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Managerial Accounting 14th Edition Solution Manual

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    Chapter 1 5 Introduction to Managerial Accounting ................................ ..................... 1 5 - 1 Chapter 1 6 Job Order Costing ................................ ................................ ...................... 1 6 - 1 Chapter 1 7 Process Cost Systems ................................ ................................ ................ 1 7 - 1 Chapter 1 8 Activity - Based Costing ................................ ................................ ............... 1 8 - 1 Chapter 19 Cost - Volume - Profit Analys is ................................ ................................ ...... 19 - 1 Chapter 2 0 Variable Costing for Management Analysis ................................ ................ 2 0 - 1 Chapter 2 1 Budgeting ................................ ................................ ................................ . 2 1 - 1 Chapter 2 2 Evaluating Variances from Standard Costs ................................ ................. 2 2 - 1 Chapter 2 3 Evaluating Decentralized Operations ................................ ......................... 2 3 - 1 Chapter 2 4 Differential Analysis and Product Pricing ................................ ................... 2 4 - 1 Chapter 2 5 Capital Investment Analysis ................................ ................................ ...... 2 5 - 1 Chapter 2 6 Lean Manufacturing and Activity Analysis ................................ .................. 2 6 - 1 Chapter 13 Statement of Cash Flo ws ................................ ................................ ........... 13 - 1 (Managerial) Chapter 14 Financial Statement Analysis ................................ ................................ ..... 14 - 1 (Managerial) Appendix C International Financial Reporting Standards (IFRS) ................................ ....... C - 1 Appendix D Investments ................................ ................................ ............................... D - 1 Appendix F Special Journals and Subsidiary Ledgers ................................ ....................... F - 1

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    13 - 1 CHAPTER 13 STATEMENT OF CASH FLOWS DISCUSSION QUESTIONS 1. It is costly to accumulate the data needed and to prepare the statement of cash flows. 2. It focuses on the differences between net income and cash flows from operating activities, and the data needed are generally more readily available and less costly to obtain than is the case for the direct method. 3. In a separate schedule of noncash investing and financing activities accompanying the statement of cash flows. 4. The $30,000 increase must be added to income from operations because the amount of cash paid to merchandise creditors was $30,000 less than the amount of purchases included in the cost of goods sold. 5. The $25,000 decrease in salaries payable should be deducted from income to determine the amount of cash flows from operating activities. The effect of the decrease in the amount of salaries owed was to pay $25,000 more cash during the year than had been recorded as an expense. 6. A. $100,000 gain B. Cash inflow of $600,000 C. The gain of $100,000 would be deducted from net income in determining net cash flow from operating activities; $600,000 would be reported as cash flows from investing activities. 7. Cash flows from financing activities — issuance of bonds, $1,960,000 ($2,000,000 × 98%) 8. A. Cash flows from investing activities — Cash received from the disposal of fixed assets, $15,000 The $15,000 gain on asset disposal should be deducted from net income in determining net cash flow from operating activities under the indirect method. B. No effect 9. The same. The total amount reported as the net cash flow from operating activities is not affected by the use of the direct or indirect method. 10. Cash received from customers, cash payments for merchandise, cash payments for operating expenses, cash payments for interest, cash payments for income taxes.

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    CHAPTER 13 Statement of Cash Flows 13 - 2 BASIC EXERCISES BE 13 – 1 A. Investing D. Operating B. Investing E. Operating C. Operating F. Financing BE 13 – 2 Net income ................................ ................................ ................................ ...................... $224,500 Adjustments to reconcile net income to net cash flow from operating activities: Depreciat ion ................................ ................................ ................................ ........... 11,575 Amortization of patents ................................ ................................ ......................... 2,500 Gain from sale of investments ................................ ................................ ........... ( 33,190 ) Net cash flow from operating activities ................................ ....................... $205,385 BE 13 – 3 Net income ................................ ................................ ................................ ...................... $75,800 Changes in current operating assets and liabilities: Increase in accounts receivable ................................ ................................ ........... (5,000) Increase in inv entory ................................ ................................ ................................ (7,450) Increase in accounts payable ................................ ................................ ............... 3,380 Net cash flow from operating activities ................................ .......................... $66,730 Note: The change in dividends payable impacts the cash paid for dividends, which is disclosed under financing activities. BE 13 – 4 Cash flows from operating activities: Net income ................................ ................................ ........................ $396,200 Adjustments to reconcile net income to net cash flow from operating activities: Depr eciation ................................ ................................ .............. 61,250 Loss on disposal of equipment ................................ .... 27,600 Changes in current operating assets and liabilities: Increase in accounts receivable ................................ ............ (9,000) Increase in accounts payable ................................ ................ Net cash flow from operating activities ............................. 3,350 $479,400

