“How Well Am I Doing?”--Statement of Cash Flows
True/False Questions
1. An increase in inventory is classified as a “use” of cash for purposes of constructing the statement of cash flows.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy
2. In the statement of cash flows, dividend payments to the company's stockholders are treated as a “use” rather than as a “source” of cash.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy
3. Under the indirect method of determining the net cash flow from operating activities on the statement of cash flows, a gain on the sale of equipment would be added to net income.
Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Hard
4. Under the indirect method of determining the net cash provided by operating activities on the statement of cash flows, increases in current liabilities such as accounts payable are added to net income.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
5. Under the indirect method of determining the net cash provided by operating activities on the statement of cash flows, dividends are added to net income.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
6. Interest paid on borrowed funds would be included as part of a company's financing activities on the statement of cash flows.
Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Hard
7. The net cash provided by operating activities on the statement of cash flows would include interest paid to creditors and dividends paid to the company's own shareholders.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium
8. A change in deferred taxes is considered to be an operating activity on the statement of cash flows.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium
9. Lending money to another company would be classified as a financing activity on the statement of cash flows.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium
10. The direct method of preparing the statement of cash flows will usually show a greater total increase in cash than the indirect method.
Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4 Level: Easy
11. Under the direct method of determining the net cash provided by operations on the statement of cash flows, the cost of goods sold is converted to a cash basis by adjusting it for changes in inventories and changes in accounts payable during the period.
Ans: True AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 4 Level: Medium
12. Under the direct method of determining the net cash provided by operating activities on the statement of cash flows, an increase in inventory would be added to cost of goods sold to convert cost of goods sold to a cash basis.
Ans: True AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 4 Level: Hard
13. Under the direct method of determining the net cash provided by operating activities on the statement of cash flows, an increase in prepaid expenses would be added to selling and administrative expenses to convert selling and administrative expenses to a cash basis.
Ans: True AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 4 Level: Hard
14. Accounts receivable is not considered to be a cash equivalent for purposes of preparing the statement of cash flows.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Medium
15. The Financial Accounting Standards Board (FASB) recommends that companies use the direct method rather than the indirect method in preparing their statement of cash flows.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy
Multiple Choice Questions
16. Which of the following would be considered a “use” of cash for purposes of constructing a statement of cash flows?
A) a decrease in accounts receivable.
B) an increase in accounts payable.
C) an increase in common stock.
D) a decrease in bonds payable.
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
17. Which of the following would be considered a “source” of cash for purposes of constructing a statement of cash flows?
A) an increase in accounts payable.
B) dividends paid to the company's own shareholders.
C) a decrease in accrued liabilities.
D) an increase in accounts receivable.
Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
18. Evita Corporation prepares its statement of cash flows using the indirect method. Evita's statement showed “Net cash provided by operating activities” to be $46,000. Under the direct method, this number would have been:
A) $0.
B) $46,000.
C) greater than $46,000.
D) less than $46,000 but greater than $0.
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,3,4 Level: Easy
19. Under the indirect method, which item would be deducted from net income as part of the process of arriving at cash provided by operating activities on the statement of cash flows?
A) Patent amortization expense
B) Increase in accounts payable
C) Increase in prepaid expenses
D) Decrease in accounts receivable
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
20. A decrease in the prepaid expenses account of $1,000 over the course of a year would be shown on the company's statement of cash flows prepared under the indirect method as:
A) an addition to net income of $1,000 in order to arrive at net cash provided by operating activities.
B) a deduction from net income of $1,000 in order to arrive at net cash provided by operating activities.
C) an addition of $1,000 under financing activities.
D) a deduction of $1,000 under financing activities.
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
21. An increase in the taxes payable account of $1,000 over the course of a year would be shown on the company's statement of cash flows prepared under the indirect method as:
A) an addition to net income of $1,000 in order to arrive at net cash provided by operating activities.
B) a deduction from net income of $1,000 in order to arrive at net cash provided by operating activities.
C) an addition of $1,000 under financing activities.
D) a deduction of $1,000 under financing activities.
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
22. Luella Corporation prepares its statement of cash flows using the indirect method. Which of the following would be added to net income in the operating activities section of the statement?
| |Depreciation |Loss on Sale |
| |Expense |of Equipment |
|A) |Yes |Yes |
|B) |Yes |No |
|C) |No |Yes |
|D) |No |No |
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
23. Gioja Corporation prepares its statement of cash flows using the indirect method. Which of the following would be deducted from net income in the operating activities section of the statement?
| |Increase in Taxes Payable |Increase in Dividends Payable |
|A) |Yes |Yes |
|B) |Yes |No |
|C) |No |Yes |
|D) |No |No |
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Hard
24. Olaf Corporation prepares its statement of cash flows using the direct method. The following items were listed on Olaf's income statement. Which of these items would also be listed in the operating activities section of Olaf's statement of cash flows?
| |Depreciation Expense |Gain on Sale of Equipment |
|A) |Yes |Yes |
|B) |Yes |No |
|C) |No |Yes |
|D) |No |No |
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Medium
25. During the year the balance in the prepaid expenses account increased by $6,000. In order to adjust the company's net income to a cash basis using the direct method on the statement of cash flows, it would be necessary to:
A) deduct the $6,000 from the operating expenses reported on the income statement.
B) add the $6,000 to the operating expenses reported on the income statement.
C) deduct the $6,000 from the cost of goods sold reported on the income statement.
D) add the $6,000 to the cost of goods sold reported on the income statement.
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Hard
26. In a statement of cash flows, all of the following would be classified as operating activities except:
A) interest paid to creditors.
B) dividends received on stock in another company held as an investment.
C) dividends paid to the company's own common stockholders.
D) interest received on a long-term note receivable.
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium
27. In a statement of cash flows, a change in accounts payable account would be classified as:
A) an operating activity.
B) a financing activity.
C) an investing activity.
D) a noncash item that need not appear on the statement of cash flows.
Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy
28. A decrease in the plant and equipment account of $100,000 over the course of a year would be shown on the company's statement of cash flows prepared under the indirect method as:
A) an addition to net income of $100,000 in order to arrive at net cash provided by operating activities.
B) a deduction from net income of $100,000 in order to arrive at net cash provided by operating activities.
C) an addition of $100,000 under investing activities.
D) a deduction of $100,000 under investing activities.
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium
29. Which of the following should be classified as an investing activity on a statement of cash flows?
A) cash received from the sale of office equipment that was sold at a loss.
B) cash used to purchase a long-term investment in bonds of another corporation.
C) cash received from the issuance of Iguato Corporation common stock.
D) both A and B above
E) all of the above
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy
30. Which of the following should be classified as an investing activity on a statement of cash flows?
A) cash paid for income taxes.
B) cash paid for dividends to stockholders.
C) cash paid to employees for services rendered.
D) none of the above
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium
31. A company declared and paid a cash dividend. The dividend would appear on the company's statement of cash flows as:
A) an addition to net income in order to arrive at net cash provided by operating activities under the indirect method.
B) a deduction from net income in order to arrive at net cash provided by operating activities under the indirect method.
C) a deduction under investing activities.
D) a deduction under financing activities.
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium
32. Dividends paid to a company's own stockholders of $80,000 would be shown on the company's statement of cash flows prepared under the indirect method as:
A) an addition of $80,000 under investing activities.
B) a deduction of $80,000 under investing activities.
C) an addition of $80,000 under financing activities.
D) a deduction of $80,000 under financing activities.
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium
33. Which of the following should be classified as a financing activity on a statement of cash flows?
A) cash used to retire bonds payable.
B) an increase in deferred income taxes.
C) cash dividends received on an investment in stock.
D) both A and C above
E) none of the above
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Hard
34. Which of the following sections of the statement of cash flows will be prepared differently if the direct method is used instead of the indirect method?
A) operating activities section
B) investing activities section
C) financing activities section
D) all of the above
Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 3,4 Level: Easy
35. In the statement of cash flows, the sum total of the net cash provided by operating activities, investing activities, and financing activities would be equal to:
A) zero.
B) the beginning balance of cash and cash equivalents.
C) the ending balance of cash and cash equivalents.
D) the increase or decrease in cash and cash equivalents.
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy
36. Excerpts from Neuwirth Corporation's comparative balance sheet appear below:
| | |Ending Balance |Beginning Balance |
| |Cash and cash equivalents |$37,000 |$27,000 |
| |Accounts receivable |$24,000 |$28,000 |
| |Inventory |$65,000 |$68,000 |
Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?
A) The change in Accounts Receivable is a source; The change in Inventory is a source.
B) The change in Accounts Receivable is a use; The change in Inventory is a use.
C) The change in Accounts Receivable is a source; The change in Inventory is a use.
D) The change in Accounts Receivable is a use; The change in Inventory is a source.
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy
37. Excerpts from Deblois Corporation's comparative balance sheet appear below:
| | |Ending Balance |Beginning Balance |
| |Cash and cash equivalents |$22,000 |$28,000 |
| |Accounts payable |$18,000 |$17,000 |
| |Accrued wages and salaries payable |$34,000 |$37,000 |
Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?
A) The change in Accounts Payable is a source; The change in Accrued Wages and Salaries payable is a source.
B) The change in Accounts Payable is a use; The change in Accrued Wages and Salaries payable is a source.
C) The change in Accounts Payable is a source; The change in Accrued Wages and Salaries payable is a use.
D) The change in Accounts Payable is a use; The change in Accrued Wages and Salaries payable is a use.
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy
38. Excerpts from Aultman Corporation's comparative balance sheet appear below:
| | |Ending Balance |Beginning Balance |
| |Cash and cash equivalents |$62,000 |$29,000 |
| |Property, plant, and equipment |$371,000 |$345,000 |
| |Long-term debt |$75,000 |$73,000 |
Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?
A) The change in Property, Plant, and Equipment is a use; The change in Long-Term Debt is a source.
B) The change in Property, Plant, and Equipment is a source; The change in Long-Term Debt is a use.
C) The change in Property, Plant, and Equipment is a use; The change in Long-Term Debt is a use.
D) The change in Property, Plant, and Equipment is a source; The change in Long-Term Debt is a source.
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy
39. Swinger Corporation's comparative balance sheet appears below:
| | |Ending Balance |Beginning Balance |
| |Assets: | | |
| |Current assets: | | |
| |Cash and cash equivalents |$ 47,000 |$ 31,000 |
| |Accounts receivable |23,000 |22,000 |
| |Inventory | 66,000 | 64,000 |
| |Total current assets | 136,000 | 117,000 |
| |Property, plant, and equipment |356,000 |338,000 |
| |Less accumulated depreciation | 184,000 | 161,000 |
| |Net property, plant, and equipment | 172,000 | 177,000 |
| |Total assets |$308,000 |$294,000 |
| | | | |
| |Liabilities and Stockholders’ Equity | | |
| |Current liabilities: | | |
| |Accounts payable |$ 17,000 |$ 16,000 |
| |Accrued wages and salaries payable |32,000 |31,000 |
| |Accrued income taxes payable |25,000 |27,000 |
| |Notes payable | 11,000 | 13,000 |
| |Total current liabilities |85,000 |87,000 |
| |Long-term debt |83,000 |80,000 |
| |Deferred income taxes | 38,000 | 34,000 |
| |Total liabilities | 206,000 | 201,000 |
| |Stockholders’ equity: | | |
| |Common stock |27,000 |24,000 |
| |Retained earnings | 75,000 | 69,000 |
| |Total stockholders’ equity | 102,000 | 93,000 |
| |Total liabilities and stockholders’ equity |$308,000 |$294,000 |
The company's net income (loss) for the year was $10,000 and its cash dividends were $4,000. The total dollar amount of all of the items that would be classified as sources when compiling a simplified statement of cash flows is:
A) $29,000
B) $16,000
C) $45,000
D) $25,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
Solution:
| |Sources | | |
| |Net income |$10,000 | |
| |Increases in liabilities (and contra asset accounts): | | |
| |Increase in accumulated depreciation |23,000 | |
| |Increase in accounts payable |1,000 | |
| |Increase in accrued wages and salaries payable |1,000 | |
| |Increase in long-term debt |3,000 | |
| |Increase in deferred income taxes |4,000 | |
| |Increases in capital stock accounts: | | |
| |Increase in common stock | 3,000 | |
| |Total sources | |$45,000 |
40. Illies Corporation's comparative balance sheet appears below:
| | |Ending Balance |Beginning Balance |
| |Assets: | | |
| |Current assets: | | |
| |Cash and cash equivalents |$ 40,000 |$ 33,000 |
| |Accounts receivable |19,000 |21,000 |
| |Inventory | 67,000 | 69,000 |
| |Total current assets | 126,000 | 123,000 |
| |Property, plant, and equipment |358,000 |339,000 |
| |Less accumulated depreciation | 156,000 | 132,000 |
| |Net property, plant, and equipment | 202,000 | 207,000 |
| |Total assets |$328,000 |$330,000 |
| | | | |
| |Liabilities and Stockholders’ Equity | | |
| |Current liabilities: | | |
| |Accounts payable |$ 18,000 |$ 19,000 |
| |Accrued wages and salaries payable |35,000 |37,000 |
| |Accrued income taxes payable |23,000 |19,000 |
| |Notes payable | 19,000 | 22,000 |
| |Total current liabilities |95,000 |97,000 |
| |Long-term debt |82,000 |86,000 |
| |Deferred income taxes | 25,000 | 23,000 |
| |Total liabilities | 202,000 | 206,000 |
| |Stockholders’ equity: | | |
| |Common stock |23,000 |22,000 |
| |Retained earnings | 103,000 | 102,000 |
| |Total stockholders’ equity | 126,000 | 124,000 |
| |Total liabilities and stockholders’ equity |$328,000 |$330,000 |
The company's net income (loss) for the year was $5,000 and its cash dividends were $4,000. The total dollar amount of all of the items that would be classified as uses when compiling a simplified statement of cash flows is:
A) $7,000
B) $40,000
C) $29,000
D) $33,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
Solution:
| |Uses | | |
| |Increases in noncash assets: | | |
| |Increase in property, plant, and equipment |$19,000 | |
| |Decreases in liabilities: | | |
| |Decrease in accounts payable |1,000 | |
| |Decrease in accrued wages and salaries payable |2,000 | |
| |Decrease in notes payable |3,000 | |
| |Decrease in long-term debt |4,000 | |
| |Dividends paid | 4,000 | |
| |Total uses | |$33,000 |
41. The following information relates to Penha, Inc. for last year:
| |Net income |$117,000 |
| |Net increase in all current assets except cash |$31,000 |
| |Net increase in current liabilities |$45,000 |
| |Dividends paid on common stock |$20,000 |
| |Depreciation expense |$8,000 |
| |Gain on sale of investments |$3,000 |
What is Penha's net cash provided by operating activities for last year on the statement of cash flows? (Assume that current liabilities do not contain any notes payable.)
