CHAPTER23

Statementof CashFlows
ASSIGNMENTCLASSIFICATIONTABLE(BY TOPIC)
Topics

Questions

Brief
Exercises

Exercises

Problems

Conceptsfor
Analysis

1. Format, objectives
purpose, and source
of statement.

1, 2, 7,
8, 12

1, 2, 5, 6

2. Classifying investing,
financing, and operating
activities.

3, 4, 5, 6,
16, 17, 19

1, 2, 3,
6, 7,
8, 12

1, 2, 10, 16

1, 3, 4, 5

3. Direct vs. indirect
methods of preparing
operating activities.

9, 20

4, 5, 9,
10, 11

3, 4

5

4. Statement of cash flows— 11, 13, 14
direct method.

8

4, 5, 7, 9,
12, 13

3, 4, 6,
7, 8

5. Statement of cash flows— 10, 13,
indirect method.
15, 16

8

3, 6, 8, 11,
14, 15, 16,
17, 18

1, 2, 5, 6,
7, 8, 9

2

6. Preparing schedule
of noncash investing
and financing activities.

18

12

5, 7, 8, 9

5

7. Worksheet adjustments.

21

13

19, 20, 21

Copyright © 2011 John Wiley & Sons, Inc.   Kieso, Intermediate Accounting, 14/e, Solutions Manual    (For Instructor Use Only)

23-1

ASSIGNMENTCLASSIFICATIONTABLE(BY LEARNINGOBJECTIVE)
Brief Exercises
LearningObjectives

Exercises

Problems

1.

Describe the purpose of the statement
of cash flows.

2.

Identify the major classifications
of cash flows.

3

1, 2, 10, 16

3.

Differentiate between net income and net
cash flows from operating activities.

4, 5, 9, 10, 11

2, 3, 4, 5, 6,
7, 8, 16

6, 7

4.

Contrast the direct and indirect methods
of calculating net cash flow from operating
activities.

4, 5, 6, 7, 9

3, 4, 5,
6, 7, 8

6, 7

5.

Determine net cash flows from investing
and financing activities.

1, 2

16

6.

Prepare a statement of cash flows.

8

9, 11, 12, 13,
14, 15, 17, 18

7.

Identify sources of information
for a statement of cash flows.

8.

Discuss special problems in preparing
a statement of cash flows.

12

10, 18

9.

Explain the use of a worksheet in
preparing a statement of cash flows.

13

19, 20, 21

23-2

1, 2, 3, 4, 5,
6, 7, 8, 9
1, 2, 4,
5, 8, 9
1, 2, 4, 5,
6, 7, 8, 9

Copyright © 2011 John Wiley & Sons, Inc.   Kieso, Intermediate Accounting, 14/e, Solutions Manual    (For Instructor Use Only)

ASSIGNMENTCHARACTERISTICSTABLE

Copyright © 2011 John Wiley & Sons, Inc.   Kieso, Intermediate Accounting, 14/e, Solutions Manual    (For Instructor Use Only)

23-3

periodic inventory. E 23 -2 E 23 -3 E 23 -4 E 23 -5 E 23 -6 E 23 -7 E 23 -8 E 23 -9 E 23 10 E 23 11 23-4 Copyright © 2011 John Wiley & Sons.   Kieso.Ite m Description Level of Difficulty Time (minutes) Classification of transactions. Simple 15–25 Preparation of operating activities section—direct method. Intermediate Accounting. Simple 15–20 Computation of operating activities—direct method. Moderate 30–35 E 23 -1 Statement presentation of transactions—indirect method. Moderate 25–35 SCF—indirect method. 14/e. Simple 20–30 Preparation of operating activities section—indirect method. Inc. Solutions Manual    (For Instructor Use Only) . Simple 20–30 Preparation of operating activities section—direct method. Simple 15–20 Schedule of net cash flow from operating activities— indirect method. Moderate 20–30 SCF—direct method. Moderate 20–30 Classification of transactions. Simple 10–15 Moderate 20–30 Preparation of operating activities section—indirect method.

and financing activities. Moderate 20–30 SCF—direct method. Moderate 30–40 SCF—indirect method and balance sheet. Moderate 40–45 E 23 12 E 23 13 E 23 14 E 23 15 E 23 16 E 23 17 E 23 18 E 23 19 E 23 20 E 23 21 P 23 -1 Copyright © 2011 John Wiley & Sons. Moderate 30–40 SCF—indirect method. Moderate 45–55 SCF—indirect method.   Kieso. Moderate 30–40 SCF—indirect method. Moderate 25–30 Worksheet analysis of selected accounts. Moderate 20–25 Worksheet analysis of selected transactions. Solutions Manual    (For Instructor Use Only) 23-5 . 14/e. Moderate 25–35 Cash provided by operating. investing. Inc.SCF—direct method. Intermediate Accounting. Moderate 20–25 Worksheet preparation. Moderate 30–40 Partial SCF—indirect method.

Moderate 30–40 Indirect SCF. Moderate 30–40 Analysis of improper SCF. Moderate 30–35 SCF theory and analysis of improper SCF. Moderate 45–60 SCF—indirect method. Complex 50–60 SCF—direct method. 14/e. Moderate 20–30 P 23 -2 P 23 -3 P 23 -4 P 23 -5 P 23 -6 P 23 -7 P 23 -8 P 23 -9 C A 23 -1 C A 23 -2 C A 23 -3 C A 23 -4 23-6 Copyright © 2011 John Wiley & Sons.   Kieso. Moderate 40–50 SCF—direct and indirect methods from comparative financial statements. Solutions Manual    (For Instructor Use Only) . Moderate 30–40 SCF—direct and indirect methods. Moderate 30–35 Analysis of transactions’ effect on SCF. and net cash flow from operating activities. Inc. Complex 50–65 SCF—indirect method. Moderate 50–60 SCF—direct method. direct method.SCF—indirect method. Moderate 30–35 SCF theory and analysis of transactions. Intermediate Accounting.

14/e. Complex 30–40 Cash flow reporting.   Kieso. Intermediate Accounting. ethics. Solutions Manual    (For Instructor Use Only) 23-7 .Purpose and elements of SCF. Moderate 20–30 C A 23 -5 C A 23 -6 Copyright © 2011 John Wiley & Sons. Inc.

as discussed in paragraphs 230-10-45-12 and 230-10-45-21. For example. 23-8 Copyright © 2011 John Wiley & Sons. Investing activities exclude acquiring and disposing of certain loans or other debt or equity instruments that are acquired specifically for resale. Solutions Manual    (For Instructor Use Only) . receiving restricted resources that by donor stipulation must be used for long-term purposes. (b) Financing activities include obtaining resources from owners and providing them with a return on. money market funds. Examples of items commonly considered to be cash equivalents are Treasury bills. 2.S. Intermediate Accounting. and a return of. Operating activities generally involve producing and delivering goods and providing services. (d) Operating activities include all transactions and other events that are not defined as investing or financing activities (see paragraphs 230-10-45-12 through 45-15). plant. Generally. assets held for or used in the production of goods or services by the entity (other than materials that are part of the entity’s inventory). commercial paper. borrowing money and repaying amounts borrowed. CE23-2 According to FASB ASC 230-10-45-14 (Statement of Cash Flow—Other Presentation Matters—Cash Flows from Financing Activities): All of the following are cash inflows from financing activities: (a) Proceeds from issuing equity instruments. a Treasury note purchased three years ago does not become a cash equivalent when its remaining maturity is three months. or otherwise settling the obligation. 14/e. Treasury bill and a three-year Treasury note purchased three months from maturity qualify as cash equivalents. Readily convertible to known amounts of cash So near their maturity that they present insignificant risk of changes in value because of changes in interest rates. both a three-month U.   Kieso. their investment. However. Inc. highly liquid investments that have both of the following characteristics: 1. (b) Proceeds from issuing bonds. Cash flows from operating activities are generally the cash effects of transactions and other events that enter into the determination of net income. mortgages.SOLUTIONSTO CODIFICATIONEXERCISES CE23-1 Master Glossary (a) Cash equivalents are short-term. and from other short. (c) Investing activities include making and collecting loans and acquiring and disposing of debt or equity instruments and property. and federal funds sold (for an entity with banking operations).or long-term borrowing. that is. only investments with original maturities of three months or less qualify under that definition. and obtaining and paying for other resources obtained from creditors on long-term credit. Original maturity means original maturity to the entity holding the investment. and equipment and other productive assets. notes.

and they shall clearly relate the cash and noncash aspects of transactions involving similar items. or other long-lived assets or establishing or increasing a permanent endowment or term endowment. CE23-4 According to FASB ASC 230-10-50-3 (Statement of Cash Flows—Disclosure—Noncash Investing and Financing Activities): Information about all investing and financing activities of an entity during a period that affect recognized assets or liabilities but that do not result in cash receipts or cash payments in the period shall be disclosed. excess tax benefits shall be determined on an individual award (or portion thereof) basis. Inc. or improving property. Intermediate Accounting. sales. CE23-3 According to FASB ASC 230-10-45-11 (Statement of Cash Flows—Other Presentation Matters—Cash Flows from Investing Activities): Cash flows from purchases. Solutions Manual    (For Instructor Use Only) 23-9 . plant. (e) Cash retained as a result of the tax deductibility of increases in the value of equity instruments issued under share-based payment arrangements that are not included in the cost of goods or services that is recognizable for financial reporting purposes. Those disclosures may be either narrative or summarized in a schedule. 14/e. constructing. other than a financing element inherently included in an at-the-market derivative instrument with no prepayments.   Kieso. For this purpose. and maturities of available-for-sale securities shall be classified as cash flows from investing activities and reported gross in the statement of cash flows. equipment. (d) Proceeds received from derivative instruments that include financing elements at inception. Copyright © 2011 John Wiley & Sons. whether the proceeds were received at inception or over the term of the derivative instrument.CE23-2 (Continued) (c) Receipts from contributions and investment income that by donor stipulation are restricted for the purposes of acquiring.