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    CHAPTER 13 Statement of Cash Flows 13 - 3 BE 13 – 5 The gain on the sale of land is subtracted from net income in the Operating Activities section. Gain on sale of land ................................ ................................ .......................... $ (40,000) The purchase and sale of land is reported as part of cash flows from investing activities as shown below. Cash received from sale of land ................................ ................................ ....... 240,000 Cash paid for purchase of l and ................................ ................................ ....... (400,000) BE 13 – 6 Cash flows from financing activities: Cash received from issuing common stock $800,000 Cash received from issuing bonds 700,000 Cash paid for dividends ( 90,000 ) Net cash from financing activities $1,410,000 Appendix 2 BE 13 – 7 Sales ................................ ................................ ................................ .......................... $112,000 Decrease in accounts receivable ................................ ................................ ........ 10,500 Cash received from customers ................................ ................................ ........... $122,500 Appendix 2 BE 13 – 8 Cost of goods sold ................................ ................................ ................................ $240,000 Increase in inve ntories ................................ ................................ ............................ 19,200 Increase in accounts payable ................................ ................................ .............. ( 12,000 ) Cash paid for me rchandise ................................ ................................ .................. $247,200

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    CHAPTER 13 Statement of Cash Flows 13 - 4 EXERCISES Ex. 13 – 1 There were net additions to the net loss reported on the income statement to convert the net loss from the accrual basis to the cash basis. For example, depreciation is an expense in determining net income, but it does not result in a cash outflow. Thus, depreciation is added back to the net loss in order to determine net cash flow from operations. A second large item that is added to the net loss is the increase in advanced ticket sales of $246 million. This represents an increase in unused, but paid, tickets (unearned revenue) between the two balance sheet dates. This is a significant item that is largely unique to the airline industry. The cash flows from operating activities detail is provided as follows for class discussion: United Continental Holdings, Inc. Cash Flows from Operating Activities (Selected from Statement of Cash Flows) (in millions) Cash flows from operating activities: Net income (loss) $ (723) Adjustments to reconcile net income (loss) to net cash flow provided by operating activities: Depreciation and amortization 1,522 Special charges 389 Debt and lease discount amortization (247) Share based compensation 14 Other, net 251 Changes in certain assets and liabilities: Decrease (increase) in accounts receivable (21) Decrease (increase) in other assets (484) Increase (decrease) in accounts payable 285 Increase (decrease) in advanced ticket sales 246 Increase (decrease) in frequent flyer deferred revenue (712) Increase (decrease) in other liabilities 415 Net cash flows from (used for) operating activities $ 935

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    CHAPTER 13 Statement of Cash Flows 13 - 5 Ex. 13 – 2 A. Cash payment, $411,000 E. Cash payment, $50,000 B. Cash receipt, $440,000 F. Cash receipt, $490,000 C. Cash receipt, $60,000 G. Cash payment, $332,500 D. Cash payment, $650,000 H. Cash payment, $1,320,000 Ex. 13 – 3 A. operating G. financing B. financing H. investing C. financing I. financing D. financing J. investing E. financing K. investing F. investing Ex. 13 – 4 A. added G. added B. deducted H. added C. added I. added D. added J. added E. added K. deducted F. added

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    CHAPTER 13 Statement of Cash Flows 13 - 6 Ex. 13 – 5 A . Net income ................................ ................................ ...................... $73,600 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation ................................ ................................ .............. 27,400 Changes in current operating assets and liabilities: Increase in accounts receivable ................................ .......... (8,000) Decrease in inventories ................................ ........................ 4,500 Decrease in prepaid expenses ................................ ............. 2,250 Increase in accounts payable ................................ .............. 5,000 Decrease in wages payable ................................ .................. ( 900 ) Net cash flow from operating activities ......................... $103,850 B. Cash flows from operating activities shows the cash inflow or outflow from a company’s day - to - day operations. Net income reports the excess of revenues over expenses for a company using the accrual basis of accounting. Revenues are recorded when they are earned, not necessarily when cash is received. Expenses are recorded when they are incurred and matched against revenue, not necessarily when cash is paid. As a result, the cash flows from operating activities differs from net income because it does not use the accrual basis of accounting. Ex. 13 – 6 A. Cash flows from operating activities: Net income ................................ ................................ ................... $185,000 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation ................................ ................................ ........ 96,000 Changes in current operating assets and liabilities: Decrease in accounts receivable ................................ ..... 5,450 Increase in inventories ................................ ..................... (11,200) Decrease in prepaid expenses ................................ ........ 900 Decrease in accounts payable ................................ ......... (18,500) Increase in salaries payable ................................ ............ 3,200 Net cash flow from operating activities ..................... $260,850 B. Yes. The amount of cash flows from operating activities reported on the statement of cash flows is not affected by the method of reporting such flows.

