Chapter Review
16-9ePractice Exercises
Classifying Cash Flows
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EE 16-1 Identify whether each of the following would be reported as an operating, investing, or financing activity on the statement of cash flows:
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Retirement of bonds payable
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Purchase of inventory for cash
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Cash sales
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Repurchase of common stock
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Payment of accounts payable
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Disposal of equipment
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Classifying Cash Flows
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EE 16-1 Identify whether each of the following would be reported as an operating, investing, or financing activity on the statement of cash flows:
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Payment of dividends to common stockholders
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Purchase of equipment
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Payment for selling expenses
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Collection of accounts receivable
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Cash received from customers
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Issuance of bonds payable
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Adjustments to Net Income
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EE 16-2 Nadal Corporation’s accumulated depreciation—furniture account increased by $17,720, while $3,800 of patent amortization was recognized between balance sheet dates. There were no purchases or sales of depreciable or intangible assets during the year. In addition, the income statement showed a loss of $5,200 from the sale of land. Reconcile a net income of $343,700 to net cash flows from operating activities.
Adjustments to Net Income
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EE 16-2 Eastlund Corporation’s accumulated depreciation—equipment account increased by $6,320, while $2,450 of patent amortization was recognized between balance sheet dates. There were no purchases or sales of depreciable or intangible assets during the year. In addition, the income statement showed a gain of $13,510 from the sale of investments. Reconcile a net income of $126,300 to net cash flows from operating activities.
Changes in Current Operating Assets and Liabilities
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EE 16-3 Jasneet Corporation’s comparative balance sheet for current assets and liabilities was as follows:
Dec. 31, Year 2 Dec. 31, Year 1 Accounts receivable $20,200 $22,900 Inventory 13,000 10,700 Accounts payable 10,900 9,400 Dividends payable 25,100 30,700 -
Adjust net income of $185,000 for changes in operating assets and liabilities to arrive at net cash flows from operating activities.
Changes in Current Operating Assets and Liabilities
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EE 16-3 Paneous Corporation’s comparative balance sheet for current assets and liabilities was as follows:
Dec. 31, Year 2 Dec. 31, Year 1 Accounts receivable $39,490 $31,590 Inventory 76,340 65,150 Accounts payable 60,750 45,410 Dividends payable 18,000 24,000 -
Adjust net income of $351,000 for changes in operating assets and liabilities to arrive at net cash flows from operating activities.
Determining Cash Flows from (used for) Operating Activities
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EE 16-4 Featherstone Inc. reported the following data:
Net income $296,000 Depreciation expense 113,100 Gain on disposal of equipment 58,200 Decrease in accounts receivable 71,300 Decrease in accounts payable 27,100 -
Prepare the Cash Flows from (used for) Operating Activities section of the statement of cash flows, using the indirect method.
Determining Cash Flows from (used for) Operating Activities
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EE 16-4 Yeoman Inc. reported the following data:
Net income $170,000 Depreciation expense 29,000 Loss on disposal of equipment 11,850 Increase in accounts receivable 10,490 Increase in accounts payable 5,430 -
Prepare the Cash Flows from (used for) Operating Activities section of the statement of cash flows, using the indirect method.
Land Transactions on the Statement of Cash Flows
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EE 16-5 Lagman Corporation purchased land for $310,000. Later in the year, the company sold a different piece of land with a book value of $114,000 for $81,000. How are the effects of these transactions reported on the statement of cash flows?
Land Transactions on the Statement of Cash Flows
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EE 16-5 PQR Corporation purchased land for $295,000. Later in the year, the company sold a different piece of land with a book value of $148,000 for $177,000. How are the effects of these transactions reported on the statement of cash flows?
Financing Activities on the Statement of Cash Flows
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EE 16-6 Takaki Inc. reported net income of $53,000 for 20Y7. The liability and equity accounts from the company’s comparative balance sheet are as follows:
Dec. 31, 20Y7 Dec. 31, 20Y6 Accounts payable $ 31,900 $28,400 Dividends payable 5,000 3,000 Common stock, $5 par value 80,000 75,000 Paid-in capital in excess of par—common stock 37,000 30,000 Retained earnings 130,600 81,600 -
During the year, the company declared dividends of $4,000 and issued 1,000 shares of common stock for $12 per share. Prepare the Cash Flows from (used for) Financing Activities section of the statement of cash flows.
Financing Activities on the Statement of Cash Flows
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EE 16-6 Cosmat Inc. reported net income of $128,000 for 20Y9. The liability and equity accounts from the company’s comparative balance sheet are as follows:
Dec. 31, 20Y9 Dec. 31, 20Y8 Accounts payable $ 57,920 $ 53,810 Dividends payable 20,000 16,000 Bonds payable 290,000 450,000 Common stock, $10 par value 180,000 120,000 Paid-in capital in excess of par—common stock 328,000 232,000 Retained earnings 488,000 375,000 -
During the year, the company retired bonds payable at their face amount, declared dividends of $15,000, and issued 6,000 shares of common stock for $26 per share. Prepare the Cash Flows from (used for) Financing Activities section of the statement of cash flows.
Free Cash Flow
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EE 16-7 Burkhalter Inc. reported the following on the company’s statement of cash flows in Year 2 and Year 1:
Year 2 Year 1 Net cash flows from operating activities $ 385,000 $ 367,000 Net cash flows used for investing activities (293,000) (330,000) Net cash flows used for financing activities (83,000) (55,000) -
Seventy percent of the net cash flows used for investing activities was used to replace existing capacity.
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Determine Burkhalter’s free cash flow for both years.
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Has Burkhalter’s free cash flow improved or declined from Year 1 to Year 2?
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Free Cash Flow
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EE 16-7 Garfunkel Inc. reported the following on the company’s statement of cash flows in Year 2 and Year 1:
Year 2 Year 1 Net cash flows from operating activities $ 623,000 $ 596,000 Net cash flows used for investing activities (559,000) (495,000) Net cash flows used for financing activities (55,000) (77,000) -
Eighty percent of the net cash flows used for investing activities was used to replace existing capacity.
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Determine Garfunkel’s free cash flow for both years.
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Has Garfunkel’s free cash flow improved or declined from Year 1 to Year 2?
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