The Statement of Cash Flows: Short Exercises S 14-1

Chapter 14
The Statement of Cash Flows
Short Exercises
(10 min.) S 14-1
Req. 1
a. The statement of cash flows helps predict future

cash flows by reporting past cash receipts and
payments, which are good predictors of future cash
flows.
b. The statement of cash flows helps evaluate

management decisions by reporting on managers’
investments.
c. The statement of cash flows helps predict the ability

to make debt payments to lenders and pay dividends
to stockholders by reporting where cash came from
and how the cash was spent.
992 Accounting 9/e Solutions Manual
Chapter 14 Statement of Cash Flows 993
(10 min.) S 14-2
Req. 1
a. 1. Operating activities
2. Investing activities
3. Financing activities
4. Noncash investing and financing activities
b. The “key reconciling figure” for the statement of

cash flows is the increase or decrease in cash.
Where do you get this figure? the balance sheet.
c. The first dollar amount reported on the indirect

method statement of cash flows is net income.
(10 min.) S 14-3
Req. 1
O+ a. Increase in accounts O+ f. Loss on sale of land

payable
F− b. Payment of dividends O+ g. Depreciation expense
O− c. Decrease in accrued O− h. Increase in inventory
liabilities
F+ d. Issuance of common O+ i. Decrease in accounts
stock receivable
O− e. Gain on sale of building j. Purchase of

I− equipment

(10 min.) S 14-4
Req. 1
OMD Equipment, Inc.

Statement of Cash Flows—Partial
Year Ended 2012
Cash flows from operating activities:
Net income $44,000
Adjustments to reconcile net income
to
net cash provided by operating
activities:
Depreciation $ 8,000
Increase in accounts receivable (7,000)
Decrease in accounts payable
(4,000) (3,000)
Net cash provided by operating $41,000
activities
(10 min.) S 14-5
Req. 1
One Way Cellular

Statement of Cash Flows--Partial
Year ended September 30, 2012
Net income $55,00
0

Adjustments to reconcile net income to
activities:
Depreciation $
20,000
Increase in current assets other than (14,000
cash )
Decrease in current liabilities
(19,000 (13,000
) )
activities 0

(15 min.) S 14-6
Req. 1
One Way Cellular

Statement of Cash Flows
Year Ended September 30, 2012
Net income $55,000
activities:
Increase in current assets other than (14,000)
cash
Decrease in current liabilities (19,00 (1,000)
0)
activities
Cash flows from investing activities:

Acquisition of equipment $(39,000)
Cash receipt from sale of land 34,000
Net cash used for investing activities $(5,000)
Cash flows from financing activities:

Cash receipt from issuance of common $ 30,000
stock
Payment of cash dividends (6,100)
Net cash provided by financing 23,900
activities
Net increase in cash $60,900

(10 min.) S 14-7
Req. 1
Acquisitions = $16,600
a
Equipment, net (let X = Acquisitions)
.
Beginning + Acquisitio − Depreciatio = Ending

ns n
$67,000 + X − $5,600 = $78,00

0
X=
$16,600
Equipment, net
Beginning 67,000 Depreciati 5,600
on
Acquisitio 16,600
ns
Ending 78,000
Req. 2
Payment = $11,300
b
Long-term notes payable (let X = Payment)
.

Beginning + Issuance − Payment = Ending
$15,000 + $5,300 − X = $9,000
X=
$11,300
Long-term notes payable

Payment 11,300 Beginning 15,000
Issuance 5,300
Ending 9,000

(15-20 min.) S 14-8
Req. 1
Kyler Media Corporation

Year Ended December 31, 2012
Net income $ 25,400
Adjustments to reconcile net income
to
activities:
Increase in accounts payable 5,000 5,100
activities

Acquisition of equipment
(from Short Exercise S 13-7) $
(16,600)
Net cash used for investing (16,600)
activities

Payment of cash dividends $(11,900)
*
Payment of note payable
(from Short Exercise S 13-7) (11,300)
Cash receipt from issuance of note
payable (from Short Exercise S 13- 5,300
7)
Cash receipt from issuance of
common
stock ($22,000 −$17,000) 5,000
Net cash used for financing (12,900)
activities
Net increase in cash $
1,000
Cash balance, December 31, 2011 3,800
Cash balance, December 31, 2012 $ 4,800
__________
* Retained Earnings (let X = Dividends)
Beginning + Net − Dividend = Ending
Income s
$38,900 + $25,400 − X = $52,40
0
X = $11,900*

(5 min.) S 14-9
Req. 1
Net income………………………......................... $ 22,000

+ Depreciation………………………………………. 14,000
− Purchase of building with a long-term note 0
payable…
= Increase in cash………………………………….. $ 36,000
Req. 2
Were there any noncash transactions for the company?

Yes
Acquisition of building with long-term note payable is

reported in the noncash investing and financing
activities.
(5 min.) S 14-10
Req. 1

activities….. 0
- Cash payment for planned (80,000)
investment……...
- Payment of cash (10,00
dividends…………………… 0)
= Free cash $68,000
flow……………………………………

Exercises
(10 min.) E 14-11
Req. 1
The CFO is right because depreciation is a noncash

expenditure.
Req. 2
Assuming all other things are equal, the cash flow

should be about the same as the previous year.
(10 min.) E 14-12
Req. 1
a. Investing activities e. Investing activities
b. Financing f. Financing activities

activities
c. Operating g. Noncash investing and

activities
financing activity
d. Operating
activities
(5-10 min.) E 14-13
Req. 1
O+ a. Loss on sale of land I+ i. Cash sale of land
Issuance of long-term
NIF b. Acquisition of equipment F+ j.
note
by issuance of note payable to borrow cash
payable
Payment of long-term
F– c. O+ k. Depreciation
debt
Purchase of treasury
NIF d. Acquisition of building by F– l.
stock
issuance of common
stock
Increase in salary Issuance of common

