Test Bank - Chapter17 Cash Flows

Chapter 17
How Well Am I Doing? Statement of Cash Flows
True/False
1.
T
Medium
Every transaction classified as "source" or "use" of cash for purposes of constructing a

statement of cash flows involves a change in some noncash balance sheet account.
2.
T
Medium
In the statement of cash flows, increases in a company's capital stock accounts are generally
treated as a "source" rather than as a "use" of cash.
3.
F
Hard
Dividends received on stock held as an investment should be treated as an investing activity on

the statement of cash flows.
4.
F
Medium
A change in deferred taxes is considered to be a financing activity on the statement of cash

flows.
5.
T
Hard
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 subtracted from net income.
6.
T
Medium
An increase in taxes payable between the beginning and the end of the year would be added to
net income when determining the net cash provided by operating activities under the indirect
method on the statement of cash flows.
7.
F
Medium
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 subtracted
from net income.
8.
F
Hard
If the income statement shows a loss for the period, then the net cash provided by operating
activities on the statement of cash flows cannot be positive.
9.
F
Medium
Transactions that involve acquiring or disposing of noncurrent assets are generally classified as
financing activities on the statement of cash flows.
10.
T
Medium
Cash dividends paid to the owners of a company would be classified as part of financing
activities on the statement of cash flows.
ManagerialAccounting,9/e
98
11.
F
Medium
(Appendix) If accounts receivable increase during a period, then the amount of cash collected
from customers will be greater than the amount of sales reported on the income statement for
the period.
12.
F
Medium
(Appendix) Under the direct method of determining net cash provided by operating activities
on the statement of cash flows, the net income figure is adjusted for changes in current assets
and liabilities.
13.
F
Hard
(Appendix) Under the direct method of determining the net cash provided by operating
activities on the statement of cash flows, an increase in accounts payable would be added to
cost of goods sold to convert cost of goods sold to a cash basis.
14.
T
Easy
The net cash provided by operating activities on the statement of cash flows will generally be
different than net income.
15.
T
Easy
For external reporting purposes, the FASB recommends that the direct method of determining
the net cash provided by operating activities be used for the statement of cash flows.
Multiple Choice
16.
B
Medium
An increase in the Inventory account of a company from $10,000 at the beginning of the year
to $15,000 at the end of the 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 $5,000 in order to arrive at
cash flows from operating
activities.
b. a deduction from net income of $5,000 in order to arrive at cash flows from operating
activities.
c. an addition to net income of $15,000 in order to arrive at
activities.
d. a deduction from net income of $10,000 in order to arrive at
cash flows from
operating activities.
17.
C
Hard
Under the indirect method of determining net cash provided by operating activities, which of
the following would be recorded as a deduction from net income?
a. A decrease in accounts receivable.
b. An increase in salaries payable.
c. A decrease in accounts payable.
d. An increase in deferred tax liability.
99 ManagerialAccounting,9/e
18.
A
Medium
An increase in the Interest Payable account of a company from $0 at the beginning of the year,
to $1,000 at the end of the year, would be shown on the company's statement of cash flows
prepared under the indirect method as:
activities.
b. a deduction from net income of $1,000 in order to arrive at cash flows from operating
activities.
c. a cash flow of $1,000 under the Investing Activities
heading.
d. a cash flow of $1,000 under the Financing Activities
heading.
19.
C
Medium
Which of the following would be considered a "use" of cash for purpose of constructing a
statement of cash flows?
a. selling the company's own common stock to investors.
b. issuing long-term debt.
c. purchasing equipment.
d. amortizing a patent.
20.
A
Medium
Which of the following would be considered a "use" of cash for purposes of constructing a
a. an increase in accounts receivable.
b. a decrease in prepaid expenses.
c. an increase in bonds payable.
d. an increase in accumulated depreciation.
21.
B
Medium
Which of the following would be considered a "use" of cash for purposes of constructing a
a. an increase in accounts payable.
b. an increase in prepaid expenses.
c. an increase in accrued liabilities.
d. an increase in accumulated depreciation.
22.
B
Medium
An increase 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:
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.
23.
D
Medium
CMA adapted
When using the indirect method to prepare the statement of cash flows, amortization of
goodwill should be presented as a(n):
a. cash flow from investing activities.
b. cash flow from financing activities.
c. deduction from net income.
d. addition to net income.
e. investing and financing activity not affecting cash.
100
24.
D
Hard
(Appendix) During the year the balance in the accounts payable account decreased by $8,000.
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 $8,000 from the sales revenue reported on the
income statement.
b. add the $8,000 to the sales revenue reported on the income statement.
c. deduct the $8,000 from the cost of goods sold reported on the income statement.
d. add the $8,000 to the cost of goods sold reported on the
income statement.
25.
A
Hard
(Appendix) During the year the balance in the accrued liabilities account increased by
$12,000. 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 $12,000 from the operating expenses on the income
statement.
b. add the $12,000 to the operating expenses on the income statement.
c. deduct the $12,000 from the cost of goods sold reported on the income statement.
d. add the $12,000 to the cost of goods sold reported on the income statement.
26.
A
Easy
In a statement of cash flows, a change in prepaid expenses 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.
27.
A
Easy
In a statement of cash flows, a change in the inventories 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.
28.
D
Medium
CMA adapted
All of the following should be classified under the operating section of the statement of cash
flows EXCEPT:
a. a decrease in inventory.
b. an increase in accumulated depreciation.
c. a decrease in prepaid insurance.
d. a purchase of land in exchange for a long-term note.
e. an increase in income tax payable.
101ManagerialAccounting,9/e
29.
D
Medium
An increase 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.
30.
C
Medium
An increase in the bonds payable account of $200,000 over the course of a year would be
a. an addition of $200,000 under investing activities.
b. a deduction of $200,000 under investing activities.
31.
D
Medium
An decrease in the bonds payable account of $200,000 over the course of a year would be
a. an addition of $200,000 under investing activities.
b. a deduction of $200,000 under investing activities.
32.
B
Hard
CMA adapted
Which one of the following transactions should be classified as a financing activity on the
a. Purchase of equipment.
b. Purchase of the company's own stock.
c. Sale of a patent.
d. Payment of interest on a note.
e. Receipt of an income tax refund.
33.
B
Hard
Which of the following would be classified as a Financing Activity on the statement of cash
flows?
a. Interest paid on bonds issued by the reporting company.
b. Dividends paid to shareholders of the company on the
company's common stock.
c. Interest received on investments in another company's bonds.
d. Dividends received on investments in another company's common stock.
102
34.
A
Hard
The sale of equipment at a gain would be shown on the statement of cash flows prepared under
the indirect method in which of the following manners?
a. Cash received would be shown under Investing Activities and
the gain would be
deducted from net income.
b. Cash received would be shown under Investing Activities and
the gain would be
added to net income.
c. Cash received would be shown under Investing Activities and
the gain would not
appear on the statement of cash flows.
d. Cash received would be shown as an adjustment to net income
and the gain would not
appear on the statement of cash
flows.
35.
C
Hard
Which of the following presentations on the statement of cash flows of the transactions
described is correct?
a. A company that purchases $600,000 in property during a year,
and sells other
property for $400,000, shows a $200,000 net
investment in property for the year as an
Investing
Activity.
b. A company that receives $700,000 from the issuance of bonds,
and pays $600,000 to
retire other bonds, shows a $100,000
net amount from Financing Activities.
c. A company has an increase of $400,000 in accounts receivable
as a result of sales for
the year, and a decrease of
$300,000 in accounts receivable as a result of collections
during the year, shows a $100,000 net difference in
determining the cash flow from
operating activities during the year.
d. None of the above presentations is correct.
36.
C
Hard
The data given below are from the accounting records of the Kuhn Company:
Net Income (accrual basis) ............... $45,000
Depreciation Expense ..................... $ 9,000
Decrease in Accounts Payable ............. $ 2,500
Decrease in Merchandise Inventory ........ $ 3,000
Increase in Long-term Liabilities ........ $10,000
Sale of Capital Stock for cash ........... $30,000
Increase in Accounts Receivable .......... $ 4,500
Based on this information, the cash provided by operating activities using the indirect method
would be:
a. $55,000.
b. $58,000.
