Chap 13 Statement of Cash Flows Practice Questions

Classify each transaction as either (a) an operating activity, (b)

an investing activity, (c) a financing activity, or (d) a noncash
investing and financing activity.

1. Collected accounts receivable.

2. Declared and paid dividends on common stock.
3. Sold long-term investments for cash.
4. Issued stock for equipment.
5. Repaid five year note payable.
6. Paid employee wages.
7. Converted bonds payable to common stock.
8. Acquired long-term investment with cash.
9. Sold buildings and equipment for cash.
10. Sold merchandise to customers.

1. (a) Operating activity

2. (c) Financing activity
3. (b) Investing activity
4. (d) Noncash activity
5. (c) Financing activity
6. (a) Operating activity
7. (d) Noncash activity
8. (b) Investing activity
9. (b) Investing activity
10. (a) Operating activity
Q2)
The Hendley Company reported net income of $240,000 for the current
year. Depreciation recorded on buildings and equipment amounted to
$75,000 for the year. Balances of the current asset and current liability
accounts at the beginning and end of the year are as follows:

End of Year Beginning of Year

Cash $20,000 $15,000
Accounts receivable 19,000 32,000
Inventories 50,000 65,000
Prepaid expenses 7,500 5,000
Accounts payable 12,000 18,000
Income taxes payable 1,600 1,200

Instructions
Prepare the cash flows from the operating activities section of the
statement of cash flows using the indirect method.

Solution

Net income ................................................................... $240,000

Adjustments to reconcile net income to net cash provided by

operating activities:

Depreciation expense ........................................... 75,000

Decrease in accounts receivable ........................ 13,000
Decrease in inventories ....................................... 15,000
Increase in prepaid expenses .............................. (2,500)
Decrease in accounts payable ............................ (6,000)
Increase in income taxes payable ....................... 400

Net cash provided by operating activities ......... $334,900

Q3)

DOUDER COMPANY
Comparative Balance Sheet
Dec. 31, 2007 Dec. 31 2006
Assets
Cash ....................................................................... $53,000 $12,000
Accounts receivable ............................................ 6,000 8,000
Inventory ............................................................... 11,000 7,000
Prepaid expenses ................................................. 2,000 3,000
Equipment ............................................................. 20,000 20,000
Accumulated depreciation—equipment ............. (3,000) (2,000)
Total assets ...................................................... $89,000 $48,000

Liabilities and Stockholders' Equity

Accounts payable ................................................. $ 1,000 $ 4,000

Long-term note payable ....................................... 13,000 14,000
Common stock ..................................................... 38,000 18,000
Retained earnings ................................................ 37,000 12,000
Total liabilities and stockholders' equity ....... $89,000 $48,000

DOUDER COMPANY
Income Statement
For the Year Ended December 31, 2007
Sales (all on credit) .............................................. $280,000
Expenses and losses
Cost of goods sold ..........................................$192,000
Operating expenses, exclusive of depreciation... 42,300
Depreciation expense ...................................... 1,000
Interest expense .............................................. 1,200
Loss on sale of land ........................................ 2,500
Income taxes .................................................... 9,000
Total expenses and loss ............................. 248,000
Net income ............................................................ $ 32,000

Cash dividends of $7,000 were paid during the year. Land costing $20,000
was acquired by the issuance of common stock. The property was
subsequently sold for $17,500 cash.
Solution:
DOUDER COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2003
(Indirect Method)

Cash flows from operating activities

Net income ........................................................... $32,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation expense ................................... $1,000
Decrease in accounts receivable ................. 2,000
Increase in inventory .................................... (4,000)
Decrease in prepaid expenses ..................... 1,000
Decrease in accounts payable ..................... (3,000)
Loss on sale of land ..................................... 2,500 (500)
Net cash provided by operating activities. . . 31,500

Cash flows from investing activities

Proceeds from sale of land ................................. 17,500

Cash flows from financing activities

Payment of cash dividends ................................. (7,000)
Payment of long-term note .................................. (1,000)
Net cash used by financing activities .......... (8,000)
Net increase in cash ................................................... 41,000
Cash at beginning of period ....................................... 12,000
Cash at end of period .................................................. $53,000

Noncash financing and investing activities

Acquired land through issuance of common stock
$20,000

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Below is the direct method ( you will not be tested on this method, but you
should note there is no difference in the subtotals: net cash from
operational, investing & financing activities)
 DOUDER COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2003
(Direct Method)

Cash flows from operating activities

Cash receipts from customers .................. $282,000 (1)
Cash payments
To suppliers ..........................................$199,000 (2)
For operating expenses ....................... 41,300 (3)
For interest expense ............................ 1,200
For income taxes .................................. 9,000 250,500
Net cash provided by operating activities 31,500

Cash flows from investing activities

Proceeds from sale of land ........................ 17,500

Cash flows from financing activities

Payment of cash dividends......................... (7,000)
Payment of long-term note.......................... (1,000)
Net cash used by financing activities ....... (8,000)
Net increase in cash .......................................... 41,000
Cash at beginning of period .............................. 12,000
Cash at end of period ........................................ $ 53,000
Noncash financing and investing activities
Acquired land through issuance of common stock
$20,000

RECAP of items in the operating activities section:

(1) Sales $280,000

Add: Decrease in accounts receivable 2,000
Cash receipts from customers $282,000

(2) Cost of goods sold $192,000

Add: Increase in inventory 4,000
Purchases 196,000
Add: Decrease in accounts payable 3,000
Cash payments to suppliers $199,000

(3) Operating expenses, exclusive of depreciation $42,300

Deduct: Decrease in prepaid expenses 1,000
Cash payments for operating expenses $41,300
(1) Sales $280,000
Add: Decrease in accounts receivable 2,000
Cash receipts from customers $282,000

(2) Cost of goods sold $192,000

Add: Increase in inventory 4,000
Purchases 196,000
Add: Decrease in accounts payable 3,000
Cash payments to suppliers $199,000

(3) Operating expenses, exclusive of depreciation $42,300

Deduct: Decrease in prepaid expenses 1,000
Cash payments for operating expenses $41,300