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Exam 16: Reporting the Statement of Cash Flows

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Question 51

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For each of the following separate cases, use the information provided to calculate the missing cash inflow or cash outflow using the direct method. $\begin{array} { l | l | r } \text { (a) } & \text { Accounts receivable balances: } & \\\hline & \text { Beginning of year } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & \$ 60,000 \\\hline & \text { End of year } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 63,000 \\\hline & \text { Sales revenue (all on credit) } \ldots \ldots \ldots \ldots \ldots \ldots & 395,000 \\\hline & \text { Cash received from customers } & \$\underline{\quad\quad} \\\hline & & \\ \hline\end{array}$ (b) $\begin{array}{|l|c|}\hline \text { Accounts payable balances: } & \\\hline \text { Beginning of year} & \$ 42,000 \\\hline \text { End of year } & 31,000 \\\hline \text { Merchandise inventory balances: } & \\\hline \text { Beginning of year } & 50,000 \\\hline\text { End of year } & 52,500 \\\hline \text { Cost of goods sold. } & 250,000 \\\hline \text { Cash } &\$ \underline{\quad\quad}\\ \hline\end{array}$ (c) $\begin{array}{|l|c|}\hline\text { Interest payable balances: }\\\hline \text { Beginning of year } & \$ 7,500 \\\hline \text { End of year } & 8,200 \\\hline \text { Interest expense } & 31,000 \\\hline \text { Cash paid for interest } & \$ \underline{\quad\quad} \\\hline\end{array}$

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Question 52

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Northington, Inc. is preparing the company's statement of cash flows for the fiscal year just ended. Using the following information, determine the amount of cash flows from operating activities using the indirect method: $\begin{array} { | l | r | } \hline \text { Net income } & \$ 182,000 \\\hline \text { Gain on the sale of equipment } & 12,300 \\\hline \text { Proceeds from the sale of equipment } & 92,300 \\\hline \text { Depreciation expense - equipment } & 50,000 \\\hline \text { Payment of bonds at maturity } & 100,000 \\\hline \text { Purchase of land } & 200,000 \\\hline \text { Issuance of common stock } & 300,000 \\\hline \text { Increase in merchandise inventory } & 35,400 \\\hline \text { Decrease in accounts receivable } & 28,800 \\\hline \text { Increase in accounts payable } & 23,700 \\\hline \text { Payment of cash dividends } & 32,000 \\\hline\end{array}$

A) $332,200.
B) $186,800.
C) $236,800.
D) $261,400.
E) $189,400.

F) B) and E)
G) None of the above

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Question 53

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Use the following financial statements and additional information to (1) prepare a complete statement of cash flows for the year ended December 31, 20X2. The cash provided or used by operating activities should be reported using the direct method, and (2) compute the company's cash flow on total assets ratio for 20X2. $\begin{array}{c} \text {Derby CompanyBalance Sheet }\\ \text {sAt December 31}\\\begin{array}{l|l|l}\hline &20 \mathrm{X} 2 & 20 \mathrm{X} 1 \\\hline \text { Assets: } & & \\\hline \text { Cash } & \$ 85,600 & \$ 65,200 \\\hline \text { Accounts receivable, net } & 72,850 & 56,750 \\\hline \text { Merchandise inventory } & 157,750 & 144,850\end{array}\end{array}$ $\begin{array}{c}\text {Derby Company}\\\text {Income Statement}\\\text {For Year Ended December 31, 20X2}\\\begin{array}{l|l|l}\hline \text { Sales } & & \$ 488,000 \\\hline \text { Cost of goods sold } & \$ 212,540 & \\\hline \text { Depreciation expense } & 43,000 & \\\hline \text { Other operating expenses } & 106,260 & \\\hline \text { Interest expense } & 6,400 & (368,200\\\hline \text { Other gains (losses): } & \\\hline \text { Gain on sale of equipment } && 4,700 \\\hline \text { Income before taxes } && 124,500 \\\hline \text { Income taxes expense } && 41,100 \\\hline \text { Net income } && \begin{array}{l} \underline{\$} \\\underline{83}, 400 \\\end{array} \\\hline\end{array}\end{array}$ Additional Information a.A $20,000 note payable is retired at its carrying value in exchange for cash. b.The only changes affecting retained earnings are net income and cash dividends paid. c.New equipment is acquired for $120,000 cash. d.Received cash for the sale of equipment that had cost $85,000, yielding a gain of $4,700. e.Prepaid expenses relate to Other Expenses on the income statement. f.All purchases and sales of merchandise inventory are on credit.

