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Michaels Company had available at the end of 2014 the information shown on the next page.
\r\nMICHAELS COMPANY
\r\nCOMPARATIVE BALANCE SHEETS
\r\nAS OF DECEMBER 31, 2014 AND 2013
\r\n2014 2013
\r\nCash $ 10,000 $ 4,000
\r\nAccounts receivable 20,500 12,950
\r\nShort-term investments 22,000 30,000
\r\nInventory 42,000 35,000
\r\nPrepaid rent 3,000 12,000
\r\nPrepaid insurance 2,100 900
\r\nSupplies 1,000 750
\r\nLand 125,000 175,000
\r\nBuildings 350,000 350,000
\r\nAccumulated depreciation—buildings (105,000) (87,500)
\r\nEquipment 525,000 400,000
\r\nAccumulated depreciation—equipment (130,000) (112,000)
\r\nPatents 45,000 50,000
\r\nTotal assets $910,600 $871,100
\r\nAccounts payable $ 22,000 $ 32,000
\r\nIncome taxes payable 5,000 4,000
\r\nSalaries and wages payable 5,000 3,000
\r\nShort-term notes payable 10,000 10,000
\r\nLong-term notes payable 60,000 70,000
\r\nBonds payable 400,000 400,000
\r\nPremium on bonds payable 20,303 25,853
\r\nCommon stock 240,000 220,000
\r\nPaid-in capital in excess of par—common stock 25,000 17,500
\r\nRetained earnings 123,297 88,747
\r\nTotal liabilities and stockholders’ equity $910,600 $871,100
\r\nMICHAELS COMPANY
\r\nINCOME STATEMENT AND DIVIDEND INFORMATION
\r\nFOR THE YEAR ENDED DECEMBER 31, 2014
\r\nSales revenue $1,160,000
\r\nCost of goods sold 748,000
\r\nGross margin 412,000
\r\nOperating expenses
\r\nSelling expenses $ 79,200
\r\nAdministrative expenses 156,700
\r\nDepreciation/Amortization expense 40,500
\r\nTotal operating expenses 276,400
\r\nIncome from operations 135,600
\r\nOther revenues/expenses
\r\nGain on sale of land 8,000
\r\nGain on sale of short-term investment 4,000
\r\nDividend revenue 2,400
\r\nInterest expense (51,750) (37,350)
\r\nIncome before taxes 98,250
\r\nIncome tax expense 39,400
\r\nNet income 58,850
\r\nDividends to common stockholders (24,300)
\r\nTo retained earnings $ 34,550
\r\nInstructions
\r\nPrepare a statement of cash flows for Michaels Company using the direct method accompanied by a reconciliation schedule. Assume the short-term investments are classified as available-for-sale.
Mortonson Company has not yet prepared a formal statement of cash flows for the 2014 fiscal year. Comparative balance sheets as of December 31, 2013 and 2014, and a statement of income and retained earnings for the year ended December 31, 2014, are presented as follows.
