Question & Answer

Indicate in general journal form how the items below would be entered in a worksheet for the preparation of the statement of cash flows.

(a) Net income is $317,000.

(b) Cash dividends declared and paid totaled $120,000.

(c) Equipment was purchased for $114,000.

(d) Equipment that originally cost $40,000 and had accumulated depreciation of $32,000 was sold for 

In 2014, Leppard Inc. issued 1,000 shares of $10 par value common stock for land worth $40,000.

(a) Prepare Leppard’s journal entry to record the transaction.

(b) Indicate the effect the transaction has on cash.

(c) Indicate how the transaction is reported on the statement of cash flows.

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

Hendrickson Corporation reported net income of $50,000 in 2014. Depreciation expense was $17,000. The following working capital accounts changed.

Accounts receivable $11,000 increase

Available-for-sale securities 16,000 increase

Inventory 7,400 increase

Nontrade note payable 15,000 decrease

Accounts payable 12,300 increase

Compute net cash provided by operating activities.

Loveless Corporation had the following 2014 income statement.

Revenues $100,000

Expenses 60,000

$ 40,000

In 2014, Loveless had the following activity in selected accounts.

Allowance for

Accounts Receivable Doubtful Accounts

1/1/14 20,000 1,200 1/1/14

Revenues 100,000 1,000 Write-offs Write-offs 1,000 1,840 Bad debt expense

90,000 Collections

12/31/14 29,000 2,040 12/31/14

Prepare Loveless’s cash flows from operating activities section of the statement of cash flows using (a) the direct method and (b) the indirect method.

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

Moxley Corporation had January 1 and December 31 balances as follows. 1/1/14 12/31/14

Inventory $95,000 $113,000 Accounts payable 61,000 69,000 For 2014, cost of goods sold was $500,000. Compute Moxley’s 2014 cash payments to suppliers.

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

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

Bloom Corporation had the following 2014 income statement.

Sales revenue $200,000

Cost of goods sold 120,000

Gross profi t 80,000

Operating expenses (includes depreciation of $21,000) 50,000

Net income $ 30,000

The following accounts increased during 2014: Accounts Receivable $12,000; Inventory $11,000; Accounts Payable $13,000. Prepare the cash flows from operating activities section of Bloom’s 2014 statement of cash flows using the direct method.

Novak Corporation is preparing its 2014 statement of cash flows, using the indirect method. Presented below is a list of items that may affect the statement. Using the code below, indicate how each item will affect Novak’s 2014 statement of cash flows. Code Letter Effect A Added to net income in the operating section D Deducted from net income in the operating section.

R-I Cash receipt in investing section

P-I Cash payment in investing section

R-F Cash receipt in financing section

P-F Cash payment in financing section

N Noncash investing and financing activity

Items

____ (a) Purchase of land and building. ____ (j) Increase in accounts payable.

____ (b) Decrease in accounts receivable. ____ (k) Decrease in accounts payable.

____ (c) Issuance of stock. ____ (l) Loan from bank by signing note.

____ (d) Depreciation expense. ____ (m) Purchase of equipment using a note.

____ (e) Sale of land at book value. ____ (n) Increase in inventory.

____ (f) Sale of land at a gain. ____ (o) Issuance of bonds.

____ (g) Payment of dividends. ____ (p) Redemption of bonds payable.

____ (h) Increase in accounts receivable. ____ (q) Sale of equipment at a loss.

____ (i) Purchase of available-for-sale investment. ____ (r) Purchase of treasury stock.

Stansfield Corporation had the following activities in 2014.

1. Payment of accounts payable $770,000. 4. Collection of note receivable $100,000.

2. Issuance of common stock $250,000. 5. Issuance of bonds payable $510,000.

3. Payment of dividends $350,000. 6. Purchase of treasury stock $46,000.

Compute the amount Stansfield should report as net cash provided (used) by financing activities in its 2014 statement of cash flows.

Wainwright Corporation had the following activities in 2014.

1. Sale of land $180,000. 4. Purchase of equipment $415,000.

2. Purchase of inventory $845,000. 5. Issuance of common stock $320,000.

3. Purchase of treasury stock $72,000. 6. Purchase of available-for-sale securities $59,000.

Compute the amount Wainwright should report as net cash provided (used) by investing activities in its

2014 statement of cash flows.

Why is it desirable to use a worksheet when preparing a statement of cash flows? Is a worksheet required to prepare a statement of cash flows?

What are some of the arguments in favor of using the indirect (reconciliation) method as opposed to the direct method for reporting a statement of cash flows?

During 2014, Simms Company redeemed $2,000,000 of bonds payable for $1,880,000 cash. Indicate how this transaction would be reported on a statement of cash flows, if at all.

Stan Conner and Mark Stein were discussing the presentation format of the statement of cash flows of Bombeck Co. At the bottom of Bombeck’s statement of cash flows was a separate section entitled “Noncash investing and financing activities.” Give three examples of significant non-cash transactions that would be reported in this section.

Classify the following items as (1) operating, (2) investing, (3) financing, or (4) significant non-cash investing and financing activities, using the direct method.

(a) Cash payments to employees.

(b) Redemption of bonds payable.

(c) Sale of building at book value.

(d) Cash payments to suppliers.

(e) Exchange of equipment for furniture.

(f) Issuance of preferred stock.

(g) Cash received from customers.

(h) Purchase of treasury stock.

(i) Issuance of bonds for land.

(j) Payment of dividends.

(k) Purchase of equipment.

(l) Cash payments for operating expenses.

Each of the following items must be considered in preparing a statement of cash flows for Blackwell Inc. for the year ended December 31, 2014. State where each item is to be shown in the statement, if at all.

(a) Plant assets that had cost $18,000 6½ years before and were being depreciated on a straight-line basis over 10 years with no estimated scrap value were sold for $4,000.

(b) During the year, 10,000 shares of common stock with a stated value of $20 a share were issued for $41 a share.

(c) Uncollectible accounts receivable in the amount of

$22,000 were written off against Allowance for Doubtful Accounts.

(d) The company sustained a net loss for the year of $50,000. Depreciation amounted to $22,000, and a gain of $9,000 was realized on the sale of available-for-sale securities for $38,000 cash.

The net income for Letterman Company for 2014 was $320,000. During 2014, depreciation on plant assets was $124,000, amortization of patent was $40,000, and the company incurred a loss on sale of plant assets of $21,000. Compute net cash flow from operating activities.

Explain how the amount of cash payments to suppliers is computed under the direct method.

The board of directors of Gifford Corp. declared cash dividends of $260,000 during the current year. If dividends payable was $85,000 at the beginning of the year and $90,000 at the end of the year, how much cash was paid in dividends during the year?

Your roommate is puzzled. During the last year, the company in which she is a stockholder reported a net loss of $675,000, yet its cash increased $321,000 during the same period of time. Explain to your roommate how this situation could occur.

Collinsworth Co. reported sales on an accrual basis of $100,000. If accounts receivable increased $30,000 and the allowance for doubtful accounts increased $9,000 after a write-off of $2,000, compute cash sales.

Broussard Company reported net income of $3.5 million in 2014. Depreciation for the year was $520,000; accounts receivable increased $500,000; and accounts payable increased $300,000. Compute net cash flow from operating activities using the indirect method.