A) $108,000
B) $116,000
C) $136,000
D) $139,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
| |Net income |$117,000 |
| |Adjustments needed to convert net income to a cash basis: | |
| |Depreciation charges |8,000 |
| |Add (deduct) changes in current asset accounts affecting revenue or expense: | |
| |Increase in all current assets except cash |( 31,000) |
| |Add (deduct) changes in current liability accounts affecting revenue or expense: | |
| |Increase in current liabilities |45,000 |
| |Add (deduct) gains or losses on sale of assets: | |
| |Gain on sale of investments |( 3,000) |
| |Net cash provided by operating activities |$136,000 |
42. Morey Company's net income last year was $27,000 and cash dividends declared and paid to the company's stockholders totaled $13,000. Changes in selected balance sheet accounts for the year appear below:
| | |Increases |
| | |(Decreases) |
| |Debit balances: | |
| |Accounts receivable |$8,000 |
| |Inventory |$(3,000) |
| |Prepaid expenses |$4,000 |
| |Credit balances: | |
| |Accumulated depreciation |$18,000 |
| |Accounts payable |$6,000 |
| |Taxes payable |$(4,000) |
| |Bonds payable |$10,000 |
Based solely on this information, the net cash provided by operations under the indirect method on the statement of cash flows would be:
A) $16,000
B) $45,000
C) $38,000
D) $25,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Hard
Solution:
| |Net income |$27,000 |
| |Adjustments needed to convert net income to cash basis: | |
| |Depreciation charges |18,000 |
| |Add (deduct) changes in current asset accounts affecting revenue or expense: | |
| |Increase in accounts receivable |( 8,000) |
| |Decrease in inventory |3,000 |
| |Increase in prepaid expenses |( 4,000) |
| |Add (deduct) changes in current liability accounts affecting revenue or expense: | |
| |Increase in accounts payable |6,000 |
| |Decrease in taxes payable |( 4,000) |
| |Net cash provided by operating activities |$38,000 |
43. Norlund Company's net income last year was $21,000. Changes in selected balance sheet accounts for the year appear below:
| | |Increases |
| | |(Decreases) |
| |Debit balances: | |
| |Accounts receivable |$8,000 |
| |Inventory |$9,000 |
| |Prepaid expenses |$(3,000) |
| |Credit balances: | |
| |Accumulated depreciation |$15,000 |
| |Accounts payable |$(5,000) |
| |Accrued liabilities |$11,000 |
| |Taxes payable |$7,000 |
| |Deferred taxes |$0 |
Based solely on this information, the net cash provided by operations under the indirect method on the statement of cash flows would be:
A) $63,000
B) $36,000
C) $7,000
D) $35,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
| |Net income |$21,000 |
| |Adjustments needed to convert net income to cash basis: | |
| |Depreciation charges |15,000 |
| |Add (deduct) changes in current asset accounts affecting revenue or expense: | |
| |Increase in accounts receivable |( 8,000) |
| |Increase in inventory |( 9,000) |
| |Decrease in prepaid expenses |3,000 |
| |Add (deduct) changes in current liability accounts affecting revenue or expense: | |
| |Decrease in accounts payable |( 5,000) |
| |Increase in accrued liabilities |11,000 |
| |Increase in taxes payable | 7,000 |
| |Net cash provided by operating activities |$35,000 |
44. Alaric Corporation recently sold equipment for $16,000. The equipment was purchased five years ago for $100,000. The accumulated depreciation on the equipment on the date of sale was $75,000. Alaric uses the indirect method to prepare its statement of cash flows. What net effect will this sale have on the investing activities section of Alaric's statement of cash flows for the current year?
A) no effect
B) $7,000 increase
C) $9,000 decrease
D) $16,000 increase
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
45. Roble Corporation's balance sheet and income statement appear below:
| |Comparative Balance Sheet |
| | |Ending Balance |Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 28 |$ 22 |
| |Accounts receivable |65 |61 |
| |Inventory |45 |47 |
| |Plant and equipment |658 |520 |
| |Accumulated depreciation |( 296) |( 288) |
| |Total assets |$500 |$362 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 28 |$ 29 |
| |Wages payable |22 |20 |
| |Taxes payable |28 |24 |
| |Bonds payable |151 |200 |
| |Deferred taxes |16 |17 |
| |Common stock |55 |50 |
| |Retained earnings | 200 | 22 |
| |Total liabilities and stockholders’ equity |$500 |$362 |
| |Income Statement |
| |Sales |$1,485 |
| |Cost of goods sold | 989 |
| |Gross margin |496 |
| |Selling and administrative expense | 172 |
| |Net operating income |324 |
| |Gain on sale of plant and equipment | 19 |
| |Income before taxes |343 |
| |Income taxes | 103 |
| |Net income |$ 240 |
Cash dividends were $62. The company sold equipment for $19 that was originally purchased for $5 and that had accumulated depreciation of $5. The net cash provided by (used by) operations for the year was:
A) $255
B) $236
C) $324
D) $298
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
| |Net income |$240 |
| |Adjustments needed to convert net income to cash basis: | |
| |Depreciation charges |13 |
| |Add (deduct) changes in current asset accounts affecting revenue or expense: | |
| |Increase in accounts receivable |( 4) |
| |Decrease in inventory |2 |
| |Add (deduct) changes in current liability accounts affecting revenue or expense: | |
| |Decrease in accounts payable |( 1) |
| |Increase in wages payable |2 |
| |Increase in taxes payable |4 |
| |Add (deduct) gains or losses on sales of assets: | |
| |Gain on sale of plant and equipment |( 19) |
| |Add (deduct) changes in the Deferred Income Taxes account: | |
| |Decreases in deferred taxes liability |( 1) |
| |Net cash provided by operating activities |$236 |
46. Ivory Corporation's balance sheet and income statement appear below:
| |Comparative Balance Sheet |
| | |Ending Balance |Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 37 |$ 40 |
| |Accounts receivable |44 |42 |
| |Inventory |63 |53 |
| |Plant and equipment |443 |440 |
| |Accumulated depreciation |( 268) |( 230) |
| |Total assets |$319 |$345 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 41 |$ 45 |
| |Wages payable |26 |25 |
| |Taxes payable |16 |17 |
| |Bonds payable |127 |120 |
| |Deferred taxes |18 |19 |
| |Common stock |63 |60 |
| |Retained earnings | 28 | 59 |
| |Total liabilities and stockholders’ equity |$319 |$345 |
| |Income Statement |
| |Sales |$386 |
| |Cost of goods sold | 239 |
| |Gross margin |147 |
| |Selling and administrative expense | 185 |
| |Net operating income |( 38) |
| |Gain on sale of plant and equipment | 8 |
| |Income before taxes |(30) |
| |Income taxes | 0 |
| |Net income |($ 30) |
Cash dividends were $1. The company sold equipment for $19 that was originally purchased for $15 and that had accumulated depreciation of $4. The net cash provided by (used by) investing activities for the year was:
A) ($18)
B) ($1)
C) $1
D) $19
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
| |Additions to plant and equipment |($18) |* |
| |Proceeds from sale of equipment | 19 | |
| |Net cash provided by investing activities |$ 1 | |
*$443 + $15 − $440 = $18
47. Daubenspeck Corporation's balance sheet and income statement appear below:
| |Comparative Balance Sheet |
| | |Ending Balance |Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 42 |$ 38 |
| |Accounts receivable |65 |56 |
| |Inventory |65 |57 |
| |Plant and equipment |666 |530 |
| |Accumulated depreciation |( 258) |( 230) |
| |Total assets |$580 |$451 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 33 |$ 40 |
| |Wages payable |16 |17 |
| |Taxes payable |14 |12 |
| |Bonds payable |167 |200 |
| |Deferred taxes |25 |24 |
| |Common stock |64 |60 |
| |Retained earnings | 261 | 98 |
| |Total liabilities and stockholders’ equity |$580 |$451 |
| |Income Statement |
| |Sales |$1,093 |
| |Cost of goods sold | 671 |
| |Gross margin |422 |
| |Selling and administrative expense | 145 |
| |Net operating income |277 |
| |Gain on sale of plant and equipment | 20 |
| |Income before taxes |297 |
| |Income taxes | 89 |
| |Net income |$ 208 |
Cash dividends were $45. The company sold equipment for $20 that was originally purchased for $12 and that had accumulated depreciation of $12. The net cash provided by (used by) financing activities for the year was:
A) ($74)
B) ($33)
C) ($45)
D) $4
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
| |Financing Activities | |
| |Decrease in bonds payable |($33) |
| |Increase in common stock |4 |
| |Cash dividends paid |( 45) |
| |Net cash used in financing activities |($74) |
48. The most recent balance sheet and income statement of Helle Corporation appear below:
| |Comparative Balance Sheet |
| | |Ending Balance |Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 21 |$ 22 |
| |Accounts receivable |56 |54 |
| |Inventory |66 |58 |
| |Plant and equipment |459 |420 |
| |Accumulated depreciation |( 225) |( 202) |
| |Total assets |$377 |$352 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 46 |$ 55 |
| |Wages payable |22 |20 |
| |Taxes payable |18 |21 |
| |Bonds payable |22 |30 |
| |Deferred taxes |17 |16 |
| |Common stock |61 |60 |
| |Retained earnings | 191 | 150 |
| |Total liabilities and stockholders’ equity |$377 |$352 |
| |Income Statement |
| |Sales |$532 |
| |Cost of goods sold | 324 |
| |Gross margin |208 |
| |Selling and administrative expense | 137 |
| |Net operating income |71 |
| |Income taxes | 21 |
| |Net income |$ 50 |
Cash dividends were $9. The net cash provided by (used by) operations for the year was:
A) $46
B) $71
C) $54
D) $4
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
| |Net income |$50 |
| |Adjustments to convert net income to cash basis: | |
| |Depreciation charges |23 |
| |Increase in accounts receivable |( 2) |
| |Increase in inventory |( 8) |
| |Decrease in accounts payable |( 9) |
| |Increase in wages payable |2 |
| |Decrease in taxes payable |( 3) |
| |Increase in deferred taxes liability | 1 |
| |Net cash provided by operating activities |$54 |
49. Guzzi Corporation's most recent balance sheet appears below:
| |Comparative Balance Sheet |
| | |Ending Balance |Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 22 |$ 20 |
| |Accounts receivable |79 |74 |
| |Inventory |69 |65 |
| |Plant and equipment |543 |420 |
| |Accumulated depreciation |( 202) |( 175) |
| |Total assets |$511 |$404 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 65 |$ 59 |
| |Wages payable |17 |19 |
| |Taxes payable |19 |18 |
| |Bonds payable |11 |10 |
| |Deferred taxes |14 |19 |
| |Common stock |64 |60 |
| |Retained earnings | 321 | 219 |
| |Total liabilities and stockholders’ equity |$511 |$404 |
Net income for the year was $129. Cash dividends were $27. The net cash provided by (used by) operations for the year was:
A) $184
B) $147
C) $111
D) $18
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Easy
Solution:
| |Net income |$129 |
| |Adjustments to convert net income to cash basis: | |
| |Depreciation charges |27 |
| |Increase in accounts receivable |( 5) |
| |Increase in inventory |( 4) |
| |Increase in accounts payable |6 |
| |Decrease in wages payable |( 2) |
| |Increase in taxes payable |1 |
| |Decrease in deferred taxes liability |( 5) |
| |Net cash provided by operating activities |$147 |
50. Isenberg Corporation's most recent balance sheet appears below:
| |Comparative Balance Sheet |
| | |Ending Balance |Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 24 |$ 22 |
| |Accounts receivable |33 |35 |
| |Inventory |75 |66 |
| |Plant and equipment |689 |530 |
| |Accumulated depreciation |( 314) |( 268) |
| |Total assets |$507 |$385 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 45 |$ 46 |
| |Wages payable |19 |20 |
| |Taxes payable |10 |9 |
| |Bonds payable |26 |30 |
| |Deferred taxes |21 |20 |
| |Common stock |71 |70 |
| |Retained earnings | 315 | 190 |
| |Total liabilities and stockholders’ equity |$507 |$385 |
The net income for the year was $159. Cash dividends were $34. The net cash provided by (used by) investing activities for the year was:
A) ($159)
B) ($113)
C) $159
D) $113
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Easy
Solution:
| |Investing Activities | | |
| |Additions to plant and equipment |($159) |* |
| |Net cash used by investing activities |($159) | |
*$689 − $530
51. Minshall Corporation's most recent balance sheet appears below:
| |Comparative Balance Sheet |
| | |Ending Balance |Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 22 |$ 20 |
| |Accounts receivable |32 |36 |
| |Inventory |50 |62 |
| |Plant and equipment |573 |510 |
| |Accumulated depreciation |( 297) |( 275) |
| |Total assets |$380 |$353 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 46 |$ 45 |
| |Wages payable |12 |15 |
| |Taxes payable |9 |8 |
| |Bonds payable |132 |120 |
| |Deferred taxes |19 |25 |
| |Common stock |42 |40 |
| |Retained earnings | 120 | 100 |
| |Total liabilities and stockholders’ equity |$380 |$353 |
The net income for the year was $26. Cash dividends were $6. The net cash provided by (used by) financing activities for the year was:
A) $2
B) $8
C) $12
D) ($6)
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Easy
Solution:
| |Financing Activities | |
| |Increase in bonds payable |$12 |
| |Increase in common stock |2 |
| |Cash dividends paid |( 6) |
| |Net cash used in financing activities |$ 8 |
52. Chain Corporation's most recent balance sheet appears below:
| |Comparative Balance Sheet |
| | |Ending Balance |Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 37 |$ 32 |
| |Accounts receivable |27 |28 |
| |Inventory |45 |51 |
| |Plant and equipment |602 |530 |
| |Accumulated depreciation |( 262) |( 257) |
| |Total assets |$449 |$384 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 51 |$ 46 |