\r\nMORTONSON COMPANY
\r\nSTATEMENT OF INCOME AND RETAINED EARNINGS
\r\nFOR THE YEAR ENDED DECEMBER 31, 2014
\r\n($000 OMITTED)
\r\nSales revenue $3,800
\r\nExpenses
\r\nCost of goods sold $1,200
\r\nSalaries and benefi ts 725
\r\nHeat, light, and power 75
\r\nDepreciation 80
\r\nProperty taxes 19
\r\nPatent amortization 25
\r\nMiscellaneous expenses 10
\r\nInterest 30 2,164
\r\nMORTONSON COMPANY
\r\nSTATEMENT OF INCOME AND RETAINED EARNINGS
\r\nFOR THE YEAR ENDED DECEMBER 31, 2014
\r\n(CONTINUED)
\r\nIncome before income taxes 1,636
\r\nIncome taxes 818
\r\nNet income 818
\r\nRetained earnings—Jan. 1, 2014 310
\r\n1,128
\r\nStock dividend declared and issued 600
\r\nRetained earnings—Dec. 31, 2014 $ 528
\r\nMORTONSON COMPANY
\r\nCOMPARATIVE BALANCE SHEETS
\r\nAS OF DECEMBER 31
\r\n($000 OMITTED)
\r\nAssets 2014 2013
\r\nCurrent assets
\r\nCash $ 333 $ 100
\r\nU.S. Treasury notes (available-for-sale) 10 50
\r\nAccounts receivable 780 500
\r\nInventory 720 560
\r\nTotal current assets 1,843 1,210
\r\nLong-term assets
\r\nLand 150 70
\r\nBuildings and equipment 910 600
\r\nAccumulated depreciation—buildings and equipment (200) (120)
\r\nPatents (less amortization) 105 130
\r\nTotal long-term assets 965 680
\r\nTotal assets $2,808 $1,890
\r\nLiabilities and Stockholders’ Equity
\r\nCurrent liabilities
\r\nAccounts payable $ 420 $ 330
\r\nIncome taxes payable 40 30
\r\nNotes payable 320 320
\r\nTotal current liabilities 780 680
\r\nLong-term notes payable—due 2016 200 200
\r\nTotal liabilities 980 880
\r\nStockholders’ equity
\r\nCommon stock 1,300 700
\r\nRetained earnings 528 310
\r\nTotal stockholders’ equity 1,828 1,010
\r\nTotal liabilities and stockholders’ equity $2,808 $1,890
\r\nInstructions
\r\nPrepare a statement of cash flows using the direct method. Changes in accounts receivable and accounts payable relate to sales and cost of goods sold. Do not prepare a reconciliation schedule.
The comparative balance sheets for Hinckley Corporation show the following information.
\r\nDecember 31 2014 2013
\r\nCash $ 33,500 $13,000
\r\nAccounts receivable 12,250 10,000
\r\nInventory 12,000 9,000
\r\nInvestments –0– 3,000
\r\nBuildings –0– 29,750
\r\nEquipment 45,000 20,000
\r\nPatents 5,000 6,250
\r\n$107,750 $91,000
\r\nAllowance for doubtful accounts $ 3,000 $ 4,500
\r\nAccumulated depreciation—equipment 2,000 4,500
\r\nAccumulated depreciation—building –0– 6,000
\r\nAccounts payable 5,000 3,000
\r\nDividends payable –0– 5,000
\r\nNotes payable, short-term (nontrade) 3,000 4,000
\r\nLong-term notes payable 31,000 25,000
\r\nCommon stock 43,000 33,000
\r\nRetained earnings 20,750 6,000
\r\n$107,750 $91,000
\r\nAdditional data related to 2014 are as follows.
\r\n1. Equipment that had cost $11,000 and was 40% depreciated at time of disposal was sold for $2,500.
\r\n2. $10,000 of the long-term note payable was paid by issuing common stock.
\r\n3. Cash dividends paid were $5,000.
\r\n4. On January 1, 2014, the building was completely destroyed by a flood. Insurance proceeds on the building were $30,000 (net of $2,000 taxes).
\r\n5. Investments (available-for-sale) were sold at $1,700 above their cost. The company has made similar sales and investments in the past.
\r\n6. Cash was paid for the acquisition of equipment.
\r\n7. A long-term note for $16,000 was issued for the acquisition of equipment.
\r\n8. Interest of $2,000 and income taxes of $6,500 were paid in cash.
\r\nInstructions
\r\nPrepare a statement of cash flows using the indirect method. Flood damage is unusual and infrequent in that part of the country.
The following are Sullivan Corp.’s comparative balance sheet accounts at December 31, 2014 and 2013, with a column showing the increase (decrease) from 2013 to 2014.