and equities have changed during the period. Inc. 2. and distribute dividends to the owners depends on whether adequate cash is being or will be generated. Financing activities. The statement of cash flows provides information about a company’s operating. 4. financing. 6. Assessing operating capability: Whether an enterprise is able to maintain its operating capability. Cash sales—operating.ANSWERSTO QUESTIONS 1. plant. Purchase of land—investing. The main purpose of the statement of cash flows is to show the change in cash of a company from one period to the next. estimates and valuations.   Kieso. payment of cash dividends. More precisely. Assessing quality of income: Some believe that cash flow information is more reliable than income information because income involves a number of assumptions. All other changes in balance sheet accounts are analyzed to determine their effect on cash. Comparative balance sheets. (2) Determine the net cash flow from operating activities. provide for future growth. involve liability and owners’ equity items and include (1) obtaining cash from creditors and repaying the amounts borrowed and (2) obtaining capital from owners and providing them with a return on their investment. Operating activities include all transactions and events that are not investing and financing activities. This is simply the difference between the beginning and ending cash balances. 14/e. Operating activities involve the cash effects of transactions that enter into the determination of net income. redemption of debt. issuance of capital stock. on the other hand. and the purchase of property. or meeting other recurring costs. Purchase of treasury stock—financing. liabilities. Investing activities generally involve noncurrent assets and include (1) lending money and collecting on those loans and (2) acquiring and disposing of investments and productive long-lived assets. plant. (3) Determine cash flows from investing and financing activities. paying dividends. A current income statement provides information about the amount of cash provided from operating activities. Some uses of this statement are: Assessingfuturecashflows: Income data when augmented with current cash flow data provide a better basis for assessing future cash flows. Examples of sources of cash in a statement of cash flows include cash from operating activities. Payment of dividends—financing. and equipment. sale of investments. Examplesof uses of cash include cash used in operating activities. Solutions Manual    (For Instructor Use Only) . Comparative balance sheets indicate how assets. 7. redemption of capital stock. comparative balance sheets and selected transaction data. it provides information about the company’s cash inflows and outflows for the period. issuance of debt. Assessingfinancial flexibility and liquidity: Cash flow data indicate whether a company should be able to survive adverse operating problems and whether a company might have difficulty in meeting obligations as they become due. Intermediate Accounting. and equipment. investing activities affect assets while financing activities affect liabilities and stockholders’ equity. and investing activities. Preparing the statement of cash flows involves three major steps: (1) Determine the change in cash. Providing information on financing and investing activities: Cash flows are classified by their effect on balance sheet items. a current income statement. purchase of investments. 3. 5. and certain transaction data all provide information necessary for preparation of the statement of cash flows. Certain 23-10 Copyright © 2011 John Wiley & Sons. This involves analyzing the current year’s income statement. and the sale of property.

Inc. Intermediate Accounting. Copyright © 2011 John Wiley & Sons. 14/e.transactions provide additional detailed information needed to determine whether cash was provided or used during the period.   Kieso. Solutions Manual    (For Instructor Use Only) 23-11 .

....... Add: Dividends payable (beginning of year)..................... To find purchases............ Loss on sale of plant assets.000 $255...... $3.......... which is equal to “net cash flow from operating activities... Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense........ Cash flows from operating activities Net income..... cash payments to suppliers are determined by adjusting purchases for the change in accounts payable. Thus...... Deduct: Dividends payable (end of year)........................ 300..... Less: Increase in accounts receivable....... 10.....................000 12......... Inc.......... Declared dividends.................. 23-12 $320.........000 $124...... An example would be an increase in accounts receivable.....................” The indirect method involves adjusting accrual net income.............. plant........ and equipment........................................................... This results in cash net income. If accounts receivable increased during the period. 9.................... (500.. (3) sales of investments...... $260... Accrual basis sales......... A number of factors could have caused an increase in cash despite the net loss..000 30.. Net cash flow from operating activities under the direct method is the difference between cash revenues and cash expenses...... 13...............................................820...000) Accounts payable increase..... Cash paid in dividends during the year..... accrual basis net income must be adjusted to reflect the net cash flow from operating activities. Amortization of patent............................... cost of goods sold is adjusted for the change in inventory (increased when inventory increases or decreased when inventory decreases). $ 520.......000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense.. it is first necessary to find purchases for the year..... Solutions Manual    (For Instructor Use Only) .............000 2.... Less: Write-off of accounts receivable..........000 Accounts receivable increase........ The direct method adjusts the revenues and expenses directly to reflect the cash basis.............. $3.. $100.... An increase (decrease) in accounts payable is deducted from (added to) purchases to determine cash payments to suppliers.000 90..000 21........ Examples of adjustments include depreciation and other noncash expenses and changes in the balances of current asset and current liability accounts from one period to the next...........................000...000 185................820...... Cash sales...000 11..000 14............... After purchases are computed... the solution is: Net income.........QuestionsChapter23 (Continued) 8.000 70........   Kieso..........................................................................................000 320. and (4) issuance of debt or capital stock....... These are: (1) high cash revenues relative to low cash expenses..... Using the indirect method........000 Net cash provided by operating activities....................... It is necessary to convert accrual-based net income to a cash basis because net income includes items that do not provide or use cash........ To determine cash payments to suppliers...000 40.......................... 15......... revenues reported on the accrual basis would be higher than the actual cash revenues received................... 14/e.....000 85..........000 Copyright © 2011 John Wiley & Sons................ (2) sales of property.............000 345...........500........ Intermediate Accounting. This is done by starting with accrual net income and adding or subtracting noncash items included in net income..................... Net cash flow from operating activities is $3.....000 $ 68.............

. 14/e.. Intermediate Accounting........000 Copyright © 2011 John Wiley & Sons... Inc...   Kieso.Net cash provided by operating activities... Solutions Manual    (For Instructor Use Only) 23-13 .. $505............

............ (j) Financing activity...............   Kieso.......000) 20.......................... XXXX (b) Cash flows from financing activities Issuance of common stock.......... (i) Significant noncash investing and financing activities..................... (a) (b) (c) (d) (e) (f) Operating activity....... Note to instructor: The change in net accounts receivable is an adjustment to net income under the indirect method.000) $(1.... 17......... Examples of noncash transactions are: (1) issuance of stock for noncash assets..........300 $ 4............................. (b) The direct method is nothing more than a cash basis income statement which will confuse and create uncertainty for financial statement users who are familiar with the accrual-based income statements.. (a) Cash flows from operating activities Net income.................. Solutions Manual    (For Instructor Use Only) ...QuestionsChapter23 (Continued) 16.. Financing activity............................................... Cash flows from financing activities Redemption of bonds payable...... Operating activity. and equipment..................... (d) Cash flows from operating activities Net loss.....................000) $ 38........... Cash flows from investing activities Sale of available-for-sale securities................. Adjustments to reconcile net income to net cash   provided by operating activities: Gain on redemption of bonds payable... Financing activity............. plant.. not shown in the statement of cash flows or in any related schedules or notes..... Significant noncash investing and financing activities...............000 (9............................ (k) Investing activity.................. XXXX $ (120.................... (l) Operating activity.000) $22.............. Intermediate Accounting.. the differences are highlighted................... Inc...... (3) issuance of bonds or notes for noncash assets.............000 ÷ 10) x 31/2 ] – $4.000 $410............880......... $(50......................................................... 19..... Cash flows from investing activities Sale of plant assets. Adjustments to reconcile net income to net cash provided by operating activities: Loss on sale of plant assets [($18... (c) $ 2...................... 23-14 Copyright © 2011 John Wiley & Sons..................... Gain on sale of available-for-sale securities.... Arguments for the indirect or reconciliation method are: (a) By providing a reconciliation between net income and cash provided by operations.... and (4) noncash exchanges of property..........000............................ (2) issuance of stock to liquidate debt.. 18..000 (g) Operating activity. (h) Financing activity......................... Adjustments to reconcile net loss to net cash   provided by operating activities: Depreciation expense. 14/e......... Investing activity.......000 No effect on cash... Cash flows from operating activities Net income....

A worksheet is desirable because it allows the orderly accumulation and classification of data that will appear on the statement of cash flows.QuestionsChapter23 (Continued) (c) There is some question as to whether the direct method is cost/benefit-justified as this method would probably lead to additional preparation cost because the financial records are not maintained on a cash basis. 21. It is an optional but efficient device that aids in the preparation of the statement of cash flows.   Kieso. Solutions Manual    (For Instructor Use Only) 23-15 . Copyright © 2011 John Wiley & Sons. 14/e. Inc. Intermediate Accounting.

....................000– $21........ Net cashusedby investingactivities..... Net cashprovidedby financingactivities........000) (59..........000 (350......000 (415......... Purchaseof treasurystock............   Kieso.. Paymentof dividends.................................. Intermediate Accounting.000) BRIEFEXERCISE23-2 Cashflowfromfinancingactivities Issuanceof commonstock......000+ $11.. $ 250................ Issuanceof bondspayable................................... Purchaseof available-for-sale securities........000 147........000) (46.....000 $118... A P-F BRIEFEXERCISE23-4 Cashflowsfromoperatingactivities Cashreceivedfromcustomers ($200..................................... $ 180.000)...................000)....... Cashpayments: To suppliers ($120..... Solutions Manual    (For Instructor Use Only) ..............000)......000) $ 364..........................000– $13......000) $(294...000 29....................... 23-16 $188.................... Purchaseof equipment.................................................. 14/e............................... For operatingexpenses ($50............000– $12......... Inc..........................SOLUTIONSTO BRIEFEXERCISES BRIEFEXERCISE23-1 Cashflowfrominvestingactivities Saleof land.... D (g) (h) (i) (j) (k) (l) P-F D P-I A D R-F (m) (n) (o) (p) (q) (r) N D R-F P-F R-I.............000 510......................................................000 Copyright © 2011 John Wiley & Sons.......................000 BRIEFEXERCISE23-3 (a) (b) (c) (d) (e) (f) P-I A R-F A R-I R-I.......