| |Long-term debt |77 |110 |
| |Common stock |22 |20 |
| |Retained earnings | 299 | 208 |
| |Total liabilities and stockholders’ equity |$449 |$384 |
The net income for the year was $121. Cash dividends were $30. The net cash provided by (used by) operations for the year was:
A) $173
B) $138
C) $17
D) $104
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Easy
Solution:
| |Net income |$121 |
| |Adjustments to convert net income to cash basis: | |
| |Depreciation charges |5 |
| |Decrease in accounts receivable |1 |
| |Decrease in inventory |6 |
| |Increase in accounts payable | 5 |
| |Net cash provided by operating activities |$138 |
53. La Corporation's most recent balance sheet appears below:
| |Comparative Balance Sheet |
| | |Ending Balance |Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 26 |$ 22 |
| |Accounts receivable |32 |27 |
| |Inventory |55 |56 |
| |Plant and equipment |552 |490 |
| |Accumulated depreciation |( 324) |( 288) |
| |Total assets |$341 |$307 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 48 |$ 47 |
| |Long-term debt |214 |250 |
| |Common stock |32 |30 |
| |Retained earnings | 47 |( 20) |
| |Total liabilities and stockholders’ equity |$341 |$307 |
The net income for the year was $91. Cash dividends were $24. The net cash provided by (used by) investing activities for the year was:
A) $26
B) $62
C) ($26)
D) ($62)
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Easy
Solution:
| |Investing Activities | | |
| |Additions to plant and equipment |($62) |* |
| |Net cash used by investing activities |($62) | |
*$552 − $490
54. Hanna Corporation's most recent balance sheet appears below:
| |Comparative Balance Sheet |
| | |Ending Balance |Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 31 |$ 32 |
| |Accounts receivable |44 |45 |
| |Inventory |68 |69 |
| |Plant and equipment |626 |510 |
| |Accumulated depreciation |( 340) |( 303) |
| |Total assets |$429 |$353 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 39 |$ 38 |
| |Long-term debt |311 |300 |
| |Common stock |61 |60 |
| |Retained earnings | 18 |( 45) |
| |Total liabilities and stockholders’ equity |$429 |$353 |
The net income for the year was $84. Cash dividends were $21. The net cash provided by (used by) financing activities for the year was:
A) ($9)
B) $1
C) ($21)
D) $11
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Easy
Solution:
| |Financing Activities | |
| |Increase in long-term debt |$11 |
| |Increase in common stock |1 |
| |Cash dividends paid |( 21) |
| |Net cash used by financing activities |($ 9) |
55. Last year Cummins Company reported a cost of goods sold of $50,000. Inventories increased by $10,000 during the year, and accounts payable increased by $2,000. The company uses the direct method to determine the net cash provided by operating activities on the statement of cash flows. The cost of goods sold adjusted to a cash basis would be:
A) $42,000
B) $58,000
C) $48,000
D) $60,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Medium
Solution:
| |Cost of goods sold (as reported) |$50,000 |
| |Adjustments to a cash basis: | |
| |Increase in inventory |10,000 |
| |Increase in accounts payable |( 2,000) |
| |Cost of goods sold (adjusted) |$58,000 |
56. Last year Lawmond Company reported sales of $120,000 on its income statement. During the year, accounts receivable increased by $20,000 and accounts payable decreased by $10,000. The company uses the direct method to determine the net cash provided by operating activities on the statement of cash flows. The sales revenue adjusted to a cash basis for the year would be:
A) $100,000
B) $90,000
C) $130,000
D) $150,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Hard
Solution:
| |Sales revenue (as reported) |$120,000 |
| |Adjustments to a cash basis: | |
| |Increase in accounts receivable |( 20,000) |
| |Sales revenue (adjusted) |$100,000 |
57. Cridge Company's selling and administrative expenses for last year totaled $170,000. During the year the company's prepaid expense account balance increased by $9,000 and accrued liabilities decreased by $13,000. Depreciation charges for the year were $15,000. Based on this information, selling and administrative expenses adjusted to a cash basis under the direct method on the statement of cash flows would be:
A) $177,000
B) $207,000
C) $133,000
D) $163,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Medium
Solution:
| |Selling and administrative expenses |$170,000 |
| |(as reported) | |
| |Adjustments to a cash basis: | |
| |Increase in prepaid expenses |9,000 |
| |Decrease in accrued liabilities |13,000 |
| |Period’s depreciation charges |( 15,000) |
| |Selling and administration expenses (adjusted) |$177,000 |
58. Pietras Corporation's balance sheet and income statement appear below:
| |Comparative Balance Sheet |
| | |Ending Balance |Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 23 |$ 22 |
| |Accounts receivable |51 |52 |
| |Inventory |55 |49 |
| |Plant and equipment |720 |570 |
| |Accumulated depreciation |( 297) |( 291) |
| |Total assets |$552 |$402 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 36 |$ 34 |
| |Wages payable |14 |15 |
| |Taxes payable |11 |12 |
| |Bonds payable |66 |70 |
| |Deferred taxes |19 |21 |
| |Common stock |35 |30 |
| |Retained earnings | 371 | 220 |
| |Total liabilities and stockholders’ equity |$552 |$402 |
| |Income Statement |
| |Sales |$1,264 |
| |Cost of goods sold | 828 |
| |Gross margin |436 |
| |Selling and administrative expense | 152 |
| |Net operating income |284 |
| |Gain on sale of plant and equipment | 13 |
| |Income before taxes |297 |
| |Income taxes | 89 |
| |Net income |$ 208 |
Cash dividends were $57. The company sold equipment for $18 that was originally purchased for $11 and that had accumulated depreciation of $6. The net cash provided by (used by) operations for the year was:
A) $213
B) $257
C) $284
D) $200
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Medium
Solution:
| |Sales revenue (as reported) |$1,264 | |
| |Adjustments to a cash basis: | | |
| |Decrease in accounts receivable | 1 | |
| |Total | |$1,265 |
| | | | |
| |Cost of goods sold (as reported) |828 | |
| |Adjustments to a cash basis: | | |
| |Increase in inventory |6 | |
| |Increase in accounts payable |( 2) | |
| |Total | |832 |
| | | | |
| |Selling and administrative expenses (as reported) |152 | |
| |Adjustments to a cash basis: | | |
| |Decrease in accrued wages payable |1 | |
| |Period’s depreciation charges |( 12) | |
| |Total | |141 |
| | | | |
| |Income tax expense |89 | |
| |Adjustments to a cash basis: | | |
| |Decrease in accrued taxes payable |1 | |
| |Decrease in deferred income taxes | 2 | |
| |Total | | 92 |
| | | | |
| |Net cash provided by operating activities | |$ 200 |
59. The most recent balance sheet and income statement of Ganim Corporation appear below:
| |Comparative Balance Sheet |
| | |Ending Balance |Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 35 |$ 34 |
| |Accounts receivable |73 |75 |
| |Inventory |54 |63 |
| |Plant and equipment |438 |360 |
| |Accumulated depreciation |( 212) |( 199) |
| |Total assets |$388 |$333 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$61 |$63 |
| |Wages payable |20 |21 |
| |Taxes payable |14 |16 |
| |Bonds payable |80 |110 |
| |Deferred taxes |11 |15 |
| |Common stock |24 |20 |
| |Retained earnings | 178 | 88 |
| |Total liabilities and stockholders’ equity |$388 |$333 |
| |Income Statement |
| |Sales |$920 |
| |Cost of goods sold | 606 |
| |Gross margin |314 |
| |Selling and administrative expense | 157 |
| |Net operating income |157 |
| |Income taxes | 47 |
| |Net income |$110 |
Cash dividends were $20. The net cash provided by (used by) operations for the year was:
A) $125
B) $95
C) $15
D) $157
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Medium
Solution:
| |Sales revenue (as reported) |$920 | |
| |Adjustments to a cash basis: | | |
| |Decrease in accounts receivable | 2 | |
| |Total | |$922 |
| | | | |
| |Cost of goods sold (as reported) |606 | |
| |Adjustments to a cash basis: | | |
| |Decrease in inventory | ( 9) | |
| |Decrease in accounts payable | 2 | |
| |Total | |599 |
| | | | |
| |Selling and administrative expenses (as reported) |157 | |
| |Adjustments to a cash basis: | | |
| |Decrease in accrued wages payable |1 | |
| |Period’s depreciation charges |( 13) | |
| |Total | |145 |
| | | | |
| |Income tax expense |47 | |
| |Adjustments to a cash basis: | | |
| |Decrease in accrued taxes payable |2 | |
| |Decrease in deferred income taxes | 4 | |
| |Total | | 53 |
| | | | |
| |Net cash provided by operating activities | |$125 |
60. Ostiguy Corporation's most recent comparative balance sheet and income statement appear below:
| |Comparative Balance Sheet |
| | |Ending Balance |Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 38 |$ 32 |
| |Accounts receivable |55 |59 |
| |Inventory |44 |46 |
| |Plant and equipment |584 |480 |
| |Accumulated depreciation |( 327) |( 278) |
| |Total assets |$394 |$339 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 28 |$ 27 |
| |Long-term debt |293 |320 |
| |Common stock |55 |50 |
| |Retained earnings | 18 |( 58) |
| |Total liabilities and stockholders’ equity |$394 |$339 |
| |Income Statement |
| |Sales |$883 |
| |Cost of goods sold | 580 |
| |Gross margin |303 |
| |Selling and administrative expense | 164 |
| |Net operating income |139 |
| |Income taxes | 42 |
| |Net income |$ 97 |
Cash dividends were $21. The net cash provided by (used by) operations for the year was:
A) $139
B) $153
C) $41
D) $56
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Easy
Solution:
| |Sales revenue (as reported) |$883 | |
| |Adjustments to a cash basis: | | |
| |Decrease in accounts receivable | 4 | |
| |Total | |$887 |
| | | | |
| |Cost of goods sold (as reported) |580 | |
| |Adjustments to a cash basis: | | |
| |Decrease in inventory | ( 2) | |
| |Increase in accounts payable |( 1) | |
| |Total | |577 |
| | | | |
| |Selling and administrative expenses (as reported) |164 | |
| |Adjustments to a cash basis: | | |
| |Depreciation charges |( 49) | |
| |Total | |115 |
| | | | |
| |Income tax expense (as reported) | | 42 |
| | | | |
| |Net cash provided by operating activities | |$153 |
61. Last year Martson Company sold equipment with a net book value of $110,000 for $130,000 in cash. This equipment was originally purchased for $200,000. What will be the net effect of this transaction on the net cash provided by investing activities on the statement of cash flows?
A) A net deduction of $70,000 from cash.
B) A net addition of $70,000 to cash.
C) A net deduction of $20,000 from cash.
D) A net addition of $20,000 to cash.
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Hard
Solution:
| |Investing Activities | |
| |Disposal of equipment |($200,000) |
| |Proceeds from sale of equipment | 130,000 |
| |Net cash used in investing activities |($ 70,000) |
62. The following transactions occurred last year at Jobb Company:
| |Issuance of shares of the company’s own common stock |$100,000 |
| |Dividends paid to the company’s own shareholders |$7,000 |
| |Dividends received from investments in other companies’ shares |$2,000 |
| |Interest paid on the company’s own bonds |$25,000 |
| |Repayment of principal on the company’s own bonds |$90,000 |
| |Proceeds from sale of the company’s used equipment |$9,000 |
| |Purchase of land |$120,000 |
Based solely on the above information, the net cash provided by financing activities for the year on the statement of cash flows would be:
A) $3,000
B) $(131,000)
C) $(22,000)
D) $353,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Hard
Solution:
| |Financing Activities | |
| |Increase in common stock |$100,000 |
| |Cash dividends paid |( 7,000) |
| |Decrease in bonds payable |( 90,000) |
| |Net cash provided by financing activities |$ 3,000 |
63. Last year Burdic Company's cash account decreased by $4,000. Net cash provided by investing activities was $31,000. Net cash used in financing activities was $38,000. On the statement of cash flows, the net cash flow provided by (used in) operating activities was:
A) $(4,000)
B) $(11,000)
C) $(7,000)
D) $3,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium
Solution:
| |Decrease in cash |($ 4,000) |
| |Less: Net cash provided by investing activities |( 31,000) |
| |Add: Net cash used in financing activities | 38,000 |
| |Net cash provided by operating activities |$ 3,000 |
Use the following to answer questions 64-68:
Krech Corporation's comparative balance sheet appears below:
| | |Ending Balance |Beginning Balance|
| |Assets: | | |
| |Current assets: | | |
| |Cash and cash equivalents |$ 31,000 |$ 28,000 |
| |Accounts receivable |18,000 |20,000 |
| |Inventory | 70,000 | 66,000 |
| |Total current assets | 119,000 | 114,000 |
| |Property, plant, and equipment |374,000 |354,000 |
| |Less accumulated depreciation | 190,000 | 165,000 |
| |Net property, plant, and equipment | 184,000 | 189,000 |
| |Total assets |$303,000 |$303,000 |
| | | | |
| |Liabilities and Stockholders’ Equity | | |
| |Current liabilities: | | |
| |Accounts payable |$ 13,000 |$ 9,000 |
| |Accrued wages and salaries payable |31,000 |33,000 |
| |Accrued income taxes payable |28,000 |29,000 |
| |Notes payable | 21,000 | 20,000 |
| |Total current liabilities |93,000 |91,000 |
| |Long-term debt |76,000 |73,000 |
| |Deferred income taxes | 39,000 | 40,000 |
| |Total liabilities | 208,000 | 204,000 |
| |Stockholders’ equity: | | |
| |Common stock |28,000 |26,000 |
| |Retained earnings | 67,000 | 73,000 |
| |Total stockholders’ equity | 95,000 | 99,000 |
| |Total liabilities and stockholders’ equity |$303,000 |$303,000 |
The company's net income (loss) for the year was ($3,000) and its cash dividends were $3,000.
64. Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?
A) The change in Accounts Receivable is a source; The change in Inventory is a source
B) The change in Accounts Receivable is a source; The change in Inventory is a use
C) The change in Accounts Receivable is a use; The change in Inventory is a use
D) The change in Accounts Receivable is a use; The change in Inventory is a source
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy
65. Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?
A) The change in Accounts Payable is a use; The change in Accrued Wages and Salaries payable is a source
B) The change in Accounts Payable is a source; The change in Accrued Wages and Salaries payable is a use
C) The change in Accounts Payable is a source; The change in Accrued Wages and Salaries payable is a source
D) The change in Accounts Payable is a use; The change in Accrued Wages and Salaries payable is a use
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy
66. Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?
A) The change in Property, Plant, and Equipment is a source; The change in Long-Term Debt is a source
B) The change in Property, Plant, and Equipment is a use; The change in Long-Term Debt is a use
C) The change in Property, Plant, and Equipment is a source; The change in Long-Term Debt is a use
D) The change in Property, Plant, and Equipment is a use; The change in Long-Term Debt is a source
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy
67. The total dollar amount of all of the items that would be classified as sources when compiling a simplified statement of cash flows is:
A) $34,000
B) $3,000
C) $28,000
D) $37,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
Solution:
| |Sources | |
| |Decreases in noncash assets: | |
| |Decrease in accounts receivable |$ 2,000 |
| |Increases in liabilities (and contra asset accounts): | |
| |Increase in accumulated depreciation |25,000 |
| |Increase in accounts payable |4,000 |
| |Increase in notes payable |1,000 |
| |Increase in long-term debt |3,000 |
| |Increases in capital stock accounts: | |
| |Increase in common stock | 2,000 |
| |Total sources |$37,000 |
68. The total dollar amount of all of the items that would be classified as uses when compiling a simplified statement of cash flows is:
A) $34,000
B) $3,000
C) $37,000
D) $28,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
Solution:
| |Uses | |
| |Net loss |$ 3,000 |
| |Increases in noncash assets: | |
| |Increase in inventory |4,000 |
| |Increase in property, plant, and equipment |20,000 |
| |Decreases in liabilities: | |
| |Decrease in accrued wages and salaries payable |2,000 |
| |Decrease in accrued income taxes payable |1,000 |
| |Decrease in deferred income taxes |1,000 |
| |Dividends | 3,000 |
| |Total uses |$34,000 |
Use the following to answer questions 69-71:
The most recent comparative balance sheet of Giacomelli Corporation appears below:
| | |Ending Balance |Beginning Balance |
| |Assets: | | |
| |Current assets: | | |
| |Cash and cash equivalents |$ 37,000 |$ 29,000 |
| |Accounts receivable |20,000 |24,000 |
| |Inventory | 70,000 | 68,000 |
| |Total current assets | 127,000 | 121,000 |
| |Property, plant, and equipment |424,000 |399,000 |
| |Less accumulated depreciation | 231,000 | 200,000 |
| |Net property, plant, and equipment | 193,000 | 199,000 |
| |Total assets |$320,000 |$320,000 |
| | | | |
| |Liabilities and Stockholders’ Equity | | |
| |Current liabilities: | | |
| |Accounts payable |$ 19,000 |$ 17,000 |
| |Accrued wages and salaries payable |36,000 |33,000 |
| |Accrued income taxes payable |21,000 |18,000 |
| |Notes payable | 22,000 | 18,000 |
| |Total current liabilities |98,000 |86,000 |
| |Long-term debt |77,000 |80,000 |
| |Deferred income taxes | 26,000 | 24,000 |
| |Total liabilities | 201,000 | 190,000 |
| |Stockholders’ equity: | | |
| |Common stock |31,000 |30,000 |
| |Retained earnings | 88,000 | 100,000 |
| |Total stockholders’ equity | 119,000 | 130,000 |
| |Total liabilities and stockholders’ equity |$320,000 |$320,000 |
69. Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?
A) The change in Accounts Receivable is a source; The change in Inventory is a source
B) The change in Accounts Receivable is a source; The change in Inventory is a use
C) The change in Accounts Receivable is a use; The change in Inventory is a source
D) The change in Accounts Receivable is a use; The change in Inventory is a use
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy
70. Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?
A) The change in Accounts Payable is a source; The change in Accrued Wages and Salaries payable is a use
B) The change in Accounts Payable is a use; The change in Accrued Wages and Salaries payable is a use
C) The change in Accounts Payable is a source; The change in Accrued Wages and Salaries payable is a source
D) The change in Accounts Payable is a use; The change in Accrued Wages and Salaries payable is a source
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy
71. Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?
A) The change in Property, Plant, and Equipment is a use; The change in Long-Term Debt is a source
B) The change in Property, Plant, and Equipment is a source; The change in Long-Term Debt is a source
C) The change in Property, Plant, and Equipment is a use; The change in Long-Term Debt is a use
D) The change in Property, Plant, and Equipment is a source; The change in Long-Term Debt is a use
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy
Use the following to answer questions 72-73:
Hirshberg Corporation's comparative balance sheet appears below:
| | |Ending Balance |Beginning Balance |
| |Assets: | | |
| |Current assets: | | |
| |Cash and cash equivalents |$ 42,000 |$ 31,000 |
| |Accounts receivable |22,000 |18,000 |
| |Inventory | 66,000 | 70,000 |
| |Total current assets | 130,000 | 119,000 |
| |Property, plant, and equipment |401,000 |377,000 |
| |Less accumulated depreciation | 207,000 | 177,000 |
| |Net property, plant, and equipment | 194,000 | 200,000 |
| |Total assets |$324,000 |$319,000 |
| | | | |
| |Liabilities and Stockholders’ Equity | | |
| |Current liabilities: | | |
| |Accounts payable |$ 15,000 |$ 17,000 |
| |Accrued wages and salaries payable |33,000 |29,000 |
| |Accrued income taxes payable |24,000 |28,000 |
| |Notes payable | 12,000 | 9,000 |
| |Total current liabilities | 84,000 | 83,000 |
| |Long-term debt |83,000 |81,000 |
| |Deferred income taxes | 29,000 | 33,000 |
| |Total liabilities | 196,000 | 197,000 |
| |Stockholders’ equity: | | |
| |Common stock |27,000 |28,000 |
| |Retained earnings | 101,000 | 94,000 |
| |Total stockholders’ equity | 128,000 | 122,000 |
| |Total liabilities and stockholders’ equity |$324,000 |$319,000 |
The company's net income (loss) for the year was $11,000 and its cash dividends were $4,000.
72. The total dollar amount of all of the items that would be classified as sources when compiling a simplified statement of cash flows is:
A) $11,000
B) $39,000
C) $43,000
D) $54,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
Solution:
| |Sources | |
| |Net income |$11,000 |
| |Decreases in noncash assets: | |
| |Decrease in inventory |4,000 |
| |Increases in liabilities (and contra asset accounts): | |
| |Increase in accumulated depreciation |30,000 |
| |Increase in wages and salaries payable |4,000 |
| |Increase in notes payable |3,000 |
| |Increase in long-term debt | 2,000 |
| |Total sources |$54,000 |
73. The total dollar amount of all of the items that would be classified as uses when compiling a simplified statement of cash flows is:
A) $11,000
B) $39,000
C) $54,000
D) $43,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
Solution:
| |Uses | |
| |Increases in noncash assets: | |
| |Increase in accounts receivable |$ 4,000 |
| |Increase in property, plant, and equipment |24,000 |
| |Decreases in liabilities: | |
| |Decrease in accounts payable |2,000 |
| |Decrease in accrued income taxes payable |4,000 |
| |Decrease in deferred income taxes |4,000 |
| |Decrease in capital stock accounts: | |
| |Decrease in common stock |1,000 |
| |Dividends | 4,000 |
| |Total uses |$43,000 |
Use the following to answer questions 74-76:
Waite Company's comparative balance sheet and income statement for last year appear below:
| |Statement of Financial Position | | |
| | | | |
| | |Ending |Beginning |
| | |Balance |Balance |
| |Cash |$ 27,000 |$ 22,000 |
| |Accounts receivable |56,000 |60,000 |
| |Inventory |48,000 |36,000 |
| |Prepaid expenses |14,000 |11,000 |
| |Long-term investments |270,000 |230,000 |
| |Plant and equipment |440,000 |440,000 |
| |Accumulated depreciation |( 306,000) |( 276,000) |
| |Total assets |$549,000 |$523,000 |
| | | | |
| |Accounts payable |$ 43,000 |$ 33,000 |
| |Accrued liabilities |20,000 |25,000 |
| |Taxes payable |6,000 |9,000 |
| |Bonds payable |130,000 |150,000 |
| |Deferred taxes |22,000 |20,000 |
| |Common stock |120,000 |110,000 |
| |Retained earnings | 208,000 | 176,000 |
| |Total liabilities and owners’ equity |$549,000 |$523,000 |
Income Statement
| |Sales |$510,000 |
| |Cost of goods sold | 280,000 |
| |Gross margin |230,000 |
| |Selling and administrative expense | 150,000 |
| |Net operating income |80,000 |
| |Income taxes | 24,000 |
| |Net income |$ 56,000 |
The company declared and paid $24,000 in cash dividends during the year. The following questions pertain to the company's statement of cash flows.
74. The net cash provided by (used in) operating activities last year was:
A) $56,000
B) $79,000
C) $86,000
D) $33,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
| |Operating Activities | | |
| |Net income | |$56,000 |
| |Adjustments to convert net income to a cash basis: | | |
| |Depreciation charges |$30,000 | |
| |Decrease in accounts receivable |4,000 | |
| |Increase in inventory |( 12,000) | |
| |Increase in prepaid expenses |( 3,000) | |
| |Increase in accounts payable |10,000 | |
| |Decrease in accrued liabilities |( 5,000) | |
| |Decrease in taxes payable |( 3,000) | |
| |Increase in deferred taxes | 2,000 | 23,000 |
| |Net cash provided by operating activities | |$79,000 |
75. The net cash provided by (used in) investing activities last year was:
A) $(40,000)
B) $40,000
C) $(30,000)
D) $30,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
| |Investing Activities | |
| |Increase in long-term investments |($40,000) |
| |Net cash used in investing |($40,000) |
76. The net cash provided by (used in) financing activities last year was:
A) $10,000
B) $(10,000)
C) $(34,000)
D) $34,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
| |Financing Activities | |
| |Decrease in bonds payable |($20,000) |
| |Increase in common stock |10,000 |
| |Cash dividends paid |( 24,000) |
| |Net cash used in financing activities |($34,000) |
Use the following to answer questions 77-79:
Meganas Company's net income last year was $183,000. Changes in the company's balance sheet accounts for the year appear below:
| | |Increases |
| | |(Decreases) |
| |Debit balances: | |
| |Cash |$(4,000) |
| |Accounts receivable |$(8,000) |
| |Inventory |$13,000 |
| |Prepaid expenses |$(9,000) |
| |Long-term investments |$60,000 |
| |Plant and equipment |$45,000 |
| | | |
| |Credit balances: | |
| |Accumulated depreciation |$56,000 |
| |Accounts payable |$3,000 |
| |Accrued liabilities |$8,000 |
| |Taxes payable |$(2,000) |
| |Bonds payable |$(60,000) |
| |Deferred taxes |$6,000 |
| |Common stock |$20,000 |
| |Retained earnings |$66,000 |
The company declared and paid cash dividends of $117,000 last year. The following questions pertain to the company's statement of cash flows.
77. The net cash provided by (used in) operating activities last year was:
A) $258,000
B) $183,000
C) $239,000
D) $202,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
| |Operating Activities | | |
| |Net income | |$183,000 |
| |Adjustments to convert net income to a cash basis: | | |
| |Depreciation charges |$56,000 | |
| |Decrease in accounts receivable |8,000 | |
| |Increase in inventory |( 13,000) | |
| |Decrease in prepaid expenses | 9,000 | |
| |Increase in accounts payable |3,000 | |
| |Increase in accrued liabilities |8,000 | |
| |Decrease in taxes payable |( 2,000) | |
| |Increase in deferred income taxes | 6,000 | 75,000 |
| |Net cash provided by operating activities | |$258,000 |
78. The net cash provided by (used in) investing activities last year was:
A) $(105,000)
B) $105,000
C) $(85,000)
D) $85,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
| |Investing Activities | |
| |Additions to plant and equipment |($ 45,000) |
| |Additions to long-term investments |( 60,000) |
| |Net cash used by investing activities |($105,000) |
79. The net cash provided by (used in) financing activities last year was:
A) $40,000
B) $(40,000)
C) $157,000
D) $(157,000)
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
| |Financing Activities | |
| |Decrease in bonds payable |($ 60,000) |
| |Increase in common stock |20,000 |
| |Cash dividends paid |( 117,000) |
| |Net cash used in financing activities |($157,000) |
Use the following to answer questions 80-81:
Sparks Company recorded the following events last year:
| |Issuance of shares of the company’s own common stock |$170,000 |
| |Purchase of bonds issued by other companies |$90,000 |
| |Dividends paid to the company’s own shareholders |$33,000 |
| |Dividends received from investments in other companies’ shares |$13,000 |
| |Repayment of principal on the company’s own bonds |$370,000 |
| |Interest paid on the company’s own bonds |$5,000 |
| |Collection of the principal amount of a loan made to another company |$210,000 |
| |Purchase of equipment |$430,000 |
On the statement of cash flows, some of these events are classified as operating activities, some are classified as investing activities, and some are classified as financing activities.
