Chapter 23: Q6BE (page 1373)
At January 1, 2017, Eikenberry Inc. had accounts receivable of \(72,000. At December 31, 2017, accounts receivable is \)54,000. Sales revenue for 2017 total $420,000. Compute Eikenberry’s 2017 cash receipts from customers.
The business entity receives$438,000 in cash from the customer.
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In 2017, Leppard Inc. issued 1,000 shares of \(10 par value common stock for land worth \)40,000.
(a) Prepare Leppard’s journal entry to record the transaction.
(b) Indicate the effect the transaction has on cash.
(c) Indicate how the transaction is reported on the statement of cash flows.
Question: (SCF—Direct Method) Los Lobos Corp. uses the direct method to prepare its statement of cash flows. Los Lobos’s trial balances at December 31, 2017 and 2016, are as follows.
| Debits | December 31 | |
| 2017 | 2016 | |
Cash | \(35,000 | \)32,000 |
Accounts receivables | 33,000 | 30,000 |
Inventory | 31,000 | 47,000 |
Property, plant and equipment | 100,000 | 95,000 |
Unamortized bond discount | 4,500 | 5,000 |
Cost of goods sold | 250,000 | 380,000 |
Selling expenses | 141,500 | 172,000 |
General and administration expenses | 137,000 | 151,300 |
Interest expenses | 4,300 | 2,600 |
Income tax expenses | 20,400 | 61,200 |
\(756,700 | \)976,100 | |
| Credits | December 31 | |
| 2017 | 2016 | |
Allowance for doubtful accounts | \(1,300 | \)1,100 |
Accumulated depreciation – Plant assets | 16,500 | 15,000 |
Account payable | 25,000 | 15,500 |
Income tax payable | 21,000 | 29,100 |
Deferred tax liability | 5,300 | 4,600 |
8% callable bonds payable | 45,000 | 20,000 |
Common stock | 50,000 | 40,000 |
Paid-in-capital in excess of par | 9,100 | 7,500 |
Retained earnings | 44,700 | 64,600 |
Sales revenue | 538,800 | 778,700 |
\(756,700 | \)976,100 | |
Additional information:
1. Los Lobos purchased \(5,000 in equipment during 2017.
2. Los Lobos allocated one-third of its depreciation expense to selling expenses and the remainder to general and administrative expenses.
3. Bad debt expense for 2017 was \)5,000, and write-offs of uncollectible accounts totalled $4,800.
Instructions
Determine what amounts Los Lobos should report in its statement of cash flows for the year ended December 31, 2017, for the following items.
(a) Cash collected from customer | (d) Cash paid for income tax |
(b) Cash paid to suppliers | (e) Cash paid for selling expenses |
(c) Cash paid for interest |
Question: (Analysis of Improper SCF) The following statement was prepared by Maloney Corporation’s accountant.
MALONEY CORPORATION STATEMENT OF SOURCES AND APPLICATION OF CASH FOR THE YEAR ENDED SEPTEMBER 30, 2017 | |
Sources of cash | |
Net income | \(111,000 |
Depreciation and depletion | 70,000 |
Increase in long-term debt | 179,000 |
Changes in current receivables and inventories, less current liabilities (excluding current maturities of long-term debt) | 14,000 |
\)374,000 | |
Application of cash | |
Cash dividend | \(60,000 |
Expenditure for property, plant, and equipment | 214,000 |
Investments and other uses | 20,000 |
Change in cash | 80,000 |
\)374,000 | |
The following additional information relating to Maloney Corporation is available for the year ended September 30, 2017.
Expenditures for property, plant, and equipment | \)250,000 |
Proceeds from retirements of property, plant, and equipment | 36,000 |
Net expenditures | \(214,000 |
Depreciation expenses | \(65,000 |
Depletion expenses | 5,000 |
\)70,000 |
Increase in long-term debt | \(620,000 |
Less: Redemption of debt | 441,000 |
Net increases | \)179,000 |
Instructions
(a) In general, what are the objectives of a statement of the type shown above for Maloney Corporation? Explain.
(b) Identify the weaknesses in the form and format of Maloney Corporation’s statement of cash flows without reference to the additional information. (Assume adoption of the indirect method.)
(c) For each of the six items of additional information for the statement of cash flows, indicate the preferable treatment and explain why the suggested treatment is preferable.
Krauss Company’s income statement for the year ended December 31, 2017, contained the following condensed information.
Service revenue \(840,000
Operating expenses (excluding depreciation) \)624,000
Depreciation expense 60,000
Loss on sale of equipment 26,000 710,000
Income before income taxes 130,000
Income tax expense 40,000
Net income \( 90,000
Krauss’s balance sheet contained the following comparative data at December 31.
2017 2016
Accounts receivable \)37,000 $54,000
Accounts payable 41,000 31,000
Income taxes payable 4,000 8,500
(Accounts payable pertains to operating expenses.)
Instructions Prepare the operating activities section of the statement of cash flows using the direct method.
Data for Krauss Company are presented in E23-5.
Instructions
Prepare the operating activities section of the statement of cash flows using the indirect method.
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