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Chapter 23: Q10E (page 1337)

Question: (L01,4) (Classification of Transactions) Following are selected balance sheet accounts of Allman Bros. Corp. at December 31, 2017 and 2016, and the increases or decreases in each account from 2016 to 2017. Also presented is selected income statement information for the year ended December 31, 2017, and additional information.

2017

2016

Increase (Decrease)

Selected balance sheet accounts

Assets

Accounts receivables

\(34,000

\)24,000

\(10,000

Property, plant and equipment

277,000

247,000

30,000

Accumulated depreciation 鈥� plant assets

(178,000)

(167,000)

(11,000)

Liabilities and stockholder鈥檚 equity

Bonds payable

\)49,000

\(46,000

\)3,000

Dividend payable

8,000

5,000

3,000

Common stock, \(1 par

22,000

19,000

3,000

Additional paid-in-capital

9,000

3,000

6,000

Retained earnings

104,000

91,000

13,000

Selected income statement information for the year ended December 31, 2017:

Sales revenue

\)155,000

Depreciation

33,000

Gain on sale of equipment

14,500

Net income

31,000

Additional information:

1. During 2017, equipment costing \(45,000 was sold for cash.

2. Accounts receivable relate to sales of merchandise.

3. During 2017, \)20,000 of bonds payable were issued in exchange for property, plant, and equipment. There was no amortization of bond discount or premium.

Instructions

Determine the category (operating, investing, or financing) and the amount that should be reported in the statement of cash flows for the following items.

(a) Payments for purchase of property, plant, and equipment.

(b) Proceeds from the sale of equipment.

(c) Cash dividends paid.

(d) Redemption of bonds payable.

Short Answer

Expert verified

Answer

Item

Section

Amount

Payment for purchase of property, plant, and equipment

Investing activity

$55,000

Proceed from the sale of equipment

Investing activity

$37,500

Cash dividend paid

Operating activity

$0

Redemption of bonds payable

Financing activity

$17,000

Step by step solution

01

Definition of Statement of Cash Flow

The schedule prepared by the business entity for providing a summary of all the transactions, including cash payments and receipts, is known as the statement of cash flow.

02

Payment for purchase of property, plant, and equipment

Payment made for the purchase of property, plant, and equipment is an investing activity.

Particular

Amount $

Property plant and equipment at end of the year 2017

$277,000

Add: Sale of equipment

45,000

Less: property, plant, and equipment at the end of the year 2016

(247,000)

Less: Equipment purchased against bonds

(20,000)

Payment made

$55,000

03

Proceeds from the sale of equipment

Particular

Amount $

Gain on sale of equipment

$14,500

Cost of equipment Sold

$45,000

Less: Depreciation expenses

($22,000)

Proceed from sale of equipment

$37,500

04

Cash dividend paid

The balance of the dividend payable account has increased by $3,000, and no cash dividend is declared during the period, which means that there is no cash paid for the dividend.

05

Redemption of bonds payable

Particular

Amount $

Opening balance

$46,000

Add: issued for property, plant and equipment

20,000

Less: Closing balance

(49,000)

Redemption

$17,000

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Most popular questions from this chapter

Chapman Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company. The comparative balance sheet and income statement for Chapman as of May 31, 2017, are as follows. The company is preparing its statement of cash flows.

CHAPMAN COMPANY

COMPARATIVE BALANCE SHEET

AS OF MAY 31

2017 2016

Current assets Cash \( 28,250 \) 20,000

Accounts receivable 75,000 58,000

Inventory 220,000 250,000

Prepaid expenses 9,000 7,000

Total current assets 332,250 335,000

Plant assets

Plant assets 600,000 502,000

Less: Accumulated depreciation鈥攑lant assets 150,000 125,000

Net plant assets 450,000 377,000

Total assets \(782,250 \)712,000

Current liabilities

Accounts payable \(123,000 \)115,000

Salaries and wages payable 47,250 72,000

Interest payable 27,000 25,000

Total current liabilities 197,250 212,000

Long-term debt

Bonds payable 70,000 100,000

Total liabilities 267,250 312,000

Stockholders鈥� equity

Common stock, \(10 par 370,000 280,000

Retained earnings 145,000 120,000

Total stockholders鈥� equity 515,000 400,000

Total liabilities and stockholders鈥� equity \)782,250 \(712,000

CHAPMAN COMPANY

INCOME STATEMENT

FOR THE YEAR ENDED MAY 31, 2017

Sales revenue \)1,255,250

Cost of goods sold 722,000

Gross profit 533,250

Expenses Salaries and wages expense 252,100

Interest expense 75,000

Depreciation expense 25,000

Other expenses 8,150

Total expenses 360,250

Operating income 173,000

Income tax expense 43,000

Net income \( 130,000

The following is additional information concerning Chapman鈥檚 transactions during the year ended May 31, 2017.

1. All sales during the year were made on account.

2. All merchandise was purchased on account, comprising the total accounts payable account.

3. Plant assets costing \)98,000 were purchased by paying \(28,000 in cash and issuing 7,000 shares of stock.

4. The 鈥渙ther expenses鈥� are related to prepaid items.

5. All income taxes incurred during the year were paid during the year.

6. In order to supplement its cash, Chapman issued 2,000 shares of common stock at par value.

7. Cash dividends of \)105,000 were declared and paid at the end of the fiscal year.

Instructions

(a) Compare and contrast the direct method and the indirect method for reporting cash flows from operating activities.

(b) Prepare a statement of cash flows for Chapman Company for the year ended May 31, 2017, using the direct method. Be sure to support the statement with appropriate calculations. (A reconciliation of net income to net cash provided is not required.)

(c) Using the indirect method, calculate only the net cash flow from operating activities for Chapman Company for the year ended May 31, 2017.

Moxley Corporation had January 1 and December 31 balances as follows.

1/1/17 12/31/17

Inventory \(95,000 \)113,000

Accounts payable 61,000 69,000

For 2017, cost of goods sold was $500,000. Compute Moxley鈥檚 2017 cash payments to suppliers.

The transactions below took place during the year 2017.

1. Convertible bonds payable with a par value of \(300,000 were exchanged for unissued common stock with a par value of \)300,000. The market price of both types of securities was par.

2. The net income for the year was \(410,000.

3. Depreciation expense for the building was \)90,000.

4. Some old office equipment was traded in on the purchase of some dissimilar office equipment, and the following entry was made.

Equipment 50,000

Accum. Depreciation鈥擡quipment 30,000

Equipment 40,000

Cash 34,000

Gain on Disposal of Plant Assets 6,000

The Gain on Disposal of Plant Assets was included in income before income taxes.

5. Dividends in the amount of $123,000 were declared. They are payable in January of next year.

Instructions

Show by journal entries the adjustments that would be made on a worksheet for a statement of cash flows.

Indicate in general journal form how the items below would be entered in a worksheet for the preparation of the statement of cash flows.

(a) Net income is \(317,000.

(b) Cash dividends declared and paid totaled \)120,000.

(c) Equipment was purchased for \(114,000.

(d) Equipment that originally cost \)40,000 and had accumulated depreciation of \(32,000 was sold for \)10,000.

Unlike the other major financial statements, the statement of cash flows is not prepared from the adjusted trial balance. From what sources does the information to prepare this statement come, and what information does each source provide?
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