80. Based solely on the information above, the net cash provided by (used in) financing activities on the statement of cash flows would be:
A) $(39,000)
B) $1,321,000
C) $(233,000)
D) $(238,000)
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Hard
Solution:
| |Financing Activities | |
| |Issuance of common stock |$170,000 |
| |Cash dividends paid |( 33,000) |
| |Repayment of bonds |( 370,000) |
| |Net cash used by financing activities |($233,000) |
81. Based solely on the information above, the net cash provided by (used in) investing activities on the statement of cash flows would be:
A) $(310,000)
B) $(1,321,000)
C) $(520,000)
D) $(890,000)
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Hard
Solution:
| |Investing Activities | |
| |Purchase of bonds |($ 90,000) |
| |Collection of loan |210,000 |
| |Purchase of equipment |( 430,000) |
| |Net cash used by investing activities |($310,000) |
Use the following to answer questions 82-84:
Bebout Corporation's balance sheet and income statement appear below:
| |Comparative Balance Sheet |
| | |Ending Balance|Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 36 |$ 31 |
| |Accounts receivable |82 |74 |
| |Inventory |40 |49 |
| |Plant and equipment |619 |540 |
| |Accumulated depreciation |( 321) |( 303) |
| |Total assets |$456 |$391 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 35 |$ 32 |
| |Wages payable |20 |24 |
| |Taxes payable |13 |15 |
| |Bonds payable |150 |200 |
| |Deferred taxes |18 |24 |
| |Common stock |31 |30 |
| |Retained earnings | 189 | 66 |
| |Total liabilities and stockholders’ equity |$456 |$391 |
| |Income Statement |
| |Sales |$1,196 |
| |Cost of goods sold | 786 |
| |Gross margin |410 |
| |Selling and administrative expense | 189 |
| |Net operating income |221 |
| |Gain on sale of plant and equipment | 12 |
| |Income before taxes |233 |
| |Income taxes | 70 |
| |Net income |$ 163 |
Cash dividends were $40. The company sold equipment for $14 that was originally purchased for $9 and that had accumulated depreciation of $7.
82. The net cash provided by (used by) operations for the year was:
A) $180
B) $168
C) $208
D) $221
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
| |Operating Activities | | |
| |Net income | |$163 |
| |Adjustments to convert net income to a cash basis: | | |
| | Depreciation charges |$25 | |
| | Increase in accounts receivable |( 8) | |
| | Decrease in inventory |9 | |
| | Increase in accounts payable | 3 | |
| | Decrease in wages payable |( 4) | |
| | Decrease in taxes payable |( 2) | |
| | Decrease in deferred income taxes | ( 6) | |
| | Gain on sale of plant and equipment |( 12) | 5 |
| |Net cash provided by operating activities | |$168 |
83. The net cash provided by (used by) investing activities for the year was:
A) ($88)
B) $14
C) ($74)
D) $74
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
| |Investing Activities | | |
| |Proceeds from sale of equipment |$14 | |
| |Purchase of plant and equipment |( 88) |* |
| |Net cash used by investing activities |($74) | |
*$619 − ($540 − $9) = $619 − $531 = $88
84. The net cash provided by (used by) financing activities for the year was:
A) $1
B) ($40)
C) ($50)
D) ($89)
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
| |Financing Activities | |
| |Decrease in bonds payable |($50) |
| |Increase in common stock |1 |
| |Cash dividends paid |( 40) |
| |Net cash used by financing activities |($89) |
Use the following to answer questions 85-87:
The most recent balance sheet and income statement of Cowger Corporation appear below:
| |Comparative Balance Sheet |
| | |Ending Balance|Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 28 |$ 27 |
| |Accounts receivable |22 |25 |
| |Inventory |60 |54 |
| |Plant and equipment |528 |500 |
| |Accumulated depreciation |( 366) |( 346) |
| |Total assets |$272 |$260 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 29 |$ 36 |
| |Wages payable |18 |16 |
| |Taxes payable |10 |9 |
| |Bonds payable |98 |130 |
| |Deferred taxes |27 |25 |
| |Common stock |35 |30 |
| |Retained earnings | 55 | 14 |
| |Total liabilities and stockholders’ equity |$272 |$260 |
| |Income Statement |
| |Sales |$677 |
| |Cost of goods sold | 431 |
| |Gross margin |246 |
| |Selling and administrative expense | 175 |
| |Net operating income |71 |
| |Income taxes | 21 |
| |Net income |$ 50 |
Cash dividends were $9.
85. The net cash provided by (used by) operations for the year was:
A) $71
B) $65
C) $35
D) $15
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
| |Operating Activities | | |
| |Net income | |$50 |
| |Adjustments to convert net income to a cash basis: | | |
| | Depreciation charges |$20 | |
| | Decrease in accounts receivable |3 | |
| | Increase in inventory |( 6) | |
| | Decrease in accounts payable | ( 7) | |
| | Increase in wages payable |2 | |
| | Increase in income taxes payable |1 | |
| | Increase in deferred income taxes payable | 2 | 15 |
| |Net cash provided by operating activities | |$65 |
86. The net cash provided by (used by) investing activities for the year was:
A) ($8)
B) $8
C) $28
D) ($28)
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
| |Investing Activities | |
| |Additions to plant and equipment |($28) |
| |Net cash used by investing activities |($28) |
87. The net cash provided by (used by) financing activities for the year was:
A) ($36)
B) ($32)
C) $5
D) ($9)
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
| |Financing Activities | |
| |Decrease in bonds payable |($32) |
| |Increase in common stock |5 |
| |Cash dividends paid |( 9) |
| |Net cash used by financing activities |($36) |
Use the following to answer questions 88-90:
Karner Corporation's most recent balance sheet appears below:
| |Comparative Balance Sheet |
| | |Ending Balance|Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 33 |$ 28 |
| |Accounts receivable |74 |64 |
| |Inventory |63 |56 |
| |Plant and equipment |439 |380 |
| |Accumulated depreciation |( 199) |( 167) |
| |Total assets |$410 |$361 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 41 |$ 48 |
| |Wages payable |24 |25 |
| |Taxes payable |8 |9 |
| |Bonds payable |64 |60 |
| |Deferred taxes |18 |22 |
| |Common stock |61 |60 |
| |Retained earnings | 194 | 137 |
| |Total liabilities and stockholders’ equity |$410 |$361 |
Net income for the year was $76. Cash dividends were $19.
88. The net cash provided by (used by) operations for the year was:
A) $78
B) $109
C) $2
D) $74
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Easy
Solution:
| |Operating Activities | | |
| |Net income | |$76 |
| |Adjustments to convert net income to a cash basis: | | |
| | Depreciation charges |$32 | |
| | Increase in accounts receivable |( 10) | |
| | Increase in inventory |( 7) | |
| | Decrease in accounts payable | ( 7) | |
| | Decrease in wages payable |( 1) | |
| | Decrease in income taxes payable |( 1) | |
| | Decrease in deferred income taxes payable | ( 4) | 2 |
| |Net cash provided by operating activities | |$78 |
89. The net cash provided by (used by) investing activities for the year was:
A) ($27)
B) $27
C) $59
D) ($59)
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Easy
Solution:
| |Investing Activities | |
| |Additions to plant and equipment |($59) |
| |Net cash used by investing activities |($59) |
90. The net cash provided by (used by) financing activities for the year was:
A) ($14)
B) $4
C) ($19)
D) $1
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Easy
Solution:
| |Financing Activities | |
| |Increase in bonds payable |$ 4 |
| |Increase in common stock |1 |
| |Cash dividends paid |( 19) |
| |Net cash used by financing activities |($14) |
Use the following to answer questions 91-93:
Financial statements of Casagrande Corporation follow:
| |Comparative Balance Sheet |
| | |Ending Balance|Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 40 |$ 38 |
| |Accounts receivable |73 |66 |
| |Inventory |33 |35 |
| |Plant and equipment |529 |460 |
| |Accumulated depreciation |( 296) |( 267) |
| |Total assets |$379 |$332 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 31 |$ 26 |
| |Long-term debt |112 |150 |
| |Common stock |82 |80 |
| |Retained earnings | 154 | 76 |
| |Total liabilities and stockholders’ equity |$379 |$332 |
| |Income Statement |
| |Sales |$941 |
| |Cost of goods sold | 598 |
| |Gross margin |343 |
| |Selling and administrative expense | 193 |
| |Net operating income |150 |
| |Income taxes | 45 |
| |Net income |$105 |
Cash dividends were $27.
91. The net cash provided by (used by) operations for the year was:
A) $134
B) $29
C) $76
D) $150
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Easy
Solution:
| |Operating Activities | | |
| |Net income | |$105 |
| |Adjustments to convert net income to a cash basis: | | |
| | Depreciation charges |$29 | |
| | Increase in accounts receivable |( 7) | |
| | Decrease in inventory | 2 | |
| | Increase in accounts payable | 5 | 29 |
| |Net cash provided by operating activities | |$134 |
92. The net cash provided by (used by) investing activities for the year was:
A) $40
B) ($40)
C) ($69)
D) $69
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Easy
Solution:
| |Investing Activities | |
| |Additions to plant and equipment |($69) |
| |Net cash used by investing activities |($69) |
93. The net cash provided by (used by) financing activities for the year was:
A) ($63)
B) ($27)
C) ($38)
D) $2
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Easy
Solution:
| |Financing Activities | |
| |Decrease in long-term debt |($38) |
| |Increase in common stock |2 |
| |Cash dividends paid |( 27) |
| |Net cash used by financing activities |($63) |
Use the following to answer questions 94-96:
Kozusko Corporation's most recent comparative balance sheet appears below:
| |Comparative Balance Sheet |
| | |Ending Balance|Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 33 |$ 28 |
| |Accounts receivable |74 |66 |
| |Inventory |51 |52 |
| |Plant and equipment |639 |550 |
| |Accumulated depreciation |( 418) |( 349) |
| |Total assets |$379 |$347 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 48 |$ 40 |
| |Long-term debt |48 |50 |
| |Common stock |51 |50 |
| |Retained earnings | 232 | 207 |
| |Total liabilities and stockholders’ equity |$379 |$347 |
Net income for the year was $31. Cash dividends were $6.
94. The net cash provided by (used by) operations for the year was:
A) $44
B) ($39)
C) $101
D) $70
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Easy
Solution:
| |Operating Activities | | |
| |Net income | |$31 |
| |Adjustments to convert net income to a cash basis: | | |
| | Depreciation charges |$69 | |
| | Increase in accounts receivable |( 8) | |
| | Decrease in inventory | 1 | |
| | Increase in accounts payable | 8 | 70 |
| |Net cash provided by operating activities | |$101 |
95. The net cash provided by (used by) investing activities for the year was:
A) $89
B) ($89)
C) $20
D) ($20)
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Easy
Solution:
| |Investing Activities | |
| |Additions to plant and equipment |($89) |
| |Net cash used by investing activities |($89) |
96. The net cash provided by (used by) financing activities for the year was:
A) ($2)
B) $1
C) ($6)
D) ($7)
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Easy
Solution:
| |Financing Activities | |
| |Decrease in long-term debt |($2) |
| |Increase in common stock |1 |
| |Cash dividends paid |( 6) |
| |Net cash used by financing activities |($7) |
Use the following to answer questions 97-100:
(Appendix) Van Wyck Company's comparative balance sheet and income statement for last year appear below:
| |Statement of Financial Position |
| | |Ending |Beginning |
| | |Balance |Balance |
| |Cash |$ 63,000 |$ 30,000 |
| |Accounts receivable |91,000 |68,000 |
| |Inventory |26,000 |44,000 |
| |Prepaid expenses |13,000 |19,000 |
| |Long-term investments |260,000 |190,000 |
| |Plant and equipment |460,000 |460,000 |
| |Accumulated depreciation |( 298,000) |( 260,000) |
| |Total assets |$615,000 |$551,000 |
| | | | |
| |Accounts payable |$ 35,000 |$ 57,000 |
| |Accrued liabilities |25,000 |17,000 |
| |Taxes payable |12,000 |19,000 |
| |Bonds payable |110,000 |150,000 |
| |Deferred taxes |36,000 |19,000 |
| |Common stock |100,000 |70,000 |
| |Retained earnings | 297,000 | 219,000 |
| |Total liabilities and owners’ equity |$615,000 |$551,000 |
| |Income Statement |
| |Sales |$900,000 |
| |Cost of goods sold | 490,000 |
| |Gross margin |410,000 |
| |Selling and administrative expense | 270,000 |
| |Net operating income |140,000 |
| |Income taxes | 42,000 |
| |Net income |$ 98,000 |
The company declared and paid $20,000 in cash dividends during the year. The company uses the direct method to determine the net cash provided by operating activities.
