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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	Dec 31, 2017	Dec 31, 2016	Increase or (decrease)
Cash	\(277,900	\)298,000	(\(20,100)
Accounts receivable	469,424	353,000	116,424
Inventory	741,700	610,000	131,700
Prepaid expenses	12,000	8,000	4,000
Investment in subsidiary	110,500	0	110,500
Cash surrender value of life insurance	2,304	1,800	504
Machinery	207,000	190,000	17,000
Buildings	535,200	407,900	127,300
Land	52,500	52,500	0
Patents	69,000	64,000	5,000
Copyrights	40,000	50,000	(10,000)
Bond discount and issue costs	4,502	0	4,502
Total	\)2,522,030	\(2,035,200	\)486,830

Income tax payable	\(90,250	\)79,600	\(10,650
Account payable	299,280	280,000	19,280
Dividend payable	70,000	0	70,000
Bond payable 鈥� 8%	125,000	0	125,000
Bond payable 鈥� 12%	0	100,000	(100,000)
Allowance for doubtful accounts	35,300	40,000	(4,700)
Accumulated depreciation 鈥� building	424,000	400,000	24,000
Accumulated depreciation 鈥� machinery	173,000	130,000	43,000
Premium on bond payable	0	2,400	(2,400)
Common stock 鈥� no par	1,176,200	1,453,200	(277,000)
Paid-in-capital in excess of par 鈥� common stock	109,000	0	109,000
Retained earnings 鈥� unappropriated	20,000	(450,000)	470,000
Total	\)2,522,030	\(2,035,200	\)486,830

STATEMENT OF RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 2017
January 1, 2017	Balance (deficit)	(\(450,000)
March 31, 2017	Net income for first quarter of 2017	25,000
April 1, 2017	Transfer from paid-in capital	425,000
	Balance	0
December 31, 2017	Net income for last three quarters of 2017	90,000
	Dividend declared鈥攑ayable January 21, 2018	(70,000)
	Balance	\)20,000

LASKOWSKI CO. INCOME STATEMENT
Revenues	\(6,583,000
Operating expenses (excluding depreciation) \)4,920,000
Depreciation expense 880,000	5,800,000
Income before income tax	783,000
Income tax expense	353,000
Net income	\( 430,000

LASKOWSKI CO. COMPARATIVE BALANCE SHEETS (PARTIAL)
	2017	2016
Cash	\(672,000	\)130,000
Accounts receivable	775,000	610,000
Inventory	834,000	867,000
Accounts payable	521,000	501,000

	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

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Short Answer

Step by step solution

Meaning of Cash Flow Statement

Indication of the below transactions

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Sales revenue	\)155,000
Depreciation	33,000
Gain on sale of equipment	14,500
Net income	31,000