Q1BE Novak Corporation is preparing i... [FREE SOLUTION]

Chapter 23: Q1BE (page 1372)

Novak Corporation is preparing its 2017 statement of cash flows, using the indirect method. Presented below is a list of items that may affect the statement. Using the code below, indicate how each item will affect Novak鈥檚 2017 statement of cash flows.
Code Letter Effect
A Added to net income in the operating section
D Deducted from net income in the operating section
R-I Cash receipt in investing section
P-I Cash payment in investing section
R-F Cash receipt in financing section
P-F Cash payment in financing section
N Noncash investing and financing activity
(a)Purchase of land and building
(b)Decrease in accounts receivable
(c)Issuance of stock.
(d)Depreciation expense.
(e)Sale of land at book value.
(f)Sale of land at a gain.
(g)Payment of dividends.
(h)Increase in accounts receivable.
(i)Purchase of available-for-sale debt investment
(j)Increase in accounts payable.
(k)Decrease in accounts payable.
(l)Loan from bank by signing note
(m)Purchase of equipment using a note
(n)Increase in inventory
(o)Issuance of bonds.
(p)Redemption of bonds payable.
(q)Sale of equipment at a loss.
(r)Purchase of treasury stock.

Short Answer

Expert verified

A cash flow statement separates the transactions according to their nature, such that if a transaction is related to the main production, then it is under operation, and if the transaction is related to finance, then it is under financing activity.

Step by step solution

Meaning of Cash Flow Statement

It is one of the reporting methods of cash transactions in a separate statement that records only business transactions where the monetary term is included. It helps to determine the flow of cash in the business.

Indication of the below transactions

Items	Code	Effect
Purchase of land and building	P-I	Cash payment in investing section.
Decrease in accounts receivable	A	Added to net income in the operating section.
Issuance of stock.	R-F	Cash receipt in financing section.
Depreciation expense	A	Added to net income in the operating section.
Sale of land at book value	R-I	Cash receipt in investing section.
Sale of land at a gain.	R-I D	Cash receipt in investing section. Deducted from net income in the operating section
Payment of dividends.	P-F	Cash payment in financing section.
Increase in accounts receivable.	D	Deducted from net income in the operating section.
Purchase of available-for-sale debt investment	P-I	Cash payment in investing section.
Increase in accounts payable.	A	Added to net income in the operating section.
Decrease in accounts payable	D	Deducted from net income in the operating section.
Loan from bank by signing note	R-F	Cash receipt in financing section.
Purchase of equipment using a note	N	Non-cash investing and financing activity.
Increase in inventory	D	Deducted from net income in the operating section.
Issuance of bonds.	R-F	Cash receipt in financing section.
Redemption of bonds payable.	P-F	Cash payment in financing section.
Sale of equipment at a loss.	R-I A	Cash receipt in investing section. Added to net income in the operating section.
Purchase of treasury stock.	P-F	Cash payment in financing section.

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MICHAELS COMPANY COMPARATIVE BALANCE SHEETS AS OF DECEMBER 31, 2017 AND 2016
	2017	2016
Cash	\(10,000	\)4,000
Accounts receivable	20,500	12,950
Short-term investments	22,000	30,000
Inventory	42,000	35,000
Prepaid rent	3,000	12,000
Prepaid insurance	2,100	900
Supplies	1,000	750
Land	125,000	175,000
Building	350,000	350,000
Accumulated depreciation 鈥� building	(105,000)	(87,500)
Equipment	525,000	400,000
Accumulated depreciation 鈥� equipment	(130,000)	(112,000)
Patents	45,000	50,000
Total assets	\(910,600	\)871,100

Account payable	\(22,000	\)32,000
Income tax payable	5,000	4,000
Salaries and wages payable	5,000	3,000
Short-term note payable	10,000	10,000
Long-term note payable	60,000	70,000
Bond payable	400,000	400,000
Premium on bond payable	20,303	25,853
Common stock	240,000	220,000
Paid-in-capital in excess of par 鈥� common stock	25,000	17,500
Retained earnings	123,297	88,747
Total liabilities and stockholders equity	\(910,600	\)871,100

MICHAELS COMPANY INCOME STATEMENT AND DIVIDEND INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2017
Sales revenue		\(1,160,000
Cost of goods sold		748,000
Gross margin		412,000
Operating expenses
Selling expenses	\)79,200
Administrative expenses	156,700
Depreciation/Amortization expenses	40,500
Total operating expenses		276,400
Income from operations		135,600
Other revenue/expenses
Gain on sale of land	8,000
Gain on sale of short-term investment	4,000
Dividend revenue	2,400
Interest expenses	(51,750)	(37,350)
Income before tax		98,250
Income tax expenses		39,400
Net income		58,850
Dividend to common stockholders		(24,300)
To Retained earnings		$34,550

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 鈥� 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

(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

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Short Answer

Step by step solution

Meaning of Cash Flow Statement

Indication of the below transactions

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