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Chapter 14: Q14-6SE (page 772)

Question: Computing cash flows from investing and financing activities Use the data in Short Exercise S14-5 to complete this exercise. Prepare Winding Road Cellular’s statement of cash flows using the indirect method for the year ended April 30, 2018. Assume beginning and ending Cash are \(48,000 and \)52,200, respectively.

Short Answer

Expert verified

Answer

Net Increase/(Decrease) in cash is $4,200.

Step by step solution

01

Cash flow from operating activities

Cash flows from operating activities

Net Income

$55,000

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

Depreciation expense

$2,000

Increase in current assets other than cash

($27,000)

Decrease in current liabilities

($20,000)

Net cash provided by operating activities

$10,000

02

Statement of cash flows- Indirect method

Winding Road Cellular

Statement of cash flows

Year ended 31st December, 2018

Cash flows from operating activities

Net Income

$55,000

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

Depreciation expense

$2,000

Increase in current assets other than cash

($27,000)

Decrease in current liabilities

($20,000)

Net cash provided by operating activities

$10,000

Cash flows from investing activities

Cash receipt from sale of land

$27,000

Cash purchase of equipment

($44,000)

Net cash used for investing activities

($17,000)

Cash flows from financing activities

Cash receipt from issuance of common stock

$17,000

Cash payment of dividends

($5,800)

Net cash provided by financing activities

$11,200

Net Increase/(Decrease) in cash

$4,200

Cash balance, December 31, 2017

$48,000

Cash balance, December 31, 2018

$52,200

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Most popular questions from this chapter

Jennifer’s Wedding Shops earned net income of \(27,000, which included depreciation of \)16,000. Jennifer’s acquired a \(119,000 building by borrowing \)119,000 on a long-term note payable.

Requirements

  1. How much did Jennifer’s cash balance increase or decrease during the year?
  2. Were there any non-cash transactions for the company? If so, show how

they would be reported in the statement of cash flows.

American Rare Coins (ARC) was formed on January 1, 2018. Additional data for the year follow:

a. On January 1, 2018, ARC issued no par common stock for \(450,000.

b. Early in January, ARC made the following cash payments:

  1. For store fixtures, \)53,000
  2. For merchandise inventory, \(340,000
  3. For rent expense on a store building, \)20,000

c. Later in the year, ARC purchased merchandise inventory on account for \(239,000. Before year-end, ARC paid \)139,000 of these accounts payable.

d. During 2018, ARC sold 2,400 units of merchandise inventory for \(275 each. Before year-end, the company collected 85% of this amount. Cost of goods sold for the year was \)250,000, and ending merchandise inventory totaled \(329,000.

e. The store employs three people. The combined annual payroll is \)96,000, of which ARC still owes \(3,000 at year-end.

f. At the end of the year, ARC paid income tax of \)17,000. There are no income taxes payable.

g. Late in 2018, ARC paid cash dividends of $44,000.

h. For store fixtures, ARC uses the straight-line depreciation method, over five years, with zero residual value.

Requirements

  1. What is the purpose of the statement of cash flows?
  2. Prepare ARC’s income statement for the year ended December 31, 2018. Use the single-step format, with all revenues listed together and all expenses listed together.
  3. Prepare ARC’s balance sheet at December 31, 2018.

Prepare ARC’s statement of cash flows using the indirect method for the year ended December 31, 2018.

Question: Classifying items on the indirect statement of cash flows

The statement of cash flows categorizes like transactions for optimal reporting. Identify each item as a(n):

• Operating activity—addition to net income (O+) or subtraction from net income (O-)

• Investing activity—cash inflow (I+) or cash outflow (I-)

• Financing activity—cash inflow (F+) or cash outflow (F-)

• Non-cash investing and financing activity (NIF)

• Activity that is not used to prepare the indirect statement of cash flows (N)

The indirect method is used to report cash flows from operating activities.

  1. Loss on sale of land.
  2. Acquisition of equipment by issuance of note payable.
  3. Payment of long-term debt.
  4. Acquisition of building by issuance of common stock.
  5. Increase in Salaries Payable.
  6. Decrease in Merchandise Inventory.
  7. Increase in Prepaid Expenses.
  8. Decrease in Accrued Liabilities.
  9. Cash sale of land (no gain or loss).
  10. Issuance of long-term note payable to borrow cash.
  11. Depreciation Expense.
  12. Purchase of treasury stock.
  13. Issuance of common stock.
  14. Increase in Accounts Payable.
  15. Net income.
  16. Payment of cash dividend

Question: Computing investing and financing cash flows Preston Media Corporation had the following income statement and balance sheet for 2018:

PRESTON MEDIA CORPORATION

Income Statement

Year Ended December 31, 2018

Sales Revenue \(80,000

Depreciation Expense––Plant Assets \)11,000

Other Expenses \(50,000

Net Income \)19,000

Requirements

1. Compute the acquisition of plant assets for Preston Media Corporation during 2018. The business sold no plant assets during the year. Assume the company paid cash for the acquisition of plant assets.

2. Compute the payment of a long-term note payable. During the year, the business issued a $4,400 note payable.

Preparing the statement of cash flows—indirect method

Accountants for Morganson, Inc. have assembled the following data for the year ended December 31, 2018:

2018 2017 Current Assets: Cash \( 99,400 \) 25,000 Accounts Receivable 64,100 69,700 Merchandise Inventory 83,000 75,000 Current Liabilities: Accounts Payable 57,600 55,200 Income Tax Payable 14,800 16,800

Transaction Data for 2018:

Issuance of common stock for cash \( 38,000

Payment of notes payable \) 46,100

Depreciation expense 24,000

Payment of cash dividends 50,000

Purchase of equipment with cash 74,000

Issuance of notes payable to borrow cash 62,000

Acquisition of land by issuing long-term notes payable 119,000

Gain on sale of building 4,500 Book value of building sold 54,000

Net income 68,500

Prepare Morganton'sstatement of cash flows using the indirect method. Include an accompanying schedule of non-cash investing and financing activities.
See all solutions

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