.000 $438.......000)................................Net cashprovidedby operatingactivities........000 $30.......   Kieso..................000 18.. Net cashprovidedby operatingactivities...000 Copyright © 2011 John Wiley & Sons..........000 (963....................................................................... Deduct: Increasein accountspayable ($69.000)....... $500.......000 (12..000 333......000– $54... 14/e....................12/31/12.000 $21........ Adjustmentsto reconcilenet income to net cashprovidedby operating activities: Depreciationexpense.......000 BRIEFEXERCISE23-8 Net cashprovidedby operatingactivities.........000 $486...................000 18...................................000) (11....000– $61............................ Cash.000) 11. Purchases.........................................................................000 $510.........1/1/12... $ 41... Add: Increasein inventory($113. Increasein accountspayable...............000 153. Net cashprovidedby financingactivities.... Net increasein cash........................ Net cashusedby investingactivities...000 BRIEFEXERCISE23-6 Sales Add: Decreasein accountsreceivable ($72...................... Inc....000 $41. $531............ Increasein inventory..............000 13.................000)........................... Intermediate Accounting........000 518..................................... Cashpaymentsto suppliers...... Solutions Manual    (For Instructor Use Only) 23-17 ...........000 8.......................000 BRIEFEXERCISE23-7 Cost of goodssold...............................000) 585........ Increasein accountsreceivable.............................................................................................................. Cashreceiptsfromcustomers... $420.................................... BRIEFEXERCISE23-5 Cashflowsfromoperatingactivities Net income....000– $95............................................ Cash......................................

.......... Solutions Manual    (For Instructor Use Only) ....040) $40...........000) (8.300) (11.. Net cashprovidedby operatingactivities............000) 81........ Increasein accountsreceivable...........100) 72.................................000 (8........200) BRIEFEXERCISE23-10 Cashflowsfromoperatingactivities Net income.840).....000– $1.900 $60..............900 BRIEFEXERCISE23-11 Cashflowsfromoperatingactivities: Net loss........... ($29........ $90............. 14/e..................................840 Cashflowsfromoperatingactivities Net income............900 $ 2.. Increasein net accountsreceivable ($26...........BRIEFEXERCISE23-9 (a) (b) a Cashflowsfromoperatingactivities Cashreceivedfromcustomers.......................................   Kieso.......................................................................160 $31............... $50......000) (7........................ Cashpaid for expenses($60............ Adjustmentsto reconcilenet incometo net cash providedby operatingactivities Depreciationexpense.......................840 b ($20.............................900 Copyright © 2011 John Wiley & Sons..400) 10....................................000 58.. Increasein accountsreceivable..000) 12. Net cashprovidedby operating activities.................... Increasein inventory........160) $31........................ Net cashprovidedby operatingactivities....... Increasein accountspayable.....000 17............................000– $1........ Intermediate Accounting...................................................... 23-18 ($70........................960a – $18.......800b)........................................... Adjustmentsto reconcilenet income(loss) to net cashprovidedby operatingactivities Depreciationexpense...... Net cashprovidedby operating activities....000– $2. Inc..........

.. Paid-in Capital in Excessof Par— CommonStock..................... Inc........................... 40.........000 Equipment............. 10........... Intermediate Accounting.................................................................................................................000 32...............000 BRIEFEXERCISE23-13 (a) (b) (c) (d) Operating—NetIncome.. 14/e...................................000 2.. AccumulatedDepreciation—Equipment.......000 Investing—Saleof Equipment..........000 $40........................ Investing—Purchaseof Equipment..000 40...................................................... (b) No effect (c) Noncashinvestingandfinancingactivities: Purchaseof landthroughissuanceof commonstock.................. Solutions Manual    (For Instructor Use Only) 23-19 .000 120................................. Equipment...........BRIEFEXERCISE23-12 (a) Land....   Kieso................ Operating—Gainon Sale of Equipment.............000) Copyright © 2011 John Wiley & Sons... RetainedEarnings............................................................ .....................000– ($40.....000* *$10.............000 RetainedEarnings.......... 120............000– $32........... Financing—CashDividends......................000 30.........000 317..000 10.......................... 114................... 317...000 114......................................................... CommonStock.......................

.................. Significantnoncashinvestingandfinancingactivity..... Losson sale..................000) 10.. Investingactivity.. It is added to net incometo arrive at net cash provided by operatingactivities.....300) $ 4... Saleproceeds.......... Intermediate Accounting......000 Copyright © 2011 John Wiley & Sons.... Significantnoncashinvestingandfinancingactivity... $25................... Investingactivity......................................... 14/e.......... Operating—addto net income...000) (5............................... Financingactivity.............................300 are reported in the investing activities section of the statementof cashflowsas follows: Saleof plant assets. Financingactivity................................... Bookvalueat date of sale..300 $330.......................................SOLUTIONSTO EXERCISES EXERCISE23-1 (10–15minutes) (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) Operating—addto net income............................700) The loss on sale of plant assets is reported in the operating activities section of the statement of cash flows..   Kieso..... Operating—addto net income........ Financingactivity. Accumulateddepreciation([$25................... (b) Shownin the financingactivitiessectionof a statementof cashflowsas follows: Saleof commonstock............... The sale proceeds of $5....... Operating—deductfromnet income.. Solutions Manual    (For Instructor Use Only) ............... Financingactivity.................000) 15...................000÷ 10] X 6)...... Inc............ 23-20 $ 5.. EXERCISE23-2 (20–30minutes) (a) Plant assets(cost).........

Cashflowsfrominvestingactivities Saleof land.... Gainon sale of land.   Kieso................000) *Either net cash usedor provideddependinguponother adjustments............. The proceeds from the sale of land of $39. Copyright © 2011 John Wiley & Sons.. the “net cashused”shouldbe employed... $(50.........000 is reported in the operating activities section of the statementof cash flows... (f) Patent amortization of $20...... Note to instructor: The change in net accounts receivable is some-times used to computean adjustmentto net incomeunderthe indirectmethod.......... Depreciation of $22..000 is reported in the operating activities section of the statement of cash flows............................ The write-off reduces the Allowance for Doubtful AccountsbalanceandtheAccountsReceivablebalance....It doesnot affect cashflows....EXERCISE23-2 (Continued) (c) The write-off of the uncollectible accounts receivable of $27.. $39............000 should be reported in the operating activities section of the statement of cash flows... The gain on sale of land also appears in the operating activities section of the statement of cash flows......000 is not reported on the statement of cash flows............... Thesefour itemsmight be reportedas follows: Cashflowsfromoperatingactivities Net loss...000 are reported in the investing activities section of the statementof cash flows.......... 14/e. (d) The net loss of $50.....000 (9.... Adjustmentsto reconcilenet income to net cashusedin operatingactivities*: Depreciation........... It is addedto net incomein arrivingat net cash providedby operatingactivities...000 (e) The purchaseof the U. Treasurybill is not reportedin the statementof cash flows................... Solutions Manual    (For Instructor Use Only) 23-21 ........... Inc.S.........Givenonly the adjustmentsin (d)... This instrument is considered a cash equivalent and therefore cash and cash equivalentshavenot changedas a result of this transaction.....000) 22....... Intermediate Accounting......

. Intermediate Accounting......... Decreasein inventory.. 23-22 $1.......000) 105.000 (170........................000 300..................050.....000) (120.................... 14/e........000 310....... Increasein prepaidexpenses.........................................155...........000 $ 60................... Adjustmentsto reconcilenet income to net cashprovidedby operatingactivities: Depreciationexpense........................”It is shownas follows: Noncashinvestingandfinancingactivities Purchaseof investmentby issuance of commonstock............................000 The purchase of treasury stock is reported as a cash payment in the financing activitiessectionof the statementof cashflows. Decreasein accountspayable..... Decreasein accountsreceivable............................... Inc........... EXERCISE23-3 (15–25minutes) RODRIQUEZCOMPANY Partial Statementof CashFlows For the Year EndedDecember31....   Kieso.. Decreasein accruedexpensespayable........ Solutions Manual    (For Instructor Use Only) ...000) (275............. (h) $900...........000 $1........ Net cashprovidedby operatingactivities..............000 Copyright © 2011 John Wiley & Sons...... 2012 Cashflowsfromoperatingactivities Net income....EXERCISE23-2 (Continued) (g) The exchange of common stock for an investment in Plumlee is reported as a “noncashinvestingand financingactivity..........

.. Cashpayments: To suppliers................... $7.000 *$450....................EXERCISE23-4 (20–30minutes) RODRIQUEZCOMPANY Partial Statementof CashFlows For the Year EndedDecember31........ Add: Increasein prepaid expenses............. Add: Decreasein accounts receivable.......... Net cashprovidedby operating activities........000 Computations: (a) Cashreceiptsfromcustomers Sales.......000– $60........210..........675........210....900.000 $1............................000 275...... Cashreceiptsfromcustomers.... Purchases.............155.............055.000 $4......................000 (a) $4...................... 6.................................. (b) (c) $6......   Kieso.......090...000 120.......380... 2012 Cashflowsfromoperatingactivities Cashreceiptsfromcustomers.......... Cashpaymentsfor operating expenses..........................000 290.............. Deduct: Decreasein inventories....... Add: Decreasein accounts payable....... Cashpaymentsto suppliers..675...........000) Copyright © 2011 John Wiley & Sons......exclusive of depreciation...............000 (b) 1......... Solutions Manual    (For Instructor Use Only) 23-23 .......000 $7........ Inc................. Cashpaymentsfor operating expenses Operatingexpenses....... 14/e..........000* $170.....000 Cashpaymentsto suppliers Cost of goodssold...... Add: Decreasein accrued Add: expensespayable......................700........ Intermediate Accounting..000 310.............380.... For operatingexpenses.....000 300.000 4..000 $4....400...000 (c) $1.....000 $1.........000+ ($700..............

