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Chapter 23: Q2BE (page 1373)

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.

Short Answer

Expert verified

The business entity used$294,000 in the investing activities.

Step by step solution

01

Definition of Investing Activities

All those activities that involve cash movement due to the purchase and sale of the fixed assets of the business entity are known as investing activities. The sale of a fixed asset is added and the purchase of fixed assets is deducted.

02

Investing activity section

Particular

Amount $

Sale of land

$180,000

Purchase of equipment

($415,000)

Purchase of available for sale securities

($59,000)

Cash used in investing activities

($294,000)

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Most popular questions from this chapter

Question: (SCF鈥擨ndirect Method) Condensed financial data of Pat Metheny Company for 2017 and 2016 are presented below.

PAT METHENY COMPANY

COMPARATIVE BALANCE SHEET

AS OF DECEMBER 31, 2017 AND 2016


2017

2016

Cash

\(1,800

\)1,150

Receivables

1,750

1,300

Inventory

1,600

1,900

Plant assets

1,900

1,700

Accumulated depreciation

(1,200)

(1,170)

Long-term-investment (Held to maturity)

1,300

1,420

\(7,150

\)6,300

Account payable

\(1,200

\)900

Accrued liabilities

200

250

Bond payable

1,400

1,550

Common stock

1,900

1,700

Retained earnings

2,450

1,900

\(7,150

\)6,300

PAT METHENY COMPANY

INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2017

Sales

\(6,900

Cost of goods sold

(4,700)

Gross margin

2,200

Selling and administrative expenses

930

Income from operations

1,270

Other revenue and gains

Gains on sale of investment

80

Income before tax

1,350

Income tax expenses

540

Net income

810

Cash dividend

260

Income retained in business

\)550

Additional information:

During the year, $70 of common stock was issued in exchange for plant assets. No plant assets were sold in 2017.

Instructions

Prepare a statement of cash flows using the indirect method.

Krauss Company鈥檚 income statement for the year ended December 31, 2017, contained the following condensed information.

Service revenue \(840,000

Operating expenses (excluding depreciation) \)624,000

Depreciation expense 60,000

Loss on sale of equipment 26,000 710,000

Income before income taxes 130,000

Income tax expense 40,000

Net income \( 90,000

Krauss鈥檚 balance sheet contained the following comparative data at December 31.

2017 2016

Accounts receivable \)37,000 $54,000

Accounts payable 41,000 31,000

Income taxes payable 4,000 8,500

(Accounts payable pertains to operating expenses.)

Instructions Prepare the operating activities section of the statement of cash flows using the direct method.

Accounting, Analysis, and Principles The income statement for the year ended December 31, 2017, for Laskowski Manufacturing Company contains the following condensed information.

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

Included in operating expenses is a \)24,000 loss resulting from the sale of machinery for \(270,000 cash. The company purchased machinery at the cost of \)750,000.

Laskowski reports the following balances on its comparative balance sheets on December 31.


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

Income tax expense of \(353,000 represents the amount paid in 2017. Dividends declared and paid in 2017 totalled \)200,000.

Accounting

Prepare the statement of cash flows using the indirect method.

Analysis

Laskowski has an aggressive growth plan, which will require significant investments in plant and equipment over the next several years. Preliminary plans call for an investment of over $500,000 in the next year. Compute Laskowski鈥檚 free cash flow (from Chapter 5) and use it to evaluate the investment plans with the use of only internally generated funds.

Principles

How does the statement of cash flows contribute to achieving the objective of financial reporting?

In 2017, Wild Corporation reported a net loss of \(70,000. Wild鈥檚 only net income adjustments were depreciation expense \)81,000, and increase in accounts receivable $8,100. Compute Wild鈥檚 net cash provided (used) by operating activities.

Each of the following items must be considered in preparing a statement of cash flows (indirect method) for Turbulent Indigo Inc. for the year ended December 31, 2017.

(a) Plant assets that had cost \(20,000 6 years before and were being depreciated on a straight-line basis over 10 years with no estimated scrap value were sold for \)5,300.

(b) During the year, 10,000 shares of common stock with a stated value of \(10 a share were issued for \)43 a share.

(c) Uncollectible accounts receivable in the amount of \(27,000 were written off against Allowance for Doubtful Accounts.

(d) The company sustained a net loss for the year of \)50,000. Depreciation amounted to \(22,000, and a gain of \)9,000 was realized on the sale of land for \(39,000 cash.

(e) A 3-month U.S. Treasury bill was purchased for \)100,000. The company uses a cash and cash equivalent basis for its cash flow statement.

(f) Patent amortization for the year was \(20,000.

(g) The company exchanged common stock for a 70% interest in Tabasco Co. for \)900,000.

(h) During the year, treasury stock costing $47,000 was purchased.

Instructions State where each item is to be shown in the statement of cash flows, if at all.
See all solutions

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