CHAPTER 13 HOMEWORK ASSIGNMENT #2

QUESTIONS
1. What questions about cash are answered by the statement of cash flows?
2. Diane Hollowell and Terry Parmenter were discussing the format of the statement of
cash flows of Snow Candy Co. At the bottom of Snow Candy's statement of cash
flows was a separate section entitled “Noncash investing and financing activities.”
Give three examples of significant noncash transactions that would be reported in this
section.
3. The president of Merando Company is puzzled. During the last year, the company
experienced a net loss of $800,000, yet its cash increased $300,000 during the same
period of time. Explain to the president how this could occur.
4. If the direct method of presenting operating cash flows is used on the cash flow
statement, a separate schedule showing the indirect reconciliation of net income to
cash flow from operations must be included. Why?
EXERCISES
1. Condensed financial data for Cheng, Inc. follow.
CHENG, INC.
Income Statement
For Year Ended December 31, 2018
Sales 392,780
Cost of Goods Sold 135,460
Gross Profit 257,320
Operating Expenses:
Depreciation 46,500
Salaries 8,900
Insurance 1,100
Rent 2,410
Total Operating Expenses 58,910
Operating Income 198,410
Other Expenses/Losses:
Loss on Sale of Plant Assets 7,500
Interest Expense 4,730 (12,230)
Income Before Taxes 186,180
Income Tax Expense 27,280
Net Income 158,900
CHENG, INC.
Comparative Balance Sheets
For 12/31/18 and 12/31/17
2018 2017
Assets
Cash 80,800 48,400
Accounts Receivable 92,800 33,000
Merchandise Inventory 117,500 102,850
Prepaid Insurance 28,400 26,000
Investments 143,000 114,000
Plant Assets 270,000 242,500
Accumulated Depreciation (50,000) (52,000)
Total 682,500 514,750
Liabilities and Stockholders' Equity
Accounts Payable 112,000 67,300
Salaries Payable 10,500 12,000
Income Taxes Payable 6,000 5,000
Bonds Payable 110,000 150,000
Common Stock 150,000 110,000
APIC-Excess of Par Value-Common 70,000 65,000
Retained Earnings 224,000 105,450
Total 682,500 514,750
Additional Information:
1. New plant assets costing $85,000 were purchased for cash during the year.
2. Old plant assets having an original cost of $57,500 (accumulated depreciation $48,500)
were sold for $1,500 cash.
3. Bonds with a face value of $40,000 matured and were paid off with cash.
4. A cash dividend of $40,350 was declared and paid during the year.
5. Investments costing $29,000 were purchased during the year.
6. Common stock with a par value of $40,000 was issued for $45,000 cash.
Instructions:
A. Complete a set of cash flow T-accounts using the indirect method of
computing cash flow from operations.
B. Prepare a formal cash flow statement.
C. Complete a set of cash flow T-accounts using the direct method of
computing cash flow from operations.
2. Financial statement information for Rothlisberger Co for 2018 is as follows:
ROTHLISBERGER CO.
Income Statement
For Year Ended December 31, 2018
Sales 335,000
Cost of Goods Sold 142,000
Gross Profit 193,000
Operating Expenses:
Depreciation-Equipment 22,000
Depreciation-Building 20,000
Other 57,000
Total Operating Expenses 99,000
Operating Income 94,000
Other Expenses/Losses:
Loss on Sale of Plant Assets 4,000
Interest Expense 15,000 (19,000)
Income Before Taxes 75,000
Income Tax Expense 33,000
Net Income 42,000
ROTHLISBERGER CO.
Comparative Balance Sheets
For 12/31/18 and 12/31/17
2018 2017
Assets
Cash 81,000 45,000
Accounts Receivable 41,000 62,000
Merchandise Inventory 151,450 142,000
Prepaid Insurance 15,280 21,000
Land 105,000 130,000
Equipment 221,000 155,000
Accum. Depreciation-Equipment (45,000) (35,000)
Building 200,000 200,000
Accum. Depreciation-Building (60,000) (40,000)
Total 709,730 680,000
Liabilities and Stockholders' Equity
Accounts Payable 47,730 40,000
Bonds Payable 260,000 300,000
Common Stock, $1 par 200,000 160,000
Retained Earnings 202,000 180,000
Total 709,730 680,000
Additional Information:
1. Land costing $25,000 was sold for $25,000 cash.
2. Cash dividends of $20,000 were declared and paid during the year.
3. Equipment costing $88,000 was purchased for cash.
4. Equipment costing $22,000 (accumulated deprecation $12,000) was sold for $6,000 cash.
5. Bonds with a face value of $40,000 were converted into 40,000 shares of $1 par value
common stock.
Instructions:
A. Complete a set of cash flow T-accounts using the indirect method of
computing cash flow from operations.
B. Prepare the formal cash flow statement.
3. Financial statement information for Oakley Company for 2018 is as follows:
OAKLEY COMPANY
Income Statement
For Year Ended December 31, 2018
Sales 297,500
Cost of Goods Sold 99,460
Gross Profit 198,040
Operating Expenses:
Depreciation 49,700
Salaries 9,500
Miscellaneous 5,170
Total Operating Expenses 64,370
Operating Income 133,670
Other Revenues/Gains:
Gain on Sale of Plant Assets 8,750
Other Expenses/Losses:
Interest Expense 2,940 5,810
Income Before Taxes 139,480
Income Tax Expense 7,270
Net Income 132,210