97. On the statement of cash flows, the sales revenue adjusted to a cash basis would be:
A) $900,000
B) $877,000
C) $923,000
D) $859,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Hard
Solution:
| |Sales revenue (as reported) |$900,000 |
| | Adjustments to a cash basis: | |
| | Increase in accounts receivable |( 23,000) |
| |Sales revenue (adjusted) |$877,000 |
98. On the statement of cash flows, the cost of goods sold adjusted to a cash basis would be:
A) $494,000
B) $490,000
C) $486,000
D) $512,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Hard
Solution:
| |Cost of goods sold (as reported) |$490,000 |
| | Adjustments to a cash basis: | |
| | Decrease in inventory | ( 18,000) |
| | Decrease in accounts payable | 22,000 |
| |Cost of goods sold (adjusted) |$494,000 |
99. On the statement of cash flows, the operating expenses adjusted to a cash basis would be:
A) $270,000
B) $218,000
C) $256,000
D) $322,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Hard
Solution:
| |Operating expenses (as reported) |$270,000 |
| | Adjustments to a cash basis: | |
| | Decrease in prepaid expenses |( 6,000) |
| | Increase in accrued liabilities |( 8,000) |
| | Period’s depreciation charges |( 38,000) |
| |Total |$218,000 |
100. On the statement of cash flows, the income tax expense adjusted to a cash basis would be:
A) $42,000
B) $36,000
C) $49,000
D) $32,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Hard
Solution:
| |Income tax expense (as reported) |$42,000 |
| | Adjustments to a cash basis: | |
| | Decrease in accrued taxes payable |7,000 |
| | Decrease in deferred income taxes |( 17,000) |
| |Income tax expense (adjusted) |$32,000 |
Use the following to answer questions 101-104:
(Appendix) The changes in Tencate Company's balance sheet account balances for last year appear below:
| | |Increases |
| | |(Decreases) |
| |Debit balances: | |
| |Cash |$8,000 |
| |Accounts receivable |$(6,000) |
| |Inventory |$2,000 |
| |Prepaid expenses |$(13,000) |
| |Long-term investments |$70,000 |
| |Plant and equipment |$55,000 |
| | | |
| |Credit balances: | |
| |Accumulated depreciation |$67,000 |
| |Accounts payable |$(14,000) |
| |Accrued liabilities |$2,000 |
| |Taxes payable |$7,000 |
| |Bonds payable |$(60,000) |
| |Deferred taxes |$(7,000) |
| |Common stock |$20,000 |
| |Retained earnings |$101,000 |
The company’s income statement for the year appears below:
| |Sales |$970,000 |
| |Cost of goods sold | 530,000 |
| |Gross margin |440,000 |
| |Selling and administrative expense | 290,000 |
| |Net operating income |150,000 |
| |Income taxes | 45,000 |
| |Net income |$105,000 |
The company declared and paid $4,000 in cash dividends during the year. The company uses the direct method to determine the net cash provided by operating activities.
101. On the statement of cash flows, the sales revenue adjusted to a cash basis would be:
A) $978,000
B) $976,000
C) $970,000
D) $964,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Hard
Solution:
| |Sales revenue (as reported) |$970,000 |
| | Adjustments to a cash basis: | |
| | Decrease in accounts receivable | 6,000 |
| |Sales revenue (adjusted) |$976,000 |
102. On the statement of cash flows, the cost of goods sold adjusted to a cash basis would be:
A) $514,000
B) $544,000
C) $546,000
D) $530,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Hard
Solution:
| |Cost of goods sold (as reported) |$530,000 |
| | Adjustments to a cash basis: | |
| | Increase in inventory |2,000 |
| | Decrease in accounts payable | 14,000 |
| |Cost of goods sold (adjusted) |$546,000 |
103. On the statement of cash flows, the operating expenses adjusted to a cash basis would be:
A) $290,000
B) $372,000
C) $275,000
D) $208,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Hard
Solution:
| |Operating expenses (as reported) |$290,000 |
| | Adjustments to a cash basis: | |
| | Decrease in prepaid expenses |( 13,000) |
| | Increase in accrued liabilities |( 2,000) |
| | Period’s depreciation charges |( 67,000) |
| |Total |$208,000 |
104. On the statement of cash flows, the income tax expense adjusted to a cash basis would be:
A) $40,000
B) $42,000
C) $45,000
D) $46,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Hard
Solution:
| |Income tax expense (as reported) |$45,000 |
| | Adjustments to a cash basis: | |
| | Increase in accrued taxes payable | ( 7,000) |
| | Decrease in deferred income taxes | 7,000 |
| |Income tax expense (adjusted) |$45,000 |
Use the following to answer questions 105-107:
(Appendix) Cliburn Corporation's balance sheet and income statement appear below:
| |Comparative Balance Sheet |
| | |Ending Balance |Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 27 |$ 27 |
| |Accounts receivable |30 |28 |
| |Inventory |64 |59 |
| |Plant and equipment |564 |500 |
| |Accumulated depreciation |( 217) |( 208) |
| |Total assets |$468 |$406 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 50 |$ 43 |
| |Wages payable |27 |24 |
| |Taxes payable |20 |22 |
| |Bonds payable |184 |180 |
| |Deferred taxes |21 |24 |
| |Common stock |83 |80 |
| |Retained earnings | 83 | 33 |
| |Total liabilities and stockholders’ equity |$468 |$406 |
| |Income Statement |
| |Sales |$690 |
| |Cost of goods sold | 456 |
| |Gross margin |234 |
| |Selling and administrative expense | 150 |
| |Net operating income |84 |
| |Gain on sale of plant and equipment | 9 |
| |Income before taxes |93 |
| |Income taxes | 28 |
| |Net income |$ 65 |
Cash dividends were $15. The company sold equipment for $11 that was originally purchased for $3 and that had accumulated depreciation of $1.
105. The net cash provided by (used by) operations for the year was:
A) $73
B) $84
C) $64
D) $79
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Medium
Solution:
| |Sales revenue (as reported) |$690 | |
| | Adjustments to a cash basis: | | |
| | Increase in accounts receivable |( 2) | |
| |Total | |$688 |
| | | | |
| |Cost of goods sold (as reported) |456 | |
| | Adjustments to a cash basis: | | |
| | Increase in inventory |5 | |
| | Increase in accounts payable |( 7) | |
| |Total | |454 |
| | | | |
| |Selling and administrative expenses (as reported) |150 | |
| | Adjustments to a cash basis: | | |
| | Increase in wages payable |( 3) | |
| | Period’s depreciation charges |( 10) | |
| |Total | |137 |
| | | | |
| |Income tax expense |28 | |
| | Adjustments to a cash basis: | | |
| | Decrease in accrued taxes payable |2 | |
| | Decrease in deferred income taxes | 3 | |
| |Total | | 33 |
| | | | |
| |Net cash provided by operating activities | |$ 64 |
106. The net cash provided by (used by) investing activities for the year was:
A) ($56)
B) $11
C) ($67)
D) $56
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Medium
Solution:
| |Investing Activities | | |
| |Additions to plant and equipment |($67) |* |
| |Proceeds from sale of equipment | 11 | |
| |Net cash used by investing activities |($56) | |
*($564 + $3) − $500
107. The net cash provided by (used by) financing activities for the year was:
A) $3
B) $4
C) ($15)
D) ($8)
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Medium
Solution:
| |Financing Activities | |
| |Increase in bonds payable |$ 4 |
| |Increase in common stock |3 |
| |Cash dividends paid |( 15) |
| |Net cash used by financing activities |($ 8) |
Use the following to answer questions 108-110:
(Appendix) The most recent balance sheet and income statement of Spadafino Corporation appear below:
| |Comparative Balance Sheet |
| | |Ending Balance |Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 48 |$ 40 |
| |Accounts receivable |61 |60 |
| |Inventory |59 |70 |
| |Plant and equipment |398 |350 |
| |Accumulated depreciation |( 160) |( 146) |
| |Total assets |$406 |$374 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 64 |$ 65 |
| |Wages payable |22 |19 |
| |Taxes payable |16 |15 |
| |Bonds payable |176 |210 |
| |Deferred taxes |16 |15 |
| |Common stock |45 |40 |
| |Retained earnings | 67 | 10 |
| |Total liabilities and stockholders’ equity |$406 |$374 |
| |Income Statement |
| |Sales |$722 |
| |Cost of goods sold | 465 |
| |Gross margin |257 |
| |Selling and administrative expense | 146 |
| |Net operating income |111 |
| |Income taxes | 33 |
| |Net income |$ 78 |
Cash dividends were $21.
108. The net cash provided by (used by) operations for the year was:
A) $28
B) $111
C) $106
D) $50
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Medium
Solution:
| |Sales revenue (as reported) |$722 | |
| | Adjustments to a cash basis: | | |
| | Increase in accounts receivable |( 1) | |
| |Total | |$721 |
| | | | |
| |Cost of goods sold (as reported) |465 | |
| | Adjustments to a cash basis: | | |
| | Decrease in inventory |( 11) | |
| | Decrease in accounts payable | 1 | |
| |Total | |455 |
| | | | |
| |Selling and administrative expenses (as reported) |146 | |
| | Adjustments to a cash basis: | | |
| | Increase in wages payable |( 3) | |
| | Period’s depreciation charges |( 14) | |
| |Total | |129 |
| | | | |
| |Income tax expense |33 | |
| | Adjustments to a cash basis: | | |
| | Increase in accrued taxes payable |( 1) | |
| | Increase in deferred income taxes |( 1) | |
| |Total | | 31 |
| | | | |
| |Net cash provided by operating activities | |$106 |
109. The net cash provided by (used by) investing activities for the year was:
A) ($34)
B) $48
C) ($48)
D) $34
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Medium
Solution:
| |Investing Activities | |
| |Additions to plant and equipment |($48) |
| |Net cash used by investing activities |($48) |
110. The net cash provided by (used by) financing activities for the year was:
A) ($50)
B) ($34)
C) $5
D) ($21)
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Medium
Solution:
| |Financing Activities | |
| |Decrease in bonds payable |($34) |
| |Increase in common stock |5 |
| |Cash dividends paid |( 21) |
| |Net cash used by financing activities |($50) |
Use the following to answer questions 111-113:
(Appendix) Karpinski Corporation's most recent comparative balance sheet and income statement appear below:
| |Comparative Balance Sheet |
| | |Ending Balance |Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 32 |$ 25 |
| |Accounts receivable |55 |46 |
| |Inventory |57 |59 |
| |Plant and equipment |574 |450 |
| |Accumulated depreciation |( 293) |( 251) |
| |Total assets |$425 |$329 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 55 |$ 56 |
| |Long-term debt |15 |20 |
| |Common stock |74 |70 |
| |Retained earnings | 281 | 183 |
| |Total liabilities and stockholders’ equity |$425 |$329 |
| |Income Statement |
| |Sales |$1,087 |
| |Cost of goods sold | 724 |
| |Gross margin |363 |
| |Selling and administrative expense | 179 |
| |Net operating income |184 |
| |Income taxes | 55 |
| |Net income |$ 129 |
Cash dividends were $31.
111. The net cash provided by (used by) operations for the year was:
A) $34
B) $184
C) $95
D) $163
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Easy
Solution:
| |Sales revenue (as reported) |$1,087 | |
| | Adjustments to a cash basis: | | |
| | Increase in accounts receivable |( 9) | |
| |Total | |$1,078 |
| | | | |
| |Cost of goods sold (as reported) |724 | |
| | Adjustments to a cash basis: | | |
| | Decrease in inventory |( 2) | |
| | Decrease in accounts payable | 1 | |
| |Total | |723 |
| | | | |
| |Selling and administrative expenses (as reported) |179 | |
| | Adjustments to a cash basis: | | |
| | Period’s depreciation charges |( 42) | |
| |Total | |137 |
| | | | |
| |Income tax expense | | 55 |
| | | | |
| |Net cash provided by operating activities | |$ 163 |
112. The net cash provided by (used by) investing activities for the year was:
A) $82
B) ($124)
C) ($82)
D) $124
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Easy
Solution:
| |Investing Activities | |
| |Additions to plant and equipment |($124) |
| |Net cash used by investing activities |($124) |
113. The net cash provided by (used by) financing activities for the year was:
A) ($32)
B) ($31)
C) $4
D) ($5)
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Easy
Solution:
| |Financing Activities | |
| |Decrease in bonds payable |($ 5) |
| |Increase in common stock |4 |
| |Cash dividends paid |( 31) |
| |Net cash used by financing activities |($32) |
Essay Questions
114. Manila Corporation's comparative balance sheet appears below:
| | |Ending Balance |Beginning Balance |
| |Assets: | | |
| |Current assets: | | |
| |Cash and cash equivalents |$ 42,000 |$ 26,000 |
| |Accounts receivable |22,000 |26,000 |
| |Inventory | 77,000 | 75,000 |
| |Total current assets | 141,000 | 127,000 |
| |Property, plant, and equipment |340,000 |315,000 |
| |Less accumulated depreciation | 218,000 | 187,000 |
| |Net property, plant, and equipment | 122,000 | 128,000 |
| |Total assets |$263,000 |$255,000 |
| | | | |
| |Liabilities and Stockholders’ Equity | | |
| |Current liabilities: | | |
| |Accounts payable |$ 13,000 |$ 14,000 |
| |Wages and salaries payable |32,000 |33,000 |
| |Income taxes payable |28,000 |30,000 |
| |Notes payable | 16,000 | 15,000 |
| |Total current liabilities |89,000 |92,000 |
| |Long-term debt |77,000 |78,000 |
| |Deferred income taxes | 28,000 | 25,000 |
| |Total liabilities | 194,000 | 195,000 |
| |Stockholders’ equity: | | |
| |Common stock |28,000 |24,000 |
| |Retained earnings | 41,000 | 36,000 |
| |Total stockholders’ equity | 69,000 | 60,000 |
| |Total liabilities and stockholders’ equity |$263,000 |$255,000 |
The company's net income (loss) for the year was $7,000 and its cash dividends were $2,000.
