/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q1E Red Hot Chili Peppers Co. had th... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 23: Q1E (page 1374)

Red Hot Chili Peppers Co. had the following activity in its most recent year of operations.

(a) Purchase of equipment. (g) Amortization of intangible assets.

(b) Redemption of bonds payable. (h) Purchase of treasury stock.

(c) Sale of building. (i) Issuance of bonds for land.

(d) Depreciation. (j) Payment of dividends.

(e) Exchange of equipment for the furniture. (k) Increase in interest receivable on notes receivable.

(f) Issuance of common stock. (l) Pension expense exceeds the amount funded.

Instructions

Classify the items as (1) operating鈥攁dd to net income; (2) operating鈥攄educt from net income; (3) investing; (4) financing; or (5) significant noncash investing and financing activities. Use the indirect method.

Short Answer

Expert verified

(a) Purchase of equipment :Investing activities

(b) Redemption of bonds payable :Financing activities

(c) Sales of building :Investing Activities

(d) Depreciation :Operating 鈥� Add to net income

(e) Exchange of equipment for the furniture :Significant noncash investing and financing activities

(f) Issuance of Common stock :Financing Activities

(g) Amortization of intangible assets :Operating 鈥� add to net income

(h) Purchase of treasury stock :Financing Activity

(i) Issuance of bonds for land :Significant noncash investing and financing activity

(j) Payment of dividends :Financing activity

(k) Increase in interestreceivable on notes receivable :Operating 鈥� deduct from net income

(l) Pension expense exceeds amount funded :Operating 鈥� Add to net income

Step by step solution

01

:Purchase of Equipment (A)

The equipment is considered a fixed asset. It will come under investing activities as investing activities in the statement of cash flow records all the transactions which are related to investing and sales of assets or investments for cash.

02

Step 2:Redemption of bonds payable (B)

The bonds are issued to raise capital and finance the business operations. So, it will be considered the financing activity as the financing activities record all receipts and payments in cash for raising money and repayment.

03

Step 3:Sale of the building (C)

The building is considered a fixed asset. It will come under investing activities as investing activities in the statement of cash flow records all the transactions which are related to investing and sales of assets such as buildings, land, etc or investments for cash.

04

Step 4:Depreciation (D)

The depreciation will be added to net income under operating activities as it is a non-cash expense and cash flow only records the cash transaction. Earlier while preparing theincome statement, it was deducted. So, under the indirect method, it should be added to net income to reach cash flow from operating activities.

05

Step 5:Exchange of Equipment for furniture (E)

The transaction in which equipment is exchanged for furniture without the involvement of cash, so it means it will come under the significant non-cash investing and financing activities.

06

Step 6:Issuance of Common Stock (F)

The Common stocks are issued by the company to raise additional capital for the business. All the transactions which are related to the raising of capital or repayment to investors come under financing activities. Hence, the issuance of common stock will come under financing activities.

07

Step 7:Amortization of Intangible assets (G)

The treatment of the amortization of intangible assets will be very similar to that of depreciation of assets as it is also a non-cash expense. Hence, it will come under operating activity and will be added to net income.

08

Step 8:Purchase of treasury stock (H)

The purchase of treasury stock will come under the financing activity and the company is buying its outstanding stocks from the investors, which were issued earlier to raise capital.

09

Step 9:Issuance of bonds for land (I)

Issuance of bonds for land will come under significant noncash investing or financing activities as there is no involvement of cash in this transaction.

10

Step 10:Payment of dividends (J)

The payment of dividends will come under the financing activity as it is related to the finance of the company.

11

 Step 11: Increase in Interest Receivable on notes receivable (K)

The increase in the interest receivable will increase the revenue but the revenue has not been received in cash so, it will be deducted from the net income in operating activities.

12

Step 12:Pension expense exceeds amount funded (L)

It will be considered a non-cash operating expense, so the treatment of this will be the addition to the net income in cash flows from operating activities.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Question: CA23-5 (Purpose and Elements of SCF) GAAP requires the statement of cash flows be presented when financial statements are prepared.

Instructions

(a) Explain the purposes of the statement of cash flows.

(b) List and describe the three categories of activities that must be reported in the statement of cash flows.