c. $50,000.
d. $60,000.
37.
C
Hard
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.
38.
B
Hard
Moravec Company's net income last year was $46,000 and cash dividends declared and paid to
Increases
(Decreases)
Debit balances:
Inventory ................... (5,000)
Credit balances:
Accrued liabilities ......... (9,000)
Taxes payable ...............
4,000
Bonds payable ............... 60,000
a. $126,000.
b. $74,000.
c. $72,000.
d. $18,000.
104
39.
D
Hard
Morera Company's net income last year was $37,000 and cash dividends declared and paid to
Increases
(Decreases)
Debit balances:
Inventory ...................
5,000
Prepaid expenses ............ (3,000)
Long term investments ....... 20,000
Credit balances:
Accounts payable ............ (7,000)
8,000
a. $63,000.
b. $32,000.
c. $18,000.
d. $56,000.
40.
B
Medium
Nordstrand Company's net income last year was $36,000. Changes in selected balance sheet
accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Accounts receivable ......... $(7,000)
Inventory ................... (5,000)
Prepaid expenses ............
3,000
Credit balances:
-0Deferred taxes ..............
1,000
a. $4,000.
b. $68,000.
c. $50,000.
d. $54,000.
41.
C
Medium
Nordquist Company's net income last year was $33,000. Changes in selected balance sheet
Increases
(Decreases)
Debit balances:
Accounts receivable ......... $12,000
Inventory ................... (4,000)
8,000
Credit balances:
-0Deferred taxes ..............
3,000
a. $80,000.
b. $18,000.
c. $48,000.
d. $56,000.
42.
A
Medium
Norbury Company's net income last year was $34,000. Changes in selected balance sheet
Increases
(Decreases)
Debit balances:
Accounts receivable ......... $12,000
Inventory ................... (9,000)
4,000
Credit balances:
Accounts payable ............
5,000
Accrued liabilities .........
7,000
Taxes payable ............... (6,000)
Deferred taxes ..............
-0Based solely on this information, the net cash provided by operations under the indirect
a. $52,000.
b. $66,000.
c. $53,000.
d. $16,000.
106
43.
A
Medium
CPA adapted
Lino Company's records reveal the following account balances at the close and beginning of
last year:
December 31
January 1
Accounts receivable
$29,000
$23,000
Accumulated depreciation
1,000
800
Prepaid expenses
8,200
12,400
Accounts payable
22,400
19,400
Lino's net income last year was $150,000. The company uses the indirect method to determine
the net cash provided by operating activities. Based solely upon this data, what amount should
Lino include as net cash provided by operating activities in its statement of cash flows for the
year?
a. $151,400
b. $157,000
c. $148,600
d. $145,400
44.
C
Medium
(Appendix) Last year Cumley Company reported a cost of goods sold of $90,000. Inventories
increased by $21,000 during the year, and accounts payable decreased by $14,000. 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. $55,000.
b. $111,000.
c. $125,000.
d. $104,000.
45.
D
Medium
(Appendix) Last year Cumber Company reported a cost of goods sold of $70,000. Inventories
decreased by $12,000 during the year, and accounts payable increased by $8,000. 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. $90,000.
b. $62,000.
c. $58,000.
d. $50,000.
46.
A
Medium
(Appendix) Last year Cumberland Company reported a cost of goods sold of $120,000.
Inventories increased by $35,000 during the year, and accounts payable increased by $20,000.
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. $135,000.
b. $100,000.
c. $155,000.
d. $105,000.
47.
B
Hard
(Appendix) Last year Lawton Company reported sales of $110,000 on its income statement.
During the year, accounts receivable decreased by $10,000 and accounts payable decreased by
$15,000. 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. $125,000.
b. $120,000.
c. $115,000.
d. $105,000.
48.
C
Hard
(Appendix) Last year Lawsby Company reported sales of $120,000 on its income statement.
During the year, accounts receivable increased by $10,000 and accounts payable increased by
would be:
a. $105,000.
b. $125,000.
c. $110,000.
d. $115,000.
49.
A
Hard
(Appendix) Last year Lawn Company reported sales of $115,000 on its income statement.
During the year, accounts receivable decreased by $10,000 and accounts payable increased by
would be:
a. $125,000.
b. $90,000.
c. $140,000.
d. $100,000.
50.
B
Medium
(Appendix) Last year Darrow Company reported sales of $600,000 on its income statement.
During the year, accounts receivable increased by $30,000 and accounts payable decreased by
would be:
a. $630,000.
b. $570,000.
c. $610,000.
d. $590,000.
108
51.
A
Medium
(Appendix) Last year Madson company reported a cost of goods sold of $800,000 on its income
statement. The following additional data were taken from the company's comparative balance
sheet for the year:
Ending Beginning
Inventory ............. $120,000
$100,000
Accounts payable ...... $ 70,000
$ 80,000
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. $830,000.
b. $810,000.
c. $770,000.
d. $790,000.
52.
A
Medium
(Appendix) Cridge Company's operating 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, operating 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.
53.
B
Medium
(Appendix) Cridwell Company's operating expenses for last year totaled $210,000. During the
year the company's prepaid expense account balance increased by $18,000 and accrued
liabilities increased by $12,000. Depreciation charges for the year were $24,000. Based on this
a. $180,000.
b. $192,000.
c. $228,000.
d. $240,000.
54.
C
Medium
(Appendix) Cridman Company's operating expenses for last year totaled $180,000. During the
year the company's prepaid expense account balance decreased by $5,000 and accrued
liabilities increased by $8,000. Depreciation charges for the year were $12,000. Based on this
a. $205,000.
b. $181,000.
c. $155,000.
d. $179,000.
55.
A
Hard
(Appendix) The ending balance of accounts receivable was $52,500. Sales, adjusted to a cash
basis using the direct method on the statement of cash flows, were $425,000. Sales reported on
the income statement were $444,000. Based on this information, the beginning balance in
accounts receivable was:
a. $33,500.
b. $66,500.
c. $71,500.
d. $39,500.
56.
C
Hard
(Appendix) During the year just completed, Anderson Company reported a cost of goods sold
of $100,000. The company's inventory at the beginning of the year was $11,000, and its
inventory at the end of the year was $19,000. The Prepaid Expense account increased by
$2,000 between the beginning and end of the year, and the Accounts Payable account
decreased by $4,000. Cost of goods sold adjusted to the cash basis under the direct method
would be:
a. $94,000.
b. $106,000.
c. $112,000.
d. $110,000.
57.
A
Hard
(Appendix) Carlton Company reported on its income statement sales for the year just ended of
$435,000. Sales during the year adjusted to the cash basis on its statement of cash flows
constructed using the direct method were $460,000. Carlton Company recorded the following
account balances:
Balance
o
Account
o
Beginning of the Year End of the Year
Accounts Receivable ......
?
$35,000
Prepaid Expenses .........
$12,000
$16,000
Inventory ................
$22,000
$19,000
Based on this information, the balance in Accounts Receivable at the beginning of the year was:
a. $60,000.
b. $63,000.
c. $59,000.
d. $10,000.
110
58.
B
Hard
(Appendix) LFM Company reported Cost of Goods Sold on its income statement of $15,000 for
the year just ended, as well as the balances shown in the following accounts at the respective yearends:
Beginning of Year End of Year
Inventory ............... $30,000
$33,000
Accounts Payable ........ $21,000
$23,000
Using the direct method of constructing the statement of cash flows, the cost of goods sold
adjusted to a cash basis would be:
a. $14,000.
b. $16,000.
c. $10,000.
d. $15,000.
59.
C
Hard
(Appendix) During the year just completed, Blume Company reported total cost of goods sold
on the income statement as $140,000. During the year, the balance in Accounts Payable
decreased $25,000 and the balance in Inventory increased $10,000. Under the direct method,
cost of goods sold adjusted to the cash basis would be:
a. $105,000.
b. $125,000.
c. $175,000.
d. $155,000.
60.
C
Hard
Last year Marmin Company sold equipment with a net book value of $120,000 for $160,000 in
cash. This equipment was originally purchased for $230,000. 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 $40,000 from cash.
b. A net addition of $40,000 to cash.
c. A net deduction of $70,000 from cash.
d. A net addition of $70,000 to cash.
61.
B
Hard
Last year Marlstrom Company sold equipment with a net book value of $110,000 for $90,000
in cash. This equipment was originally purchased for $280,000. 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 addition of $190,000 to cash.
b. A net deduction of $190,000 from cash.
c. A net addition of $20,000 to cash.
d. A net deduction of $20,000 from cash.
62.
D
Hard
Last year Marty Company sold equipment with a net book value of $125,000 for $110,000 in
cash. This equipment was originally purchased for $275,000. 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 addition of $15,000 to cash.
b. A net deduction of $15,000 from cash.
c. A net addition of $165,000 to cash.
d. A net deduction of $165,000 from cash.
63.
C
Hard
The following events occurred last year for the Cashback Company:
Issuance of Common Stock ................ $46,000
Dividends paid to shareholders .......... 11,000
Dividends received from investments ..... 4,000
Interest paid on Bonds Payable .......... 14,000
Proceeds from sale of used equipment .... 19,000
Repurchase of preferred stock ........... 10,000
Based solely on the above information, the net cash provided by financing activities for the
year on the statement of cash flows was:
a. $44,000.
b. $48,000.
c. $25,000.
d. $15,000.
64.
C
Hard
The following transactions occurred last year at Jowlson Company:

Issuance of shares of the
company's own common stock ............. $ 40,000
Dividends paid to the
company's own shareholders ............. 3,000
Dividends received from investments
in other companies' shares ............. 5,000
Interest paid on the company's own bonds .. 22,000
Repayment of principal on
the company's own bonds ................ 100,000
Proceeds from sale of the
company's used equipment ............... 29,000
Purchase of land .......................... 80,000
year on the statement of cash flows would be:
a. $(131,000).
b. $279,000.
c. $(63,000).
d. $(85,000).
112
65.
D
Hard
The following transactions occurred last year at Jogger Company:

company's own common stock ............. $110,000
Purchase of land .......................... 170,000
a. $424,000.
b. $(138,000).
c. $(1,000).
d. $7,000.
66.
B
Hard
The following transactions occurred last year at Jolly Company:

company's own common stock ............. $120,000
Purchase of land .......................... 170,000
a. $379,000.
b. $59,000.
c. $(109,000).
d. $46,000.
67.
D
Hard
Grading Company's cash and cash equivalents consist of cash and marketable securities. Last
year the company's cash account decreased by $14,000 and its marketable securities account
increased by $18,000. Cash provided by operating activities was $21,000. Net cash used for
financing activities was $22,000. Based on this information, the net cash flow from investing
activities on the statement of cash flows was:
a. a net $13,000 decrease.
b. a net $1,000 increase.
c. a net $3,000 decrease.
d. a net $5,000 increase.
68.
A
Medium
Last year Burbach Company's cash account increased by $10,000. Net cash provided by
investing activities was $16,000. Net cash used in financing activities was $34,000. On the
statement of cash flows, the net cash flow provided by (used in) operating activities was:
a. $28,000.
b. $(8,000).
c. $10,000.
d. $(18,000).
69.
B
Medium
Last year Burford Company's cash account decreased by $19,000. Net cash used in investing
activities was $9,000. Net cash provided by financing activities was $16,000. On the statement
of cash flows, the net cash flow provided by (used in) operating activities was:
a. $(19,000).
b. $(26,000).
c. $(12,000).
d. $7,000.
70.
D
Medium
Last year Burch Company's cash account decreased by $6,000. Net cash provided by investing
activities was $13,000. Net cash used in financing activities was $30,000. On the statement of
cash flows, the net cash flow provided by (used in) operating activities was:
a. $(23,000).
b. $(17,000).
c. $(6,000).
d. $11,000.
114
Reference: 17-1
(Appendix) Balance sheet accounts for Hollis, Inc. contained the following amounts at the ends of years 1 and 2:
Year 2
Year 1
Debit balances
Cash .......................... $ 7,500 $ 5,000
Accounts Receivable ........... 21,000
15,000
Inventory ..................... 37,000
28,000
Prepaid Expenses .............. 2,500
2,000
Long-term Investments ......... 21,000
25,000
Plant and Equipment ........... 196,000
175,000
Totals .............. $285,000 $250,000
Credit balances
Accumulated Depreciation ...... $ 41,000 $ 32,000
Accounts Payable .............. 24,000
28,000
Accrued Liabilities ........... 9,000
5,000
Bonds Payable ................. 30,000
35,000
Common Stock .................. 75,000
60,000
Retained Earnings ............. 106,000
90,000
Totals .............. $285,000 $250,000
The company's income statement for year 2 follows:
Sales .................. $126,000
Cost of Goods Sold .....
77,000
Gross profit ...........
49,000
Operating Expense ......
28,000
Net Income ............. $ 21,000
There were no sales or retirements of plant and equipment in Year 2. Cash dividends of $5,000 were paid during
Year 2. The company pays no income taxes. The company uses the direct method to determine the net cash
provided by operating activities on the statement of cash flows.
71.
B
Medium
Refer To: 171
For Year 2, sales adjusted to a cash basis would be:

a. $111,000.
b. $120,000.
c. $126,000.
d. $132,000.
72.
D
Medium
Refer To: 171
Cost of goods sold adjusted to a cash basis for Year 2 would be:
a. $64,000.
b. $72,000.
c. $82,000.
d. $90,000.
73.
A
Medium
Refer To: 171
The net cash provided by operating activities for Year 2 would be:
a. $14,500.
b. $30,000.
c. $18,500.
d. $27,500.
74.
C
Medium
Refer To: 171
Net cash used for investing activities for Year 2 would be:
a. $12,000.
b. $21,000.
c. $17,000.
d. $22,000.
75.
C
Medium
Refer To: 171
Net cash provided by financing activities for Year 2 would be:

a. $6,000.
b. $10,000.
c. $5,000.
d. $11,000.
Reference: 17-2
Watley Company's comparative balance sheet and income statement for last year appear below:
Statement of Financial Position
Ending
Beginning
Balance
Balance
Cash ....................... $ 27,000 $ 21,000
Accounts receivable ........ 28,000
35,000
Inventory .................. 48,000
36,000
Prepaid expenses ........... 8,000
13,000
Long-term investments ...... 290,000
230,000
Plant and equipment ........ 440,000
440,000
Accumulated depreciation ... (237,000) (202,000)
Total assets ............. $604,000 $573,000
Accounts payable ........... $ 47,000 $ 32,000
Accrued liabilities ........ 24,000
16,000
Taxes payable .............. -010,000
Bonds payable .............. 100,000
180,000
Deferred taxes ............. 28,000
17,000
Common stock ............... 80,000
50,000
Retained earnings .......... 325,000
268,000
Total liabilities and
owners' equity ........ $604,000 $573,000
116
Income Statement
Sales ........................ $770,000
Less: costs of goods sold .... 350,000
Gross margin ................. 420,000
Less: operating expenses ..... 260,000
Net operating income ......... 160,000
Less: income taxes ........... 48,000
Net income ................... $112,000
The company declared and paid $55,000 in cash dividends during the year. The following questions pertain to the
company's statement of cash flows.
76.
A
Medium
Refer To: 172
The net cash provided by (used in) operating activities last year was:
a. $171,000.
b. $146,000.
c. $53,000.
d. $112,000.
77.
D
Medium
Refer To: 172
The net cash provided by (used in) investing activities last year was:
a. $30,000.
b. $(30,000).
c. $60,000.
d. $(60,000).
78.
B
Medium
Refer To: 172
The net cash provided by (used in) financing activities last year was:
a. $105,000.
b. $(105,000).
c. $(50,000).
d. $50,000.
Reference: 17-3
Wabash Company's comparative balance sheet and income statement for last year appear below:
Ending
Beginning
Balance
Balance
Cash ....................... $ 30,000 $ 38,000
64,000
Inventory .................. 38,000
44,000
9,000
200,000
430,000
Total assets ............. $612,000 $595,000
Accounts payable ........... $ 51,000
Taxes payable .............. 31,000
Bonds payable .............. 60,000
Deferred taxes ............. 21,000
Common stock ............... 110,000
owners' equity ........ $612,000
$ 37,000
25,000
21,000
110,000
17,000
90,000
295,000
$595,000
Income Statement
Sales ........................ $710,000
Gross margin ................. 300,000
Net income ................... $ 77,000
The company declared and paid $43,000 in cash dividends during the year. The following questions pertain to the
79.
C
Medium
Refer To: 173
a. $107,000.
b. $49,000.
c. $105,000.
d. $77,000.
80.
D
Medium
Refer To: 173
a. $(20,000).
b. $20,000.
c. $40,00).
d. $(40,000).
118
81.
B
Medium
Refer To: 173
a. $73,000.
b. $(73,000).
c. $30,000.
d. $(30,000).
Reference: 17-4
Megan Company's net income last year was $98,000. Changes in the company's balance sheet accounts for the
year appear below:
Increases
(Decreases)
Debit balances:
Cash ........................ $ (3,000)
Accounts receivable ......... (14,000)
Inventory ...................
3,000
(7,000)
Long-term investments .......
80,000
Plant and equipment .........
55,000
Credit balances:
Accumulated depreciation ....
58,000
Accounts payable ............
-0Accrued liabilities .........
15,000
Taxes payable ............... (13,000)
Bonds payable ............... (30,000)
2,000
Common stock ................
20,000
Retained earnings ...........
62,000
The company declared and paid cash dividends of $36,000 last year. The following questions pertain to the
82.
B
Medium
Refer To: 174
a. $98,000.
b. $178,000.
c. $156,000.
d. $120,000.
83.
D
Medium
Refer To: 174
a. $,000.
b. $(115,000).
c. $135,000.
d. $(135,000).
84.
A
Medium
Refer To: 174
a. $(46,000).
b. $46,000.
c. $(10,000).
d. $10,000.
Reference: 17-5
(Appendix) Van Ardhom Company's comparative balance sheet and income statement for last year appear below:
Ending
Beginning
Balance
Balance
Cash ....................... $ 25,000 $ 40,000
34,000
Inventory .................. 71,000
52,000
13,000
240,000
420,000
Total assets ............. $635,000 $591,000
Taxes payable .............. 30,000
Bonds payable .............. 70,000
Deferred taxes ............. 34,000
Common stock ............... 100,000
owners' equity ........ $653,000
$ 57,000
21,000
19,000
110,000
22,000
70,000
292,000
$591,000
Income Statement
Sales ........................ $670,000
Gross margin ................. 360,000
Net income ................... $ 91,000
The company declared and paid $48,000 in cash dividends during the year. The company uses the direct method
to determine the net cash provided by operating activities.
120
85.
A
Hard
Refer To: 175
On the statement of cash flows, the sales revenue adjusted to a cash basis would be:
a. $648,000.
b. $667,000.
c. $670,000.
d. $692,000.
86.
B
Hard
Refer To: 175
On the statement of cash flows, the cost of goods sold adjusted to a cash basis would be:
a. $289,000.
b. $308,000.
c. $310,000.
d. $312,000.
87.
B
Hard
Refer To: 175
On the statement of cash flows, the operating expenses adjusted to a cash basis would be:
a. $239,000.
b. $211,000.
c. $230,000.
d. $249,000.
88.
D
Hard
Refer To: 175
On the statement of cash flows, the income tax expense adjusted to a cash basis would be:
a. $39,000.
b. $62,000.
c. $28,000.
d. $16,000.
Reference: 17-6
(Appendix) Van Broder Company's comparative balance sheet and income statement for last year appear below:
Ending
Beginning
Balance
Balance
Cash ....................... $ 46,000 $ 27,000
46,000
Inventory .................. 53,000
66,000
13,000
210,000
510,000
Total assets ............. $686,000 $637,000
Taxes payable .............. 32,000
Bonds payable .............. 70,000
Deferred taxes ............. 30,000
Common stock ............... 80,000
owners' equity ........ $686,000
$ 27,000
21,000
14,000
130,000
25,000
50,000
370,000
$637,000
Income Statement
Sales ........................ $640,000
Gross margin ................. 340,000
Net income ................... $ 77,000
89.
D
Hard
Refer To: 176
a. $640,000.
b. $650,000.
c. $617,000.
d. $630,000.
122
90.
B
Hard
Refer To: 176
a. $315,000.
b. $302,000.
c. $300,000.
d. $298,000.
91.
C
Hard
Refer To: 176
a. $281,000.
b. $211,000.
c. $179,000.
d. $230,000.
92.
A
Hard
Refer To: 176
a. $10,000.
b. $33,000.
c. $56,000.
d. $15,000.
Reference: 17-7
The changes in Northrup Company's balance sheet account balances for last year appear below:
Increases
(Decreases)
Debit balances:
Cash ........................ $ 4,000
Inventory ................... (2,000)
2,000
Long-term investments ....... 40,000
Plant and equipment ......... 25,000
Credit balances:
8,000
Taxes payable ............... (10,000)
Bonds payable ............... (70,000)
2,000
Common stock ................ 10,000
Retained earnings ........... 63,000
The company's income statement for the year appears below:

Income Statement
Sales ........................ $980,000
Gross margin ................. 440,000
Net income ................... $ 91,000
93.
C
Hard
Refer To: 177
a. $976,000.
b. $982,000.
c. $984,000.
d. $980,000.
94.
C
Hard
Refer To: 177
a. $546,000.
b. $536,000.
c. $544,000.
d. $540,000.
95.
D
Hard
Refer To: 177
a. $304,000.
b. $384,000.
c. $310,000.
d. $236,000.
96.
A
Hard
Refer To: 177
a. $47,000.
b. $39,000.
c. $31,000.
d. $49,000.
124
Reference: 17-8
Spats Company recorded the following events last year:
company's own common stock ........... $120,000
Purchase of bonds issued by
other companies ...................... 30,000
Dividends paid to the company's
own shareholders ..................... 10,000
in other companies' shares ........... 12,000
Repayment of principal on the
company's own bonds .................. 300,000
Interest paid on the company's
own bonds ............................ 19,000
Collection of the principal amount
of a loan made to another company .... 220,000
Purchase of equipment .................. 360,000
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.
97.
B
Hard
Refer To: 178
Based solely on the information above, the net cash provided by (used in) financing activities
on the statement of cash flows would be:
a. $1,071,000.
b. $(190,000).
c. $13,000.
d. $(209,000).
98.
C
Hard
Refer To: 178
Based solely on the information above, the net cash provided by (used in) investing activities
a. $(1,071,000).
b. $(390,000).
c. $(170,000).
d. $(690,000).
Reference: 17-9
Spawle Company recorded the following events last year:
company's own common stock ........... $200,000
Purchase of bonds issued by
other companies ...................... 50,000
Dividends paid to the company's
own shareholders ..................... 39,000
in other companies' shares ........... 14,000
Repayment of principal on the
company's own bonds .................. 270,000
Interest paid on the company's
own bonds ............................ 18,000
Collection of the principal amount
of a loan made to another company .... 70,000
Purchase of equipment .................. 280,000
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.
99.
C
Hard
Refer To: 179
Based solely on the information above, the net cash provided by (used in) financing activities
a. $(15,000).
b. $941,000.
c. $(109,000).
d. $(127,000).
100.
D
Hard
Refer To: 179
Based solely on the information above, the net cash provided by (used in) investing activities
a. $(941,000).
b. $(320,000).
c. $(600,000).
d. $(260,000).
Reference: 17-10
Lucas Company recorded the following events for the year just ended:
Retirement of preferred stock .......................... $50,000
Sale of bonds issued by other companies ................ $75,000
Interest paid on notes payable ......................... $35,000
Dividends paid to shareholders ......................... $90,000
Collection by Lucas of a loan made to a subsidiary ..... $55,000
Payment of deferred taxes .............................. $45,000
126
101.
D
Medium
Refer To: 1710
The net decrease in cash resulting from financing activities for the year was:
a. $45,000.
b. $35,000.
c. $85,000.
d. $140,000.
102.
A
Medium
Refer To: 1710
The net change in cash resulting from investing activities for the year was:
a. $130,000.
b. $40,000.
c. ($5,000).
d. $10,000.
Reference: 17-11
Crandall Company recorded the following activity for the year just ended:
Proceeds from sale of plant equipment ............. $400,000
Dividends received from investments ............... $ 30,000
Common stock issued ............................... $200,000
Notes issued to creditors for borrowed funds ...... $ 80,000
Dividends paid to stockholders .................... $ 20,000
Purchase of plant equipment ....................... $120,000
103.
D
Medium
Refer To: 1711
The net cash provided by financing activities for the year was:
a. $280,000.
b. $200,000.
c. $300,000.
d. $260,000.
104.
C
Hard
Refer To: 1711
The net cash provided by investing activities for the year was:
a. $400,000.
b. $410,000.
c. $280,000.
d. $380,000.
Essay
105.
Medium
Recent balance sheets of Warnick Co. appear below, together with an income statement for the
latest year.
WARNICK CO.
Balance Sheets
May 31, 19x2 and 19x1
19x2
19x1
Cash ............................... $22,300 $24,000
Accounts receivable ................ 6,400
7,500
Inventories......................... 39,900 30,100
Long-term investments .............. -8,000
Plant and equipment ................ 132,500 120,000
Less accumulated depreciation ...... ( 50,800) ( 46,800)
Total assets .................... $150,300 $142,800
Accounts payable ................... $ 1,600
Accrued liabilities ................ 2,100
Common stock ....................... 108,000
Retained earnings .................. 38,600
stockholders' equity ...... $153,300
$ 2,400
1,800
100,000
38,600
$142,800
WARNICK CO.
Income Statement and
For the Year Ended May 31, 19x2
Sales ............................ $102,000
Less cost of goods sold .......... 73,000
Gross margin ..................... 29,000
Less operating expenses:.......... 14,000
Income before taxes .............. 15,000
Less income taxes ................ 4,500
Net income ....................... $ 10,500
Note: Stock in Bowen Co., held as a long-term investment, was sold for $8,000 cash.
Dividends of $10,500 were declared and paid during the year.
128
Required:
Prepare a statement of cash flows for Warnick Co. for the year ended May 31, 19x2. Use the
indirect method.
Answer:
Operating activities:
Net income ................................ $10,500
Adjustments to convert to cash basis:
Depreciation charges .................... 4,000
Decrease in accounts receivable ......... 1,100
Increase in inventories ................. (9,800)
Decrease in accounts payable ............ (800)
Increase in accrued liabilities ......... 300
Net cash provided by operating activities
$5,300
Investing activities:
Sale of long-term investment ............. 8,000
Purchase of equipment .................... (12,500)
Net cash used for investing activities ...
(4,500)
Financing activities:
Cash dividends ........................... (10,500)
Increase in common stock ................. 8,000
Net cash used for financing activities ...
(2,500)
Net decrease in cash ........................
106.
Medium
$(1,700)
Burg Company's net income last year was $91,000. Changes in the company's balance sheet
Increases
(Decreases)
Debit balances:
Cash ........................ $(13,000)
Accounts receivable ......... 16,000
Inventory ................... 21,000
Credit balances:
Accrued liabilities ......... 14,000
Taxes payable ............... 24,000
Bonds payable ............... (50,000)
Deferred taxes .............. 18,000
Common stock ................ 20,000
The company declared and paid cash dividends of $26,000 last year.
Required:
a. Construct in good form the operating activities section of
flows for the year. (Use the indirect method.)
the company's statement of cash
b. Construct in good form the investing activities section of