O+ e. F+ m.
payable stock
O+ f. Decrease in inventory O+ n. Increase in accounts

payable
O– g. Increase in prepaid O+ o. Net income

expenses
Payment of cash
O– h. Decrease in accrued F– p.
dividend
liabilities

(5-10 min.) E 14-14
Req. 1
a. Financing activity g. Investing activity
b. Financing activity h. Investing activity
c. Operating activity i. Financing activity
d. Investing activity j. Noncash investing and

financing activity
e. Operating activity
k. Operating activity
f. Financing activity

(10-15 min.) E 14-15
Req. 1
McKnight Color Engraving

Year Ended 2012
Net income $ 38,000
Adjustments to reconcile net
income to
activities:
Loss on sale of land 5,000
Increase in current assets other
than cash (14,000)
Decrease in current liabilities (33,000)
(28,000)
Net cash provided by operating $ 5,000
activities
Req. 2
Evaluation: Operating cash flow is strong, as shown by

the net
cash provided by the operating activities.

(15-20 min.) E 14-16
Req. 1
DVD Sales, Inc.

For the Month Ended July 2012
Net income $65,00
0
Adjustments to reconcile net
income to
activities:
Depreciation $
3,000
Decrease in accounts 4,000
receivable
Increase in inventory (3,500)
Increase in accounts payable 8,500
5,000
activities 0

(20-30 min.) E 14-17
Req. 1
Minerals Plus, Inc.

Year Ended September 30, 2012
Net income $51,000
net cash provided by operating activities:
Decrease in accounts receivable 18,000
Decrease in accrued liabilities (13,000) 40,000
Net cash provided by operating activities $91,000

Acquisition of plant assets $(100,000
)
Net cash used for investing activities (72,000)

Cash receipt from issuance of common $29,000
stock
Payment of note payable (18,000)
Payment of dividends (8,000)
Net cash provided by financing activities 3,000
Cash balance, September 30, 2011 8,000
Cash balance, September 30, 2012 $30,000
Noncash investing and financing activities:
Acquisition of plant assets by issuing note $18,000
payable
Total noncash investing and financing $18,000
activities

(10-15 min.) E 14-18
Req. 1
Cash dividends are $35,000*
* Retained earnings (let Dividends = X)

Beginning + Net income − Dividends = Ending
$44,000 + − X = $70,00
$61,000
0
X =
$35,000
Retained earnings
Cash 35,000 Beginning 44,000
dividends
Net income 61,000
Ending 70,000
Req. 2
* Plant assets, net (let X = Book value sold)

Book value
Beginnin + Acquisition − Depreciatio − sold = Ending
g s n
$104,000 + $28,000 − $17,000 − X = $109,00
0
X = $
6,000
The cash receipt from the sale plant assets is $11,000*.
(Gain on sale $5,000 + Book value $6,000)

Plant assets, net
Beginning 104,00 Depreciation 17,00
0 0
Acquisitions Book value 6,000
28,000
sold
Ending 109,00
0

(10 min.) E 14-19
Req. 1
The acquisition of plant assets amounts to $90,000
* Plant assets, net

Beginnin + Acquisition − Depreciatio = Ending
g s n
$183,000 + X − $52,000 = $221,00
0
X=
$90,000
Plant assets, net

Beginning 183,00 Depreciation 52,00
Acquisition 0 0
90,000
Ending 221,00
0

(15 min.) E 14-20
Req. 1
a. The payment of long-term notes payable is $7,000

($66,000 − $59,000)
b. Issuance of common stock is $13,000

($47,000 − $34,000)
c. Payment of cash dividends is $60,000
Retained earnings (let X = Dividends)
Beginning Ending
Net
Retained + − Dividends = Retained
income
earnings earnings
$239,000 + $110,00 − X = $289,000

0
X = $60,000
Retained earnings
Dividends 60,000 Beginning 239,000
Net income 110,000
Ending 289,000

(15 min.) E 14-21
Req. 1
McKnight Exercise Equipment, Inc.

Net income $110,00
0
activities:
Depreciation $52,000
Decrease in inventory 8,000
Decrease in salary payable (3,000) 53,000
activities 0

Acquisition of plant assets (Exercise $(90,000
E14-19) )
Purchase of investments ($95,000 − (18,000
$77,000) )

Payment of cash dividends (Exercise $(60,000
E14-20) )
Payment of notes payable (Exercise (7,000

E14-20) )
Cash receipt from issuance of common
stock (Exercise E14-20) 13,000
Net cash used for financing activities (54,000)
Net increase in cash $ 1,000
Cash balance, December 31, 2012 $19,000

(15 min.) E 14-22
Req. 1
Dirtbikes
Statement of Cash Flows (partial)
Year ended December 31, 2012
Acquired building by issuing common stock $101,0
00
Acquired truck by issuing long-term note payable 28,000
Payment of short-term note payable by issuing
common stock 23,000
activities 00
(15 min.) E 14-23

Req. 1
Net cash provided by operating

activities….. $163,000
- Cash payments for planned (150,00
investment…... 0)*
- Payment of cash dividends for next 0
year……
= Free cash $13,000
flow……………………………………

*Plans to purchase a truck $29,000 + a forklift $121,000

Problems
Group A
(40-50 min.) P 14-24A
Req. 1
The purpose of the cash flow statement is to show

where cash came from and how cash was spent during
the period.
Req. 2
Classic Reserve Rare Coins

Income Statement
Revenue:
$735,00
Sales revenue (2,100 × $350)
0
Expenses
$260,00
Cost of goods sold
0

Salary expense 94,000
23,00
Income tax expense
0
Depreciation expense* 10,800
10,00
Rent expense
0
Total expenses 397,800
$337,20
Net income
0
* ($54,000 x 1/5 x 12/12) = $10,800