.500 $ 44........... Inc...... For incometaxes.... Cashpaymentsfor incometaxes...... Cashpayments: For operatingexpenses...000 $862.. (a) (b) (c) 23-24 $862.....000)....EXERCISE23-5 (20–30minutes) NORMANCOMPANY Partial Statementof CashFlows For the Year EndedDecember31...000 (a) $609..........   Kieso...........000 15....................000).......000 $624...........000 22. 14/e.........000– $37................................ Computationof cashpayments: Operatingexpensesper incomestatement.. Incometax expenseper incomestatement............................. Add: Decreasein incometaxespayable Add ($8.............. Cashpaymentsfor operatingexpenses..... Net cashprovidedby operating activities.....500 $840.... 2012 Cashflowsfromoperatingactivities Cashreceiptsfromcustomers............000– $31.....500 $208........ Solutions Manual    (For Instructor Use Only) ....000 $ 40...... Add: Decreasein accountsreceivable Ad ($59.............500– $4.................. Intermediate Accounting......... Cashreceiptsfromcustomers............. 653............000 4................................................000 $609................500 Copyright © 2011 John Wiley & Sons. Deduct: Increasein accountspayable Deduct ($46...............................000 (b) 44........500 (c) Computationof cashreceiptsfromcustomers: Servicerevenue...000).....

....... Losson sale of equipment....................... Increasein accountspayable......................000 $211................................................000 17.....000 8.................000 (4............. (a) Computationof cashpaymentsto suppliers Cost of goodssold.....000 Copyright © 2011 John Wiley & Sons.................500 EXERCISE23-7 (15–20minutes) SituationA: SituationB: Cashflowsfromoperatingactivities Cashreceiptsfromcustomers ($200..................................................................000 $230................................   Kieso........... Cashpaymentsfor operating expenses............. 2012 Cashflowsfromoperatingactivities Net income..... Adjustmentsto reconcilenet income to net cashprovidedby operatingactivities: Depreciationexpense......000 11........... Net cashprovidedby operatingactivities.. 14/e...........000 $60.........000– $39.........................000 26...500 $208... Solutions Manual    (For Instructor Use Only) 23-25 ....................000)............. $90......... Plus: Increasein inventory.......................... $129.........000 $310............... Cashpaymentsfor operatingexpenses ($110........000)....EXERCISE23-6 (15–20minutes) NORMANCOMPANY Partial Statementof CashFlows For the Year EndedDecember31.......000 71......... Decreasein accountspayable............... Net cashprovidedby operatingactivities..............000 $348............. Decreasein incometaxespayable........................000 15....000– $71........500) 118. Increasein accruedexpenses payable..............000 $ 58......... Decreasein accountsreceivable... Intermediate Accounting............ Deduct: Decreasein prepaidexpenses.......000 21.......... Cashpaymentsto suppliers....000 22................................................... (b) Computationof cashpaymentsfor operatingexpenses Operatingexpenses. Inc..

.. The net income amount must be deducted from net cash flow from operatingactivities.......000and the gain of $3.... Inc...000X ...... Incomefromequitymethodinvestment ($27. Intermediate Accounting........ Net cashprovidedby operatingactivities........500is deductedfromnet incomein theoperatingactivitiessection............... It is part of the change in net accountsreceivable.... No... 6 is an increase in the investment account related to net income which does not increase cash flow... Gainon sale of investment [($200– $165)X 100]........ 1 is shown as a cash inflow from the issuance of treasury stock and cash outflow for the purchaseof treasurystock..................   Kieso.... 7 (dividends received) is added to net income.... 8 is not shownon a statementof cashflows.......... Decreasein accountsreceivable............ No.......30)...............30). No..... Bad debt expense is not handled separately when using the indirect method.. 4 is a significantnoncashinvestingand financingactivity.000X .....EXERCISE23-8 (20–30minutes) Cashflowsfromoperatingactivities Net income Adjustmentsto reconcilenet income to net cashprovidedby operating activities: Depreciationexpense.. Solutions Manual    (For Instructor Use Only) ... Dividendsfromequitymethod investment($2.bothfinancingactivities......000 Othercomments: No.. 3 is a noncashexpense(Bad Debt Expense)in the incomestatement.... 14/e....... 2 is shownas a cash inflowfrominvestingactivitiesof $20..100) 600 40...000 $39......... No.....500) 12.. $145.......000 (3......... No.. No. Another alternative is to net the Company’spro-rata shareof the dividendagainstthe incomefromequity method investmentamountreportedin the cashflowsfromoperatingactivities....000 (8...000 $185. 23-26 Copyright © 2011 John Wiley & Sons..............

............ Intermediate Accounting.............. Deduct: Increasein accountspayable ($25.. $538..300 Incometax expense...........000 234......500 *($16..........800 700 $ 27................................... $ 4....................... Deduct: Increasein deferredincometaxes ($5................. Cashpaymentsto suppliers...........................000 8.000– ($30.............500 6..........................500– $13.........000 5.................................000 16. Add: Decreasein incometaxespayable ($29...000– $3.......300– $4.................................................................000– $4.................... Cashpaid for incometaxes.....000*X 1/3)......000)........... Purchases.....................000).................................000– $17.500) Copyright © 2011 John Wiley & Sons...800 $1............................ Deduct: Decreasein unamortizedbonddiscount ($5..... Cashpaid for interest.............................................................. Inc................................000 6.............000– $31...................000)........... net of write-offs [$33........... Deduct: Depreciation($3.....000 $226........100– $21.................800 $532....................... 14/e.. $141...........................000 Interestexpense.....................100 Sellingexpenses....................................400 8.....EXERCISE23-9 (20–30minutes) (a) (b) (c) (d) (e) Sales Deduct: Increasein accountsreceivable........... Cashpaid for sellingexpenses....... $250..........................................   Kieso..800 Cost of goodssold..........500)... Cashcollectedfromcustomers.........000 500 $ 3.. Solutions Manual    (For Instructor Use Only) 23-27 .600)............. Baddebtsexpense....... $ 20............................ Deduct: Decreasein inventory($47........................................800)].......000 $135......

000 Equipmentsold 12/31/11 Depreciationexpense ? 178.000 + $38. Property. and equipment is an investing activity. Note that the acquisition of property. Solutions Manual    (For Instructor Use Only) .000+ $14.000 25.500– $27.000 14. the purchaseof property.500 (given) (given) Copyright © 2011 John Wiley & Sons.EXERCISE23-10 (25–35minutes) (a) The solution can be determined through use of a T-account for property.000 = $27.000 – $178. Intermediate Accounting. (b) The solution can be determined through use of a T-account for accumulated depreciation.000 45.000 Theentryto reflectthe sale of equipmentis: Cash(proceedsfromsale of equipment) ($45.000– $247. and Equipment Gainon Sale of Equipment 23-28 32. Accordingly.000 Equipmentsold Payments = $277.   Kieso.000) AccumulatedDepreciation Property. plant.Plant.000+ $45.000– $25.000 12/31/12 Accumulated depreciation on equipment sold = $167. AccumulatedDepreciation 167. 14/e.000 = $50.Plant& Equipment 12/31/11 Equipmentfromexchangeof B/P Paymentsfor purchaseof PP&E 247. plant. and equipmentin exchange for bonds payable would be disclosed as a noncash investing and financingactivity.000 ? 12/31/12 277. plant. and equipment.000 GAAPstates that investingactivities include the acquisition and dispositionof longterm productiveassets.000 38. Inc.000 45.500 27.

Paymentof cashdividendsis thusa financingactivity. Solutions Manual    (For Instructor Use Only) 23-29 . Investing activities include the acquisition and disposition of long-term productiveassets.000 Financingactivitiesincludeall cash flowsinvolvingliabilities and stock-holders’ equity otherthanoperatingitems. 14/e.000 12/31/11 Issuanceof B/P for PP&E 12/31/12 The problem states that there was no amortization of bond premium or discount. Inc.000 12/31/11 Dividendsdeclared 12/31/12 Cashdividendspaid = $5.000+ $31.000 ? 49. Dividendsdeclared Dividendsdeclared Cashdividendspaid RetainedEarnings 91.000– $8. Copyright © 2011 John Wiley & Sons.000 DividendsPayable 5.000 ? 31.000 = $15.000 25.EXERCISE23-10 (Continued) The proceeds from the sale of equipment of $32. Redemptionof B/P BondsPayable 46. thus. (d) The redemptionof bondspayableamountis determinedby settingup a T-accountfor BondsPayable.000 ? 8.   Kieso. (c) The cash dividends paid can be determined by analyzing T-accounts for Retained Earningsand DividendsPayable.000 18.500 are considered an investing activity.000 12/31/11 Net income 12/31/12 = $91.000 = $18.000+ $18.000 104.000– $104. Intermediate Accounting.the redemptionof bondspayableis the onlychangenot accountedfor.

....300)+ $80]..900– $1..............................900– $1.......................................000– $49. EXERCISE23-11 (30–35minutes) FAIRCHILDCOMPANY Statementof CashFlows For the Year EndedDecember31.................170). Paymentof cashdividends.................   Kieso..............700)– $70]......................EXERCISE23-10 (Continued) Redemptionof bondspayable= $46....................................... Increasein accountspayable.........000+ $25..............................................................700)– $70]..................... Purchaseof plant assets[($1.... Gainon sale of investments......................................................... 14/e.... Net cashusedby financingactivities.................. Solutions Manual    (For Instructor Use Only) . redemption of bonds payable is considereda financingactivity..... 130 (250) (260) 23-30 150 960 120 (380) Copyright © 2011 John Wiley & Sons. Therefore.... Increasein receivables.. Inc.....200– $1................... Intermediate Accounting................. 2012 (IndirectMethod) Cashflowsfromoperatingactivities Net income....................................... Adjustmentsto reconcilenet incometo net cash  providedby operatingactivities: Depreciationexpense($1..... Net cashprovidedby operatingactivities...................... Decreasein inventory... Decreasein accruedliabilities........ Retirementof bondspayable......... Net cashprovidedby investingactivities.000 = $22..........  250 (130) Cashflowsfromfinancingactivities Issuanceof capital stock[($1.....................470– $1..................... $ 810 $ 30 (80) 300 400 (450) (50) Cashflowsfrominvestingactivities Saleof held-to-maturityinvestments [($1...................................................000 Financing activities include all cash flows involving liabilities and stockholders’ equity other than operating items.....................................................

