Accounting Homework HelpMain content Chapter Review 16-9f Exercises EX 16-1 Cash flows from operating activities—net loss Obj. 1 On its income statement for a recent year, Tesla, Inc., reported a net loss of $1,063 million from operations. On its statement of cash flows, it reported $2,098 million of net cash flows from operating activities. Explain this apparent contradiction between the loss and the positive cash flows. EX 16-2 Effect of Transactions on Cash Flows Obj. 1 State the effect (cash receipt or payment and amount) of each of the following transactions, considered individually, on cash flows: Retired $300,000 of bonds, on which there was $4,000 of unamortized discount, for $303,000. Answer Check figure: Cash payment, $303,000 Sold 40,000 shares of $6 par common stock for $18 per share. Sold equipment with a book value of $28,400 for $31,500. Purchased land for $290,000 cash. Purchased a building by paying $40,000 cash and issuing a $490,000 mortgage note payable. Sold a new issue of $600,000 of bonds at 98. Purchased 15,000 shares of $30 par common stock as treasury stock at $45 per share. Paid dividends of $1.50 per share. There were 800,000 shares issued and 90,000 shares of treasury stock. EX 16-3 Classifying Cash Flows Obj. 1 Identify the type of cash flow activity for each of the following events (operating, investing, or financing): Redeemed bonds Issued preferred stock Paid cash dividends Net income Sold equipment Purchased treasury stock Purchased patents Purchased buildings Sold long-term investments Issued bonds Issued common stock EX 16-4 Cash Flows from (used for) Operating Activities Obj. 2 Indicate whether each of the following would be added to or deducted from net income in determining net cash flows from operating activities by the indirect method: Increase in merchandise inventory Increase in prepaid expenses Depreciation of fixed assets Gain on disposal of fixed assets Amortization of patent Increase in notes payable due in 120 days to vendors Increase in accounts payable Decrease in wages payable Decrease in notes receivable due in 60 days from customers Decrease in accounts receivable Loss on retirement of long-term debt EX 16-5 Cash Flows from (used for) Operating Activities Obj. 1, 2 The net income reported on the income statement for the current year was $73,600. Depreciation recorded on store equipment for the year amounted to $27,400. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows: End of Year Beginning of Year Cash $23,500 $18,700 Accounts receivable (net) 56,000 48,000 Merchandise inventory 35,500 40,000 Prepaid expenses 4,750 7,000 Accounts payable (merchandise creditors) 21,800 16,800 Wages payable 4,900 5,800 Prepare the Cash Flows from (used for) Operating Activities section of the statement of cash flows, using the indirect method. Answer Check figure: Net cash flows from operating activities, $103,850 Briefly explain why net cash flows from operating activities is different from net income. EX 16-6 Cash Flows from (used for) Operating Activities Obj. 1, 2 The net income reported on the income statement for the current year was $290,000. Depreciation recorded on equipment and a building amounted to $150,500 for the year. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows: End of Year Beginning of Year Cash $117,600 $135,000 Accounts receivable (net) 132,500 141,100 Inventories 291,900 274,300 Prepaid expenses 5,600 7,100 Accounts payable (merchandise creditors) 143,400 172,400 Salaries payable 11,300 6,300 Prepare the Cash Flows from (used for) Operating Activities section of the statement of cash flows, using the indirect method. Answer Check figure: Net cash flows from operating activities, $409,000 If the direct method had been used, would the net cash flows from operating activities have been the same? Explain. EX 16-7 Cash Flows from (used for) Operating Activities Obj. 1, 2 The income statement disclosed the following items for the year: Depreciation expense $ 57,000 Gain on disposal of equipment 24,000 Net income 542,000 The changes in the current asset and liability accounts for the year are as follows: Increase (Decrease) Accounts receivable $ 9,800 Inventory (5,550) Prepaid insurance (1,000) Accounts payable (3,700) Income taxes payable 1,440 Dividends payable 2,200 Prepare the Cash Flows from (used for) Operating Activities section of the statement of cash flows, using the indirect method. Answer Check figure: Net cash flows from operating activities, $569,490 Briefly explain why net cash flows from operating activities is different from net income. EX 16-8 Determining net income from net cash flows from operating activities Obj. 2 Curwen Inc. reported net cash flows from operating activities of $357,500 on its statement of cash flows for a recent year ended December 31. The following information was reported in the Cash Flows from (used for) Operating Activities section of the statement of cash flows, using the indirect method: Decrease in income taxes payable $ 7,700 Decrease in inventories 19,140 Depreciation 29,480 Gain on sale of investments 13,200 Increase in accounts payable 5,280 Increase in prepaid expenses 2,970 Increase in accounts receivable 14,300 Determine the net income reported by Curwen Inc. for the year ended December 31. Answer Check figure: a. Net