(continued) P 14-24A
Req. 3

Balance Sheet
December 31, 2012
Assets Liabilities
Current assets: Current liabilities:
Cash $362,000* Accounts payable
Accounts receivable ($243,000 − $80,000
$163,000)
(2,100 × $350 × .20) 147,000 Salary payable 4,000
Inventory Total current $84,000
253,000** liabilities
Total current assets $762,000
Stockholders’ Equity
Property, plant, and Common stock $425,00
equipment: 0
Store fixtures $54,000 Retained earnings
Less: ($337,200 − $41,000) 296,200
Accumulated
10,800 43,200 Total stockholders’ 721,20
depreciation equity 0
Total liabilities and
Total assets $805,200 stockholders' equity $805,20
0
__________
*$425,000 − $54,000 − $270,000 − $10,000 − $163,000 + $588,000 −
$90,000 − $23,000 −
$41,000 = $362,000
**$270,000 + $243,000 - $260,000 = $253,000

Req. 4

Net income $ 337,200
activities:
Increase in salary payable 4,000 (305,200)
activities

Purchase of store fixtures $
(54,000)
activities

stock
Payment of cash dividend (41,000
)
activities

Net Increase in cash $362,000
Cash balance, January 1, 2012 0

(35-45 min.) P 14-25A
Req. 1
Johnson, Inc.
Net income $ 70,500
Gain on sale of building (5,500)
Decrease in income tax payable (2,700) 16,200
Net cash provided by operating activities $ 86,700
Cash receipts from sale of building 58,500*
Cash receipt from issuance of common stock $40,000
Cash receipt from issuance of note payable 67,000
Net increase in cash and cash equivalents $75,100
Cash and cash equivalents balance, December 31, 17,000
2011
Cash and cash equivalents balance, December 31, $92,100
2012

Acquisition of land by issuing long-term note $122,00
payable 0

Total noncash investing and financing activities $122,00
0

(35-45 min.) P 14-26A
Req. 1
Jackson Educational Supply

Net income $
59,600
Depreciation $
16,700
Increase in inventories (3,200)
Decrease in accrued liabilities (600) 21,70
0
activities

Acquisition of building (100,000
)
Net cash used for investing activities (154,400
)

Cash receipt from issuance of long-term note $ 50,000
payable
Cash receipt from issuance of common 106,000
stock
Payment of cash dividends (17,200
)
activities 0
Net increase in cash and cash equivalents $
65,700
Cash and cash equivalents balance, December 22,50
31, 2011 0
Cash and cash equivalents balance, December $
31, 2012 88,200

Req. 2
Evaluation:
 Operations are generating cash.
 The company is investing in new plant assets.
 There is more financing by issuing stock than
by borrowing.
 Cash increased during the year.
 For the reasons given above, Jackson’s cash
flows look strong.
Req. 3
activities…..
investment…... 0)
= Free cash $(90,30
flow…………………………………… 0)

(35-45 min.) P 14-27A
Req. 1
Rolling Hills, Inc.
Net income $97,800
Depreciation $14,400
Decrease in inventories 11,900
activities 0
Acquisition of equipment *$(28,600
)
activities
Payment of dividends **$(63,90
0)
Payment of notes payable (46,600)
stock
Net cash used for financing activities
(86,600)
Cash and cash equivalents balance,
December 31, 15,900
2011
Cash and cash equivalents balance,
December 31, $26,400
2012

Acquisition of land by issuing long-term
$23,600
note payable
Total noncash investing and financing
$23,600
activities
*$103,900 - $89,700 + $14,400 = $28,600

**$6,600 + $97,800 − $40,500 = $63,900

Req. 2
This problem will help evaluate an investment because I

will learn how companies prepare the statement of cash
flows and I will learn how operating activities, investing
activities, and financing activities generate cash
receipts and cash payments.

Problems
Group B
(40-50 min.) P 14-28B
Req. 1
The purpose of the cash flow statement is to show

where cash came from and how cash was spent during
the period.
Req. 2
National Reserve Rare Coins

Income Statement
Revenue:
$1,000,0
00
Expenses:
$320,00
Cost of goods sold
0

80,00
Salary expense
0
20,00
Income tax expense
0
17,00
Rent expense
0
11,0
Depreciation expense*
00
$552,00
Net income
0
*($55,000 x 1/5 x 12/12) = $11,000

(continued) P 14-28B
Req. 3

Balance Sheet
December 31, 2012
Assets Liabilities
$164,000)
(2,500 × $400 × .15) Salary payable 3,000
150,000
Inventory 244,000 Total current $83,000
** liabilities
Total current assets
$1,077,00
0
equipment:
Less : ($552,000 − $39,000) 513,000
Accumulated
11,000 44,000 1,038,00
depreciation 0
Total assets $1,121,00 stockholders' equity $1,121,0
0 00
__________
*$525,000 − $55,000 − $320,000 − $17,000 − $164,000 + $850,000 −
$77,000 − $20,000 −
$39,000 = $683,000.
**$320,000 + $244,000 – $320,000 = $244,000

Req. 4

Net income $552,000
Increase in accounts receivable (150,000
Increase in salary payable 3,000 (300,000)
Net cash provided by for operating $252,000
activities

Acquisition of store fixtures $(55,000)

stock
Payment of cash dividends
(39,000)
________
Increase in cash $683,000
Cash balance, January 1, 2012 0

(35-45 min.) P 14-29B
Req. 1
Smithson, Inc.
Net income $ 68,500
Gain on sale of building (3,500)
Decrease in income tax payable (2,500) 13,200
Proceeds from sale of building 53,500
Cash receipt from issuance of note payable 68,000
Net increase in cash and cash equivalents $ 80,100
2011
2012

Acquisition of land by issuing long-term note $113,000
payable


(35-45 min.) P 14-30B
Req. 1
Morgensen Educational Supply

Net income $ 57,600
Increase in inventories (2,800)
Decrease in accrued liabilities (500) 23,900
Net cash provided by operating activities $ 81,500

Acquisition of building (103,000)

Cash receipt from issuance of long-term note $45,000
payable
Cash receipt from issuance of common stock 111,000
2011
2012

Req. 2
Evaluation:
 Operations are generating cash.
 The company is investing in new plant assets.
 There is more financing by issuing stock than
by borrowing.
 Cash increased during the year.
 For the reasons given above, Morgensen’s cash
flows look strong.
Req. 3
activities…..
investment…... 0)
= Free cash $(90,90
flow…………………………………… 0)

(35-45 min.) P 14-31B
Req. 1
All Wired, Inc.