.900– $1......... Cashflowsfrominvestingactivities Saleof held-to-maturityinvestments [($1..............800 23-31 .................................................... Retirementof bondspayable..... 2012..................... 700 1..... Cashpaid for merchandise....... Cash.......January1.............................January1................................................... Cashpaid for incometaxes.............   Kieso.................700)– $70].......December31......470– $1.......................................................700)– $70]................................ Net cashusedby financingactivities... 2012........................................................ Paymentof cashdividends....................... Cash...... Inc..................... 2012 (DirectMethod) Cashflowsfromoperatingactivities Cashcollectionsfromcustomers.. Purchaseof plant assets[($1.......EXERCISE23-11 (Continued) Net increasein cash... $6.............................. Net cashprovidedby operatingactivities.................... 2012...000** 950*** 540 5.................. Cash..................................................... Solutions Manual    (For Instructor Use Only) (380) 700 1............... Cash.....................490 960 250 (130) 120 130 (250) (260) Net increasein cash... 2012................900– $1.........800 Noncashinvestingandfinancingactivities Issuanceof commonstockfor plant assets.................... Net cashprovidedby investingactivities..................100 $1.......................... Intermediate Accounting...................... Cashpaid for selling/administrative expenses....................100 $1............................ Copyright © 2011 John Wiley & Sons.... $ 70 EXERCISE23-12 (20–30minutes) FAIRCHILDCOMPANY Statementof CashFlows For the Year EndedDecember31..........450* $4....................... 14/e.........December31....................................... Cashflowsfromfinancingactivities Issuanceof capital stock[($1.........................300)+ $80]....................

.000– ($30. Purchaseof equipment [$154...January1...900– $1........................000) (6...... Cashpaid for operatingexpenses..   Kieso........................000b 82...........................7)] + $2..........000) (17...000– ($130...................................................................000 $ 6...150a $151................000) (7................750– $1......................000X ... Net decreasein cash.............000) (2.......... Net cashusedby investingactivities...December31............ 2012.... Intermediate Accounting.......................300) **$4..................600)– ($1..... Cashpaid to suppliers... Net cashprovidedby operatingactivities...000) (3......................000)].........................000. Inc... 2012 Cashflowsfromoperatingactivities Cashreceivedfromcustomers.....000– $30..........200– $800) ***($930– $30) + ($250– $200) EXERCISE23-13 (30–40minutes) ANDREWSINC...... Purchaseof available-for-sale investments....... 14/e...........700– ($1....... Cashpaid for interest...............................900– ($1...000) (15.....400c 8. $ 70 *$6.................... Cash......EXERCISE23-12 (Continued) Noncashinvestingandfinancingactivities Issuanceof commonstockfor plant assets..000) (60............... Net cashusedby financingactivities....... Cashflowsfromfinancingactivities Principalpaymenton short-termloan..........000 Copyright © 2011 John Wiley & Sons...... 2012.............. Solutions Manual    (For Instructor Use Only) . 23-32 $325.750d 253................000 (54......... Principalpaymenton long-termloan.......000) 9........... Dividendpayments...000a 11...000c 11..... Cash............ Cashpaid for incometaxes.................150a 72...................... Statementof CashFlows For the Year EndedDecember31.................. Cashflowsfrominvestingactivities Saleof equipment [$30......

......150 b Cost of goodssold....000– ($30....................... – Increasein salariesand wagespayable...... + Increasein prepaidrent...........000) $ 82............... (31...........000 c Operatingexpenses. – Depreciationexpense $35...........000X ........ Cashpaid for incometaxes.........................000 Copyright © 2011 John Wiley & Sons........................000 $ 8.....................................000) (4.....EXERCISE23-13 (Continued) a Sales ....................................................................................... – Amortizationof copyright............................................ $175.. $338...... Cashpaid to suppliers......000) $325....................... – Increasein accountspayable....................... Intermediate Accounting....... Cashpaid for operatingexpenses.. Cashreceivedfromcustomers............000) (4.......................... Inc..70)]...........................................000 1..................... + Decreasein incometaxespayable................. $120.......................   Kieso........... – Decreasein inventories....................................................................... 14/e........................000) (20..................................000– [$25.................................000) $151............750 2.............................................. – Increasein accountsreceivable.........000 (4..750 Incometax expense..................................000 d $ 6....... Solutions Manual    (For Instructor Use Only) 23-33 ..150 (13..........

..000 4.... Decreasein incometaxespayable.   Kieso... Increasein prepaidrent.......... Purchaseof available-for-sale investments......... 2012............................000X 70%)] 23-34 Copyright © 2011 John Wiley & Sons...000) (7..... Increasein accountsreceivable....000 $11.........................000) (2............................... Adjustmentsto reconcilenet incometo net cashprovidedby operatingactivities: Depreciationexpense............000 4... Cashflowsfromfinancingactivities Principalpaymenton short-termloan.............. Supplementaldisclosuresof cashflowinformation: Cashpaid duringthe year for: Interest Incometaxes 45..000* 4...................000X 30%)+ $2.000– ($130........... Intermediate Accounting.....January1..............000)]........000 (2..... Decreasein inventories................. Amortizationof copyright.......... Purchaseof equipment [$154.............000 (54........... Dividendpayments.....750** *$35................ 2012 Cashflowsfromoperatingactivities Net income.................................................000) 20.........000) 11....000) (6.........................000– [$25.................000) (60.000 $ 6...................000 (3................... Solutions Manual    (For Instructor Use Only) ..............000 (1... Statementof CashFlows For the Year EndedDecember31.......000) (15......................................................000 72.000]............ Gainon sale of equipment.......000– $30...........000– ($30.................................................................EXERCISE23-14 (30–40minutes) ANDREWSINC......000) (17... Principalpaymenton long-termloan......... Increasein salariesandwagespayable.......................... Inc....... Net cashprovidedby operatingactivities........................... 2012.................................... Cashflowsfrominvestingactivities Saleof equipment[($30.....400 $ 8............... Net cashusedby financingactivities............................ Cash.. 14/e............000) Net decreasein cash........000) (13.000) (2...December31......000) 9............... $27............. Increasein accountspayable.......000 $31........... Net cashusedby investingactivities........................ Cash.....

Solutions Manual    (For Instructor Use Only) 23-35 .000) Copyright © 2011 John Wiley & Sons. Inc.   Kieso.**$6. Intermediate Accounting.000– $4. 14/e.750+ ($6.

...........................000 5.......................... Net increasein cash................................. Plant assetspurchasedduring2012.......000 9.000X ......................000 $ 15......................... 14/e....20) – $8..... 2012.........000 (60.... Cashflowsfrominvestingactivities Saleof plant assets.000– $4.............000 8....000) 75.......................... Net cashprovidedby financingactivities....... Increasein currentassets otherthancash.............. Adjustmentsto reconcilenet incometo net cashprovidedby operatingactivities: Depreciationexpense... Increasein currentliabilities.......000– $9...000* $ 28....EXERCISE23-15 (25–35minutes) MORGANSTERNCOMPANY Statementof CashFlows For the Year EndedDecember31..000)** (138.......000 335................. Losson sale of investments....December31.................000 4............................................................................................................ 2011............December31. 2012.....   Kieso... 2012 Cashflowsfromoperatingactivities Net income.. Cashbalance.. Purchaseof plant assets...........000 Copyright © 2011 John Wiley & Sons......................000) 18....000 78................... *Net income$59..........................000]...... Solutions Manual    (For Instructor Use Only) ..............................December31.............. Intermediate Accounting................................... Inc.................................... Paymentof dividends............ Plant assets..............................000) 65... Losson sale of plant assets [($60.................... 2012.....000 (180........ Net cashprovidedby operatingactivities..000 **Supportingcomputation (purchaseof plant assets) Plant assets. Saleof held-to-maturityinvestments.......000 (27...... Net cashusedby investingactivities. 23-36 $ 46......................................000) 155...........................000 34......000 $180.......January1..000 10.............000 (10.................000 32........... Less: Plant assetssold.000= $46. Cashbalance......... Cashflowsfromfinancingactivities Issuanceof bondspayable.............000 $215.............

............ 14/e..... Decreasein accruedexpenses ($15..... Inc............000) (c) Computationof net cashprovided(used)by financingactivities: Cashdividendspaid..................... Issuanceof bondspayable........000 *$18................000 (10.............000)...000+ $9..... Intermediate Accounting.. Paymentof notespayable...................................... $ 3........................000 $22............... $ (9.000 $17.....000)...........000– $55......... Increasein accountsreceivable ($45...................000)....000) $(25..EXERCISE23-16 (30–40minutes) (a) Computationof net cashprovidedby operatingactivities: Net income($8..000)....000..000) Copyright © 2011 John Wiley & Sons....................   Kieso........... Solutions Manual    (For Instructor Use Only) 23-37 .000) (20........ Purchaseof equipment [$90........................000– $15......... Net cashusedby investingactivities......... Losson sale of equipment ($6......000) (23........................................000– ($75....................................000– $65.............000)] (b) Computationof net cashprovided(used)by investingactivities: Saleof equipment..000– $52.................000 (28...............000 (3........000).. Net cashusedby financingactivities...............000– $18...... Net cashprovidedby operatingactivities.....................000) 10........000)......................000) 10.......................000 $ (2..000– $3...000– $6........................... Adjustmentsto reconcilenet incometo net cashprovidedby operatingactivities: Depreciationexpense.......... Increasein inventory ($45.000– $13........... Increasein accountspayable ($65.......000* 3..........000)].000– [$8............. Decreasein prepaidexpenses ($25.000) 30.000 13........................000)– $5.... $12...................................000– ($13.......