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    CHAPTER 13 Statement of Cash Flows 13 - 7 Ex. 13 – 7 A. Cash flows from operating activities: Net income ................................ ................................ ........... $508,000 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation ................................ ................................ 57,600 Gain on disposal of equipment ............................... (33,600) Changes in current operating assets and liabilities: Increase in accounts receivable (8,960) Decrease in inventory ................................ ............... 5,120 Decrease in prepaid insurance ................................ 1,920 Decrease in accounts payable ................................ . (6,080) Increase in income taxes payable ........................... 1,410 Net cash flow from operating activities ............. $525,410 Note: The change in dividends payable would be used to adjust the dividends declared in obtaining the cash paid for dividends in the Financing Activities section of the statement of cash flows. B. Cash flows from operating activities reports the cash inflow or outflow from a company’s day - to - day operations. Net income reports the excess of revenues over expenses for a company using the accrual basis of accounting. Revenues are recorded when they are earned, not necessarily when cash is received. Expenses are recorded when they are incurred and matched against revenue, not necessarily when cash is paid. As a result, the cash flows from operating activities differs from net income because it does not use the accrual basis of accounting. Ex. 13 – 8 Cash flows from investing activities: Cash received from sale of equipment ................................ ........................ $101,250 The loss on the sale, $16,875 ($101,250 proceeds from sale less $118,125 book value), would be added to net income in determining the cash flows from operating activities if the indirect method of reporting cash flows from operations is used. Ex. 13 – 9 Cash flows from investing activities: Cash received from sale of equipment ................................ ........................ $37,200 The loss on the sale, $6,800 ($37,200 proceeds from sale less $44,000 book value), would be added to net income in determining the cash flows from operating activities if the indirect method of reporting cash flows from operations is used.

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    CHAPTER 13 Statement of Cash Flows 13 - 8 Ex. 13 – 10 Cash flows from investing activities: Cash received from sale of land ................................ ................................ ...... $ 95,550 Cash paid for purchase of land ................................ ................................ ....... (104,300) The gain on the sale of land, $31,710, would be deducted from net income in determining the cash flows from operating activities if the indirect method of reporting cash flows from operations is used. Ex. 13 – 11 Dividends de clared ................................ ................................ ................................ ... $1,200,000 Decrease in dividends payable ................................ ................................ ............. 150,000 Dividends paid to stockholders during the year ................................ ................. $1,350,000 Ex. 13 – 12 Cash flows from financing activities: Cash received from sale of common stock ................................ .................... $1,920,000 Cash paid for dividend s ................................ ................................ ................... (315,000) Note: The stock dividend is not disclosed on the statement of cash flows.

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    CHAPTER 13 Statement of Cash Flows 13 - 9 Ex. 13 – 13 Cash flows from investing activities: Cash paid for purchase of land ................................ ................................ ...... $(246,000) A separate schedule of noncash investing and financing activities would report the purchase of $324,000 land with a long - term mortgage note, as follows: Purchase of land by issuing long - term mortgage note ................................ ..... $324,000 Ex. 13 – 14 Cash flows from financing activities: Cash received from issuing bonds payable ................................ ................. $ 420,000 Cash paid to redeem bonds payable ................................ ............................. (138,000) Note: The discount amortization of $2,625 would be shown as an adjusting item (increase) in the Cash Flows from Operating Activities section under the indirect method. Ex. 13 – 15 A. Net cash flow from operating activities ................................ . Increase in accounts receivable ................................ ............. $ 14,300 $357,500 Increase in prepaid expenses ................................ ................. 2,970 Decrease in income taxes payable ................................ ......... 7,700 Gain on sale of investments ................................ ..................... 13,200 38,170 $395,670 De preciation ................................ ................................ ................ $(29,480) Decrease in inventories ................................ ............................. (19,140) Increase in accounts payable ................................ ................. ( 5,280 ) ( 53,900 ) Net income, per income statement ................................ ......... $341,770 Note to Instructors: The net income must be determined by working backward through the Cash Flows from Operating Activities section of the statement of cash flows. Hence, those items that were added (deducted) to determine net cash flow from operating activities must be deducted (added) to determine net income.

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    CHAPTER 13 Statement of Cash Flows 13 - 10 Ex. 13 – 15 (Concluded) B. Curwen’s net income differed from cash flows from operations because of: ● $29,480 of depreciation expense which has no effect on cash flows from operating activities, ● a $13,200 gain on the sale of investments. The proceeds from this sale, which include the gain, are reported in the Investing Activities section of the statement of cash flows. ● Changes in current operating assets and liabilities that are added or deducted, depending on their effect on cash flows: Increase in accounts receivable, $14,300 Increase in prepaid expenses, $2,970 Decrease in income taxes payable, $7,700 Decrease in inventories, $19,140 Increase in accounts payable, $5,280 Ex. 13 – 16 A. National Beverage Co. Cash Flows from Operating Activities (in thousands) Cash flows from operating activities: Net income $49,311 Adjustments to reconcile net loss to net cash flow from operating activities: Depreciation 11,580 Gain on disposal of property (1,188) Other items involving noncash expenses 1,383 Changes in current operating assets and liabilities: Increase in accounts receivable (1,746) Decrease in inventory 990 Increase in prepaid expenses (605) Decrease in accounts payable (710) Decrease in accrued and other current liabilities (995) Net cash flow from operating activities $58,020 B. National Beverage is doing well financially. The company has positive earnings and positive net cash flow from operating activities. The company continues to grow, and the trend in recent years has been positive. The increase in accounts receivable is a positive sign, indicating an increase in sales.