Net income $ 99,500
Decrease in inventories 12,000
Acquisition of equipment *$(26,700)
Payment of dividends
($4,200 + $97,600 − $38,700) **$(63,800)
Cash receipts from issuance of common stock 23,900
Net increase in cash and cash equivalents $ 11,100
Cash and cash equivalents balance, December 31,
15,600
2011
Cash and cash equivalents balance, December 31,
$ 26,700
2012

Acquisition of land by issuing long-term note
$24,500
payable

*$102,900 - $90,700 + $14,500 = $26,700
**$6,100 + $99,500 - $41,800 = $63,800

Req. 2
C. This problem will help evaluate an investment

because I will learn how operating activities, investing
receipts and cash payments, and I will learn how
companies prepare the statement of cash flows.

Continuing Exercise
(25-35 min.) E 14-32
Req. 1
Lawlor Lawn Service, Inc.

Year Ended May 31, 2013
Net income *$
23,225
net cash used for operating activities:
Depreciation **$
2,830
Increase in lawn supplies (110)
Decrease in accounts payable (1,000)
Increase in interest payable 555 (225
)
activities
Payments on mortgage payable $(9,000)
Cash receipt from issuance of common
1000***
stock
Net cash used for investing activities (8,000

)
Cash balance, May 31, 2012 2,420
Cash balance, May 31, 2013 $17,420

Acquisition of building by issuing mortgage $120,00
payable 0

activities 0
*Retained earnings $24,005Ending - $780 Beginning = $23,225

$23,225 + $50 stock dividend (from E13-36) = $23.275 Net
income
**Accumulated depreciation $2,500 + ($360 - $30) = $2,830
*** Change in common stock ($2,700 - $1,700) = $1,000 Cash
receipt from issuance of common stock

(25-35 min.) P 14-33
Req. 1
Draper Consulting, Inc.

Net income $
141,235 a)
activities:
Amortization of discount on bond $ 3,432 b)
payable
Depreciation 2,653
Increase in supplies (2,000)
Increase in salary payable 3,415
Increase in interest payable 10,667
Decrease in unearned service (700) (12,933
revenue )
Net cash provided by operating $
activities 128,302
Acquisition of building $(125,000
)
Acquisition of furniture (1,500)
Acquisition of equipment (14,200)
activities
Cash receipt from issuance of notes $ 40,000
payable
Cash receipt from issuance of bonds 360,384c)
payable
stock
activities
498,586
6
a)
$140,000 - $165 + $1,400 = $141,235
b)
$400,000 - $360,384 - $36,184 = $3,432
c)
from P11-34 Req. 2
Ch 14: Apply Your Knowledge
√ Decision Cases
(45-60 min.) Decision Case 14-1
Req. 1
Course of Action Effect Comment

1.Extending the estimated lives No effect Depreciation is a non-
of the boats cash expense that
2. Changing depreciation No effect affects income but has
methods no effect of cash flows.
3. Tightening credit policies Increases cash A tighter credit policy
flows from would result in higher
operating cash flows but an
activities extremely tight policy

might drive agents
away.
4. Increasing credit sales and Increases cash This course of action
stretching payments to vendors flows from would slow cash
operating outflows and would
activities make use of this
interest-free
borrowing .Stretching
payments to vendors,
even within the due
period, might weaken
relationships with
vendors.
5. Issuing Stock Increases cash This is feasible,
flows from however other factors
financing should be considered
activities such as the effect of
the issuance on the
prices of already
existing shares in the
market, potential
hostile takeovers,
stock exchange
restrictions and
regulations.
6. Borrowing from banks Increases cash An unsustainable
flows from source of cash due to
financing the fact that a
activities company could only
increases its debt to a
certain level;
afterwards it becomes
risky and possibly not
creditworthy for
lenders.
7. Selling non-current assets at Increases cash An unsustainable
high prices flows from source of cash since
investing continuing selling non-
activities current productive
assets without
replacement would
negatively affect future

operations.
Req. 2
Yes. Profitability is assessed via the income statement

which presents revenue/gains and expenses/ losses
over a period of time. However the income statement is
prepared per the accrual basis. On the contrary the
statement of cash flows presents cash inflows and
outflows over the period of time. Thus if most of a
company’s net income is on credit, unless the company
could externally obtain cash by selling non-current
assets, borrowing, or issuing stock it would not be able
to pay its liabilities they become due.

(15-25 min.) Decision Case 14-2
Showcase Cinema looks like the better investment

because:
1. Operations provide far more cash for Showcase than

for Theater by Design. Operations should be the main
source of cash for a healthy company. This is the
most significant factor for recommending Showcase
Cinemas.
2. Showcase Cinema is investing more in long-term plant

assets than Theater by Design is. Showcase is laying
a more solid foundation in revenue-producing assets
than Theater is.
3. Theater by Design’s main source of cash is the sale of

plant assets. Sale of plant assets is not a normal and
recurring kind of transaction, and so it is not an
indication of reliable future cash flows.
4. Showcase Cinema raised $30,000 of equity capital,

which is good for the overall financial stability of the

company. Theaters by Design paid off debt, which is
also good for the financial stability of that company,
so in this regard, it is a positive for both companies.
√ Ethical Issue 14-1
Req. 1
Cash flows from Without With

operating activities: Reclassificati Reclassificati
on on
Net $ 60,000 $60,000
income…………………..
Increase in accounts
receivable……. (80,000) —
…………...
Net cash (used for) provided
by operating $(20,000) $60,000
activities….