flows for the year.
c. Construct in good form the financing activities section of

flows for the year.
Answer:
a. Operating activities
Net income ................................ $ 91,000
Adjustments:
Increase in accounts receivable ......... (16,000)
Increase in inventory ................... (21,000)
Decrease in prepaid expenses ............ 8,000
Decrease in accounts payable ............ (21,000)
Increase in accrued liabilities ......... 14,000
Increase in taxes payable ............... 24,000
Increase in deferred taxes .............. 18,000
Net cash provided by operating activities . $133,000
b. Investing activities:
Increase in long-term investments ......... $(30,000)
Increase in plant & equipment ............. (60,000)
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 ............................ (26,000)
Net cash used in financing activities ..... $(56,000)
130
107.
Medium
Burdge Company's net income last year was $77,000. Changes in the company's balance sheet
Increases
(Decreases)
Debit balances:
Cash ........................ $ 11,000
Inventory ................... 19,000
Credit balances:
8,000
Taxes payable ............... (11,000)
Bonds payable ............... (40,000)
Deferred taxes .............. 14,000
Common stock ................ 30,000
The company declared and paid cash dividends of $6,000 last year.
Required:
flows for the year. (Use the indirect method.)

flows for the year.

flows for the year.
Answer:
Net income ................................ $ 77,000
Adjustments:
Increase in inventory ................... (19,000)
Decrease in prepaid expenses ............ 4,000
Increase in accounts payable ............ 23,000
Decrease in taxes payable ............... (11,000)
Net cash provided by operating activities $147,000
Increase in long-term investments ......... $ (40,000)
Increase in plant & equipment ............. (80,000)
Decrease in bonds payable ................. $ (40,000)
Cash dividends ............................ (6,000)
Net cash used in financing activities ..... $ (16,000)
108.
Hard
(Appendix) Cavett Company's comparative balance sheet and income statement for last year
appear below:
Ending
Beginning
Balance
Balance
Cash ....................... $ 45,000 $ 30,000
40,000
Inventory .................. 67,000
60,000
200,000
150,000
Total assets ............. $538,000 $430,000
Accrued liabilities......... 24,000
30,000
Bonds payable...... ........ 20,000
30,000
Mortgage payable............ 100,000
Deferred taxes ............. 15,000
20,000
Common stock ............... 295,000
270,000
40,000
stock holders' equity . $538,000 $430,000
Income Statement
Sales .......................................... $250,000
Less costs of goods sold ....................... 100,000
Gross margin ................................... $150,000
Less operating expenses (including depreciation) 90,000
Net operating income before taxes .............. $ 60,000
Loss on sale of investments .................... 5,000
Income before taxes ............................ $ 55,000
Less income taxes .............................. 22,000
Net income ..................................... $ 33,000
The following additional information is available for the year:
a. During the year, the company sold long-term investments with
a cost of $38,000 when
purchased for $33,000 in cash.
b. All sales were on credit.
c. The company paid a cash dividend of $25,000.
d. Bonds payable of $25,000 were retired by issuing common stock for $25,000.
e. An addition to one of the company's buildings was completed
on December 31, at a
132
cost of $128,000. The company paid for

the addition with a $100,000 mortgage and
$28,000 in cash.
f. The company raised $15,000 in cash by issuing additional bonds payable.
Required:
a. Using the direct method, determine the net cash provided by
operating activities for
the year.
b. Using the indirect method, determine the net cash provided by operating activities for the
year.
c. Using the net cash provided by operating activities figure from either part a or b, prepare
a statement of cash flows for the year.
Answer:
a.
Sales ..................................... $250,000
Adjustment to a cash basis:
Decrease in accounts receivable ......... + 2,000 $252,000
Cost of goods sold ........................ 100,000
Adjustments to a cash basis:
Increase in inventory ................... + 7,000
Decrease in accounts payable ............ + 4,000
Decrease in accrued liabilities.......... + 6,000 117,000
Operating expenses ........................ 90,000
Depreciation charges .................... - 2,000 88,000
Income tax expense ........................ 22,000
Decrease in deferred taxes .............. + 5,000
27,000
$ 20,000
b.
Operating activities:
Net income .............................. $33,000
Adjustments to convert to cash basis:
Depreciation charges .................. 2,000
Decrease in accounts receivable ....... 2,000
Increase in inventories ............... (7,000)
Decrease in accounts payable .......... (4,000)
Decrease in accrued liabilities ....... (6,000)
Loss on sale of investments ........... 5,000
Decrease in deferred taxes ............ (5,000)
c.
$20,000
Sale of long-term investment ........... 33,000
Purchase of equipment .................. (28,000)
Net cash used for investing activities
5,000
Cash dividends ......................... (25,000)
Sale of bonds payable .................. 15,000
Net cash used for financing activities
Net increase in cash ....................
109.
Hard.
(10,000)
$15,000
(Appendix) Comparative financial statements for Parr Company follow:

Ending
Beginning
Balance
Balance
Cash ............................. $ 15,000 $ 18,000
Accounts receivable .............. 22,000
25,000
Inventory ........................ 20,000
22,000
Prepaid expenses ................. 14,000
10,000
Long-term investments ............ 7,000
25,000
Plant and equipment .............. 77,000
80,000
Accumulated depreciation ......... (61,000) (64,000)
Total assets ................... $ 94,000 $116,000
Accounts payable ................. $ 6,000 $ 8,000
Accrued liabilities............... 6,400
15,000
Bonds payable..................... 12,000
18,000
Deferred taxes ................... 4,000
15,000
Common stock ..................... 30,000
20,000
Retained earnings ................ 35,600
40,000
stockholders' equity ......... $ 94,000 $116,000
Income Statement
Sales .......................................... $85,000
Gross margin ................................... $40,000
Net operating income before taxes............... $10,000
Gain on sale of investments..................... 4,000
Income before taxes............................. $ 6,000
Net income ..................................... $ 3,600
Additional data for the year included:

134
a. During the year, Parr Company sold equipment for $3,000 that
on which there was accumulated depreciation of $8,000.
b. Equipment was purchased for $12,000 cash.
c. Cash dividends totaling $8,000 were paid.
d. Long-term investments that cost $18,000 when purchased were
e. Common stock was issued for $10,000.
f. Depreciation expense for the year was $5,000.
Required:
Prepare a statement of cash flows using the direct method.
Answer:
Parr Company
Statement of Cash Flows
Sales ..................................... $85,000
Decrease in accounts receivable ......... +3,000 $88,000
Decrease in inventory ................... - 2,000
Decrease in accounts payable ............ + 2,000 45,000
Increase in prepaid expenses ............ + 4,000
Depreciation charges .................... - 5,000
Decrease in accrued liabilities.......... + 8,600 37,600
Decrease in deferred taxes .............. +11,000 13,400
Net cash consumed by operating activities
$(8,000)
Sale of long-term investment ........... $18,000
Sale of equipment ...................... 3,000
Net cash provided by investing activities
9,000
Sale of common stock ................... 10,000
Cash dividends ......................... (8,000)
Payment of bonds ....................... (6,000)
(4,000)
Net decrease in cash ......................
Cash, beginning of the year ...............
Cash, end of the year .....................
(3,000)
18,000
$15,000
had cost $15,000 and
sold for $22,000.
110.
Medium
(Appendix) The changes in each balance sheet account for Carver Company during the year
just completed are as follows:
Increase Decrease
Cash ....................... $ 3,000
$
Inventory ..................
6,000
Long-term investments ......
17,000
Accumulated depreciation ... 9,000
Accounts payable ...........
8,000
Bonds payable...... ........
12,000
Common stock ............... 3,000
Carver Company's income statement for the year just ended shows the following:
Sales ..................... $350,000
Cost of goods sold ........ 190,000
Gross margin .............. $160,000
Operating expense ......... 158,000
Net income ................ $ 2,000
There were no sales or retirements of equipment and no dividends paid during the year. Carver
Company uses the direct method to construct its statement of cash flows.
Required:
a. Determine the sales adjusted to the cash basis.
b. Determine the cost of goods sold adjusted to the cash basis.
c. Determine the operating expenses adjusted to the cash basis.
d. Determine the net cash provided (used) by operating
activities.
e. Determine the net cash provided (used) by investing
activities.
f. Determine the net cash provided (used) by financing
activities.
136
Answer:
Requirements a through d:
Sales ................................... $350,000
Increase in accounts receivable ....... - 5,000 $345,000
Cost of goods sold ...................... 190,000
Decrease in inventory ................. - 6,000
Decrease in accounts payable .......... + 8,000 192,000
Operating expenses ...................... 158,000
Increase in prepaid expenses .......... + 3,000
Increase in accrued liabilities........ - 5,000
Depreciation charges .................. - 9,000 147,000
e. Investing activities:
Sale of long-term investment ......... $17,000
Purchase of equipment ................ (11,000)
f. Financing activities:
Sale of common stock ................. $ 3,000
Payment of bonds ..................... (12,000)
111.
Medium
$ 6,000
$6,000
($9,000)
(Appendix) The changes in each balance sheet account for Bryan Company during the year
just completed are as follows:
Increase Decrease
Cash ....................... $
$ 3,000
Inventory ..................
3,000
Long-term investments ......
15,000
Accumulated depreciation ... 8,000
Accounts payable ...........
10,000
Bonds payable...... ........
13,000
Common stock ............... 5,000
Bryan Company's income statement for the year just ended shows the following:
Sales .................... $300,000
Cost of goods sold ....... 180,000
Gross margin ............. $120,000
Operating expense ........ 116,000
Net income ............... $ 4,000
There were no sales or retirements of equipment and no dividends paid during the year. Bryan
Company uses the direct method to construct its statement of cash flows.
Required:
a. Determine the sales adjusted to the cash basis.
b. Determine the cost of goods sold adjusted to the cash basis.
c. Determine the operating expenses adjusted to the cash basis.
d. Determine the net cash provided (used) by operating
activities.
e. Determine the net cash provided (used) by investing
activities.
f. Determine the net cash provided (used) by financing
activities.
Answer:
Requirements a through d:
Sales ..................................... $300,000
Increase in accounts receivable ......... - 2,000 $298,000
Decrease in accounts payable ............ +10,000 187,000
Increase in accrued liabilities.......... - 6,000
Depreciation charges .................... - 8,000 107,000
$ 4,000
e. Investing activities:
Sale of long-term investment ........... $15,000
$1,000
138
f. Financing activities:
Sale of common stock ................... $ 5,000
Payment of bonds ....................... (13,000)
($8,000)
112.
Hard
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.
--------------------------------------------------------------Dabney Company's comparative balance sheet and income statement for last year appear
below:
Ending
Beginning
Balance
Balance
Cash ....................... $ 64,000 $ 26,000
48,000
Inventory .................. 52,000
70,000
4,000
220,000
560,000
Total assets ............. $600,000 $550,000
Taxes payable .............. 23,000
Bonds payable .............. 140,000
Deferred taxes ............. 29,000
Common stock ............... 160,000
owners' equity ........ $600,000
$ 35,000
17,000
10,000
190,000
21,000
140,000
137,000
$550,000
Income Statement
Sales ........................ $510,000

Gross margin ................. 220,000
Net income ................... $ 56,000
The company declared and paid $7,000 in cash dividends during the year.
Required:

flows for the year.
flows for the year.
flows for the year.