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    CHAPTER 13 Statement of Cash Flows 13 - 11 Ex. 13 – 17 A. Olson - Jones Industries, Inc. Statement of Cash Flows For the Year Ended December 31, 20Y2 Cash flows from operating activities: Net income $ 62 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation 26 Gain on sale of land (40) Changes in current operating assets and liabilities: Increase in accounts receivable (6) Increase in inventories (18) Increase in accounts payable 14 Net cash flow from operating activities $ 38 Cash flows from investing activities: Cash received from sale of land $120 Cash paid for purchase of equipment (30) Net cash flow from investing activities 90 Cash flows from financing activities: Cash received from sale of common stock $ 60 Cash paid for dividends* (19) Net cash flow from financing activities 41 Change in cash $169 Cash at the beginning of the year 14 Cash at the end of the year $183 * Dividends = $24 – $5 = $19 B. Olson - Jones Industries Inc.’s net income was more than the cash flows from operations because of: ● $26 of depreciation expense, which has no effect on cash. ● A $40 gain on the sale of land. The proceeds from this sale of $120, which include the gain, are reported in the Investing Activities section of the statement of cash flows. ● Changes in current operating assets and liabilities that are added or deducted, depending on their effect on cash flows: Increase in accounts receivable, $6 deducted Increase in inventories, $18 deducted Increase in accounts payable, $14 added

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    CHAPTER 13 Statement of Cash Flows 13 - 12 Ex. 13 – 18 1. The increase in accounts receivable should be deducted from net income in the Cash Flows from Operating Activities section. 2. The gain on the sale of investments should be deducted from net income in the Cash Flows from Operating Activities section. 3. The increase in accounts payable should be added to net income in the Cash Flows from Operating Activities section. 4. The correct amount of cash at the beginning of the year, $240,000, should be added to the increase in cash. 5. The final amount should be the amount of cash at the end of the year, $350,160. 6. The final amount of net cash flow from operating activities is $381,360.

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    CHAPTER 13 Statement of Cash Flows 13 - 13 Ex. 13 – 18 (Concluded) A correct statement of cash flows would be as follows: Shasta Inc. Statement of Cash Flows For the Year Ended December 31, 20Y9 Cash flows from operating activities: Net income $ 360,000 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation 100,800 Gain on sale of investments (17,280) Changes in current operating assets and liabilities: Increase in accounts receivable (27,360) Increase in inventories (36,000) Increase in accounts payable 3,600 Decrease in accrued expenses payable (2,400) Net cash flow from operating activities $ 381,360 Cash flows from investing activities: Cash received from sale of investments $ 240,000 Cash paid for purchase of land (259,200) Cash paid for purchase of equip. (432,000) Net cash flow used for investing activities (451,200) Cash flows from financing activities: Cash received from sale of common stock $ 312,000 Cash paid for dividends (132,000) Net cash flow from financing activities 180,000 Change in cash $ 110,160 Cash at the beginning of the year 240,000 Cash at the end of the year $ 350,160

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    CHAPTER 13 Statement of Cash Flows 13 - 14 Appendix 2 Ex. 13 – 19 A. Sal es ................................ ................................ ................................ ................ $753,500 Decrease in accounts receivable balance ................................ ................ 48,400 Cash received from customers ................................ ................................ .. $801,900 B. Income tax expense ................................ ................................ ....................... $ 50,600 Decrease in income tax payable ................................ ................................ 5,500 Cash payments for income taxes ................................ .............................. $ 56,100 C. Because the customers paid more than the amount of sales for the period, cash received from customers exceeded sales made on account by $48,400 during the current year. Appendix 2 Ex. 13 – 20 A. Cost of goods sold ................................ ................................ ....................... $1,031,550 Decrease in accounts payable ................................ ................................ .... 9,660 $1,041,210 Decrease in inventor ies ................................ ................................ ................. (15,410 ) Cash payments for merchandise ................................ ................................ $1,025,800 B. Operating expenses other than depreciation ................................ ............ $ 179,400 Decrease in accrued expenses payable ................................ .................... 1,380 $ 180,780 Decrease in prepaid expenses ................................ ................................ .... (1,610 ) Cash payments for operating expenses ................................ .................... $ 179,170

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    CHAPTER 13 Statement of Cash Flows 13 - 15 Appendix 2 Ex. 13 – 21 A. Cash flows from operating activities: Cash received from customers ................................ .............. $ 522,760 1 Cash payments for merchandise ................................ ........... (302,400) 2 Cash payments for operating expenses ................................ ................................ .................. (99,960) 3 Cash payments for income taxes ................................ ............ (24,360 ) 4 Net cash flow from operating activities ........................... $ 96,040 Computations: 1. Sales ................................ ................................ ................................ ............... $511,000 Decrease in accounts receivable ................................ .............................. 11,760 Cash received from customers ................................ ................................ . $522,760 2. Cost of goods sold ................................ ................................ ..................... $290,500 Increase in inventories ................................ ................................ ................. 3,920 Decrease in accounts payable ................................ ................................ .. 7,980 Cash payments for merchandise ................................ .............................. $302,400 3. Operating expenses other than depreciation ................................ ......... $105,000 Decrease in prepaid expenses ................................ ................................ .. (3,780) Increase in accrued expenses payable ................................ ................................ ................................ ....... (1,260 ) Cash payments for operating expenses ................................ .................. $ 99,960 4. Income tax expense ................................ ................................ ...................... $ 21,700 Add decrease in income tax payable ................................ ....................... 2,660 Cash payments for income taxes ................................ ............................. $ 24,360 B. The direct method directly reports cash receipts and payments. The cash received less the cash payments is the net cash flow from operating activities. Individual cash receipts and payments are reported in the Cash Flows from Operating Activities section. The indirect method adjusts accrual - basis net income for revenues and expenses that do not involve the receipt or payment of cash to arrive at cash flows from operating activities.