The following information is available for the Brookstone Company: Brookstone Company Balance Sheets At December 31 Brookstone Company Income Statement For Year Ended December 31, 20X2 $\begin{array} { | l | r | r | } \hline \text { Sales } & & \$ 288,000 \\\hline \text { Cost of goods sold } & \$ 97,080 & \\\hline \text { Depreciation expense } & 35,280 & \\\hline \text { Other operating expenses } & 57,600 & \\\hline \text { Interest expense } & 2,400 & ( 192,360 \\\hline \text { Other gains (losses): } & & \\\hline \text { Loss on sale of equipment } & & ( 10,080 ) \\\hline \text { Income before taxes } & & 85,560 \\\hline \text { Income taxes expense } & &33,180 \\\hline \text { Net income } & & \$ 52,180\\\hline\end{array}$ Additional information: (1) There was no gain or loss on the sales of the long-term investments, nor on the bonds retired. (2) Old machinery with an original cost of $45,060 was sold for $2,520 cash. (3) New machinery was purchased for $81,060 cash. (4) Cash dividends of $40,320 were paid. (5) Additional shares of stock were issued for cash. Prepare a complete statement of cash flows for calendar-year 20X2 using the indirect method.

The statement of cash flows reports all but which of the following:

An example of a transaction that must be disclosed as a noncash investing and financing activity includes all but which of the following?

A cash equivalent must be readily convertible to a known amount of cash, and must be sufficiently close to its maturity so its market value is unaffected by interest rate changes.

Mercury Company reports depreciation expense of $40,000 for Year 2. Also, equipment costing $150,000 was sold for its book value in Year 2. There were no other equipment purchases or sales during the year. The following selected information is available for Mercury Company from its comparative balance sheet. Compute the cash received from the sale of the equipment. $\begin{array} { | l | l | l | } \hline \text { At December 31 } & { \text { Year 2 } } & \text { Year 1 } \\\hline \text { Equipment } & \$ 600,000 & \$ 750,000 \\\hline \text { Accumulated Depreciation-Equipment } & 428,000 & 500,000 \\\hline\end{array}$

A company had net cash flows from operations of $341,000, net income of $286,000 and average total assets of $1,850,000. The cash flow on total assets ratio equals:

A company had average total assets of $3,216,000, total cash flows of $1,320,000, cash flows from operations of $554,000, and cash flows for plant assets of $850,000. The cash flow on total assets ratio equals:

Fernwood Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available: $\begin{array}{llr} \text { Retained earnings balance at the beginning of the year} &\$233,000\\ \text { Cash dividends declared for the year } &50,000\\ \text {Proceeds from the sale of equipment } &85,000\end{array}$ Gain on the sale of equipment 4,500 Cash dividends payable at the beginning of the year 22,000 Cash dividends payable at the end of the year 30,000 Net income for the year 110,000 The amounc of cash paid for dividends was:

The indirect method for computing and reporting net cash flows from operating activities involves adjusting the net income figure to obtain net cash provided or used by operating activities.

Use the following information about the current year's operations of a company to calculate the cash paid for merchandise. $\begin{array} { l| l } \text { Cost d goods sold } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & \$ 500,000 \\\hline \text { Merchandise inventory. January } 1 \ldots \ldots \ldots \ldots \ldots \ldots & 8 5 , 0 0 0 \\\hline \text { Mer chandise inventory. December } 31 \ldots \ldots \ldots \ldots \ldots & 97,000 \\\hline \text { Accounts payable, January } 1 \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 68,000 \\\hline \text { Accounts payable, December } 31 \ldots \ldots \ldots \ldots \ldots \ldots & 60,000\end{array}$

A company had average total assets of $1,660,000, total cash flows of $1,320,000, cash flows from operations of $205,000, and cash flows from financing of $750,000. The cash flow on total assets ratio equals:

Investing activities include receiving cash dividends from investments in other companies' stocks.

Explain how cash flows from investing and financing activities are determined.

Rowan, Inc.'s, income statement is shown below. Based on this income statement and the other information provided, calculate the net cash provided by operations using the indirect method. Rowan, Inc. Income Statement For Year Ended December 31, 20X1 $\begin{array} { l | r | r } \hline \text { Sales } & & \$ 248,000 \\\hline \text { Cost of goods sold } & & 116,000 \\\hline \text { Grost profit } & & \$ 132,000 \\\hline \text { Operating expenses } & & \\\hline \text { Wages and salaries expense } & \$ 44,000 & \\\hline \text { Rent expense } & 16,000 & \\\hline \text { Depreciation expense } & 30,000 & \\\hline \text { Other operating expenses } & 18,000 & \underline { 108,000 } \\\hline \text { Income from operations } & & \$ 24,000 \\\hline \text { Gain on sale of equipment } & & \$ 26,000 \\\hline \text { Income before income taxes } & & \$ 50,000 \\\hline \text { Income taxes expense } & & \$ 17,500 \\\hline \text { Net income } & & \$ 32,500 \\\hline\end{array}$ $\begin{array}{l}\text { Additional information: }\\\begin{array} { l | r } \text { Increase in accounts receivable } & \$ 4,000 \\\hline \text { Increase in accounts payable } & 16,000 \\\hline \text { Increase in income taxes payable } & 300 \\\hline \text { Decrease in prepaid expenses } & 10,000 \\\hline \text { Decrease in merchandise inventory } & 14,000 \\\hline \text { Decrease in long-term notes payable } & 20,000\end{array}\end{array}$

Explain how the cash flows from operating activities section of the statement of cash flows is prepared using the indirect method.

Noncash investing and financing activities may be disclosed in:

The payment of cash dividends never changes the balance of retained earnings.