OAKLEY COMPANY
Comparative Balance Sheets
For 12/31/18 and 12/31/17
2018 2017
Assets
Cash 82,700 47,250
Accounts Receivable 90,800 57,000
Merchandise Inventory 126,900 102,650
Investments 84,500 87,000
Plant Assets 255,000 205,000
Accumulated Depreciation (49,500) (40,000)
Total 590,400 458,900
Liabilities and Stockholders' Equity
Accounts Payable 57,700 48,280
Salaries Payable 12,100 18,830
Bonds Payable 100,000 70,000
Common Stock 250,000 200,000
Retained Earnings 170,600 121,790
Total 590,400 458,900
Additional Information:
1. Plant assets costing $97,000 were purchased for cash during the year.
2. Investments costing $2,500 were sold for $2,500 cash.
3. Plant assets costing $47,000 (accumulated depreciation $40,200) were sold
for $15,550 cash.
4. A cash dividend of $83,400 was declared and paid during the year.
5. Common stock with a par value of $50,000 was issued at par for cash.
6. Bonds with a face value of $30,000 were issued at face value for cash.
Instructions:
Complete a set of cash flow T-accounts using the direct method of
computing cash flow from operations.
EXERCISE #1-PART A-INDIRECT
Plant Assets
Beg 242,500
CASH
Beg Bal 48,400 End 270,000

Operating: Accum. Depr.

52,000 Beg

50,000 End

Accounts Payable
67,300 Beg

112,000 End

Salaries Payable
Investing: 12,000 Beg

10,500 End

Income Taxes Payable

5,000 Beg
Financing:
6,000 End

Bonds Payable
150,000 Beg

End Bal 80,800 110,000 End

Accounts Receivable Merchandise Inventory Common Stock

Beg 33,000 Beg 102,850 110,000 Beg

End 92,800 End 117,500 150,000 End

Prepaid Insurance Investments APIC-Excess of Par

Beg 26,000 Beg 114,000 65,000 Beg

End 28,400 End 143,000 70,000 End

Retained Earnings
105,450 Beg

224,000 End
EXERCISE #1-PART C-DIRECT
Plant Assets
Beg 242,500
CASH
Beg Bal 48,400 End 270,000

Operating: Accum. Depr.

52,000 Beg

50,000 End

Accounts Payable
67,300 Beg

112,000 End

Salaries Payable
Investing: 12,000 Beg

10,500 End

Income Taxes Payable

5,000 Beg
Financing:
6,000 End

Bonds Payable
150,000 Beg

End Bal 80,800 110,000 End

Accounts Receivable Merchandise Inventory Common Stock

Beg 33,000 Beg 102,850 110,000 Beg

End 92,800 End 117,500 150,000 End

Prepaid Insurance Investments APIC-Excess of Par

Beg 26,000 Beg 114,000 65,000 Beg

End 28,400 End 143,000 70,000 End

Retained Earnings
105,450 Beg

224,000 End
EXERCISE #2-INDIRECT
Equipment
CASH Beg 155,000
Beg Bal 45,000
End 221,000
Operating:
Accum. Depr.-Equipment
35,000 Beg

45,000 End

Building
Beg 200,000

End 200,000

Investing: Accum. Depr.-Building

40,000 Beg

60,000 End

Accounts Payable
Financing: 40,000 Beg

47,730 End

Bonds Payable
300,000 Beg
End Bal 81,000
260,000 End
Accounts Receivable Merchandise Inventory
Beg 62,000 Beg 142,000 Common Stock, $1-par
160,000 Beg
End 41,000 End 151,450
200,000 End
Prepaid Insurance Land
Beg 21,000 Beg 130,000 Retained Earnings
180,000 Beg
End 15,280 End 105,000
202,000 End
EXERCISE #3
CASH
Beg Bal 47,250

Operating:

Accum. Depr.
40,000 Beg

49,500 End

Accounts Payable
48,280 Beg

Investing: 57,700 End

Salaries Payable
18,830 Beg

12,100 End
Financing:
Bonds Payable
70,000 Beg

End Bal 82,700 100,000 End

Accounts Receivable Merchandise Inventory Common Stock

Beg 57,000 Beg 102,650 200,000 Beg

End 90,800 End 126,900 250,000 End

Investments Plant Assets Retained Earnings

Beg 87,000 Beg 205,000 121,790 Beg

End 84,500 End 255,000 170,600 End