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    CHAPTER 13 Statement of Cash Flows 13 - 16 Appendix 2 Ex. 13 – 22 Cash flows from operating activities: Cash received from customers ................................ .................. $ 440,440 1 Cash payments for merchandise ................................ .............. (161,260) 2 Cash payments for operating expenses ................................ .. (115,720) 3 Cash payments for income taxes ................................ ............... ( 39,600 ) Net cash flow from operating activities .............................. $123,860 Computations: 1. Sales ................................ ................................ ................................ .................. $445,500 Increase in accounts receivable ................................ ................................ ... ( 5,060 ) Cash received from customers ................................ ................................ .... $440,440 2. Cost of goods sold ................................ ................................ ........................ $154,000 Increase in inventories ................................ ................................ .................... 12,100 Increase in accounts payable ................................ ................................ ....... ( 4,840 ) Cash payments for merchandise ................................ ................................ . $161,260 3. Operating expenses other than depreciation ................................ ............. $115,280 Decrease in accrued expenses payable ................................ ...................... 1,760 Decrease in prepaid expenses ................................ ................................ ..... ( 1,320 ) Cash payments for operating expenses ................................ ...................... $115,720

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    CHAPTER 13 Statement of Cash Flows 13 - 17 PROBLEMS Prob. 13 – 1A Livers Inc. Statement of Cash Flows For the Year Ended December 31, 20Y3 Cash flows from operating activities: Net income $ 500,000 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation 100,000 Gain on sale of investments (75,000) Changes in current operating assets and liabilities: Increase in accounts receivable (50,000) Increase in inventories (20,000) Increase in accounts payable 40,000 Decrease in accrued expenses payable (5,000) Net cash flow from operating activities $ 490,000 Cash flows from investing activities: Cash received from sale of investments $ 175,000 Cash paid for purchase of land (500,000) Cash paid for purchase of equipment (200,000) Net cash flow used for investing activities (525,000) Cash flows from financing activities: Cash received from sale of common stock $ 125,000 Cash paid for dividends* (85,000) Net cash flow from financing activities 40,000 Change in cash $ 5,000 Cash at the beginning of the year 150,000 Cash at the end of the year $ 155,000 * Cash paid for dividends = $90,000 + $25,000 – $30,000 = $85,000

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    CHAPTER 13 Statement of Cash Flows 13 - 18 Prob. 13 – 1A (Concluded) (Optional) Livers Inc. Spreadsheet (Work Sheet) for Statement of Cash Flows For the Year Ended December 31, 20Y3 Account Title Balance, Dec. 31, 20Y2 Transactions Balance, Dec. 31, 20Y3 Debit Credit Cash 150,000 (m) 5,000 155,000 Accounts receivable (net) 400,000 (l) 50,000 450,000 Inventories 750,000 (k) 20,000 770,000 Investments 100,000 (j) 100,000 0 Land 0 (i) 500,000 500,000 Equipment 1,200,000 (h) 200,000 1,400,000 Accum. depr. — equipment (500,000) (g) 100,000 (600,000) Accounts payable (300,000) (f) 40,000 (340,000) Accrued expenses payable (50,000) (e) 5,000 (45,000) Dividends payable (25,000) (d) 5,000 (30,000) Common stock, $4 par (600,000) (c) 100,000 (700,000) Paid - in capital in excess of par — common stock (175,000) (c) 25,000 (200,000) Retained earnings (950,000) (b) 90,000 (a) 500,000 (1,360,000) Totals 0 870,000 870,000 0 Operating activities: Net income (a) 500,000 Depreciation (g) 100,000 Gain on sale of investments (j) 75,000 Increase in accounts receivable (l) 50,000 Increase in inventories (k) 20,000 Increase in accounts payable (f) 40,000 Decrease in accrued expenses payable (e) 5,000 Investing activities: Purchase of equipment (h) 200,000 Purchase of land (i) 500,000 Sale of investments (j) 175,000 Financing activities: Declaration of cash dividends (b) 90,000 Sale of common stock (c) 125,000 Increase in dividends payable (d) 5,000 Net change in cash (m) 5,000 Totals 945,000 945,000 Note to Instructor: The letters in the debit and credit columns are included for reference purposes only.