\r\nCOMPARATIVE BALANCE SHEETS
\r\nIncrease
\r\n2014 2013 (Decrease)
\r\nCash $ 815,000 $ 700,000 $115,000
\r\nAccounts receivable 1,128,000 1,168,000 (40,000)
\r\nInventory 1,850,000 1,715,000 135,000
\r\nProperty, plant, and equipment 3,307,000 2,967,000 340,000
\r\nAccumulated depreciation (1,165,000) (1,040,000) (125,000)
\r\nInvestment in Myers Co. 310,000 275,000 35,000
\r\nLoan receivable 250,000 — 250,000
\r\nTotal assets $6,495,000 $5,785,000 $710,000
\r\nAccounts payable $1,015,000 $ 955,000 $ 60,000
\r\nIncome taxes payable 30,000 50,000 (20,000)
\r\nDividends payable 80,000 100,000 (20,000)
\r\nLease liability 400,000 — 400,000
\r\nCommon stock, $1 par 500,000 500,000 —
\r\nPaid-in capital in excess of par—common stock 1,500,000 1,500,000 —
\r\nRetained earnings 2,970,000 2,680,000 290,000
\r\nTotal liabilities and stockholders’ equity $6,495,000 $5,785,000 $710,000
\r\nAdditional information:
\r\n1. On December 31, 2013, Sullivan acquired 25% of Myers Co.’s common stock for $275,000. On that date, the carrying value of Myers’s assets and liabilities, which approximated their fair values, was $1,100,000. Myers reported income of $140,000 for the year ended December 31, 2014. No dividend was paid on Myers’s common stock during the year.
\r\n2. During 2014, Sullivan loaned $300,000 to TLC Co., an unrelated company. TLC made the first semiannual principal repayment of $50,000, plus interest at 10%, on December 31, 2014.
\r\n3. On January 2, 2014, Sullivan sold equipment costing $60,000, with a carrying amount of $38,000, for $40,000 cash.
\r\n4. On December 31, 2014, Sullivan entered into a capital lease for an office building. The present value of the annual rental payments is $400,000, which equals the fair value of the building. Sullivan made the first rental payment of $60,000 when due on January 2, 2015.
\r\n5. Net income for 2014 was $370,000.
\r\n6. Sullivan declared and paid the following cash dividends for 2014 and 2013.
\r\n2014 2013
\r\nDeclared December 15, 2014 December 15, 2013
\r\nPaid February 28, 2015 February 28, 2014
\r\nAmount $80,000 $100,000
\r\nInstructions
\r\nPrepare a statement of cash flows for Sullivan Corp. for the year ended December 31, 2014, using the indirect method.
Below is the comparative balance sheet for Stevie Wonder Corporation.
\r\nDec. 31, Dec. 31, 2014 2013
\r\nCash $ 16,500 $ 21,000
\r\nShort-term investments 25,000 19,000
\r\nAccounts receivable 43,000 45,000
\r\nAllowance for doubtful accounts (1,800) (2,000)
\r\nPrepaid expenses 4,200 2,500
\r\nInventory 81,500 65,000
\r\nLand 50,000 50,000
\r\nBuildings 125,000 73,500
\r\nAccumulated depreciation—buildings (30,000) (23,000)
\r\nEquipment 53,000 46,000
\r\nAccumulated depreciation—equipment (19,000) (15,500)
\r\nDelivery equipment 39,000 39,000
\r\nAccumulated depreciation—delivery equipment (22,000) (20,500)
\r\nPatents 15,000 202
\r\n$379,400 $300,000
\r\nDec. 31, Dec. 31,
\r\n2014 2013
\r\nAccounts payable $ 26,000 $ 16,000
\r\nShort-term notes payable (trade) 4,000 6,000
\r\nAccrued payables 3,000 4,600
\r\nMortgage payable 73,000 53,400
\r\nBonds payable 50,000 62,500
\r\nCapital stock 140,000 102,000
\r\nPaid-in capital in excess of par 10,000 4,000
\r\nRetained earnings 73,400 51,500
\r\n$379,400 $300,000
\r\nDividends in the amount of $15,000 were declared and paid in 2014.
\r\nInstructions
\r\nFrom this information, prepare a worksheet for a statement of cash flows. Make reasonable assumptions as appropriate. The short-term investments are considered available-for-sale and no unrealized gains or losses have occurred on these securities.
The transactions below took place during the year 2014.
\r\n1. Convertible bonds payable with a par value of $300,000 were exchanged for unissued common stock with a par value of $300,000. The market price of both types of securities was par.
\r\n2. The net income for the year was $410,000.
\r\n3. Depreciation expense for the building was $90,000.
\r\n4. Some old office equipment was traded in on the purchase of some dissimilar office equipment, and the following entry was made.