Answer:
INDIRECT METHOD
Net income ................................ $ 56,000
Adjustments:
Decrease in inventory ................... 18,000
Increase in prepaid expenses ............ (10,000)
Increase in accounts payable ............ 14,000
Decrease in accrued liabilities ......... (5,000)
DIRECT METHOD
Sales ..................................... $510,000
Decrease in inventory ................... -18,000
Increase in accounts payable ............ -14,000 258,000
Increase in prepaid expenses ............ +10,000
Decrease in accrued liabilities ......... + 5,000
Depreciation charges .................... -46,000 109,000
Increase in taxes payable ............... -13,000
Increase in deferred taxes .............. - 9,000 2,000
$165,000
140
Cash dividends ............................ ( 7,000)
113.
Hard
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.
---------------------------------------------------------------Dauber Company's comparative balance sheet and income statement for last year appear
below:
Ending
Beginning
Balance
Balance
Cash ....................... $ 64,000 $ 39,000
44,000
Inventory .................. 58,000
70,000
10,000
230,000
520,000
Total assets ............. $617,000 $555,000
Taxes payable .............. 33,000
Bonds payable .............. 160,000
Deferred taxes ............. 36,000
Common stock ............... 140,000
owners' equity ........ $617,000
$ 38,000
17,000
19,000
180,000
21,000
110,000
170,000
$555,000
Income Statement
Sales ........................ $580,000
Gross margin ................. 330,000
Net income ................... $ 84,000
Required:
flows for the year.
flows for the year.
flows for the year.

Answer:
INDIRECT METHOD
Net income ................................ $ 84,000
Adjustments:
Increase in accounts receivable ......... (13,000)
Decrease in inventory ................... 12,000
Increase in prepaid expenses ............ ( 8,000)
Decrease in accounts payable ............ (24,000)
142
DIRECT METHOD
Sales ..................................... $580,000
Increase in accounts receivable ......... -13,000 $567,000
Decrease in inventory ................... -12,000
Decrease in accounts payable ............ +24,000 262,000
Increase in accrued liabilities ......... -18,000
Increase in deferred taxes .............. -15,000
7,000
$130,000
Cash dividends ............................ (55,000)
114.
Hard
(Appendix) Carson Company's comparative balance sheet and income statement for last year
appear below:
Ending
Beginning
Balance
Balance
Cash ....................... $ 20,000 $ 15,000
25,000
Inventory .................. 32,000
35,000
5,000
38,000
92,000
Total assets ............. $182,000 $180,000
Notes payable...... ........ 40,000
32,000
Deferred taxes ............. 17,000
35,000
Common stock ............... 45,000
40,000
35,000
stock holders' equity . $182,000 $180,000
Income Statement
Sales .......................................... $200,000
Gross margin ................................... 100,000
Net operating income before taxes............... 48,000
Gain on sale of investments..................... 2,000
Income before taxes............................. 50,000
Net income ..................................... $ 30,000
Carson Company constructs its statement of cash flows using the direct method.
Required:
a. Calculate the sales revenue adjusted to a cash basis.
b. Calculate the cost of goods sold adjusted to a cash basis.
c. Calculate the operating expenses adjusted to a cash basis.
d. Calculate the net cash provided by operating activities.
144
Answer:
Sales ..................................... $200,000
Increase in accounts receivable ......... - 2,000 $198,000
Decrease in accounts payable ............ + 8,000 105,000
115.
Hard

Decrease in deferred taxes .............. +18,000
38,000
$ 19,000
(Appendix) Carston Company's comparative balance sheet and income statement for last year
appear below:
Ending
Beginning
Balance
Balance
Cash ....................... $ 58,000 $ 24,000
69,000
Inventory .................. 51,000
42,000
10,000
210,000
500,000
Total assets ............. $670,000 $592,000
Taxes payable .............. 14,000
Bonds payable .............. 100,000
Deferred taxes ............. 27,000
Common stock ............... 90,000
owners' equity ........ $670,000
$ 40,000
22,000
23,000
160,000
19,000
50,000
278,000
$592,000
Income Statement
Sales ........................ $710,000
Gross margin ................. 360,000
Net income ................... $ 84,000
Required:
Construct in good form the operating activities section of the company's statement of cash
flows for the year using the direct method.
Answer:
Sales ..................................... $710,000
Increase in inventory ................... + 9,000
Decrease in prepaid expenses ............ - 5,000
Increase in accrued liabilities ......... -19,000
Decrease in taxes payable ............... + 9,000
$171,000
146
116.
Hard
(Appendix) Carpp Company's comparative balance sheet and income statement for last year
appear below:
Ending
Beginning
Balance
Balance
Cash ....................... $ 58,000 $ 38,000
51,000
Inventory .................. 57,000
46,000
17,000
230,000
460,000
Total assets ............. $651,000 $585,000
Taxes payable .............. 34,000
Bonds payable .............. 140,000
Deferred taxes ............. 21,000
Common stock ............... 140,000
owners' equity ........ $651,000
$ 48,000
17,000
16,000
170,000
15,000
120,000
199,000
$585,000
Income Statement
Sales ........................ $610,000

Gross margin ................. 350,000
Net income ................... $ 91,000
Required:
Construct in good form the operating activities section of the company's statement of cash
flows for the year using the direct method.
Answer:
Sales ..................................... $610,000
Increase in inventory ................... +11,000
Decrease in accrued liabilities ......... + 5,000
$150,000
148

Test Bank - Chapter17 Cash Flows

Încărcat de

Informații document

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Test Bank - Chapter17 Cash Flows

Încărcat de

Drepturi de autor:

Formate disponibile

Chapter 17

How Well Am I Doing? Statement of Cash Flows

Every transaction classified as "source" or "use" of cash for purposes of constructing a

Dividends received on stock held as an investment should be treated as an investing activity on

A change in deferred taxes is considered to be a financing activity on the statement of cash

In a statement of cash flows, a change in prepaid expenses would be classified as:

The following transactions occurred last year at Jowlson Company:

The following transactions occurred last year at Jogger Company:

The following transactions occurred last year at Jolly Company:

For Year 2, sales adjusted to a cash basis would be:

Net cash provided by financing activities for Year 2 would be:

The company's income statement for the year appears below:

the company's statement of cash

b. Construct in good form the investing activities section of

the company's statement of cash

c. Construct in good form the financing activities section of

the company's statement of cash

the company's statement of cash

b. Construct in good form the investing activities section of

the company's statement of cash

c. Construct in good form the financing activities section of

the company's statement of cash

cost of $128,000. The company paid for

Net cash provided by operating activities

(Appendix) Comparative financial statements for Parr Company follow:

Additional data for the year included:

had cost $15,000 and

sold for $22,000.

NOTES TO THE INSTRUCTOR:

Sales ........................ $510,000

a. Construct in good form the operating activities section of

the company's statement of cash

NOTES TO THE INSTRUCTOR:

the company's statement of cash

Income tax expense ........................ 20,000

Net cash provided by operating activities

Sales ........................ $610,000

S-ar putea să vă placă și