Moss looks better with the reclassification because
net cash
flow from operations is positive.
Req. 2
The reclassification would be ethical if Moss expects to

collect the receivables beyond the current operating
cycle, or one year if longer. Reclassification would be
unethical if Moss expects to collect within the current
period. In that case, the reclassification would appear
to be designed to create a false picture of cash flow
from operations.
√ Fraud Case 14-1
Solution:

1. Frank’s company was not hurt by the
immediate effects of this action. However, if
this kind of fraud becomes detected, there
may be criminal penalties or lawsuits.
2. Frank could be convicted of criminal fraud, if
detected. But even if not detected, Bo could
use this situation to pressure Frank in future
circumstances, even to the extreme of
blackmail.
3. Controls over bidding procedures can be
strengthened by separation of duties. All bids
should be sent to one person who logs them
in by date and time. That person should not
be involved in the evaluation or selection of
winning bids.

√ Financial Statement Case 14-1
(40-50 min.) Financial Statement Case
Req. 1
Indirect method. The statement of cash flows begins with net

income for the year. Also, Amazon does not report collections
from customers, payments to suppliers, and so on, which are
reported under the direct method.
Req. 2 (Amounts in millions)
Operations provided cash of $3,293 in 2009. This represented an

improvement over 2008, when operations provided cash of
$1,697.
Req. 3
Amazon earned $902,000,000 in net income in 2009, up 40%

from 2008. Net cash flow in 2009 was $675,000,000, up 193%
from 2008. Of that amount, $3,293,000,000 was from
operations, up from the previous year (this large cash inflow
from operations was offset by cash outflows for investing and
financing). Assets totaled $13,813,000,000, up 66% from 2008.
Debt increased 52% whereas Stockholders’ Equity rose to
$5,257,000,000, up over 66% from 2008. All major factors

mentioned above are positive indicators of financial
performance (earnings and cash flow) and strong financial
position (balance sheet.)
√ Team Project 14-1

Student responses will vary depending on the
companies they select.
√ Communication Activity
Student responses will vary.

Chapter 14 Appendix A
Preparing the Statement of Cash Flows by the Direct
Method
Appendix A: Short Exercises
(15 min.) S 14A-1
Req. 1
Jelly Bean Inc.

Collections from customers $ 621,000
Payments to suppliers and employees
(427,000)
activities

Acquisition of equipment $(145,000
)

Payment of cash dividends $
(54,000)
(54,000)
Net decrease in cash $ (5,000)


(5 min.) S 14A-2
Req. 1
Happy Tots’ Learning Center

Statement of Cash Flows - Partial
Year ended June 30, 2012
Receipts:
Collections from customers $190,00
0
Total cash receipts $190,00
0
Payments:
To suppliers $(117,00
0)
To employees
(72,000)
Total cash payments (189,00
0)
activities

(15 min.) S 14A-3
Req. 1
Happy Tots’ Learning Center

Year ended June 30, 2012
Receipts:
Payments:
To suppliers (117,000)
To employees (72,000)
Total cash payments (189,000)
activities

Cash receipt from sale of land $
60,000
Acquisition of equipment (42,00
0)
Net cash provided by investing 18,000
activities

Payment of note payable $
(25,000)
Cash receipt from issuance of stock 18,000


(15 min.) S 14A-4
Req. 1
a. Collections from customers = $133,000
Sales Increase in
Collections
− Accounts =
from customers
revenue receivable
$143,000 - $10,000 $133,000

($59,000 − =
$49,000)
Accounts receivable
Beginnin 49,000
g
Sales 143,00 Collection 133,000
0 s
Ending 59,000
b. Payments for inventory = $69,000
Cost of
Increase in
goods − Decrease in = Payments for
− Accounts
Inventory inventory
payable
sold
$80,000 − $6,000 − $5,000 = $69,000

($84,000 − ($43,000 −
$78,000) $38,000)

(10-15 min.) E 14A-5
Req. 1
Purchase of treasury
O+ a. Collection of accounts F – i.
stock
receivable
Issuance of note Issuance of common

F+ b. F + j.
payable stock
to borrow cash for cash
N c. Depreciation O – k. Payment of account

payable
Acquisition of building
F+ d. Issuance of preferred NIF l.
by
issuance of common
stock for cash
stock
F– e. Payment of cash I – m. Purchase of equipment

dividend
I + f. Sale of land O – n. Payment of wages to

employees
Acquisition of Collection of cash

g. O + o.
NIF equipment interest
by issuing note payable
Payment of note I
F– h. p. Sale of building
payable +

(5-10 min.) E 14A-6
Req. 1
a. Investing activities g. Operating activities
b. Investing activities h. Financing activities
c. Financing activities i. Financing activities
d. Noncash investing j. Operating activities

and
financing activities
e. Operating activities k. Investing activities
f. Financing activities l. Operating activities
(10-15 min.) E 14A-7

Req. 1
Fuzzy Dice Auto Parts
Statement of Cash Flows - Partial
Year Ended 2012
Receipts:
0
Collection of dividend revenue 6,00
0
Payments:
)
For interest (16,000)
For income tax
(11,000)
)
activities

(5-10 min.) E 14A-8
Req. 1
Accounts receivable: Report the cash collections as

an operating cash flow in the amount of $38,000.
Land: Report the acquisition as an investing cash flow

in the amount of $14,000.
Long-term notes payable: Report both the issuance of

$84,000 and the payment of long-term notes payable at
$73,000 as a financing cash flow.

