flow from operating activities 141 Identify the adjustments made to net income under the indirect method to calculate cash flows from operating activities Indicate whether each adjustment is “added” to or “deducted” from net income Answer Depreciation Amortization Losses Gains Increases in current assets Decreases in current assets Increases in current liabilities Decreases in current liabilities Added Added Added Deducted Deducted Added Added Deducted ... company’s net cash provided/(used) by financing activities? A $2,000 B ($65,000) C ($79,000) D ($80,000) 13-6 38 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition Harnett Enterprises... much is the company’s net cash provided(used) by operating activities? A $15,800 B $9,200 13-8 42 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition C $8,800 D $5,200 Marquette Décor... ($31,000) Chapter 13 Statement of Cash Flows D $42,000 13-9 13-10 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 45 The accounting records of Snapdog Enterprises include the following