(c) Identify and describe the two methods that are allowed for reporting cash flows from operations.

(d) Describe the financial statement presentation of noncash investing and financing transactions. Include in your description an example of a noncash investing and financing transaction.

Wainwright Corporation had the following activities in 2017:

1. Sale of land \(180,000.

4. Purchase of equipment \)415,000.

2. Purchase of inventory \(845,000.

5. Issuance of common stock \)320,000.

3. Purchase of treasury stock \(72,000.

6. Purchase of available-for-sale debt securities \)59,000.

Compute the amount Wainwright should report as net cash provided (used) by investing activities in its 2017 statement of cash flows.

For purposes of the statement of cash flows, under IFRS, income taxes paid are treated as:

  1. cash flows from operating activities unless they can be separately identified as part of investing or financing activities.
  2. an operating activity in all cases.
  3. an investing or operating activity, depending on whether a refund is received.
  4. either operating, financing, or investing activity, but treated consistently to other companies in the same industry.

(Schedule of Net Cash Flow from Operating Activities鈥擨ndirect Method)

Ballard Co. reported \(145,000 of net income for 2017. The accountant, in preparing the statement of cash flows, noted the following items occurring during 2017 that might affect cash flows from the operating activities.

  1. Ballard purchases 100 shares of treasury stock at a cost of \)20 per share. These shares are then resold at \(25 per share.
  2. Ballard sold 100 shares of IBM common at \)200 per share. The acquisition cost of these shares was \(145 per share. There were no unrealized gains or losses recorded on this investment in 2017.
  3. Ballard revised its estimates for bad debts. Before 2017, Ballard鈥檚 bad debt expenses was 1% of its net sales. In 2017, this percentage was increased to 2%. Net sales for 2017 were \)500,000 and net accounts receivable decreased by \(12,000 during 2017.
  4. Ballard issued 500 shares of its \)10 par common stock for a patent. The market price of the shares on the date of the transaction was \(23 per share.
  5. Depreciation expense is \)39,000.
  6. Ballard Co. holds 40% of the Nirvana company鈥檚 common stock as a long-term investment. Nirvana company reported \(27,000 of net income for 2017.
  7. Nirvana company paid a total of \)2,000 of cash dividend to all investees in 2017.
  8. Ballard declared a 10% stock dividend. One thousand shares of \(10 par common stock were distributed. The market price at date of issuance was \)20 per share.

Instructions

Prepare a schedule that shows the net cash flow from operating activities using the indirect method. Assume no items other than those listed above affected the computation of 2017 net cash flow from operating activities.

Jobim Inc. had the following condensed balance sheet at the end of operations for 2016.

JOBIM INC.

BALANCE SHEET

DECEMBER 31, 2016

Cash \( 8,500 Current liabilities \) 15,000

Current assets other than cash 29,000 Long-term notes payable 25,500

Equity investments 20,000 Bonds payable 25,000

Plant assets (net) 67,500 Common stock 75,000

Land 40,000 Retained earnings 24,500

\(165,000 \)165,000

During 2017, the following occurred.

1. A tract of land was purchased for \(9,000.

2. Bonds payable in the amount of \)15,000 were redeemed at par.

3. An additional \(10,000 in common stock was issued at par.

4. Dividends totaling \)9,375 were paid to stockholders.

5. Net income was \(35,250 after allowing depreciation of \)13,500.

6. Land was purchased through the issuance of \(22,500 in bonds.

7. Jobim Inc. sold part of its investment portfolio for \)12,875. This transaction resulted in a gain of $2,000 for the company. No unrealized gains or losses were recorded on these investments in 2017.

8. Both current assets (other than cash) and current liabilities remained at the same amount.

Instructions

(a) Prepare a statement of cash flows for 2017 using the indirect method.

(b) Prepare the condensed balance sheet for Jobim Inc. as it would appear at December 31, 2017
See all solutions

Recommended explanations on Business Studies Textbooks

International Business

Read Explanation

Strategic Direction

Read Explanation

Accounting

Read Explanation

Corporate Finance

Read Explanation

Organizational Communication

Read Explanation

Strategic Analysis

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.