......... Saleof available-for-sale investments........ Gainon sale of investment....................... Statementof CashFlows For the Year EndedDecember31....... Noncashinvestingandfinancingactivities Issuanceof bondsfor land. 2012 Cashflowsfromoperatingactivities Net income................... Net cashprovidedby operatingactivities.......... Adjustmentsto reconcilenet incometo net cashprovidedby operatingactivities: Depreciationexpense.......January1.....................000) 10.......... Net increasein cash..EXERCISE23-17 (30–40minutes) (a) OCHOAINC. Issuanceof capital stock.................................................................................. 2012.................................875 (9..........................875 1.December31......................................250 8..................................................000 (19.........500 $32.................................................250 $13....750 $22........500 41............. Net cashusedby financingactivities............375) (20....... Cash........... Intermediate Accounting.......... Inc........ Solutions Manual    (For Instructor Use Only) . Retirementof bondspayable.................... 14/e....... Cash....................000) 12......500 (2..................................................   Kieso.............500 Copyright © 2011 John Wiley & Sons...... 2012.......375) 24........750 (11................... Cashflowsfrominvestingactivities Purchaseof land................. Cashflowsfromfinancingactivities Paymentof dividends...................................................... 23-38 $30....000) 11......... Net cashprovidedby investingactivities..

000– $20.125a 54. Solutions Manual    (For Instructor Use Only) 23-39 .000 73.500+ $30.375 Copyright © 2011 John Wiley & Sons.EXERCISE23-17 (Continued) (b) OCHOAINC.000+ $22.500 27.000 9. Intermediate Accounting.000 45.750 29.500 **$25.000 25.500* $198.375 Equities Currentliabilities Long-termnotes payable Bondspayable Commonstock Retainedearnings $ 15. 2012 Assets Cash Currentassets otherthancash Investments Plant assets(net) Land $ 32.500** 85.500 ***$24.   Kieso.000+ $11.000) *$40.875– $2.000+ $22.375*** $198. BalanceSheet December31.250– $ 9. Inc.375 a $20.000– ($12. 14/e.

...................................000 Operating—DepreciationExpense. Financing—CashDividends.................... Inc.........000) (96........... (15. Saleof machinery [($66.............000 50.000 (21......... 50. 14/e................ Net cashprovidedby operatingactivities..................................... 15........December31...........000 16.............................600 (62.......................000) Cashflowsfromfinancingactivities Paymentof cashdividends........000 Operating—NetIncome................ Cashflowsfrominvestingactivities Purchaseof machinery... $ 50......................... 2012............. 2012.................000) (48.......................... Losson sale of equipment...... Extraordinaryrepairson machinery............... Adjustmentsto reconcilenet incometo net cashprovidedby operatingactivities: Depreciationexpense........200)– $5....800].000 $16.............. Intermediate Accounting....800 22...................................................................................................400) xxx $ xxx EXERCISE23-19 (20–25minutes) RetainedEarnings................ Cost of machineryconstructed.............. (38.000– $25...........   Kieso................ RetainedEarnings...................EXERCISE23-18 (25–30minutes) POPOVICHCOMPANY Statementof CashFlows(partial) For the Year EndedDecember31.......... 16...........800 23-40 15...................................... 2012 Cashflowsfromoperatingactivities Net income......................................800 Copyright © 2011 John Wiley & Sons....... Cash........................................January1.............................................800 5....... Cash................................................................ Net cashusedby investingactivities..........000) 35................................600 72............... Solutions Manual    (For Instructor Use Only) ................000) Decreasein cash..... AccumulatedDepreciation—Machinery........................

.............. DividendsPayable......................... 21......... Solutions Manual    (For Instructor Use Only) 23-41 .............................. RetainedEarnings.......................... BondsPayable... 123..................... AccumulatedDepreciation—Building............................... AccumulatedDepreciation—Machinery..........................................................................................000 48......... 5........ 90.............................000 34.................. 110....000 Operating—Netincome........ Investing—Constructionof Machinery.....................000 Copyright © 2011 John Wiley & Sons......000 123.000 Operating—Losson Sale of Equipment...................................000 66.................... 5............................000 5....   Kieso................000 360................000 21.....000 300................ CommonStock.....000 Operating—DepreciationExpense......... 4......000 90............ Operating—Gainon Disposalof  Plant Assets............. 360.... Investing—ExtraordinaryRepairsto Machinery......................................................................... Investing—Purchaseof Machinery.........................000 AccumulatedDepreciation—OfficeEquipment..800 25................................................000 RetainedEarnings............. 2.. 3.......... 14/e.......... Machinery.. 30.................... OfficeEquipment......................000 1..........000 62.....................EXERCISE23-19 (Continued) Machinery......000 AccumulatedDepreciation—Machinery............................. (Noncashfinancingactivity) 300. Investing—Purchaseof Equipment............. Inc....................... Intermediate Accounting.000 EXERCISE23-20 (20–25minutes) 1................................ Investing—Saleof Machinery..............200 35.................................

500 7.000 50. Accum.900 12.000 15.000 (12) 15.500 25.000 53.depr.000 $ 16.500 46.000 20.—bldg.500 (13) (14) 1.000 $361.200 Copyright © 2011 John Wiley & Sons. Solutions Manual    (For Instructor Use Only) .000 (6) $10.000 (2) $ 6.000 Balanceat 12/31/12 $ 16.000 125.depr.500 22.000 3. equip. Inc.600 4.000 15.000 51.000 50.500 53.000 31. Accum.500 (10) (11) 46.000 (7) 4.200 $ 26.400 $452.000 4.600 (8) $ 2.EXERCISE23-21 (45–55minutes) LOWENSTEINCORPORATION Worksheetfor Preparationof Statementof CashFlows For the Year EndedDecember31. Mortgagepayable Bondspayable Commonstock Paid-in capitalin excess Retainedearnings Total credits 23-42 $ 24.000 (3) 23.000 3.000 39.000 43.500 57.000 140.000 73.depr.500 19.500 (9) $361.000 6.000 78.500 50. 14/e.000 2. Intermediate Accounting.500 (16) 102.000 45.000 $452.—del.000 (4) (5) 1.000 (3) 2.500 Balanceat 12/31/11 Debits Cash Short-term investments Accountsreceivable Prepaidexpenses Inventory Land Buildings Equipment Deliveryequipment Patents Total debits Credits Accountspayable Short-termnotes payable(trade) Accruedpayables Allowancefor doubtful accounts Accum.—equip.600 (15) (15) 10. 2012 2012 ReconcilingItems Debit Credit (17) $ 7.000 6.000 (1) 38.200 81.000 (13) (13) 7.400 62.   Kieso.500 200 1.000 10.000 19.000 73.000 19.000 2.000 39.800 30.700 24.000 4.000 1.

000 46. in accruedpayables (1) (13) 31. in accounts receivable(net) Inc.800 Copyright © 2011 John Wiley & Sons. in notespayable Dec.500 253.300 7.EXERCISE23-21 (Continued) Statementof CashFlowsEffects Operatingactivities Net income Depreciation Dec. in inventory Inc.600 44.000 246.000 (3) 1.000 (9) 10. 14/e. in accountspayable Dec. in prepaidexpenses Inc.800 (6) (14) (15) (17) 1. Inc.900 12.500 (7) (8) 2.   Kieso.800 $253.800 10.500 $253.000 1. Intermediate Accounting. Solutions Manual    (For Instructor Use Only) 23-43 .000 (16) 12.700 24.600 (2) (10) (11) (12) 6.500 7.000 15.000 Investingactivities Purchaseof available-for-sale investments Purchaseof building Purchaseof equipment Purchaseof patents Financingactivities Paymentof cashdividends Issuanceof mortgagepayable Sale of commonstock Retirementof bonds Totals Decreasein cash Totals (4) (5) 19.

investing and financing sections of the statement of cash flows will change under various situations. The student is required to prepare the statement using the indirect method. Problem23-5 (Time 50–65 minutes) Purpose—to develop an understanding of the procedures involved in the preparation of a statement of cash flows. The student is required to prepare the statement using the indirect method. Problem23-8 (Time 30–40 minutes) Purpose—to develop an understanding of both the direct and indirect method. including the treatment accorded unusual and extraordinary items. The student also must calculate the net cash flow from operating activities using the direct method. the student is asked to determine how operating. The student is required to prepare the statement using the direct method. Problem23-7 (Time 30–40 minutes) Purpose—Using comparative financial statement data. 14/e. The student is required to prepare the statement using the indirect method. and consider the proper treatment of an extraordinary item. and include any supporting schedules or computations. the student is required to prepare the statement of cash flows. Problem23-3 (Time 50–60 minutes) Purpose—to develop an understanding of the procedures involved in the preparation of a statement of cash flows.TIMEANDPURPOSEOF PROBLEMS Problem23-1 (Time 40–45 minutes) Purpose—to develop an understanding of the procedures involved in the preparation of a statement of cash flows. including a reconciliation schedule. including a schedule of noncash investing and financing activities. The student is required to prepare the statement using the indirect method. Problem23-6 (Time 40–50 minutes) Purpose—to develop an understanding of the procedures involved in the preparation of a statement of cash flows. In addition a statement of cash flows using the indirect method must be computed. Intermediate Accounting. The student is required to prepare the statement using the direct method. The student must also prepare the operating activities section of the statement of cash flows using the indirect method.   Kieso. Problem23-4 (Time 45–60 minutes) Purpose—to develop an understanding of the procedures involved in the preparation of a statement of cash flows. The student is first asked to compute net cash provided by operating activities under the direct method. Problem23-2 (Time 50–60 minutes) Purpose—to develop an understanding of the procedures involved in the preparation of a statement of cash flows. In the second part. using the direct method. Inc. 23-44 Copyright © 2011 John Wiley & Sons. Problem23-9 (Time 30–40 minutes) Purpose—to develop an understanding of the indirect method. Solutions Manual    (For Instructor Use Only) .