Required:
Classify the change for the year in each balance sheet account as a source, use, or neither a source nor a use. (Do this only for the individual accounts-not for totals or subtotals.)
Ans:
| |Ending Balance |Beginning Balance |Change | |
|Cash and cash equivalents |42,000 |26,000 |+16,000 |Neither |
|Accounts receivable |22,000 |26,000 |-4,000 |Source |
|Inventory |77,000 |75,000 |+2,000 |Use |
|Property, plant, and equipment |340,000 |315,000 |+25,000 |Use |
|Less accumulated depreciation |218,000 |187,000 |+31,000 |Source |
| | | | | |
|Accounts payable |13,000 |14,000 |-1,000 |Use |
|Wages and salaries payable |32,000 |33,000 |-1,000 |Use |
|Income taxes payable |28,000 |30,000 |-2,000 |Use |
|Notes payable |16,000 |15,000 |+1,000 |Source |
|Long-term debt |77,000 |78,000 |-1,000 |Use |
|Deferred income taxes |28,000 |25,000 |+3,000 |Source |
|Common stock |28,000 |24,000 |+4,000 |Source |
|Retained earnings |41,000 |36,000 |+5,000 |* |
*The change in retained earnings consists of two elements: net income (loss) and dividends. The net income of $7,000 is classified as a source and the dividends of $2,000 are classified as a use.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy
115. The ending and beginning balances of Diogo Corporation's balance sheet accounts for the most recent year are listed below:
| | |Ending Balance |Beginning Balance |
| |Assets & Contra-Assets: | | |
| |Cash and cash equivalents |$40,000 |$28,000 |
| |Accounts receivable |$17,000 |$14,000 |
| |Inventory |$60,000 |$62,000 |
| |Property and buildings |$406,000 |$383,000 |
| |Accumulated depreciation |$234,000 |$205,000 |
| | | | |
| |Liabilities and Stockholders’ Equity | | |
| |Accounts payable |$15,000 |$12,000 |
| |Wages and salaries payable |$35,000 |$38,000 |
| |Income taxes payable |$22,000 |$18,000 |
| |Notes payable |$28,000 |$24,000 |
| |Long-term debt |$81,000 |$85,000 |
| |Deferred income taxes |$27,000 |$24,000 |
| |Common stock |$39,000 |$36,000 |
| |Retained earnings |$42,000 |$45,000 |
The company's net income (loss) for the year was $1,000 and its cash dividends were $4,000.
Required:
Classify the change for the year in each balance sheet account as a source, use, or neither a source nor a use.
Ans:
| |Ending Balance |Beginning Balance |Change | |
|Cash and cash equivalents |40,000 |28,000 |+12,000 |Neither |
|Accounts receivable |17,000 |14,000 |+3,000 |Use |
|Inventory |60,000 |62,000 |-2,000 |Source |
|Property and buildings |406,000 |383,000 |+23,000 |Use |
|Accumulated depreciation |234,000 |205,000 |+29,000 |Source |
| | | | | |
|Accounts payable |15,000 |12,000 |+3,000 |Source |
|Wages and salaries payable |35,000 |38,000 |-3,000 |Use |
|Income taxes payable |22,000 |18,000 |+4,000 |Source |
|Notes payable |28,000 |24,000 |+4,000 |Source |
|Long-term debt |81,000 |85,000 |-4,000 |Use |
|Deferred income taxes |27,000 |24,000 |+3,000 |Source |
|Common stock |39,000 |36,000 |+3,000 |Source |
|Retained earnings |42,000 |45,000 |-3,000 |* |
*The change in retained earnings consists of two elements: net income (loss) and dividends. The net income of $1,000 is classified as a source and the dividends of $4,000 are classified as a use.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy
116. Burch Company's net income last year was $119,000. Changes in the company's balance sheet accounts for the year appear below:
| | |Increases |
| | |(Decreases) |
| |Debit balances: | |
| |Cash |$29,000 |
| |Accounts receivable |$(21,000) |
| |Inventory |$12,000 |
| |Prepaid expenses |$(8,000) |
| |Long-term investments |$80,000 |
| |Plant and equipment |$10,000 |
| | | |
| |Credit balances: | |
| |Accumulated depreciation |$26,000 |
| |Accounts payable |$23,000 |
| |Accrued liabilities |$14,000 |
| |Taxes payable |$(9,000) |
| |Bonds payable |$(50,000) |
| |Deferred taxes |$4,000 |
| |Common stock |$20,000 |
| |Retained earnings |$74,000 |
The company declared and paid cash dividends of $45,000 last year.
Required:
a. Construct in good form the operating activities section of the company's statement of cash flows for the year. (Use the indirect method.)
b. Construct in good form the investing activities section of the company's statement of cash flows for the year.
c. Construct in good form the financing activities section of the company's statement of cash flows for the year.
Ans:
a. Operating activities
| |Net income | |$119,000 |
| |Adjustments: | | |
| |Depreciation charges |$26,000 | |
| |Decrease in accounts receivable |21,000 | |
| |Increase in inventory |(12,000) | |
| |Decrease in prepaid expenses |8,000 | |
| |Increase in accounts payable |23,000 | |
| |Increase in accrued liabilities |14,000 | |
| |Decrease in taxes payable |(9,000) | |
| |Increase in deferred taxes | 4,000 | 75,000 |
| |Net cash provided by operating activities | |$194,000 |
b. Investing activities:
| |Increase in long-term investments |$(80,000) |
| |Increase in plant & equipment | (10,000) |
| |Net cash used for investing activities |$(90,000) |
c. Financing activities:
| |Decrease in bonds payable |$(50,000) |
| |Increase in common stock |20,000 |
| |Cash dividends | (45,000) |
| |Net cash used in financing activities |$(75,000) |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement LO: 2,3 Level: Medium
117. Biven Corporation's balance sheet and income statement appear below:
| |Comparative Balance Sheet |
| | |Ending Balance |Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 35 |$ 30 |
| |Accounts receivable |54 |49 |
| |Inventory |67 |58 |
| |Plant and equipment |580 |530 |
| |Accumulated depreciation |( 316) |( 313) |
| |Total assets |$420 |$354 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 51 |$ 57 |
| |Wages payable |26 |24 |
| |Taxes payable |11 |10 |
| |Bonds payable |77 |90 |
| |Deferred taxes |25 |24 |
| |Common stock |33 |30 |
| |Retained earnings | 197 | 119 |
| |Total liabilities and stockholders’ equity |$420 |$354 |
| |Income Statement |
| |Sales |$620 |
| |Cost of goods sold | 381 |
| |Gross margin |239 |
| |Selling and administrative expense | 103 |
| |Net operating income |136 |
| |Gain on sale of plant and equipment | 20 |
| |Income before taxes |156 |
| |Income taxes | 47 |
| |Net income |$109 |
Cash dividends were $31. The company sold equipment for $20 that was originally purchased for $14 and that had accumulated depreciation of $14.
Required:
Prepare a statement of cash flows for the year using the indirect method.
Ans:
|Net income |$109 |
|Adjustments to convert net income to a cash basis: | |
|Depreciation charges |17 |
|Increase in accounts receivable |(5) |
|Increase in inventory |(9) |
|Decrease in accounts payable |(6) |
|Increase in wages payable |2 |
|Increase in taxes payable |1 |
|Increase in deferred taxes |1 |
|Gain on sale of plant and equipment | (20) |
|Net cash provided by operations | 90 |
|Investing activities: | |
|Proceeds from sale of plant and equipment |20 |
|Increase in plant and equipment | (64) |
|Net cash used for investing activities | (44) |
|Financing activities: | |
|Decrease in bonds payable |(13) |
|Increase in common stock |3 |
|Cash dividends | (31) |
|Net cash used by financing activities | (41) |
|Net increase (decrease) in cash and cash equivalents |5 |
|Cash balance, beginning | 30 |
|Cash balance, end |$35 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement LO: 2,3 Level: Medium
118. Danford Corporation's balance sheet and income statement appear below:
| |Comparative Balance Sheet |
| | |Ending Balance |Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 27 |$ 25 |
| |Accounts receivable |43 |48 |
| |Inventory |40 |49 |
| |Plant and equipment |467 |410 |
| |Accumulated depreciation |( 264) |( 221) |
| |Total assets |$313 |$311 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 49 |$ 61 |
| |Wages payable |14 |16 |
| |Taxes payable |25 |22 |
| |Bonds payable |100 |120 |
| |Deferred taxes |16 |19 |
| |Common stock |74 |70 |
| |Retained earnings | 35 | 3 |
| |Total liabilities and stockholders’ equity |$313 |$311 |
| |Income Statement |
| |Sales |$546 |
| |Cost of goods sold | 363 |
| |Gross margin |183 |
| |Selling and administrative expense | 134 |
| |Net operating income |49 |
| |Gain on sale of plant and equipment | 8 |
| |Income before taxes |57 |
| |Income taxes | 17 |
| |Net income |$ 40 |
Cash dividends were $8. The company sold equipment for $12 that was originally purchased for $9 and that had accumulated depreciation of $5.
Required:
Determine the net cash provided by (used by) operating activities for the year using the indirect method.
Ans:
|Net income |$40 |
|Adjustments to convert net income to a cash basis: | |
|Depreciation charges |48 |
|Decrease in accounts receivable |5 |
|Decrease in inventory |9 |
|Decrease in accounts payable |(12) |
|Decrease in wages payable |(2) |
|Increase in taxes payable |3 |
|Decrease in deferred taxes |(3) |
|Gain on sale of plant and equipment |( 8) |
|Net cash provided by operations |$80 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
119. NOTES TO THE INSTRUCTOR:
* The problem requirement does not indicate whether the indirect or direct method must be used to determine the net cash provided by operating activities. You can, if you choose, specify that either (or even both) methods be used. The solution contains solutions for both methods.
* Due to the length of the problem, you may want to eliminate one or more of the requirements.
---------------------------------------------------------------------
Dano Company's comparative balance sheet and income statement for last year appear below:
| |Statement of Financial Position |
| | |Ending |Beginning |
| | |Balance |Balance |
| |Cash |$ 41,000 |$ 20,000 |
| |Accounts receivable |43,000 |57,000 |
| |Inventory |66,000 |53,000 |
| |Prepaid expenses |14,000 |11,000 |
| |Long-term investments |310,000 |240,000 |
| |Plant and equipment |580,000 |580,000 |
| |Accumulated depreciation |( 369,000) |( 340,000) |
| |Total assets |$685,000 |$621,000 |
| | | | |
| |Accounts payable |$ 45,000 |$ 27,000 |
| |Accrued liabilities |14,000 |19,000 |
| |Taxes payable |32,000 |15,000 |
| |Bonds payable |70,000 |110,000 |
| |Deferred taxes |29,000 |25,000 |
| |Common stock |90,000 |70,000 |
| |Retained earnings | 405,000 | 355,000 |
| |Total liabilities and owners’ equity |$685,000 |$621,000 |
| |Income Statement |
| |Sales |$540,000 |
| |Cost of goods sold | 220,000 |
| |Gross margin |320,000 |
| |Selling and administrative expense | 200,000 |
| |Net operating income |120,000 |
| |Income taxes | 36,000 |
| |Net income |$ 84,000 |
The company declared and paid $34,000 in cash dividends during the year.
Required:
a. Construct in good form the operating activities section of the company's statement of cash flows for the year.
b. Construct in good form the investing activities section of the company's statement of cash flows for the year.
c. Construct in good form the financing activities section of the company's statement of cash flows for the year.
Ans:
a. Operating activities
INDIRECT METHOD
|Net income | |$84,000 |
|Adjustments: | | |
|Depreciation charges |$29,000 | |
|Decrease in accounts receivable |14,000 | |
|Increase in inventory |(13,000) | |
|Increase in prepaid expenses |(3,000) | |
|Increase in accounts payable |18,000 | |
|Decrease in accrued liabilities |(5,000) | |
|Increase in taxes payable |17,000 | |
|Increase in deferred taxes | 4,000 | 61,000 |
|Net cash provided by operating activities | |$145,000 |
DIRECT METHOD
|Sales |$540,000 | |
|Adjustments to a cash basis: | | |
|Decrease in accounts receivable | +14,000 |$554,000 |
| | | |
|Cost of goods sold |220,000 | |
|Adjustments to a cash basis: | | |
|Increase in inventory |+13,000 | |
|Increase in accounts payable | -18,000 |215,000 |
| | | |
|Selling and administrative expense |200,000 | |
|Adjustments to a cash basis: | | |
|Increase in prepaid expenses |+3,000 | |
|Decrease in accrued liabilities |+5,000 | |
|Depreciation charges | -29,000 |179,000 |
| | | |
|Income tax expense |36,000 | |
|Adjustments to a cash basis: | | |
|Increase in taxes payable |-17,000 | |
|Increase in deferred taxes | -4,000 | 15,000 |
| | | |
|Net cash provided by operating activities | |$145,000 |
b. Investing activities:
| |Increase in long-term investments |$(70,000) | |
| |Net cash used for investing activities | |$(70,000) |
c. Financing activities:
| |Decrease in bonds payable |$(40,000) | |
| |Increase in common stock |20,000 | |
| |Cash dividends |( 34,000) | |
| |Net cash used in financing activities | |$(54,000) |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement LO: 2,3 Level: Hard
120. Sary Corporation's balance sheet and income statement appear below:
| |Comparative Balance Sheet |
| | |Ending Balance|Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 27 |$ 26 |
| |Accounts receivable |57 |53 |
| |Inventory |62 |55 |
| |Plant and equipment |685 |580 |
| |Accumulated depreciation |( 404) |( 355) |
| |Total assets |$427 |$359 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 37 |$ 46 |
| |Wages payable |21 |25 |
| |Taxes payable |15 |18 |
| |Bonds payable |171 |170 |
| |Deferred taxes |18 |22 |
| |Common stock |32 |30 |
| |Retained earnings | 133 | 48 |
| |Total liabilities and stockholders’ equity |$427 |$359 |
| |Income Statement |
| |Sales |$895 |
| |Cost of goods sold | 557 |
| |Gross margin |338 |
| |Selling and administrative expense | 177 |
| |Net operating income |161 |
| |Income taxes | 48 |
| |Net income |$113 |
Cash dividends were $28.