income, $341,770 Briefly explain why Curwen’s net income is different from net cash flows from operating activities. EX 16-9 Cash flows from operating activities Obj. 2 Selected data derived from the income statement and balance sheet of National Beverage Co. for a recent year are as follows: Income statement data (in thousands): Net income $149,774 Loss on disposal of property (149) Depreciation expense 13,226 Other items involving noncash expense 837 Balance sheet data (in thousands): Increase in accounts receivable 13,041 Increase in inventory 7,565 Increase in prepaid expenses 10,548 Increase in accounts payable and other current liabilities 17,464 Prepare the Cash Flows from (used for) Operating Activities section of the statement of cash flows, using the indirect method for National Beverage Co. Answer Check figure: a. Net cash flows from operating activities, $150,296 Interpret your results in part (a). EX 16-10 Reporting changes in equipment on statement of Cash Flows Obj. 3 An analysis of the general ledger accounts indicates that office equipment, which cost $202,500 and on which accumulated depreciation totaled $84,375 on the date of sale, was sold for $101,250 during the year. Using this information, indicate the items to be reported on the statement of cash flows. EX 16-11 Reporting changes in equipment on statement of Cash Flows Obj. 3 An analysis of the general ledger accounts indicates that delivery equipment, which cost $200,000 and on which accumulated depreciation totaled $60,000 on the date of sale, was sold for $132,500 during the year. Using this information, indicate the items to be reported on the statement of cash flows. EX 16-12 Reporting land transactions on statement of Cash Flows Obj. 3 On the basis of the details of the following fixed asset account, indicate the items to be reported on the statement of cash flows: ACCOUNT Land ACCOUNT NO. Balance Date Item Debit Credit Debit Credit Jan. 1 Balance 868,000 Mar. 12 Purchased for cash 104,300 972,300 Oct. 4 Sold for $95,550 63,840 908,460 EX 16-13 Reporting land acquisition for cash and mortgage note on statement of Cash Flows Obj. 3 On the basis of the details of the following fixed asset account, indicate the items to be reported on the statement of cash flows: ACCOUNT Land ACCOUNT NO. Balance Date Item Debit Credit Debit Credit Jan. 1 Balance 156,000 Feb. 10 Purchased for cash 246,000 402,000 Nov. 20 Purchased with long-term mortgage note 324,000 726,000 EX 16-14 Determining cash paid to stockholders Obj. 4 The board of directors declared cash dividends totaling $585,000 during the current year. The comparative balance sheet indicates dividends payable of $167,625 at the beginning of the year and $146,250 at the end of the year. What was the amount of cash paid to stockholders during the year? EX 16-15 Reporting stockholders’ equity items on statement of Cash Flows Obj. 4 On the basis of the following stockholders’ equity accounts, indicate the items, exclusive of net income, to be reported on the statement of cash flows. There were no unpaid dividends at either the beginning or the end of the year. ACCOUNT Common Stock, $40 par ACCOUNT NO. Balance Date Item Debit Credit Debit Credit Jan. 1 Balance, 120,000 shares 4,800,000 Apr. 2 30,000 shares issued for cash 1,200,000 6,000,000 June 30 4,400-share stock dividend 176,000 6,176,000 ACCOUNT Paid-In Capital in Excess of Par—Common Stock ACCOUNT NO. Balance Date Item Debit Credit Debit Credit Jan. 1 Balance 360,000 Apr. 2 30,000 shares issued for cash 720,000 1,080,000 June 30 Stock dividend 114,400 1,194,400 ACCOUNT Retained Earnings ACCOUNT NO. Balance Date Item Debit Credit Debit Credit Jan. 1 Balance 2,000,000 June 30 Stock dividend 290,440 1,709,560 Dec. 30 Cash dividend 463,200 1,246,360 31 Net income 1,440,000 2,686,360 EX 16-16 Reporting issuance and retirement of long-term debt Obj. 4 On the basis of the details of the following bonds payable and related discount accounts, indicate the items to be reported in the Financing Activities section of the statement of cash flows, assuming no gain or loss on retiring the bonds: ACCOUNT Bonds Payable ACCOUNT NO. Balance Date Item Debit Credit Debit Credit Jan. 1 Balance 750,000 2 Retire bonds 150,000 600,000 June 30 Issue bonds 450,000 1,050,000 ACCOUNT Discount on Bonds Payable ACCOUNT NO. Balance Date Item Debit Credit Debit Credit Jan. 1 Balance 33,750 2 Retire bonds 12,000 21,750 June 30 Issue bonds 30,000 51,750 Dec. 31 Amortize discount 2,625 49,125 EX 16-17 Statement of Cash Flows Obj. 5 The comparative balance sheet of Hirayama Industries Inc. for December 31, 20Y2 and 20Y1, is as follows: The comparative balance sheet of Hirayama Industries Inc. for December 31, 2 0 Y 2 and 2 0 Y 1, is shown. The statement data are shown in three columns. The first subheading is Assets. Two amount columns are headed by December 31, 2 0 Y 2 and December 31, 2 0 Y 1. Accounts and amounts in the respective columns are: Cash, $234, $18; Accounts receivable (net), 70, 63; Inventories,150, 127; Land, 320, 422; Equipment, 262, 224; Accumulated depreciation—equipment, 87, set in parentheses, 54, set in parentheses (amounts underlined with a single rule); Total assets, $949, $800 (amounts underlined with a double rule). The second subheading is Liabilities and Stockholders’ Equity, followed to the right by two amount columns for December 31, 2 0 Y 2 and December 31, 2 0 Y 1. Accounts and amounts in the respective columns are: Accounts payable (merchandise creditors), $65, $47; Dividends payable, 6, 0, denoted by an em dash; Common stock, $1 par, 160, 102; Paid-in capital in excess of par, 109, 90; Retained earnings, 609, 561 (amounts underlined with a single rule); Total liabilities and stockholders’ equity, $949, $800 (amounts underlined with a double rule).Enlarge Image The following additional information is taken from the records: Land was sold for $153. Equipment was acquired for cash. There were no disposals of equipment during the year. The common stock was issued for cash. There was a $79 credit to Retained Earnings for net income. There was a $31 debit to Retained Earnings for cash dividends declared. Prepare a statement of cash flows, using the indirect method of presenting cash flows from (used for) operating activities. Answer Check figure: Net cash flows from operating activities, $49 Was Hirayama Industries Inc.’s net cash flows from operations more or less than net income? What is the source of this difference? EX 16-18 Statement of Cash Flows Obj. 5 The following statement of cash flows for Shasta Inc. was not correctly prepared: A statement of cash flows for Shasta Inc., for the year ended December 31, 2 0 Y 9, is shown. Under Cash flows from (used for) operating activities:, the following are listed: Net income is $360,000, which is shown in the first amount column. Under Adjustments to reconcile net income to net cash flows from (used for) operating activities:, the following adjustments are listed: Depreciation is 100,800, which is shown in the first amount column; Gain on sale of investments is 17,280, which is shown in the first amount column. Under Changes in current operating assets and liabilities:, the following increases and decreases are listed: Increase in accounts receivable is 27,360, which is shown in the first amount column; Increase in inventories is 36,000, which is shown in parentheses in the first amount column; Increase in accounts payable is 3,600, which is shown in parentheses in the first amount column; Decrease in accrued expenses payable is 2,400, which is shown in parentheses in the first amount column. A single rule appears below 2,400, which is shown in parentheses. Net cash flows from operating activities is $463,440, which is shown in the second amount column. Under Cash flows from (used for) investing activities:, the following are listed: Cash received from sale of investments is $240,000, which is shown in the first amount column; Cash paid for purchase of land is 259,200, which is shown in parentheses in the first amount column; Cash paid for purchase of equipment is 432,000, which is shown in parentheses in the first amount column. A single rule appears below 432,000, which is shown in parentheses. Net cash flows used for investing activities is 415,200, which is shown in parentheses in the second amount column. Under Cash flows from (used for) financing activities:, the following are listed: Cash received from issuing common stock is $312,000, which is shown in the first amount column; Cash dividends is 132,000, which is shown in parentheses in the first amount column. A single rule appears below 132,000, which is shown in parentheses. Net cash flows from financing activities is 180,000, which is shown in the second amount column. A single rule appears below 180,000. Below the three sections of cash flow activities are the following three lines: Net increase in cash is $47,760, which is shown in the second amount column; Cash balance, December 31, 2 0 Y 9 is 192,240, which is shown in the second amount column. A single rule appears below 192,240. Cash balance, January 1, 2 0 Y 9 is $240,000, which is shown in the second amount column. A double rule appears below $240,000. List the errors you find on the statement of cash flows. The cash balance at the beginning of the year was $240,000. All other amounts are correct, except the cash balance at the end of the year. Prepare a corrected statement of cash flows, using the indirect method. EX 16-19 Free Cash Flow Obj. 6 Sweeter Enterprises Inc. has net cash flows from operating activities of $539,000. Cash flows used for investments in property, plant, and equipment totaled $210,000, of which 75% of this investment was used to replace existing capacity. Determine the free cash flow for Sweeter Enterprises Inc. How might a lender use free cash flow to determine whether or not to give Sweeter Enterprises Inc. a loan? EX 16-20 Free Cash Flow Obj. 6 The financial statements for Nike, Inc., are provided in Appendix C at the end of the text. Determine the free cash flow for the most recent fiscal year. Assume that 90% of the additions to property, plant, and equipment were used to maintain productive capacity. Round to the nearest thousand dollars. How might a lender use free cash flow to determine whether or not to give Nike, Inc., a loan? Would you feel comfortable giving Nike a loan, based on the free cash flow determined in (a)? EX 16-21 Free Cash Flow Obj. 6 Lovato Motors Inc. has net cash flows from operating activities of $720,000. Cash flows used for investments in property, plant, and equipment totaled $440,000, of which 85% of this investment was used to replace existing capacity. Determine the free cash flow for Lovato Motors Inc. Appendix 2 EX 16-22 Cash Flows from (used for) Operating Activities—Direct Method The cash flows from (used for) operating activities are reported by the direct method on the statement of cash flows. Determine the following: If sales for the current year were $753,500 and accounts receivable decreased by $48,400 during the year, what was the amount of cash received from customers? If income tax expense for the current year was $50,600 and income tax payable decreased by $5,500 during the year, what was the amount of cash paid for income taxes? Answer Check figure: $801,900 Briefly explain why the cash received from customers in (a) is different from sales. Appendix 2 EX 16-23 Cash paid for merchandise purchases The cost of merchandise sold for Kohl’s Corporation for a recent year was $12,199 million. The balance sheet showed the following current account balances (in millions): Balance, End of Year Balance, Beginning of Year Merchandise inventories $3,475 $3,542 Accounts payable 1,187 1,271 Determine the amount of cash paid for merchandise. Appendix 2 EX 16-24 Determining selected amounts for cash flows from (used for) operating activities—direct method Selected data taken from the accounting records of Ginis Inc. for the current year ended December 31 are as follows: Balance, December 31 Balance, January 1 Accrued expenses payable (operating expenses) $ 12,650 $ 14,030 Accounts payable (merchandise creditors) 96,140 105,800 Inventories 178,020 193,430 During the current year, the cost of merchandise sold was $1,031,550 and the operating expenses other than depreciation were $179,400. The direct method is used for presenting the cash flows from operating activities on the statement of cash flows. Determine the amount reported on the statement of cash flows for (a) cash paid for merchandise and (b) cash paid for operating expenses. Answer Check figure: $1,025,800 Appendix 2 EX 16-25 Cash Flows from (used for) Operating Activities—Direct Method The income statement of Booker T Industries Inc. for the current year ended June 30 is as follows: The income statement for Booker T Industries is shown in a table format. There are three columns; the first is an account column and the last two are amount columns. Data for the table by line are as follows: Sales, $511,000 (second amount column); Cost of merchandise sold, 290,500 (second amount column and underlined with a single rule); Gross profit, $220,500 (second amount column); Operating expenses: Depreciation expense, $39,200 (first amount column); Other operating expenses, 105,000 (first amount column and underlined with a single rule); Total operating expenses, 144,200 (second amount column and underlined with a single rule); Income before income tax, $76,300 (second amount column); Income tax expense, 21,700 (second amount column and underlined with a single rule); Net income, $54,600 (second amount column and underlined with a double rule). Changes in the balances of selected accounts from the beginning to the end of the current year are as follows: Increase (Decrease) Accounts receivable (net) $(11,760) Inventories 3,920 Prepaid expenses (3,780) Accounts payable (merchandise creditors) (7,980) Accrued expenses payable (operating expenses) 1,260 Income tax payable (2,660) Prepare the Cash Flows from (used for) Operating Activities section of the statement of cash flows, using the direct method. Answer Check figure: Net cash flows from operating activities, $96,040 What does the direct method show about a company’s cash flows from operating activities that is not shown using the indirect method? Appendix 2 EX 16-26 Cash Flows from (used for) Operating Activities—Direct Method The income statement for Stallion Company for the current year ended June 30 and balances of selected accounts at the beginning and end of the year are as follows: The income statement for Stallion Company is shown in a table format. There are three columns; the first is an account column and the last two are amount columns. Data for the table by line are as follows: Sales, $374,500 (second amount column); Cost of merchandise sold, 129,500 (second amount column and underlined with a single rule); Gross profit, $245,000 (second amount column); Operating expenses: Depreciation expense, $32,400 (first amount column); Other operating expenses, 96,910 (first amount column and underlined with a single rule); Total operating expenses, 129,310 (second amount column and underlined with a single rule); Income before income tax, $115,690 (second amount column); Income tax expense, 33,290 (second amount column and underlined with a single rule); Net income, $82,400 (second amount column and underlined with a double rule). End of Year Beginning of Year Accounts receivable (net) $30,510 $26,260 Inventories 77,670 67,500 Prepaid expenses 12,210 13,320 Accounts payable (merchandise creditors) 56,780 52,710 Accrued expenses payable (operating expenses) 16,090 17,600 Income tax payable 3,700 3,700 Prepare the Cash Flows from (used for) Operating Activities section of the statement of cash flows, using the direct method. Answer Check figure: Net cash flows from operating activities, $104,050 Change font size help