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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 direct method statement of cash flows Red Toy Company reported the following comparative balance sheet:

Requirements

1. Compute the collections from customers during 2018 for Red Toy Company. Sales Revenue totaled \(134,000.

2. Compute the payments for inventory during 2018. Cost of Goods Sold was \)79,000.

Question: Preparing the statement of cash flows鈥攄irect method The income statement and additional data of Value Corporation follow:

  1. Collections from customers are \(13,000 more than sales.
  2. Dividend revenue, interest expense, and income tax expense equal their cash amounts.
  3. Payments to suppliers are the sum of cost of goods sold plus advertising expense.
  4. Payments to employees are \)3,000 more than salaries expense.
  5. Cash payment for the acquisition of plant assets is \(102,000.
  6. Cash receipts from sale of land total \)29,000.
  7. Cash receipts from issuance of common stock total \(38,000.
  8. Payment of long-term notes payable is \)10,000.
  9. Payment of dividends is \(9,000.
  10. Cash balance at June 30, 2017, was \)21,000; at June 30, 2018, it was $43,000.

Prepare Value Corporation鈥檚 statement of cash flows for the year ended June 30, 2018. Use the direct method.

Computing operating activities cash flow鈥攊ndirect method

The records of Vintage Color Engraving reveal the following:

Net income \( 36,000

Depreciation expense \) 5,000

Sales revenue 53,000

Decrease in current liabilities 19,000

Loss on sale of land 4,000

Increase in current assets other than cash 10,000

Acquisition of land 35,000

Compute cash flows from operating activities by the indirect method for year ended December 31, 2018.

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

a. On January 1, 2018, CRC issued no-par common stock for \(525,000.

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

1. For store fixtures, \)51,000

2. For merchandise inventory, \(240,000

3. For rent expense on a store building, \)18,000

c. Later in the year, CRC purchased merchandise inventory on account for \(243,000. Before year-end, CRC paid \)153,000 of these accounts payable.

d. During 2018, CRC sold 2,800 units of merchandise inventory for \(325 each. Before year-end, the company collected 95% of this amount. Cost of goods sold for the year was \)290,000, and ending merchandise inventory totaled \(193,000.

e. The store employs three people. The combined annual payroll is \)82,000, of which CRC still owes \(5,000 at year-end.

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

g. Late in 2018, CRC paid cash dividends of $38,000.

h. For store fixtures, CRC 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 CRC鈥檚 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 CRC鈥檚 balance sheet at December 31, 2018.

4. Prepare CRC鈥檚 statement of cash flows using the indirect method for the year ended December 31, 2018.

Classifying cash flow items Consider the following transactions:

  1. Purchased equipment for \(130,000 cash.
  2. Issued \)14 par preferred stock for cash.
  3. Cash received from sales to customers of \(35,000.
  4. Cash paid to vendors, \)17,000.
  5. Sold building for \(19,000 gain for cash.
  6. Purchased treasury stock for \)28,000.
  7. Retired a notes payable with 1,250 shares of the company鈥檚 common stock.

Identify the category of the statement of cash flows in which each transaction would be reported.
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