...000) (100..000) (c) 40......................................... Cashflowsfrominvestingactivities: Proceedsfromsale of equipment.........000 (300......................   Kieso............000) 60......................000 (a) (2.................... Intermediate Accounting......................... 14/e.......... Cash..........................000) 115....................... Loanto TLCCo...............................000 $815.......000 (210.....000 (20........ Increasein accountspayable. Net cashusedby financing activities............................................................... Gainon sale of equipment..................................................000) (100......... Increasein inventories............000 $147..... Net increasein cash....................... Statementof CashFlows For the Year EndedDecember31....... Solutions Manual    (For Instructor Use Only) 23-45 ............ 2012......................000 700.. Decreasein incometaxespayable....000 40............000 Copyright © 2011 John Wiley & Sons.........SOLUTIONSTO PROBLEMS PROBLEM23-1 SULLIVANCORP..................000) 50... Net cashprovidedby operating activities...................................... Cash.... Inc............. 2012 Cashflowsfromoperatingactivities Net income...............000 425...............000) (b) (35................................... Principalpaymentof loanreceivable............ Cashflowsfromfinancingactivities: Dividendspaid..........January1....... Net cashusedby investing activities..... 2012.... Adjustmentsto reconcilenet income to net cashprovidedby operating activities: Depreciation..000 (135..............................December31.... Decreasein accountsreceivable...... Equityin earningsof MyersCo. $370...000) 55......

PROBLEM23-1 (Continued)
Scheduleat bottomof statementof cashflows:
Noncashinvestingandfinancingactivities:
Issuanceof leaseobligationfor capital lease.................

$400,000

Explanationof Amounts
(a) Depreciation
Net increasein accumulated
depreciationfor the year ended
December31, 2012.........................................
Accumulateddepreciationon equipmentsold:
Cost...................................................................
Carryingvalue.....................................................
Depreciationfor 2012..................................................

$125,000
$60,000
38,000

22,000
$147,000

(b) Gainon sale of equipment
Proceeds.............................................................
Carryingvalue.....................................................
Gain.............................................................

$ 40,000
(38,000)
$ 2,000

(c) Equityin earningsof MyersCo.
Myers’snet incomefor 2012..................................
Sullivan’sownership............................................
Undistributedearningsof MyersCo.................

$140,000
X 25%
$ 35,000

23-46

Copyright © 2011 John Wiley & Sons, Inc.   Kieso, Intermediate Accounting, 14/e, Solutions Manual    (For Instructor Use Only)

PROBLEM23-2

HINCKLEYCORPORATION
Statementof CashFlows
For the Year EndedDecember31, 2012
Cashflowsfromoperatingactivities
Net income...........................................................
Adjustmentsto reconcilenet income
to net cashprovidedby operating
activities:
Losson sale of equipment...............................
Gainfromflooddamage..................................
Depreciationexpense.....................................
Patentamortization.........................................
Gainon sale of investments.............................
Increasein accountsreceivable(net)................
Increasein inventory......................................
Increasein accountspayable...........................
Net cashprovidedby operatingactivities.................
Cashflowsfrominvestingactivities
Saleof investments...............................................
Saleof equipment.................................................
Purchaseof equipment..........................................
Proceedsfromflooddamageto building..................
Net cashprovidedby investingactivities.................
Cashflowsfromfinancingactivities
Paymentof dividends............................................
Paymentof short-termnote payable........................
Net cashusedby financingactivities.......................
Increasein cash............................................................
Cash,January1, 2012....................................................
Cash,December31, 2012...............................................

$14,750(a)

$ 4,100 (b)
(8,250)*
1,900 (c)
1,250
(1,700)
(3,750)**
(3,000)
2,000

(7,450)
7,300

4,700
2,500
(20,000)(d)
32,000
19,200

(5,000)
(1,000)
(6,000)
20,500
13,000
$33,500

*($30,000+ $2,000)– ($29,750– $6,000)
**($12,250– $3,000)– ($10,000– $4,500)
Copyright © 2011 John Wiley & Sons, Inc.   Kieso, Intermediate Accounting, 14/e, Solutions Manual    (For Instructor Use Only)

23-47

PROBLEM23-2 (Continued)
Supplementaldisclosuresof cashflowinformation:
Cashpaid duringthe year for:
Interest
Incometaxes:

$2,000
$6,500

Noncashinvestingandfinancingactivities
Retirednotespayableby issuingcommonstock
Purchasedequipmentby issuingnotespayable

$10,000
16,000
$26,000

SupportingComputations:
(a) Endingretainedearnings..............................................
Beginningretainedearnings..........................................
Net income..................................................................

$20,750
(6,000)
$14,750

(b) Cost...........................................................................

$11,000

Accumulateddepreciation(40%X $11,000).....................
Bookvalue..................................................................
Proceedsfromsale......................................................
Losson sale................................................................

(4,400)
$ 6,600
(2,500)
$ 4,100

(c) Accumulateddepreciationon equipmentsold.................
Decreasein accumulateddepreciation...........................
Depreciationexpense...................................................

$ 4,400
(2,500)
$ 1,900

(d) Beginningequipmentbalance.......................................
Cost of equipmentsold.................................................
Remainingbalance.......................................................
Purchaseof equipmentwith note...................................
Adjustedbalance.........................................................
Endingequipmentbalance............................................
Purchasedwith cash....................................................

$20,000
(11,000)
9,000
16,000
25,000
(45,000)
$20,000

23-48

Copyright © 2011 John Wiley & Sons, Inc.   Kieso, Intermediate Accounting, 14/e, Solutions Manual    (For Instructor Use Only)

......... 75 Propertytaxes......800 (780) 3. $1... 19 Interest.............................................. Cashpayments: Paymentsfor merchandise................ (a) $3....... Cash....................   Kieso.....................020 500 $3............... 2012................................... and power......... Purchaseof buildingsand equipment.. Addbeginningaccountsreceivable............................................................. Intermediate Accounting....520 Copyright © 2011 John Wiley & Sons...... 2012...... Cashreceipts(collectionsfrom customers)..........................................January1........................ 14/e.......................... Inc........ Solutions Manual    (For Instructor Use Only) 23-49 .............................520(a) 233 100 $ 333 $3............................................... 2.................................... 808 (c) Net cashprovidedby operatingactivities....................December31................................... Purchaseof land.....................937 583 40 (310) (80) (350) Increasein cash.................... Cash........................270 (b) Salariesandbenefits...... Sales Deductendingaccountsreceivable................ 2012 ($000Omitted) Cashflowsfromoperatingactivities Cashreceiptsfromcustomers................ Cashflowsfrominvestingactivities Saleof available-for-sale investments................................................................ 30 Miscellaneous............PROBLEM23-3 MORTONSONCOMPANY Statementof CashFlows For the Year EndedDecember31...................... light. Net cashusedby investingactivities. 725 Heat.................................. 10 Incometaxes....

.................200 720 1..............................360 (420) 940 330 $1.............. Incometaxespaid.................... Addendinginventory................ 14/e..... Deductendingincometaxespayable.................... Addbeginningaccountspayable........ Cashpurchases(paymentsfor merchandise).... Purchases................................................. (c) Incometaxes................................................................................   Kieso.PROBLEM23-3 (Continued) (b) Cost of goodssold............270 $818 (40) 778 30 $ 808 Copyright © 2011 John Wiley & Sons............................................920 (560) 1............................ Intermediate Accounting.................................... Addbeginningincometaxespayable.. Deductendingaccountspayable............ Goodsavailablefor sale....... Solutions Manual    (For Instructor Use Only) ... Inc........... Deductbeginninginventory... 23-50 $1...

........ Inc....... Taxespaid...........................January1.......... 14/e...... Interestpaid....................... Cash....000 7...800) Net increasein cash................. Dividendsreceived.............................. $1...   Kieso....................................................PROBLEM23-4 MICHAELSCOMPANY Statementof CashFlows For the Year EndedDecember31..................................800 12................ + Increasein Inventory...............000 (7.. Cashflowsfrominvestingactivities Saleof short-terminvestments ($8.....................350c 38...........................000b 226....154.........................300) (6.............000– $125.........050 $ 67.000) (55.......000 58............................................................ Net cashusedby financingactivities.........000 10....152.....087... Intermediate Accounting..................000+ $4..................850 Copyright © 2011 John Wiley & Sons...................000 $ 765.......160.......................................000) 27.......000 $ 10......................... Solutions Manual    (For Instructor Use Only) 23-51 ...... Cashpaid for operatingexpenses.......000 4.............. Net cashprovidedby operatingactivities....... $1.......................... + Decreasein AccountsPayable....000).................... Purchaseof equipment...................450a 2. 1......152.....550) $1.000 (125.................... Saleof land($175...............500 (10...... 2012 (DirectMethod) Cashflowsfromoperatingactivities Cashreceipts: Cashreceivedfromcustomers...................000 a SalesRevenue...................000) (24..December31..........................450 b $ 748....................... 2012................000)+ $8......................................... Cash.................... Cashpaid to suppliers....... Principalpaymenton long-termdebt..........300e 1...... Cashreceivedfromcustomers.....................400d 57........ – Increasein AccountsReceivable.000...... Cashpayments: Cashpaid to suppliers.....400 765....................... Cashflowsfromfinancingactivities Proceedsfromissuanceof commonstock...........................000 Cost of GoodsSold................ Dividendspaid....................................... 6........................ Net cashusedby investingactivities.. 2012.........

............................................................. Decreasein prepaidrent.................. $ 39............... Inc............ – Increasein incometaxespayable..400 (40.... $276............000) (8........... Increasein officesupplies.....000) (1........ Increasein accountsreceivable........... Increasein inventory.................000) (5............. Gainon sale of short-terminvestments....... + Increasein prepaidinsurance................500 9............000) 1................................................................. – Increasein wagespayable............................ Amortizationof bondpremium.PROBLEM23-4 (Continued) c OperatingExpenses.550 $ 57..................... Interestpaid...............................550) 8....000 2.......................................350 d Incometax expense................... Increasein salariesand wagespayable...........550) (7..................000) $226.........................400 (1............................................. Intermediate Accounting........................ Reconciliationof Net Incometo Net Cash Providedby OperatingActivities: Net income Adjustmentsto reconcilenet incometo net cashprovidedby operatingactivities: Depreciation/amortizationexpense......................................800 Copyright © 2011 John Wiley & Sons..................................   Kieso.. 14/e..............000) $ 38.............................................. 23-52 $58......750 5...000) (4.................... – Decreasein prepaidrent....000 (7.......950 $67................................... + Decreasein bondpremium.........200) (250) (10........... Increasein incometaxespayable.................. Net cashprovidedby operatingactivities........................................ Taxespaid...000 1................ Solutions Manual    (For Instructor Use Only) ..400 e $ 51.. Total adjustments... – Depreciation/Amortizationexpense....................... Gainon sale of land.................... + Increasein officesupplies............................ Cashpaid for operatingexpenses................................................. Decreasein accountspayable..500) (9.....200 250 (2......................300 InterestExpense.............850 $40.............. Increasein prepaidinsurance............