Required:
Prepare a statement of cash flows in good form using the indirect method.
Ans:
|Net income |$113 |
|Adjustments to convert net income to a cash basis: | |
|Depreciation charges |49 |
|Increase in accounts receivable |(4) |
|Increase in inventory |(7) |
|Decrease in accounts payable |(9) |
|Decrease in wages payable |(4) |
|Decrease in taxes payable |(3) |
|Decrease in deferred taxes |( 4) |
|Net cash provided by operations | 131 |
|Investing activities: | |
|Increase in plant and equipment |( 105) |
|Net cash used for investing activities |( 105) |
|Financing activities: | |
|Increase in bonds payable |1 |
|Increase in common stock |2 |
|Cash dividends |( 28) |
|Net cash used by financing activities |( 25) |
|Net change in cash and cash equivalents |1 |
|Cash balance, beginning | 26 |
|Cash balance, end |$ 27 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement LO: 2,3 Level: Medium
121. Boscia Corporation's balance sheet appears below:
| |Comparative Balance Sheet |
| | |Ending Balance|Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 44 |$ 38 |
| |Accounts receivable |82 |69 |
| |Inventory |71 |69 |
| |Plant and equipment |537 |500 |
| |Accumulated depreciation |( 240) |( 201) |
| |Total assets |$494 |$475 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 70 |$ 60 |
| |Wages payable |24 |21 |
| |Taxes payable |19 |22 |
| |Bonds payable |226 |300 |
| |Deferred taxes |19 |18 |
| |Common stock |22 |20 |
| |Retained earnings | 114 | 34 |
| |Total liabilities and stockholders’ equity |$494 |$475 |
The net income for the year was $108. Cash dividends were $28.
Required:
Prepare a statement of cash flows in good form using the indirect method.
Ans:
|Net income |$108 |
|Adjustments to convert net income to a cash basis: | |
|Depreciation charges |39 |
|Increase in accounts receivable |(13) |
|Increase in inventory |(2) |
|Increase in accounts payable |10 |
|Increase in wages payable |3 |
|Decrease in taxes payable |(3) |
|Increase in deferred taxes | 1 |
|Net cash provided by operations | 143 |
|Investing activities: | |
|Increase in plant and equipment |( 37) |
|Net cash used for investing activities |( 37) |
|Financing activities: | |
|Decrease in bonds payable |(74) |
|Increase in common stock |2 |
|Cash dividends |( 28) |
|Net cash used by financing activities |( 100) |
|Net change in cash and cash equivalents |6 |
|Cash balance, beginning | 38 |
|Cash balance, end |$ 44 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement LO: 2,3 Level: Easy
122. Fryberger Corporation's balance sheet and income statement appear below:
|Comparative Balance Sheet |
| |Ending Balance |Beginning Balance |
|Assets: | | |
|Cash and cash equivalents |$ 36 |$ 33 |
|Accounts receivable |46 |41 |
|Inventory |53 |59 |
|Plant and equipment |472 |460 |
|Accumulated depreciation |( 218) |( 214) |
|Total assets |$389 |$379 |
| | | |
|Liabilities and stockholders’ equity: | | |
|Accounts payable |$ 52 |$ 62 |
|Long-term debt |289 |330 |
|Common stock |84 |80 |
|Retained earnings |( 36) |( 93) |
|Total liabilities and stockholders’ equity |$389 |$379 |
|Income Statement |
|Sales |$737 |
|Cost of goods sold | 454 |
|Gross margin |283 |
|Selling and administrative expense | 173 |
|Net operating income |110 |
|Income taxes | 33 |
|Net income |$ 77 |
Cash dividends were $20.
Required:
Prepare a statement of cash flows in good form using the indirect method.
Ans:
|Net income |$77 |
|Adjustments to convert net income to a cash basis: | |
|Depreciation charges |4 |
|Increase in accounts receivable |(5) |
|Decrease in inventory |6 |
|Decrease in accounts payable |( 10) |
|Net cash provided by operations | 72 |
|Investing activities: | |
|Increase in plant and equipment |( 12) |
|Net cash used for investing activities |( 12) |
|Financing activities: | |
|Decrease in long-term debt |( 41) |
|Increase in common stock |4 |
|Cash dividends |( 20) |
|Net cash used by financing activities |( 57) |
|Net cash flow |3 |
|Cash balance, beginning | 33 |
|Cash balance, end |$36 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement LO: 2,3 Level: Medium
123. Solmonson Corporation's balance sheet appears below:
|Comparative Balance Sheet |
| |Ending Balance |Beginning Balance |
|Assets: | | |
|Cash and cash equivalents |$ 29 |$ 27 |
|Accounts receivable |21 |25 |
|Inventory |49 |56 |
|Plant and equipment |524 |420 |
|Accumulated depreciation |( 283) |( 251) |
|Total assets |$340 |$277 |
| | | |
|Liabilities and stockholders’ equity: | | |
|Accounts payable |$ 28 |$ 34 |
|Long-term debt |84 |100 |
|Common stock |51 |50 |
|Retained earnings | 177 | 93 |
|Total liabilities and stockholders’ equity |$340 |$277 |
Net income for the year was $105. Cash dividends were $21.
Required:
Prepare a statement of cash flows in good form using the indirect method.
Ans:
|Net income |$105 |
|Adjustments to convert net income to a cash basis: | |
|Depreciation charges |32 |
|Decrease in accounts receivable |4 |
|Decrease in inventory |7 |
|Decrease in accounts payable |( 6) |
|Net cash provided by operations | 142 |
|Investing activities: | |
|Increase in plant and equipment |( 104) |
|Net cash used for investing activities |( 104) |
|Financing activities: | |
|Decrease in long-term debt |(16) |
|Increase in common stock |1 |
|Cash dividends |( 21) |
|Net cash used by financing activities |( 36) |
|Net cash flow |2 |
|Cash balance, beginning | 27 |
|Cash balance, end |$ 29 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement LO: 2,3 Level: Easy
124. Carman Company's comparative balance sheet and income statement for last year appear below:
| |Statement of Financial Position |
| | |Ending |Beginning |
| | |Balance |Balance |
| |Cash |$ 70,000 |$ 38,000 |
| |Accounts receivable |76,000 |52,000 |
| |Inventory |24,000 |42,000 |
| |Prepaid expenses |8,000 |16,000 |
| |Long-term investments |260,000 |210,000 |
| |Plant and equipment |530,000 |510,000 |
| |Accumulated depreciation |( 398,000) |( 350,000) |
| |Total assets |$570,000 |$518,000 |
| | | | |
| |Accounts payable |$ 32,000 |$ 54,000 |
| |Accrued liabilities |34,000 |25,000 |
| |Taxes payable |4,000 |11,000 |
| |Bonds payable |160,000 |200,000 |
| |Deferred taxes |38,000 |25,000 |
| |Common stock |150,000 |120,000 |
| |Retained earnings | 152,000 | 83,000 |
| |Total liabilities and owners’ equity |$570,000 |$518,000 |
| |Income Statement |
| |Sales |$610,000 |
| |Cost of goods sold | 310,000 |
| |Gross margin |300,000 |
| |Selling and administrative expense | 190,000 |
| |Net operating income |110,000 |
| |Income taxes | 33,000 |
| |Net income |$ 77,000 |
The company declared and paid $8,000 in cash dividends during the year.
Required:
Construct in good form the operating activities section of the company's statement of cash flows for the year using the direct method.
Ans:
|Sales |$610,000 | |
|Adjustments to a cash basis: | | |
|Increase in accounts receivable | -24,000 |$586,000 |
| | | |
|Cost of goods sold |310,000 | |
|Adjustments to a cash basis: | | |
|Decrease in inventory |-18,000 | |
|Decrease in accounts payable |+22,000 |314,000 |
| | | |
|Selling and administrative expense |190,000 | |
|Adjustments to a cash basis: | | |
|Decrease in prepaid expenses |-8,000 | |
|Increase in accrued liabilities |-9,000 | |
|Depreciation charges |-48,000 |125,000 |
| | | |
|Income tax expense |33,000 | |
|Adjustments to a cash basis: | | |
|Decrease in taxes payable |+7,000 | |
|Increase in deferred taxes |-13,000 | 27,000 |
| | | |
|Net cash provided by operating activities | |$120,000 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Appendix: 15 LO: 2,4 Level: Hard
125. Boehning Corporation's balance sheet and income statement appear below:
| |Comparative Balance Sheet |
| | |Ending Balance|Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 25 |$ 22 |
| |Accounts receivable |53 |48 |
| |Inventory |50 |56 |
| |Plant and equipment |532 |430 |
| |Accumulated depreciation |( 285) |( 261) |
| |Total assets |$375 |$295 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 39 |$ 38 |
| |Wages payable |20 |24 |
| |Taxes payable |10 |9 |
| |Bonds payable |71 |100 |
| |Deferred taxes |15 |19 |
| |Common stock |82 |80 |
| |Retained earnings | 138 | 25 |
| |Total liabilities and stockholders’ equity |$375 |$295 |
| |Income Statement |
| |Sales |$954 |
| |Cost of goods sold | 606 |
| |Gross margin |348 |
| |Selling and administrative expense | 162 |
| |Net operating income |186 |
| |Gain on sale of plant and equipment | 10 |
| |Income before taxes |196 |
| |Income taxes | 59 |
| |Net income |$137 |
Cash dividends were $24. The company sold equipment for $10 that was originally purchased for $4 and that had accumulated depreciation of $4.
Required:
Using the direct method, determine the net cash provided by (used by) operating activities.
Ans:
|Sales |$954 | |
|Increase in accounts receivable |( 5) |$949 |
| | | |
|Cost of sales |606 | |
|Decrease in inventory |(6) | |
|Increase in accounts payable |( 1) |599 |
| | | |
|Selling and administrative expense |162 | |
|Decrease in wages payable |4 | |
|Depreciation charges |( 28) |138 |
| | | |
|Income taxes |59 | |
|Increase in taxes payable |(1) | |
|Decrease in deferred taxes | 4 | 62 |
| | | |
|Net cash provided by operating activities | |$150 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Appendix: 15 LO: 2,4 Level: Medium
126. May Corporation's balance sheet and income statement appear below:
| |Comparative Balance Sheet |
| | |Ending Balance|Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 24 |$ 22 |
| |Accounts receivable |24 |25 |
| |Inventory |32 |37 |
| |Plant and equipment |598 |580 |
| |Accumulated depreciation |( 390) |( 366) |
| |Total assets |$288 |$298 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 38 |$ 45 |
| |Wages payable |23 |25 |
| |Taxes payable |12 |10 |
| |Bonds payable |87 |110 |
| |Deferred taxes |16 |17 |
| |Common stock |63 |60 |
| |Retained earnings | 49 | 31 |
| |Total liabilities and stockholders’ equity |$288 |$298 |
| |Income Statement |
| |Sales |$606 |
| |Cost of goods sold | 396 |
| |Gross margin |210 |
| |Selling and administrative expense | 174 |
| |Net operating income |36 |
| |Income taxes | 11 |
| |Net income |$ 25 |
Cash dividends were $7.
Required:
Prepare the operating activities section of the statement of cash flows using the direct method. In other words, determine the net cash provided by or used by operating activities using the direct method.
Ans:
|Sales |$606 | |
|Decrease in accounts receivable | 1 |$607 |
| | | |
|Cost of goods sold |396 | |
|Decrease in inventory |(5) | |
|Decrease in accounts payable | 7 |398 |
| | | |
|Selling and administrative expense |174 | |
|Decrease in wages payable |2 | |
|Depreciation charges |( 24) |152 |
| | | |
|Income taxes |11 | |
|Increase in taxes payable |(2) | |
|Decrease in deferred taxes | 1 | 10 |
| | | |
|Net cash provided by operating activities | |$ 47 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement LO: 2,4 Level: Medium
127. Heckler Corporation's balance sheet and income statement appear below:
| |Comparative Balance Sheet |
| | |Ending Balance|Beginning Balance |
| |Assets: | | |
| |Cash and cash equivalents |$ 43 |$ 35 |
| |Accounts receivable |25 |28 |
| |Inventory |67 |66 |
| |Plant and equipment |392 |360 |
| |Accumulated depreciation |( 237) |( 198) |
| |Total assets |$290 |$291 |
| | | | |
| |Liabilities and stockholders’ equity: | | |
| |Accounts payable |$ 31 |$ 29 |
| |Long-term debt |198 |240 |
| |Common stock |74 |70 |
| |Retained earnings |( 13) |( 48) |
| |Total liabilities and stockholders’ equity |$290 |$291 |
| |Income Statement |
| |Sales |$618 |
| |Cost of goods sold | 398 |
| |Gross margin |220 |
| |Selling and administrative expense | 156 |
| |Net operating income |64 |
| |Income taxes | 19 |
| |Net income |$ 45 |
Cash dividends were $10.
Required:
Prepare the operating activities section of the statement of cash flows in good form using the direct method.
Ans:
|Sales |$618 | |
|Decrease in accounts receivable | 3 |$621 |
| | | |
|Cost of goods sold |398 | |
|Increase in inventory |1 | |
|Increase in accounts payable |( 2) |397 |
| | | |
|Selling and administrative expense |156 | |
|Depreciation charges |( 39) |117 |
| | | |
|Income taxes | | 19 |
| | | |
|Net cash provided by operating activities | |$ 88 |
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement LO: 2,4 Level: Easy
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