(20-30 min.) E 14A-9
Req. 1
Best Learning Center
Year Ended June 30, 2012
Receipts:
Collections from customers
($231,000 + $15,500) $246,500
0
Payments:
To suppliers ($102,000 + $13,000) $(115,00
0)
To employees ($48,000 + $1,000) (49,000)
For income tax (11,000)
For interest (3,000
)
Total cash payments
(178,000)
activities

0)
0

Cash receipt from issuance of common $
stock 32,000
Payments of dividends (10,50
0)
activities
Cash balance, June 30, 2011
25,000
Cash balance, June 30, 2012 $ 28,000

(10-15 min.) E 14A-10
Req. 1
a.
Accounts receivable
Beginnin 20,000
g
Sales 62,000 Collection X
s
Ending 24,000
$20,000 + 62,000 – X = $24,000

X= $58,000
Cost of
Decrease in
goods + Increase in = Payments for
+ Accounts
Inventory inventory
payable
sold
$76,000 + $1,000 + $5,000 = $82,000

($28,000 − ($9,000 −
$27,000) $14,000)

(20-30 min.) E 14A-11
a.
Accounts receivable
Beginnin 619
g
Sales 25,118 Collection X
s
Ending 799
$619 + 25,118 – X = $799

Collections from customers: X= $24,938
Cost of
Increase in
sales + Increase in = Payments for
- Accounts
Inventory inventory
payable
$18,088 + $650 - $180 = $18,558

($1,544 −
($3,489 - $2,839)
$1,364)
c.
Accrued liabilities
Beginning 853
Payment X Sales 4,411
s
Ending 941

$853 + 4,411 – X = $941
Payments of other operating expenses: X= $4,323
d.
Property and equipment, net
Beginning 3,436
Acquisitions X Depreciatio 273
n
Ending 4,346
$3,436 + X – 273 = $4,346

Acquisitions of property and equipment: X= $1,183
e.
Long-term liabilities
Beginning 468
Note payments 0 New notes X
issued
Ending 479
$468 + X – 0 = $479
Cash receipt from issuance of long-term liabilities: X=
$11
f.
Common stock
Beginning 443
Retirements 0 Issuance X
Ending 671
$443 + X – 0 = $671
Cash receipt from issuance of common stock: X= $228
g.
Retained earnings
Beginning 3,779
Dividends X Net income 1,810
Ending 5,014
$3,779 + 1,810 - X = $5,014

Payment of dividends: X= $575
Appendix A: Problems A
(35-45 min.) P 14A-12A
MPG, Inc.
Year Ended April 30, 2012
Receipts:
Collections from customers $
605,500
00
Total cash receipts $
610,300
Payments:
0)

For income tax (37,00
0)
0)
activities 0

)
Cash receipt from sale of plant assets 24,5
00
activities

Cash receipt from issuance of notes $
payable 46,100
00
Payment of dividends (49,40
0)
activities 0
81,700
Cash balance, April 30, 2011 40,00
0
Cash balance, April 30, 2012 $
121,700

(40 min.) P 14A-13A
Req. 1

Income Statement
Revenue:
Sales revenue (2,100 × $350) $735,000
Expenses:
$260,
Cost of goods sold
000
Salary expense 94,000
Income tax expense 23,000
Depreciation expense* 10,800
Rent expense 10,000
$337,20
Net income
0
*($54,000 x 1/5 x 12/12) = $10,800

(continued) P 14A-13A
Req. 2

Balance Sheet
December 31, 2012
Assets Liabilities
$163,000)
(2,100 × $350 × .20) 147,000 Salary payable 4,000
Inventory Total current $84,000
253,000** liabilities
Total current assets $762,000
equipment: 0
Less: ($337,200 − $41,000) 296,200
Accumulated
10,800 43,200 Total stockholders’ 721,20
depreciation equity 0
Total assets $805,200 stockholders' equity $805,20
0
_______
*$425,000 − $54,000 − $270,000 − $10,000 − $163,000 + $588,000 −
$90,000 − $23,000 −
$41,000 = $362,000
**$270,000 + $243,000 - $260,000 = $253,000

Req. 3
Classic American Reserve Rare Coins

Receipts:
Collections from customers (2,100 × $350 $
× .80) 588,000
0
Payments:
To suppliers ($270,000 + $163,000 + $10,000) $(443,00
0)
To employees ($94,000 – $4,000) (90,000)
0)
Total cash payments
(556,00
0)

Acquisition of store fixtures $(54,00
0)

00
Net cash provided by financing activities
384,000
$
Net increase in cash
362,000
Cash balance, January 1, 2012
0
$
Cash balance, December 31, 2012
362,000

(30-40 min.) P 14A-14A
Req. 1
Rolling Hills, Inc.

Receipts:
Collections from customers ($436,000 − $ 434,800
$1,200)
Interest received 8,000
442,800
Payments:
To suppliers for inventories a)
$(185,400)
To suppliers for operating expenses b)
(12,300)
Total cash payments
(317,10
0)
0

Acquisition of equipment c)
$
(28,600)

Payment of dividends ($6,600 + $97,800 − $ (63,900)
$40,500)
Payment of notes payable ($23,000 + (46,600)
$23,600)

Cash receipt from issuance of common stock 23,90
0
(86,600)
$
Net increase in cash and cash equivalents
10,500
Cash and cash equivalents balance, December
31, 2011 15,900
31, 2012 26,400

Acquisition of land by issuing long-term note
$23,600
payable
$23,600
activities
a)
($202,200 − $11,900 − $4,900) = $(185,400)
b)
($10,200 + $2,100) = $(12,300)
c)
$89,700 − depreciation expense of $14,400 = $75,300; $103,900 − $75,300
= $28,600

Req. 2


(45-60 min.) P 14A-15A
E-Mobile, Inc.
Receipts:
308,400
Receipts of Interest revenue 16,100
Total cash receipts $ 324,500
Payments:
To suppliers ($101,600 + $46,800) $(148,400
)
Total cash payments
(242,100)
activities

Acquisition of equipment $
(49,500)

stock
Net cash used for financing activities (20,200
)


Appendix A: Problems B
(35-45 min.) P 14A-16B
KSG, Inc.
Year Ended June 30, 2012
Receipts:
607,000
00
611,300
Payments:
0)
0)
0)
Net cash provided by operating $
activities 96,500

)
Cash receipt from sale of plant assets 23,5
00
activities

Cash receipt from issuance of notes $
payable 48,100
00
0)
activities 0
86,200
Cash balance, June 30, 2011 39,30
0
Cash balance, June 30, 2012 $
125,500

