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Chapter 5: Q14BE. (page 239)

Martinez Corporation engaged in the following cash transactions during 2017.

Sale of land and building $191,000

Purchase of treasury stock 40,000

Purchase of land 37,000

Payment of cash dividend 95,000

Purchase of equipment 53,000

Issuance of common stock 147,000

Retirement of bonds 100,000

Compute the net cash provided (used) by investing activities.

Short Answer

Expert verified

The cash flow from investing activities is equal to $101,000.

Step by step solution

01

Definition of Investing activities

The cash flow statement reports all those activities as investing activities that include cash disbursement for purchase of a capital asset and cash receipt for sale of a capital asset.

02

Cash from investing activities

Particular

Amount $

Sale of land and building

$191,000

Purchase of land

(37,000)

Purchase of equipment

(53,000)

Cash from investing activities

$101,000

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Most popular questions from this chapter

(Presentation of Property, Plant, and Equipment) Carol Keene, corporate comptroller for Dumaine Industries, is trying to decide how to present “Property, plant, and equipment” in the balance sheet. She realizes that the statement of cash flows will show that the company made a significant investment in purchasing new equipment this year, but overall she knows the company’s plant assets are rather old. She feels that she can disclose one figure titled “Property, plant, and equipment, net of depreciation,” and the result will be a low figure. However, it will not disclose the age of the assets. If she chooses to show the cost less accumulated depreciation, the age of the assets will be apparent. She proposes the following.

Particular

Amount \(

Property, Plant, and Equipment (net of depreciation)

\)10,000,000

Rather than

Particular

Amount \(

Property, Plant, and Equipment

\)50,000,000

Less: Accumulated depreciation

(40,000,000)

Net book value

$10,000,000

Instructions

Answer the following questions.

(a) What are the ethical issues involved?

(b) What should Keene do?

Aero Inc. had the following balance sheet at December 31, 2016.

LANSBURY INC.

BALANCE SHEET

DECEMBER 31, 2016

Cash

\(20,000

Account payable

\)30,000

Accounts receivables

21,200

Bond payable

41,000

Investment

32,000

Common stock

100,000

Plant assets (net)

81,000

Retained earnings

23,200

Land

40,000

\(194,200

\)194,200

During 2017, the following occurred.

1. Aero liquidated its available-for-sale debt investment portfolio at a loss of \(5,000.

2. A tract of land was purchased for \)38,000.

3. An additional \(30,000 in common stock was issued at par.

4. Dividends totaling \)10,000 were declared and paid to stockholders.

5. Net income for 2017 was \(35,000, including \)12,000 in depreciation expense.

6. Land was purchased through the issuance of \(30,000 in additional bonds.

7. At December 31, 2017, Cash was \)70,200, Accounts Receivable was \(42,000, and Accounts Payable was \)40,000.

Instructions

(a) Prepare a statement of cash flows for the year 2017 for Aero.

(b) Prepare the unclassified balance sheet as it would appear at December 31, 2017.

(c) Compute Aero’s free cash flow and current cash debt coverage for 2017.

(d) Use the analysis of Aero to illustrate how information in the balance sheet and statement of cash flows helps the user of the financial statements.

(Classification of Balance Sheet Accounts) Assume that Fielder Enterprises uses the following headings on its balance sheet.

(a) Current assets

(g) Long-term liabilities

(b) Investments

(h) Capital stock

(c) Property, plant, and equipment

(i) Equity attribute to non-controlling interest

(d) Intangible assets

(i) paid-in-capital in excess of par

(e) Other assets

(k) Retained earnings

(f) Current liabilities

Instructions

Indicate by letter how each of the following usually should be classified. If an item should appear in a note to the financial statements, use the letter “N” to indicate this fact. If an item need not be reported at all on the balance sheet, use the letter “X.”

1. Prepaid insurance.

2. Stock owned in affiliated companies.

3. Unearned service revenue.

4. Advances to suppliers.

5. Unearned rent revenue.

6. Preferred stock.

7. Additional paid-in capital on preferred stock.

8. Copyrights.

9. Petty cash fund.

10. Sales taxes payable.

11. Accrued interest on notes receivable.

12. Twenty-year issue of bonds payable that will mature within the next year. (No sinking fund exists, and refunding is not planned.)

13. Machinery retired from use and held for sale.

14. Fully depreciated machine still in use.

15. Accrued interest on bonds payable.

16. Salaries that company budget shows will be paid to employees within the next year.

17. Discount on bonds payable. (Assume related to bonds payable in item 12.)

18. Accumulated depreciation—buildings.

19. Shares held by non-controlling stockholders.

What are the major limitations of the balance sheet as a source of information?

BE5-5 (L03) Crane Corporation has the following accounts included in its December 31, 2017, trial balance: Equity Investments (trading) \(21,000, Goodwill \)150,000, Prepaid Insurance \(12,000, Patents \)220,000, and Franchises $130,000. Prepare the intangible assets section of the balance sheet.
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