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    CHAPTER 13 Statement of Cash Flows 13 - 19 Prob. 13 – 2A Yellow Dog Enterprises Inc. Statement of Cash Flows For the Year Ended December 31, 20Y8 Cash flows from operating activities: Net income $ 190,000 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation 115,000 Changes in current operating assets and liabilities: Decrease in accounts receivable 25,000 Increase in inventory (110,000) Increase in prepaid expenses (5,000) Increase in accounts payable 10,000 Net cash flow from operating activities $ 225,000 Cash flows from investing activities: Cash paid for equipment $(395,000) Net cash flow used for investing activities (395,000) Cash flows from financing activities: Cash received from sale of common stock $ 600,000 Cash paid for dividends (50,000) Cash paid to retire mortgage note payable (400,000) Net cash flow used for financing activities 150,000 Change in cash $ (20,000) Cash at the beginning of the year 100,000 Cash at the end of the year $ 80,000 Note to Instructors: The disposal of fully depreciated equipment is not included in the cash flow statement because there is no associated cash flow. This transaction strictly involves the removal of $75,000 from the equipment and accumulated depreciation — equipment accounts.

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    CHAPTER 13 Statement of Cash Flows 13 - 20 Prob. 13 – 2A (Concluded) (Optional) Yellow Dog Enterprises Inc. Spreadsheet (Work Sheet) for Statement of Cash Flows For the Year Ended December 31, 20Y8 Account Title Balance, Dec. 31, 20Y7 Transactions Balance, Dec. 31, 20Y8 Debit Credit Cash 100,000 (l) 20,000 80,000 Accounts receivable (net) 300,000 (k) 25,000 275,000 Merchandise inventory 400,000 (j) 110,000 510,000 Prepaid expenses 10,000 (i) 5,000 15,000 Equipment 750,000 (h) 395,000 (g) 75,000 1,070,000 Accum. depr. — equipment (160,000) (g) 75,000 (f) 115,000 (200,000) Accounts payable (90,000) (e) 10,000 (100,000) Mortgage note payable (400,000) (d) 400,000 0 Common stock, $10 par (200,000) (c) 400,000 (600,000) Paid - in capital in excess of par — common stock (100,000) (c) 200,000 (300,000) Retained earnings (610,000) (b) 50,000 (a) 190,000 (750,000) Totals 0 1,035,000 1,035,000 0 Operating activities: Net income (a) 190,000 Depreciation (f) 115,000 Decrease in accts. receivable (k) 25,000 Increase in merchandise inventory (j) 110,000 Increase in prepaid expenses (i) 5,000 Increase in accounts payable (e) 10,000 Investing activities: Purchase of equipment (h) 395,000 Financing activities: Payment of cash dividends (b) 50,000 Sale of common stock (c) 600,000 Payment of mortgage note payable (d) 400,000 Net decrease in cash (l) 20,000 Totals 960,000 960,000 Note to Instructor: The letters in the debit and credit columns are included for reference purposes only.

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    CHAPTER 13 Statement of Cash Flows 13 - 21 Prob. 13 – 3A Whitman Co. Statement of Cash Flows For the Year Ended December 31, 20Y2 Cash flows from operating activities: Net loss $ (35,320) Adjustments to reconcile net loss to net cash flow from operating activities: Depreciation* 55,620 Loss on sale of land** 12,600 Changes in current operating assets and liabilities: Increase in accounts receivable (66,960) Increase in inventories (105,480) Decrease in prepaid expenses 5,760 Decrease in accounts payable (35,820) Net cash flow used for operating activities $(169,600) Cash flows from investing activities: Cash received from land sold $ 151,200 Cash paid for acquisition of building (561,600) Cash paid for purchase of equipment (104,400) Net cash flow used for investing activities (514,800) Cash flows from financing activities: Cash received from issuance of bonds payable $ 270,000 Cash received from issuance of common stock 400,000 Cash paid for dividends (32,400) Net cash flow from financing activities 637,600 Change in cash $ (46,800) Cash at the beginning of the year 964,800 Cash at the end of the year $ 918,000 * Depreciation = $26,280 + $29,340 ** Loss on sale of land = $151,200 – $163,800

