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Chapter 23: Q4E (page 1375)
Question:Data for the Vince Gill Company are presented in E23-3.
Instructions
Prepare the operating activities section of the statement of cash flows using the direct method.
Answer
The net cash provided by operating activities is computed as $1,225,000
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The balance sheet data of Brown Company at the end of 2017 and 2016 follow.
2017 2016
Cash \( 30,000 \) 35,000
Accounts receivable (net) 55,000 45,000
Inventory 65,000 45,000
Prepaid expenses 15,000 25,000
Equipment 90,000 75,000
Accumulated depreciation鈥攅quipment (18,000) (8,000)
Land 70,000 40,000
\(307,000 \)257,000
Accounts payable \( 65,000 \) 52,000
Accrued expenses 15,000 18,000
Notes payable鈥攂ank, long-term 鈥�0鈥� 23,000
Bonds payable 30,000 鈥� 0鈥�
Common stock, \(10 par 189,000 159,000
Retained earnings 8,000 5,000
\)307,000 \(257,000
Land was acquired for \)30,000 in exchange for common stock, par \(30,000, during the year; all equipment purchased was for cash. Equipment costing \)10,000 was sold for \(3,000; book value of the equipment was \)6,000. Cash dividends of $10,000 were declared and paid during the year.
Instructions
Compute net cash provided (used) by:
(a) Operating activities.
(b) Investing activities.
(c) Financing activities.
Question: (SCF Theory and Analysis of Transactions) Ashley Company is a young and growing producer of electronic measuring instruments and technical equipment. You have been retained by Ashley to advise it in the preparation of a statement of cash flows using the indirect method. For the fiscal year ended October 31, 2017, you have obtained the following information concerning certain events and transactions of Ashley.
1. The amount of reported earnings for the fiscal year was \(700,000, which included a deduction for a loss of \)110,000 (see item 5 below).
2. Depreciation expense of \(315,000 was included in the income statement.
3. Uncollectible accounts receivable of \)40,000 were written off against the allowance for doubtful accounts. Also, \(51,000 of bad debt expense was included in determining income for the fiscal year, and the same amount was added to the allowance for doubtful accounts.
4. A gain of \)6,000 was realized on the sale of a machine. It originally cost \(75,000, of which \)30,000 was undepreciated on the date of sale.
5. On April 1, 2017, lightning caused an uninsured building loss of \(110,000 (\)180,000 loss, less reduction in income taxes of \(70,000). This loss was included in determining income as indicated in item 1 above.
6. On July 3, 2017, building and land were purchased for \)700,000. Ashley gave in payment \(75,000 cash, \)200,000 market price of its unissued common stock, and signed a \(425,000 mortgage note payable.
7. On August 3, 2017, \)800,000 face value of Ashley鈥檚 10% convertible debentures was converted into $150,000 par value of its common stock. The bonds were originally issued at face value.
Instructions
Explain whether each of the seven numbered items above is a cash inflow or outflow, and explain how it should be disclosed in Ashley鈥檚 statement of cash flows for the fiscal year ended October 31, 2017. If any item is neither an inflow nor an outflow of cash, explain why it is not, and indicate the disclosure, if any, that should be made of the item in Ashley鈥檚 statement of cash flows for the fiscal year ended October 31, 2017.
What are the major sources of cash (inflows) in a statement of cash flows? What are the major uses (outflows) of cash?
Question: (SCF鈥擠irect Method) Los Lobos Corp. uses the direct method to prepare its statement of cash flows. Los Lobos鈥檚 trial balances at December 31, 2017 and 2016, are as follows.
| 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 | |
Additional information:
1. Los Lobos purchased \(5,000 in equipment during 2017.
2. Los Lobos allocated one-third of its depreciation expense to selling expenses and the remainder to general and administrative expenses.
3. Bad debt expense for 2017 was \)5,000, and write-offs of uncollectible accounts totalled $4,800.
Instructions
Determine what amounts Los Lobos should report in its statement of cash flows for the year ended December 31, 2017, for the following items.
(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 |
Question: Michaels Company had available at the end of 2017 the following information.
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 | |
Instructions
Prepare a statement of cash flows for Michaels Company using the direct method accompanied by a reconciliation schedule. Assume the short-term investments are debt securities, classified as available-for-sale
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