\r\nEquipment 50,000
\r\nAccum. Depreciation—Equipment 30,000
\r\nEquipment 40,000
\r\nCash 34,000
\r\nGain on Disposal of Plant Assets 6,000
\r\nThe Gain on Disposal of Plant Assets was credited to current operations as ordinary income.
\r\n5. Dividends in the amount of $123,000 were declared. They are payable in January of next year.
\r\nInstructions
\r\nShow by journal entries the adjustments that would be made on a worksheet for a statement of cash flows.
Data for Anita Baker Company are presented in E23-18.
\r\nInstructions
\r\nPrepare entries in journal form for all adjustments that should be made on a worksheet for a statement of cash flows.
The accounts below appear in the ledger of Anita Baker Company. Retained Earnings Dr. Cr. Bal.
\r\nJan. 1, 2014 Credit Balance $ 42,000
\r\nAug. 15 Dividends (cash) $15,000 27,000
\r\nDec. 31 Net Income for 2014 $40,000 67,000
\r\nEquipment Dr. Cr. Bal.
\r\nJan. 1, 2014 Debit Balance $140,000
\r\nAug. 3 Purchase of Equipment $62,000 202,000
\r\nSept. 10 Cost of Equipment Constructed 48,000 250,000
\r\nNov. 15 Equipment Sold $56,000 194,000
\r\nAccumulated Depreciation—
\r\nEquipment Dr. Cr. Bal.
\r\nJan. 1, 2014 Credit Balance $ 84,000
\r\nApr. 8 Extraordinary Repairs $21,000 63,000 Nov. 15 Accum. Depreciation on
\r\nEquipment Sold 25,200 37,800
\r\nDec. 31 Depreciation for 2014 $16,800 54,600
\r\nInstructions
\r\nFrom the postings in the accounts above, indicate how the information is reported on a statement of cash flows by preparing a partial statement of cash flows using the indirect method. The loss on sale of equipment (November 15) was $5,800.
Jobim Inc. had the following condensed balance sheet at the end of operations for 2013.
\r\nJOBIM INC.
\r\nBALANCE SHEET
\r\nDECEMBER 31, 2013
\r\nCash $ 8,500 Current liabilities $ 15,000
\r\nCurrent assets other than cash 29,000 Long-term notes payable 25,500
\r\nInvestments 20,000 Bonds payable 25,000 Plant assets (net) 67,500 Capital stock 75,000
\r\nLand 40,000 Retained earnings 24,500
\r\n$165,000 $165,000
\r\nDuring 2014, the following occurred.
\r\n1. A tract of land was purchased for $9,000.
\r\n2. Bonds payable in the amount of $15,000 were redeemed at par.
\r\n3. An additional $10,000 in capital stock was issued at par.
\r\n4. Dividends totaling $9,375 were paid to stockholders.
\r\n5. Net income was $35,250 after allowing depreciation of $13,500.
\r\n6. Land was purchased through the issuance of $22,500 in bonds.
\r\n7. Jobim Inc. sold part of its investment portfolio for $12,875. This transaction resulted in a gain of $2,000 for the company. The company classifies the investments as available-for-sale.
\r\n8. Both current assets (other than cash) and current liabilities remained at the same amount.
\r\nInstructions
\r\n(a) Prepare a statement of cash flows for 2014 using the indirect method.
\r\n(b) Prepare the condensed balance sheet for Jobim Inc. as it would appear at December 31, 2014.
The balance sheet data of Brown Company at the end of 2014 and 2013 follow.
\r\n2014 2013 Cash $ 30,000 $ 35,000
\r\nAccounts receivable (net) 55,000 45,000
\r\nInventory 65,000 45,000
\r\nPrepaid expenses 15,000 25,000
\r\nEquipment 90,000 75,000
\r\nAccumulated depreciation—equipment (18,000) (8,000)
\r\nLand 70,000 40,000
\r\n$307,000 $257,000
\r\nAccounts payable $ 65,000 $ 52,000
\r\nAccrued expenses 15,000 18,000
\r\nNotes payable—bank, long-term 202 23,000
\r\nBonds payable 30,000 202
\r\nCommon stock, $10 par 189,000 159,000
\r\nRetained earnings 8,000 5,000
\r\n$307,000 $257,000
\r\nLand was acquired for $30,000 in exchange for common stock, par $30,000, during the year; all equipment purchased was for cash. Equipment costing $10,000 was sold for $3,000; book value of the equipment was$6,000. Cash dividends of $10,000 were declared and paid during the year.
