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Chapter 14: 9SE (page 732)

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

Requirements

  1. How much did Jennifer鈥檚 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.

Short Answer

Expert verified

(1) There is an increase in cash balance by $43,000 during the year.

(2) Yes, there are non-cash transactions. Depreciation will be reported in the cash flow statement under operating activity section, and building purchased by long term notes payable will be separately under non-cash investing and financing activity.

Step by step solution

01

Calculation of Net Increase/(decrease) in cash

Jennifer鈥檚 wedding shop

Statement of Cash Flow (partial)

Cash Flow from Operating activities

$27,000

Adjustments to reconcile net income

to net cash provided by operating activities

Depreciation Expenses

$16,000

Net Increase(decrease) in cash

$43,000

02

Non-cash transactions and their reporting

Non-cash transactions are those transactions that do not involve the transfer of cash and cash equivalents.

Depreciation of $16,000 is a non-cash operating expense and it is shown in the cash flow statement by adding back to the net income so that net income reconciles with net cash flows from operating activities.

Acquisition of building $119,000 by borrowing $119,000 on a long-term note payable is a non-cash investing and financing activity and it will be reported in a separate part of the statement of cash flows. The reporting of this non-cash investing and financing activity will be as follows:

Jennifer鈥檚 wedding shop

Statement of Cash Flow (partial)

Non-cash Investing and Financing Activities:

Acquisition of a building by borrowing a long-term loan payable

$119,000

Total Non-Cash Investing and Financing activities

$119,000

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Most popular questions from this chapter

Preparing the statement of cash flows-indirect statement This problem continues the Canyon Canoe Company situation from Chapter 13. Canyon Canoe Company's comparative balance sheet is shown below. 2019 amounts are assumed, but include several transactions from prior chapters.

Additional data fellow:

  1. The income statement for 2019 included the following items: Net income, \(417,000. Depreciation expense for the year, \)34,330. Amortization on the bonds payable, \(254.
  2. There were no disposals of property, plant and equipment during this year. All acquistions of PP&E were for cash except the land, which was acquired by issuing preferred stock.
  3. The company issued bonds payable with a face value of \)210,000, receiving cash of \(208,476.
  4. The company distributed 4,000 shares of common stock in a stock dividend when the market value was \)4.50 per share. All other dividends were paid in cash.
  5. The common stock, except for the stock dividend, was issued for cash.
  6. The cash receipt from the note payable in 2019 is considered a financing activity because it does not relate to operations. Requirements Prepare the statement of cash flows for the year ended December 31, 2019, using the indirect method.

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鈥撯�揚lant 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鈥攊ndirect method with non-cash transactions the 2018 income statement and comparative balance sheet of Sweet Valley, Inc. follow:

Additionally, Sweet Valley purchased land of \(20,900 by financing it 100% with long-term notes payable during 2018. During the year, there were no sales of land, no retirements of stock, and no treasury stock transactions. A plant asset was disposed of for \)0. The cost and the accumulated depreciation of the disposed asset were $13,240. Plant asset was acquired for cash.

Requirements

1. Prepare the 2018 statement of cash flows, formatting operating activities by the indirect method.

2. How will what you learned in this problem help you evaluate an investment?

Question: If a company experienced a loss on disposal of long-term assets, how would this be reported in the operating activities section of the statement of cash flows when using the indirect method? Why?

Identifying and reporting non-cash transactions

Dirtbikes, Inc. identified the following selected transactions that occurred during the year ended December 31, 2018:

  1. Issued 750 shares of \(3 par common stock for cash of \)17,000.
  2. Issued 5,100 shares of \(3 par common stock for a building with a fair market value of \)96,000.
  3. Purchased new truck with a fair market value of \(29,000. Financed it 100% with a long-term note.
  4. Retired short-term notes of \)28,000 by issuing 1,900 shares of \(3 par common stock.
  5. Paid long-term note of \)10,500 to Bank of Tallahassee. Issued new long-term note of $23,000 to Bank of Trust.

Identify any non-cash transactions that occurred during the year, and show how they would be reported in the non-cash investing and financing activities section of the statement of cash flows
See all solutions

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