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Chapter 23: Q20E (page 1381)

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.

Short Answer

Expert verified

The journal entries are recorded in Step 2 that would appear on a worksheet for a statement of cash flows.

Step by step solution

01

Definition of dividends

The dividends are defined as the part of profits which are distributed among the shareholders of the company. It can be in form of cash or stocks

02

Preparation statement of cash flows

Journal

Date

Particulars

Debit ($)

Credit ($)

1

Bonds Payable

300,000

Common stock

300,000

(Noncash financing activities)

2

Operating 鈥� Net Income

410,000

Retained Earnings

410,000

(Net Income recorded)

3

Operating - Depreciation Expense

90,000

Accumulated Depreciation - Equipment

90,000

(Depreciation expense recorded)

4

Accumulated Depreciation 鈥� Equipment

30,000

Equipment

10,000

Operating 鈥� Gain on disposal of plant assets

6,000

Investing 鈥� Purchase of equipment

34,000

(Sale and purchase of equipment recorded)

5

Retained Earnings

123,000

Dividends payable

123,000

(Dividends recorded)

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Most popular questions from this chapter

What is the purpose of the statement of cash flows? What

information does it provide?

Following are selected statement of financial position accounts of Sander 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.

Selected statement of financial position accounts

2017

2016

Increase

(Decrease)

Assets

Property, plant, and equipment

\(277,000

\)247,000

\(30,000

Accumulated depreciation

(178,000)

(167,000)

(11,000)

Accounts receivable

34,000

24,000

10,000

Equity and liabilities

Share capital鈥攐rdinary, \)1 par

\( 22,000

\) 19,000

\( 3,000

Share premium鈥攐rdinary

9,000

3,000

6,000

Retained earnings

104,000

91,000

13,000

Bonds payable

49,000

46,000

3,000

Dividends payable

8,000

5,000

3,000

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

Sales revenue

\)155,000

Depreciation

38,000

Gain on sale of equipment

14,500

Net income

31,000

Additional information:

  1. During 2017, equipment costing \(45,000 was sold for cash.
  2. Accounts receivable relate to sales of merchandise.
  3. During 2017, \)25,000 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.

  1. Payments for purchase of property, plant, and equipment.
  2. Proceeds from the sale of equipment.
  3. Cash dividends paid.
  4. Redemption of bonds payable.

The accounts below appear in the ledger of Anita Baker Company.

Retained Earnings Dr. Cr. Bal.

Jan. 1, 2017 Credit Balance \( 42,000

Aug. 15 Dividends (cash) \)15,000 27,000

Dec. 31 Net Income for 2017 \(40,000 67,000

Equipment Dr. Cr. Bal.

Jan. 1, 2017 Debit Balance \)140,000

Aug. 3 Purchase of Equipment \(62,000 202,000

Sept. 10 Cost of Equipment Constructed 48,000 250,000

Nov. 15 Equipment Sold \)56,000 194,000

Accumulated Depreciation鈥� Equipment Dr. Cr. Bal.

Jan. 1, 2017 Credit Balance \( 84,000

Apr. 8 Major Repairs \)21,000 63,000

Nov. 15 Accum. Depreciation on Equipment Sold 25,200 37,800

Dec. 31 Depreciation for 2017 \(16,800 54,600

Instructions

From the postings in the accounts above, indicate how the information is reported on a statement of cash flows by preparing a partial statement of cash flows using the indirect method. The loss on sale of equipment (November 15) was \)5,800.

Question: GROUPWORK (Analysis of Transactions鈥� Effect on SCF) Each of the following items must be considered in preparing a statement of cash flows for Cruz Fashions Inc. for the year ended December 31, 2017.

  1. Fixed assets that had cost \(20,000 6陆 years before and were being depreciated on a 10-year basis, with no estimated scrap value, were sold for \)4,750.
  2. During the year, goodwill of \(15,000 was considered impaired and was completely written off to expense.
  3. During the year, 500 shares of common stock with a stated value of \)25 a share were issued for \(32 a share.
  4. The company sustained a net loss for the year of \)2,100. Depreciation amounted to \(2,000 and patent amortization was \)400.
  5. Uncollectible accounts receivable in the amount of \(2,000 were written off against Allowance for Doubtful Accounts.
  6. Investments (available-for-sale) that cost \)12,000 when purchased 4 years earlier were sold for \(10,600.
  7. Bonds payable with a par value of \)24,000 on which there was an unamortized bond premium of $2,000 were redeemed at 101.

Instructions

For each item, state where it is to be shown in the statement and then how you would present the necessary information, including the amount. Consider each item to be independent of the others. Assume that correct entry were made for all transactions as they took place.

Question: (Analysis of Improper SCF) The following statement was prepared by Maloney Corporation鈥檚 accountant.


MALONEY CORPORATION

STATEMENT OF SOURCES AND APPLICATION OF CASH

FOR THE YEAR ENDED SEPTEMBER 30, 2017

Sources of cash

Net income

\(111,000

Depreciation and depletion

70,000

Increase in long-term debt

179,000

Changes in current receivables and inventories, less current liabilities (excluding current maturities of long-term debt)

14,000

\)374,000

Application of cash

Cash dividend

\(60,000

Expenditure for property, plant, and equipment

214,000

Investments and other uses

20,000

Change in cash

80,000

\)374,000

The following additional information relating to Maloney Corporation is available for the year ended September 30, 2017.

  1. Salaries and wages expense attributable to stock option plans was \(25,000 for the year.
  2. Net expenditure:

Expenditures for property, plant, and equipment

\)250,000

Proceeds from retirements of property, plant, and equipment

36,000

Net expenditures

\(214,000

  1. A stock dividend of 10,000 shares of Maloney Corporation common stock was distributed to common stockholders on April 1, 2017, when the per share market price was \)7 and par value was \(1.
  2. On July 1, 2017, when its market price was \)6 per share, 16,000 shares of Maloney Corporation common stock were issued in exchange for 4,000 shares of preferred stock.
  3. Depreciation expenses:

Depreciation expenses

\(65,000

Depletion expenses

5,000

\)70,000

  1. Net increase:

Increase in long-term debt

\(620,000

Less: Redemption of debt

441,000

Net increases

\)179,000

Instructions

(a) In general, what are the objectives of a statement of the type shown above for Maloney Corporation? Explain.

(b) Identify the weaknesses in the form and format of Maloney Corporation鈥檚 statement of cash flows without reference to the additional information. (Assume adoption of the indirect method.)

(c) For each of the six items of additional information for the statement of cash flows, indicate the preferable treatment and explain why the suggested treatment is preferable.
See all solutions

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