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    CHAPTER 13 Statement of Cash Flows 13 - 22 Prob. 13 – 3A (Concluded) (Optional) Whitman Co. Spreadsheet (Work Sheet) for Statement of Cash Flows For the Year Ended December 31, 20Y2 Account Title Balance, Dec. 31, 20Y1 Transactions Balance, Dec. 31, 20Y2 Debit Credit Cash 964,800 (o) 46,800 918,000 Accounts receivable 761,940 (g) 66,960 828,900 Inventories 1,162,980 (h) 105,480 1,268,460 Prepaid expenses 35,100 (f) 5,760 29,340 Land 479,700 (l) 163,800 315,900 Buildings 900,900 (k) 561,600 1,462,500 Accum. depr. — buildings (382,320) (e) 26,280 (408,600) Equipment 454,680 (i) 104,400 (j) 46,800 512,280 Accum. depr. — equipment (158,760) (j) 46,800 (d) 29,340 (141,300) Accounts payable (958,320) (c) 35,820 (922,500) Bonds payable 0 (m) 270,000 (270,000) Common stock, $25 par (117,000) (n) 200,000 (317,000) Paid - in capital in excess of par — common stock (558,000) (n) 200,000 (758,000) Retained earnings (2,585,700) (a) 35,320 (2,582,780) (b) (32,400) Totals 0 923,980 988,780 (64,800) Operating activities: Net loss (a) 35,320 Depreciation — equipment (d) 29,340 Depreciation — buildings (e) 26,280 Loss on sale of land (l) 12,600 Increase in accts. receivable (g) 66,960 Increase in inventories (h) 105,480 Decrease in prepaid expenses (f) 5,760 Decrease in accounts payable (c) 35,820 Investing activities: Purchase of equipment (i) 104,400 Acquisition of building (k) 561,600 Sale of land (l) 151,200 Financing activities: Payment of cash dividends (b) (32,400) Issuance of bonds payable (m) 270,000 Issuance of common stock (n) 400,000 Net decrease in cash (o) 46,800 Totals 941,980 877,180

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    CHAPTER 13 Statement of Cash Flows 13 - 23 Appendix 2 Prob. 13 – 4A Canace Products Inc. Statement of Cash Flows For the Year Ended December 31, 20Y6 Cash flows from operating activities: Cash received from customers 1 $ 5,960,600 Cash payments for merchandise 2 (2,456,800) Cash payments for operating expenses 3 (3,107,400) Cash payments for income taxes (102,800) Net cash flow from operating activities $ 293,600 Cash flows from investing activities: Cash received from sale of investments $ 176,000 Cash paid for purchase of land (520,000) Cash paid for purchase of equipment (200,000) Net cash flow used for investing activities (544,000) Cash flows from financing activities: Cash received from sale of common stock $ 240,000 Cash paid for dividends* (25,600) Net cash flow from financing activities 214,400 Change in cash $ (36,000) Cash at the beginning of the year 679,400 Cash at the end of the year $ 643,400 Reconciliation of Net Income with Cash Flows from Operating Activities: Net i ncome ................................ ................................ ................................ ..... $217,200 Adjustments to reconcile net income to net cash flow from operating activities: Deprec iation ................................ ................................ ........................... 44,000 Loss on sale of investments ................................ .............................. 64,000 Changes in current operating assets and liabilities: Increase in accounts receivable ................................ ........................ (19,400) Increase in inventories ................................ ................................ .......... (28,200) Increase in accounts payable ................................ ............................ 23,400 Decrease in accrued expenses payable ................................ ........... ( 7,400 ) Net cash flow from operating activities ................................ ......... $293,600 * Dividends paid: $28,000 + $6,400 – $8,800 = $25,600

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    CHAPTER 13 Statement of Cash Flows 13 - 24 Appendix 2 Prob. 13 – 4A (Concluded) Computations: 1. Sales ................................ ................................ ................................ ............. $5,980,000 Increase in accounts receivable ................................ ............................. (19,400 ) Cash received from customers ................................ ............................... $5,999,400 2. Cost of goods sold ................................ ................................ ................... $2,452,000 Increase in inventories ................................ ................................ ............... 28,200 Increase in accounts payable ................................ ................................ .. (23,400 ) Cash payments for merchandise ................................ ............................ $2,456,800 3. Operating expenses other than depreciation ................................ ........ $3,100,000 Decrease in accrued expenses payable ................................ ................. 7,400 Cash payments for operating expenses ................................ ................ $3,107,400

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    CHAPTER 13 Statement of Cash Flows 13 - 25 Appendix 2 Prob. 13 – 5A Livers Inc. Statement of Cash Flows For the Year Ended December 31, 20Y3 Cash flows from operating activities: Cash received from customers 1 $ 2,950,000 Cash payments for merchandise 2 (1,380,000) Cash payments for operating expenses 3 (955,000) Cash payments for income taxes (125,000) Net cash flow from operating activities $ 490,000 Cash flows from investing activities: Cash received from sale of investments $ 175,000 Cash paid for purchase of land (500,000) Cash paid for purchase of equipment (200,000) Net cash flow used for investing activities (525,000) Cash flows from financing activities: Cash received from sale of common stock $ 125,000 Cash paid for dividends 4 (85,000) Net cash flow from financing activities 40,000 Change in cash $ 5,000 Cash at the beginning of the year 150,000 Cash at the end of the year $ 155,000 Reconciliation of Net Income with Cash Flows from Operating Activities: Net income ................................ ................................ ................................ ................... $500,000 Adjustments to reconcile net income to net cash flow from operating activities: Deprecia tion ................................ ................................ ................................ ... 100,000 Gain on sale of investments ................................ ................................ ........... (75,000) Changes in current operating assets and liabilities: Increase in accounts receivable ................................ ................................ ... (50,000) Increase in i nventories ................................ ................................ .............. (20,000) Increase in accounts payable ................................ ................................ ... 40,000 Decrease in accrued expenses payable ................................ ................... (5,000 ) Net cash flow from operating activities ................................ ......................... $490,000