(40 min.) P 14A-17B
Req. 1
Income Statement
Revenue:
$1,000,0
00
Expenses:
$320,00
Cost of goods sold
0
80,00
Salary expense
0
20,00
Income tax expense
0
17,00
Rent expense
0
11,0
Depreciation expense*
00
$552,00
Net income
0
*($55,000 x 1/5 x 12/12) = $11,000

(continued) P 14A-17B
Req. 2

Balance Sheet
December 31, 2012
Assets Liabilities
$164,000)
(2,500 × $400 × .15) Salary payable 3,000
150,000
Inventory 244,000 Total current $83,000
** liabilities
Total current assets
$1,077,00
0
equipment:
Less : ($552,000 − $39,000) 513,000
Accumulated
11,000 44,000 1,038,00
depreciation 0
Total assets $1,121,00 stockholders' equity $1,121,0
0 00
_______
*$525,000 − $55,000 − $320,000 − $17,000 − $164,000 + $850,000 −
$77,000 − $20,000 −
$39,000 = $683,000.
**$320,000 + $244,000 – $320,000 = $244,000

Req. 3

Receipts:
Collections from customers (2,500 x $400 $850,00
x .85) 0
0
Payments:
To suppliers ($320,000 + $164,000 + $17,000) $(501,00
0)
To employees ($80,000 – $3,000) (77,000)
0)
Total cash payments
(598,00
0)
0

Acquisition of store fixtures (55,00
0)

00
)
Net cash provided by financing activities
486,000

$
Net increase in cash
683,000
Cash balance, January 1, 2012

0
$
Cash balance, December 31, 2012
683,000

(30-40 min.) P 14A-18B
Req. 1
All Wired, Inc.

Receipts:
Collections from customers ($438,000 − $ 436,800
$1,200)
Interest received 8,500
0
Payments:
To suppliers for inventories a)
$(192,100)
To suppliers for operating expenses b)
(11,700)
For income taxes (19,400)
Total cash payments
(317,100
)
0

Acquisition of equipment c)
$(26,700)

Payment of dividends ($6,100 + $99,500 − $ (63,800)
$41,800)
Payment of notes payable ($26,000 + (50,500)
$24,500)
Cash receipts from issuance of common 23,90
stock 0
(90,400)
$
Net increase in cash and cash equivalents
11,100
Cash and cash equivalents balance, December
31, 2011 15,600
31, 2012 26,700

Acquisition of land by using long-term note
$24,500
payable
$24,500
activities
a)
$209,200 − $12,000 − $5,100 = $192,100
b)
$10,000 + $1,700 = $11,700
c)
$90,700 − depreciation expense of $14,500 = $76,200; $102,900 −
$76,200 = $(26,700)

Req. 2


(45-60 min.) P 14A-19B
Req. 1
I-M-Mobile, Inc.
Receipts:
308,700
Receipts of Interest revenue 15,600
Total cash receipts $ 324,300
Payments:
To suppliers ($101,200 + $46,200) $(147,400
)
Total cash payments
(241,300)
activities

Acquisition of equipment $
(56,500)

stock
Net cash used for financing activities (18,500
)


Chapter 14 Appendix B
Appendix B Problems
(45-60 min.) P 14B-1A

Req. 1
Appleton Group, Inc.

Spreadsheet for Statement of Cash Flows (Indirect Method)
TRANSACTION
BALANCE ANALYSIS BALANCE
PANEL A – BALACE SHEET 12/31/2011 DEBIT CREDIT 12/31/2012
Cash and cash equivalents $15,300 (l) $ $ 9,300
6,000
Accounts receivable 43,200 (c) 42,000
1,200
Inventories 93,700 (d) $ 97,100
3,400
Land 16,000 (g) 41,100
25,100
Equipment, net 94,300 (h) (b) 101,200

Appleton Group, Inc.
22,400 15,500
Total assets $262,500 $290,700
Accounts payable $26,600 (e) $25,600

1,000
Accrued liabilities 22,800 (f) 24,000
1,200
Notes payable 62,000 (j) 46,000
16,000
Common stock 131,400 (k) 140,300
8,900
Retained earnings 19,700 (i) (a) 54,800
28,100 63,200
Total liabilities and stockholders’ $262,500 $290,700
$96,000 $96,000
equity
(continued) P 14B-1A
Req. 1
Alden Group, Inc.
TRANSACTION
PANEL B – STATEMENT OF CASH FLOWS 12/31/2011 DEBIT CREDIT 12/31/2012

Alden Group, Inc.
Net income (a)$63,200
cash flow from operations:
Depreciation (b) 15,500
Decrease in accounts receivable (c) 1,200
Increase in inventory (d)$ 3,400
Decrease in accounts payable (e) 1,000
Increase in accrued liabilities. (f) 1,200
activities
Acquisition of land (g) 25,100
Acquisition of equipment (h) 22,400
Net cash used for investing
activities
Payment of dividends (i) 28,100
Payment of notes payable (j) 16,000
Cash receipt from issuance of common (k) 8,900 _______
stock
Net cash used for financing
activities
$90,000 $96,000
Net decrease in cash and cash equivalents (l) 6,000
$96,000 $96,000

(45-60 min.) P 14B-2A
Req. 1
Rolling Hills, Inc.

TRANSACTION
PANEL A – BALANCE SHEET 12/31/2011 DEBIT CREDIT 12/31/2012
Cash and cash equivalents $15,900 (l) $26,400
$10,500
Accounts receivable 25,500 (c) 26,700
1,200
Inventories 91,700 (d) 79,800
$11,900
Land 11,000 (g) 34,600
23,600
Equipment, net 89,700 (h) (b) 103,900
28,600 14,400
Total assets $233,800 $271,400
Accounts payable $30,600 (e) $35,500

4,900
Accrued liabilities 30,700 (f) 28,600
2,100

Rolling Hills, Inc.
23,000
Common stock 64,900 (k) 88,800
23,900
Retained earnings 6,600 (i) (a) 40,500
63,900 97,800
Total liabilities and stockholders’ $233,800 $152,900 $271,400
$152,900
equity

(continued) P 14B-2A
Req. 1
Rolling Hills, Inc.