\r\nInstructions
\r\nCompute net cash provided (used) by:
\r\n(a) Operating activities.
\r\n(b) Investing activities.
\r\n(c) Financing activities.
Presented below are data taken from the records of Alee Company.December 31, December 31, 2014 2013Cash $ 15,000 $ 8,000
\r\nCurrent assets other than cash 85,000 60,000
\r\nLong-term investments 10,000 53,000
\r\nPlant assets 335,000 215,000
\r\n$445,000 $336,000
\r\nAccumulated depreciation $ 20,000 $ 40,000
\r\nCurrent liabilities 40,000 22,000
\r\nBonds payable 75,000 202
\r\nCapital stock 254,000 254,000
\r\nRetained earnings 56,000 20,000
\r\n$445,000 $336,000
\r\nAdditional information:
\r\n1. Held-to-maturity securities carried at a cost of $43,000 on December 31, 2013, were sold in 2014 for $34,000. The loss (not extraordinary) was incorrectly charged directly to Retained Earnings.
\r\n2. Plant assets that cost $50,000 and were 80% depreciated were sold during 2014 for $8,000. The loss (not extraordinary) was incorrectly charged directly to Retained Earnings.
\r\n3. Net income as reported on the income statement for the year was $57,000.
\r\n4. Dividends paid amounted to $10,000.
\r\n5. Depreciation charged for the year was $20,000.
\r\nInstructions
\r\nPrepare a statement of cash flows for the year 2014 using the indirect method.
Data for Brecker Inc. are presented in E23-13.
\r\nInstructions
\r\nPrepare a statement of cash flows using the indirect method.
Brecker Inc., a greeting card company, had the following statements prepared as of December 31, 2014.
\r\nBRECKER INC.
\r\nCOMPARATIVE BALANCE SHEET
\r\nAS OF DECEMBER 31, 2014 AND 2013
\r\n12/31/14 12/31/13
\r\nCash $ 6,000 $ 7,000
\r\nAccounts receivable 62,000 51,000
\r\nShort-term investments (available-for-sale) 35,000 18,000
\r\nInventory 40,000 60,000
\r\nPrepaid rent 5,000 4,000
\r\nEquipment 154,000 130,000
\r\nAccumulated depreciation—equipment (35,000) (25,000)
\r\nCopyrights 46,000 50,000
\r\nTotal assets $313,000 $295,000
\r\nAccounts payable $ 46,000 $ 40,000
\r\nIncome taxes payable 4,000 6,000
\r\nSalaries and wages payable 8,000 4,000
\r\nShort-term loans payable 8,000 10,000
\r\nLong-term loans payable 60,000 69,000
\r\nCommon stock, $10 par 100,000 100,000
\r\nContributed capital, common stock 30,000 30,000
\r\nRetained earnings 57,000 36,000
\r\nTotal liabilities and stockholders’ equity $313,000 $295,000
\r\nBRECKER INC.
\r\nINCOME STATEMENT
\r\nFOR THE YEAR ENDING DECEMBER 31, 2014
\r\nSales revenue $338,150
\r\nCost of goods sold 175,000
\r\nGross profi t 163,150
\r\nOperating expenses 120,000
\r\nOperating income 43,150
\r\nInterest expense $11,400
\r\nGain on sale of equipment 2,000 9,400
\r\nIncome before tax 33,750
\r\nIncome tax expense 6,750
\r\nNet income $ 27,000
\r\nAdditional information:
\r\n1. Dividends in the amount of $6,000 were declared and paid during 2014.
\r\n2. Depreciation expense and amortization expense are included in operating expenses.
\r\n3. No unrealized gains or losses have occurred on the investments during the year.
\r\n4. Equipment that had a cost of $20,000 and was 70% depreciated was sold during 2014.
\r\nInstructions
\r\nPrepare a statement of cash flows using the direct method. (Do not prepare a reconciliation schedule.)