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    CHAPTER 13 Statement of Cash Flows 13 - 26 Appendix 2 Prob. 13 – 5A (Concluded) Computations: 1. Sales ................................ ................................ ................................ ................ $3,000,000 Increase in accounts receivable ................................ ................................ (50,000 ) Cash received from customers ................................ ................................ .. $2,950,000 2. Cost of goods sold ................................ ................................ ...................... $1,400,000 Increase in inventories ................................ ................................ .................. 20,000 Increase in accounts payable ................................ ................................ .... (40,000 ) Cash payments for merchandise ................................ ............................... $1,380,000 3. Operating expenses other than depreciation ................................ ........... $ 950,000 Decrease in accrued expenses payable ................................ ................... 5,000 Cash payments for operating expenses ................................ ................... $ 955,000 4. Cash dividends declared ................................ ................................ .............. $ 90,000 Increase in dividends payable ................................ ................................ .... (5,000 ) Cash payments for dividends ................................ ................................ .... $ 85,000

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    CHAPTER 13 Statement of Cash Flows 13 - 27 Prob. 13 – 1B Merrick Equipment Co. Statement of Cash Flows For the Year Ended December 31, 20Y9 Cash flows from operating activities: Net income $ 141,680 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation 14,790 Loss on sale of investments 10,200 Changes in current operating assets and liabilities: Increase in accounts receivable (19,040) Increase in inventories (8,670) Increase in accounts payable 11,560 Increase in accrued expenses payable 3,740 Net cash flow from operating activities $ 154,260 Cash flows from investing activities: Cash received from sale of investments $ 91,800 Cash paid for purchase of land (295,800) Cash paid for purchase of equipment (80,580) Net cash flow used for investing activities (284,580) Cash flows from financing activities: Cash received from sale of common stock $ 250,000 Cash paid for dividends* (96,900) Net cash flow from financing activities 153,100 Change in cash $ 22,780 Cash at the beginning of the year 47,940 Cash at the end of the year $ 70,720 * $102,000 + $20,400 – $25,500 = $96,900

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    CHAPTER 13 Statement of Cash Flows 13 - 28 Prob. 13 – 1B (Concluded) (Optional) Merrick Equipment Co. Spreadsheet (Work Sheet) for Statement of Cash Flows For the Year Ended December 31, 20Y9 Account Title Balance, Dec. 31, 20Y8 Transactions Balance, Dec. 31, 20Y9 Debit Credit Cash 47,940 (m) 22,780 70,720 Accounts receivable (net) 188,190 (l) 19,040 207,230 Inventories 289,850 (k) 8,670 298,520 Investments 102,000 (j) 102,000 0 Land 0 (i) 295,800 295,800 Equipment 358,020 (h) 80,580 438,600 Accum. depr. — equipment (84,320) (g) 14,790 (99,110) Accounts payable (194,140) (f) 11,560 (205,700) Accrued expenses payable (26,860) (e) 3,740 (30,600) Dividends payable (20,400) (d) 5,100 (25,500) Common stock, $1 par (102,000) (c) 100,000 (202,000) Paid - in capital in excess of par — common stock (204,000) (c) 150,000 (354,000) Retained earnings (354,280) (b) 102,000 (a) 141,680 (393,960) Totals 0 528,870 528,870 0 Operating activities: Net income (a) 141,680 Depreciation (g) 14,790 Loss on sale of investments (j) 10,200 Increase in accounts receivable (l) 19,040 Increase in inventories (k) 8,670 Increase in accounts payable (f) 11,560 Increase in accrued expenses payable (e) 3,740 Investing activities: Purchase of equipment (h) 80,580 Purchase of land (i) 295,800 Sale of investments (j) 91,800 Financing activities: Declaration of cash dividends (b) 102,000 Sale of common stock (c) 250,000 Increase in dividends payable (d) 5,100 Net change in cash (m) 22,780 Totals 528,870 528,870 Note to Instructor: The letters in the debit and credit columns are included for reference purposes only.

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    CHAPTER 13 Statement of Cash Flows 13 - 29 Prob. 13 – 2B Harris Industries Inc. Statement of Cash Flows For the Year Ended December 31, 20Y4 Cash flows from operating activities: Net income $ 524,580 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation 74,340 Patent amortization 5,040 Changes in current operating assets and liabilities: Increase in accounts receivable (73,080) Decrease in inventories 134,680 Increase in prepaid expenses (6,440) Decrease in accounts payable (89,600) Decrease in salaries payable (8,120) Net cash flow from operating activities $ 561,400 Cash flows from investing activities: Cash paid for construction of building $(579,600) Net cash flow used for investing activities (579,600) Cash flows from financing activities: Cash received from issuance of mortgage note $ 224,000 Cash paid for dividends* (123,480) Net cash flow from financing activities 100,520 Change in cash $ 82,320 Cash at the beginning of the year 360,920 Cash at the end of the year $ 443,240 Schedule of Noncash Financing and Investing Activities: Issuance of common stock to retire bonds $ 390,000 * Cash paid for dividends = $131,040 + $25,200 – $32,760 = $123,480

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