TRANSACTION
Increase in accounts receivable (c)$ 1,200
Decrease in inventory (d) 11,900
Increase in accounts payable (e) 4,900
Decrease in accrued liabilities (f) 2,100
activities
activities
Payment of note payable (j) 23,000

Rolling Hills, Inc.
Cash receipt from issuance of common (k) 23,900 ________
stock
activities
$152,900 $142,400
Net increase in cash and cash equivalents ________ (l) 10,500
$152,900 $152,900

(45-60 min.) P 14B-3B
Req. 1
Attleboro Group, Inc.

BALANCE TRANSACTION ANALYSIS BALANCE
Cash and cash equivalents $15,200 (l) $3,400 $11,800
Accounts receivable 43,900 (c) 1,700 42,200
Inventories 93,500 (d) $ 96,800
3,300
Land 14,000 (g) 39,800
25,800
Equipment, net 93,800 (h) (b) 15,100 101,100
22,400
Total assets $260,400 $291,700
Accounts payable (e) $25,100

$26,300 1,200
Accrued liabilities 22,500 (f) 1,700 24,200
13,000
Common stock 128,300 (k) 8,300 136,600
Retained earnings 19,300 (i) (a) 64,400 54,800

28,900
Total liabilities and stockholders’ $260,400 $94,600 $94,600 $291,700
equity

(continued) P 14B-3B
Req. 1

TRANSACTION
Cash flows from
operating activities:
Decrease in accounts receivable (c) 1,700
Increase in inventory (d)$ 3,300
Decrease in accounts payable (e) 1,200
Increase in accrued liabilities (f) 1,700
activities
Net cash used for investing activities

Cash receipt from issuance of common (k) 8,300 ________
stock
$91,200 $94,600
Net decrease in cash and cash equivalents (l) 3,400 ________
$94,600 $94,600

(45-60 min.) P 14B-4B
Req. 1
All Wired, Inc.

BALANCE TRANSACTION ANALYSIS BALANCE
Cash and cash equivalents (l) $26,700
$15,600 $11,100
Accounts receivable (c) 26,500
25,300 1,200
Inventories (d) 79,900
91,900 $12,000
Land (g) 35,500
11,000 24,700
Equipment, net (h) (b) 14,500 102,900
90,700 26,700
Total assets $271,500
$234,500
Accounts payable (e) 5,100 $35,600

$30,500
Accrued liabilities (f) 1,700 28,900
30,600

All Wired, Inc.
Notes payable (j) 26,000 77,000
103,000
Common stock (k) 23,900 88,200
64,300
Retained earnings (i) 63,800 (a) 99,500 41,800
6,100
Total liabilities and stockholders’ $155,000 $155,000 $271,500
$234,500
equity

(continued) P 14B-4B
Req. 1
All Wired, Inc.

TRANSACTION
Increase in accounts receivable (c)$1,200
Decrease in inventories (d) 12,000
Increase in accounts payable (e) 5,100
Decrease in accrued liabilities (f) 1,700
activities
Acquisition of land (g 24,500
Acquisition of equipment (h)26,700
activities

All Wired, Inc.
Cash receipt from issuance of common (k)23,900 ________
stock
activities
$155,000 $143,900
Net increase in cash and cash equivalents ________ (l)11,100
$155,000 $155,000

The Statement of Cash Flows: Short Exercises S 14-1

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The Statement of Cash Flows: Short Exercises S 14-1

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Chapter 14

The Statement of Cash Flows

(10 min.) S 14-1

a. The statement of cash flows helps predict future

b. The statement of cash flows helps evaluate

c. The statement of cash flows helps predict the ability

b. The “key reconciling figure” for the statement of

Where do you get this figure? the balance sheet.

c. The first dollar amount reported on the indirect

(10 min.) S 14-3

O+ a. Increase in accounts O+ f. Loss on sale of land

994 Accounting 9/e Solutions Manual

Chapter 14 Statement of Cash Flows 995

OMD Equipment, Inc.

(10 min.) S 14-5

One Way Cellular

996 Accounting 9/e Solutions Manual

Chapter 14 Statement of Cash Flows 997

One Way Cellular

Cash flows from investing activities:

Cash flows from financing activities:

998 Accounting 9/e Solutions Manual

Beginning + Acquisitio − Depreciatio = Ending

$67,000 + X − $5,600 = $78,00

1000 Accounting 9/e Solutions Manual

$15,000 + $5,300 − X = $9,000

Long-term notes payable

Chapter 14 Statement of Cash Flows 1001

Kyler Media Corporation

Cash flows from investing activities:

Cash flows from financing activities:

Chapter 14 Statement of Cash Flows 1003

Net income………………………......................... $ 22,000

Were there any noncash transactions for the company?

Acquisition of building with long-term note payable is

Net cash provided by operating $158,00

Chapter 14 Statement of Cash Flows 1005

(10 min.) E 14-11

The CFO is right because depreciation is a noncash

Assuming all other things are equal, the cash flow

(10 min.) E 14-12

a. Investing activities e. Investing activities

b. Financing f. Financing activities

c. Operating g. Noncash investing and

O+ a. Loss on sale of land I+ i. Cash sale of land

Increase in salary Issuance of common

O+ f. Decrease in inventory O+ n. Increase in accounts

O– g. Increase in prepaid O+ o. Net income

1008 Accounting 9/e Solutions Manual

a. Financing activity g. Investing activity

b. Financing activity h. Investing activity

c. Operating activity i. Financing activity

d. Investing activity j. Noncash investing and

Chapter 14 Statement of Cash Flows 1009

McKnight Color Engraving

Evaluation: Operating cash flow is strong, as shown by

1010 Accounting 9/e Solutions Manual

DVD Sales, Inc.

Chapter 14 Statement of Cash Flows 1011

Minerals Plus, Inc.

Cash flows from investing activities:

Cash flows from operating activities:

Chapter 14 Statement of Cash Flows 1013