Data for Pat Metheny Company are presented in E23-11.
\r\nInstructions
\r\nPrepare a statement of cash flows using the direct method. (Do not prepare a reconciliation schedule.)
Condensed financial data of Pat Metheny Company for 2014 and 2013 are presented below.
\r\nPAT METHENY COMPANY
\r\nCOMPARATIVE BALANCE SHEET
\r\nAS OF DECEMBER 31, 2014 AND 2013
\r\n2014 2013
\r\nCash $1,800 $1,150
\r\nReceivables 1,750 1,300
\r\nInventory 1,600 1,900
\r\nPlant assets 1,900 1,700
\r\nAccumulated depreciation (1,200) (1,170)
\r\nLong-term investments (held-to-maturity) 1,300 1,420
\r\n$7,150 $6,300
\r\nAccounts payable $1,200 $ 900
\r\nAccrued liabilities 200 250
\r\nBonds payable 1,400 1,550
\r\nCapital stock 1,900 1,700
\r\nRetained earnings 2,450 1,900
\r\n$7,150 $6,300
\r\nPAT METHENY COMPANY
\r\nINCOME STATEMENT
\r\nFOR THE YEAR ENDED DECEMBER 31, 2014
\r\nSales revenue $6,900
\r\nCost of goods sold 4,700
\r\nGross margin 2,200
\r\nSelling and administrative expense 930
\r\nIncome from operations 1,270
\r\nOther revenues and gains
\r\nGain on sale of investments 80
\r\nIncome before tax 1,350
\r\nIncome tax expense 540
\r\nNet income 810
\r\nCash dividends 260
\r\nIncome retained in business $ 550
\r\nAdditional information:
\r\nDuring the year, $70 of common stock was issued in exchange for plant assets. No plant assets were sold in 2014.
\r\nInstructions
\r\nPrepare a statement of cash flows using the indirect method.
Following are selected balance sheet accounts of Allman Bros. Corp. at December 31, 2014 and 2013, and the increases or decreases in each account from 2013 to 2014. Also presented is selected income statement information for the year ended December 31, 2014, and additional information. Increase
\r\nSelected balance sheet accounts 2014 2013 (Decrease)
\r\nAssets Accounts receivable $ 34,000 $ 24,000 $ 10,000
\r\nProperty, plant, and equipment 277,000 247,000 30,000
\r\nAccumulated depreciation—plant assets (178,000) (167,000) (11,000)
\r\nLiabilities and stockholders’ equity
\r\nBonds payable $ 49,000 $ 46,000 $ 3,000
\r\nDividends payable 8,000 5,000 3,000
\r\nCommon stock, $1 par 22,000 19,000 3,000
\r\nAdditional paid-in capital 9,000 3,000 6,000
\r\nRetained earnings 104,000 91,000 13,000
\r\nSelected income statement information for the year ended December 31, 2014
\r\nSales revenue $ 155,000
\r\nDepreciation 33,000
\r\nGain on sale of equipment 14,500
\r\nNet income 31,000
\r\nAdditional information:
\r\n1. During 2014, equipment costing $45,000 was sold for cash.
\r\n2. Accounts receivable relate to sales of merchandise.
\r\n3. During 2014, $20,000 of bonds payable were issued in exchange for property, plant, and equipment.
\r\nThere was no amortization of bond discount or premium.
\r\nInstructions
\r\nDetermine the category (operating, investing, or financing) and the amount that should be reported in the statement of cash flows for the following items.
\r\n(a) Payments for purchase of property, plant, and equipment.
\r\n(b) Proceeds from the sale of equipment.
\r\n(c) Cash dividends paid.
\r\n(d) Redemption of bonds payable.
Los Lobos Corp. uses the direct method to prepare its statement of cash flows. Los Lobos’s trial balances at December 31, 2014 and 2013, are as follows.December 31 2014 2013
\r\nDebits
\r\nCash $ 35,000 $ 32,000
\r\nAccounts receivable 33,000 30,000
\r\nInventory 31,000 47,000
\r\nProperty, plant, and equipment 100,000 95,000
\r\nUnamortized bond discount 4,500 5,000
\r\nCost of goods sold 250,000 380,000
\r\nSelling expenses 141,500 172,000
\r\nGeneral and administrative expenses 137,000 151,300
\r\nInterest expense 4,300 2,600
\r\nIncome tax expense 20,400 61,200
\r\n$756,700 $976,100
\r\nCredits
\r\nAllowance for doubtful accounts $ 1,300 $ 1,100
\r\nAccumulated depreciation—plant assets 16,500 15,000
\r\nAccounts payable 25,000 15,500
\r\nIncome taxes payable 21,000 29,100
\r\nDeferred tax liability 5,300 4,600
\r\n8% callable bonds payable 45,000 20,000
\r\nCommon stock 50,000 40,000
\r\nPaid-in capital in excess of par 9,100 7,500
\r\nRetained earnings 44,700 64,600
\r\nSales revenue 538,800 778,700
\r\n$756,700 $976,100
\r\nAdditional information:
\r\n1. Los Lobos purchased $5,000 in equipment during 2014.
\r\n2. Los Lobos allocated one-third of its depreciation expense to selling expenses and the remainder to general and administrative expenses.
\r\n3. Bad debt expense for 2014 was $5,000, and write-offs of uncollectible accounts totaled $4,800.
\r\nInstructions
\r\nDetermine what amounts Los Lobos should report in its statement of cash flows for the year ended December 31, 2014, for the following items.
\r\n(a) Cash collected from customers. (d) Cash paid for income taxes.
\r\n(b) Cash paid to suppliers. (e) Cash paid for selling expenses.
\r\n(c) Cash paid for interest.
Ballard Co. reported $145,000 of net income for 2014. The accountant, in preparing the statement of cash flows, noted the following items occurring during 2014 that might affect cash flows from operating activities.
\r\n1. Ballard purchased 100 shares of treasury stock at a cost of $20 per share. These shares were then resold at $25 per share.
\r\n2. Ballard sold 100 shares of IBM common at $200 per share. The acquisition cost of these shares was $145 per share. This investment was shown on Ballard’s December 31, 2013, balance sheet as an available-for-sale security.
\r\n3. Ballard revised its estimate for bad debts. Before 2014, Ballard’s bad debt expense was 1% of its net sales. In 2014, this percentage was increased to 2%. Net sales for 2014 were $500,000, and net accounts receivable decreased by $12,000 during 2014.
\r\n4. Ballard issued 500 shares of its $10 par common stock for a patent. The market price of the shares on the date of the transaction was $23 per share.
\r\n5. Depreciation expense is $39,000.
\r\n6. Ballard Co. holds 40% of the Nirvana Company’s common stock as a long-term investment. Nirvana
\r\nCompany reported $27,000 of net income for 2014.
\r\n7. Nirvana Company paid a total of $2,000 of cash dividends to all investees in 2014.
\r\n8. Ballard declared a 10% stock dividend. One thousand shares of $10 par common stock were distributed.
\r\nThe market price at date of issuance was $20 per share.
\r\nInstructions
\r\nPrepare a schedule that shows the net cash flow from operating activities using the indirect method.
\r\nAssume no items other than those listed above affected the computation of 2014 net cash flow from operating activities.
Presented below are two independent situations.
\r\nSituation A: Annie Lennox Co. reports revenues of $200,000 and operating expenses of $110,000 in its first year of operations, 2014. Accounts receivable and accounts payable at year-end were $71,000 and $29,000, respectively. Assume that the accounts payable related to operating expenses. (Ignore income taxes.)
\r\nInstructions
\r\nUsing the direct method, compute net cash provided by operating activities.
\r\nSituation B: The income statement for Blues Traveler Company shows cost of goods sold $310,000 and operating expenses (exclusive of depreciation) $230,000. The comparative balance sheet for the year shows that inventory increased $26,000, prepaid expenses decreased $8,000, accounts payable (related to merchandise) decreased $17,000, and accrued expenses payable increased $11,000.
\r\nInstructions
\r\nCompute (a) cash payments to suppliers and (b) cash payments for operating expenses.
Data for Krauss Company are presented in E23-5.
\r\nInstructions
\r\nPrepare the operating activities section of the statement of cash flows using the indirect method.
Krauss Company’s income statement for the year ended December 31, 2014, contained the following condensed information.
\r\nService revenue $840,000
\r\nOperating expenses (excluding depreciation) $624,000
\r\nDepreciation expense 60,000
\r\nLoss on sale of equipment 26,000 710,000
\r\nIncome before income taxes 130,000
\r\nIncome tax expense 40,000
\r\nNet income $ 90,000
\r\nKrauss’s balance sheet contained the following comparative data at December 31.
\r\n2014 2013
\r\nAccounts receivable $37,000 $54,000
\r\nAccounts payable 41,000 31,000
\r\nIncome taxes payable 4,000 8,500
\r\n(Accounts payable pertains to operating expenses.)
\r\nInstructions
\r\nPrepare the operating activities section of the statement of cash flows using the direct method.
Data for the Vince Gill Company are presented in E23-3.
\r\nInstructions
\r\nPrepare the operating activities section of the statement of cash flows using the direct method.
The income statement of Vince Gill Company is shown below.
\r\nVINCE GILL COMPANY
\r\nINCOME STATEMENT
\r\nFOR THE YEAR ENDED DECEMBER 31, 2014
\r\nSales revenue $6,900,000
\r\nCost of goods sold
\r\nBeginning inventory $1,900,000
\r\nPurchases 4,400,000
\r\nGoods available for sale 6,300,000
\r\nEnding inventory 1,600,000
\r\nCost of goods sold 4,700,000
\r\nGross profi t 2,200,000
\r\nOperating expenses
\r\nSelling expenses 450,000
\r\nAdministrative expenses 700,000 1,150,000
\r\nNet income $1,050,000
\r\nAdditional information:
\r\n1. Accounts receivable decreased $360,000 during the year.
\r\n2. Prepaid expenses increased $170,000 during the year.
\r\n3. Accounts payable to suppliers of merchandise decreased $275,000 during the year.
\r\n4. Accrued expenses payable decreased $100,000 during the year.
\r\n5. Administrative expenses include depreciation expense of $60,000.
\r\nInstructions
\r\nPrepare the operating activities section of the statement of cash flows for the year ended December 31, 2014, for Vince Gill Company, using the indirect method.
Each of the following items must be considered in preparing a statement of cash flows (indirect method) for Turbulent Indigo Inc. for the year ended December 31, 2014.
\r\n(a) Plant assets that had cost $20,000 6 years before and were being depreciated on a straight-line basis over 10 years with no estimated scrap value were sold for $5,300.
\r\n(b) During the year, 10,000 shares of common stock with a stated value of $10 a share were issued for $43 a share.
\r\n(c) Uncollectible accounts receivable in the amount of $27,000 were written off against Allowance for Doubtful Accounts.
\r\n(d) The company sustained a net loss for the year of $50,000. Depreciation amounted to $22,000, and a gain of $9,000 was realized on the sale of land for $39,000 cash.
\r\n(e) A 3-month U.S. Treasury bill was purchased for $100,000. The company uses a cash and cash equivalent basis for its cash flow statement.
\r\n(f) Patent amortization for the year was $20,000.
\r\n(g) The company exchanged common stock for a 70% interest in Tabasco Co. for $900,000.
\r\n(h) During the year, treasury stock costing $47,000 was purchased.
\r\nInstructions
\r\nState where each item is to be shown in the statement of cash flows, if at all.
Red Hot Chili Peppers Co. had the following activity in its most recent year of operations.
\r\n(a) Purchase of equipment. (g) Amortization of intangible assets.
\r\n(b) Redemption of bonds payable. (h) Purchase of treasury stock.
\r\n(c) Sale of building. (i) Issuance of bonds for land.
\r\n(d) Depreciation. (j) Payment of dividends.
\r\n(e) Exchange of equipment for furniture. (k) Increase in interest receivable on notes receivable.
\r\n(f) Issuance of capital stock. (l) Pension expense exceeds amount funded.
\r\nInstructions
\r\nClassify the items as (1) operating—add to net income; (2) operating—deduct from net income; (3) investing; (4) financing; or (5) significant non-cash investing and financing activities. Use the indirect method.
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