Depreciationof building......... Inc.......... Equityin earningsof subsidiary................................400) (4) (15............. Solutions Manual    (For Instructor Use Only) 23-53 .. Increasein taxespayable........ Increasein cashsurrendervalueof life insurance..........000) (3) (504) (274. Purchaseof machinery.....................000* $ 2................................. Increasein accountspayable.......000) 10.............200 (4) 31..............280 (137.......................207) (22................. Net cashusedby investingactivities..   Kieso......... Increasein prepaidexpenses.....500) (7) (121..................300) (7............................... Increasein accountsreceivable (net)................................000 (4) (100.................... Depreciationof machinery.......... Adjustmentsto reconcilenet income to net cashusedby operating activities: Losson sale of machinery.000 (3) 10................................ Amortizationof bondpremium............ Amortizationof patents.......................................000 87 (6) (75) (5) (10..PROBLEM23-5 ALEXANDERCORPORATION Statementof CashFlows For the Year EndedDecember31..... Intermediate Accounting................. Amortizationof bonddiscount............... Amortizationof copyright..................................................650 19..................700) (4........................................000) (7) (127.....200) (8) (33....124) (131............425) (5) 48...200 (4) (1............................................. 14/e......... Cashflowsfrominvestingactivities Saleof machinery.......... 2012 (IndirectMethod) Cashflowsfromoperatingactivities Net income................200 (8) 10......................... Additionto buildings............ Extraordinaryrepairsto building................................................................................. $115............. Increasein inventory.................. Gainon retirementof bonds.207) 9.. Net cashusedby operatingactivities......................................................... Purchaseof patent.................................... Investmentin subsidiary......404) Copyright © 2011 John Wiley & Sons....................

..........028.............................................000 $1.... Incometaxes..............................000 276..............................................................000 Commentson NumberedItems (1) Write-off of deficit has no effect on cash......... Saleof bondslessexpenseof sale......900 $115.. 2012......... Saleof stock..000) Balance4/1/12....... $1.... Analysis of the capital stock accountshows the following: Balance12/31/11...........200 Copyright © 2011 John Wiley & Sons. Noncashinvestingandfinancingactivities Reductionin statedvalueof stockto eliminatedeficit.176........................ Intermediate Accounting......   Kieso.... Solutions Manual    (For Instructor Use Only) ........................000 $425........... (425...............100) 298. (100................000 with statedvalueof $5 per share.........PROBLEM23-5 (Continued) Cashflowsfromfinancingactivities Redemptionof bonds...... (20....................... Cash.... Net cashprovidedby financingactivities....... Inc... 2012............000+ $90......................900)(5) 120.... *Net incomeper retainedearningsstatement ($25............................200 Restatementof statedvalueof stock.................................................... 23-54 148...............................................................................511 Decreasein cash.............................................. Balance12/31/12.........200 (2) Saleof 29..........................500 $34.....453..411 (6) 257.. 14/e....................000 Supplementaldisclosuresof cashflowinformation: Cashpaid duringthe year for: Interest.......................000).........................................................600shares11/1/12for $257........ $10..... Cash...... 1.............000 $277...December31.January1.

................000 (16.......... Total............................................... Additionsrequiringcash................... Balance...................400– $5............................................ Dispositionof machinery.....000................................................ Amortizationchargedagainstincomewhich did not usecash......000) $ (48......... Solutions Manual    (For Instructor Use Only) 23-55 ......... $130...............   Kieso............... (69..200) Copyright © 2011 John Wiley & Sons..000 Balance12/31/12.................. Amounton assetsold.............000 Purchase. $64.....................................................................Theaccountactivityis analyzedas follows: Balance12/31/11.000) $10.................000 Analysisof accumulateddepreciation— machinery: Balance12/31/11of Accumulated Depreciation........... Intermediate Accounting.................................400) 173........................................800 (173....000) $ (33.....000 Total................000 (5............................ $190................... Balance12/31/12.............................. 15... Balance12/31/12... Depreciationchargedagainstincome whichdid not use cash.....200) 124.......................................................... 14/e............PROBLEM23-5 (Continued) (3) A patentwaspurchasedfor $15............................................200 Cashreceivedfromdisposition...000 (4) Analysisof the Machineryaccountshowsthe following: Balance12/31/11..600 (207........................... Inc......................200)– $9.................. 79...........400) Losson sale: ($16................000cash...................................... $2..................... $9................

.......................900)... 14/e..009)...........................500 $110.................... Intermediate Accounting............................. 70%of subsidiary’sincomefor year ($15........200) Copyright © 2011 John Wiley & Sons..................................000 (6) Faceamountof bondsissued..............................................................400 75 2.........900 Facevalueof bonds...............03).......750 839 (4.... (8) Analysisof accumulateddepreciation— Building Balanceof accumulateddepreciation12/31/11............................ Balanceat date of redemption.. Depreciationchargedagainstincomewhich did not requirecash............. Proceedsof issue....... Solutions Manual    (For Instructor Use Only) ................... Expenseof issuance.000)..589/477months(a)) X 9 months= $87 (a) (40 yearsX 12 months)– 3 (7) Purchaseof stockrequiringcash...... Total..........PROBLEM23-5 (Continued) (5) Fundsto redeembonds($100..................... Chargefor majorrepairswhichusedcash.........325 $102........ Unamortizedpremium12/31/11.......500 $400............................................ Changein discountaccount..000of bondssold ($125.......... $100..........800 (424........................................ $100....................................... Discounton $125... $2.....200) 392.......................................411 (87)* $4....................000÷ 20) X 1/4.which did not requirecash.... 23-56 $100.589) $120.....whichdid not provide cashbut wascreditedto income..................................502 *($4...425) $125....................000 $3.............000X 1..................000 10... Balance12/31/12............ Amortizationfor ninemonths.............................000 (7...000) ($ 31.......................... Balance12/31/12. Bookvalueof bonds.....................................   Kieso.. Amortizationto 3/31/12not requiringcash ($6....325 $ (1.............................. Inc...........000X .............325– $100....................... Gainon redemption ($102....................................................

............ $ 504 127....Theseitemsare alreadyrecordedin income.................000 Accruedintereston retiredbondsand issuancedoesnot affect the statementof cashflows..... Solutions Manual    (For Instructor Use Only) 23-57 .   Kieso..........PROBLEM23-5 (Continued) Commentson OtherItems (not required) Increasein cashsurrendervalueof insurancerequiredcash......................... Intermediate Accounting....... Copyright © 2011 John Wiley & Sons....000 70.... Inc... Dividendsdeclareddid not requirecash................. 14/e.............. Increasein Buildingsrequiredcash...............300 10......... Decreasein Copyrightswasa noncashchargeagainstincome....................

425 1 $540....7502 105.8501 $375....... Intermediate Accounting.000+ $6.......... Net cashprovidedby operatingactivities.. Solutions Manual    (For Instructor Use Only) ...........750 3 $120...250) **Increasein accruedpayables 23-58 Copyright © 2011 John Wiley & Sons....... $524....850 2 $380.. Inc.......625– $750**– $5.000– $10.......400= $105..   Kieso..........000– $10........ 14/e..450– $8... ($1........6753 481.......675 *Writeoffof accountsreceivable...........PROBLEM23-6 (a) Net CashFlowfromOperatingActivities Cashreceivedfromcustomers..650*= $524...... Cashpaymentsfor operatingexpenses...250= $375....400– $2.425 $ 43..500– $4....... Cashpayments: Cashpaymentsto suppliers..500+ $5...

200 (4......................... Losson sale of machinery.. 14/e............................. Cashflowsfrominvestingactivities Purchaseof investments $22...............000) (11... Intermediate Accounting..........000) 10................750)* (6......500– $2.......................January1...................... 2012 Cashflowsfromoperatingactivities Net income...250– ($38...500– $25................ Net cashusedby investingactivities...... Solutions Manual    (For Instructor Use Only) 23-59 ....................... Statementof CashFlows For the Year EndedDecember31.................... Cash.........PROBLEM23-6 (Continued) (b) MARCUSINC.....250)– ($60..............750– $3.........000– ($18..125) (31..... Adjustmentsto reconcilenet income to net cashprovidedby operating activities: Depreciationexpense......................500 $ 8........... Net cashprovidedby operatingactivities... Cash......425 (8................ Increasein accountsreceivable(net)....750) 800 (9.   Kieso.......... Saleof investments....250 33.000) (21..... Additionto buildings.................... Saleof machinery..........000 *($70....... Inc..000– $1........................ Cashflowsfromfinancingactivities Reductionin long-termnote payable............ Net cashusedby financingactivities.....250) 28......125) 8..................... 2012........ Cashdividendspaid.............................. Increasein inventory..... Purchaseof machinery $30.........................750 $42..250 750 925 43..... Net increasein cash...............................................050) (10.............750 2....... Increasein accountspayable..............750) (15........625 (3..................... $42....... Gainon sale of investments....000)....... 2012.........December31.......................... Increasein accruedpayables....................................................750)......500) Copyright © 2011 John Wiley & Sons.......

.................000 28.................. Cashpaid: For dividends.....000) $ 8.....is presentedbelow............June1....000 43...000 276.......238.....................   Kieso...... 23-60 (28............ Net cashusedby financingactivities........ Under the indirect method........................000 (105............................. To employees..........................000 1.................. this may be the statement’s principal advantage..May31......000) (30.............087....................... $1...250 20................. the statement of cash flows reports the major classes of cash receipts and cash disbursements................. 2012.... 2012 Cashflowsfromoperatingactivities Cashreceivedfromcustomers........ however............150 73..................... Cash. Cashflowsfromfinancingactivities Cashreceivedfromcommonstockissue... Solutions Manual    (For Instructor Use Only) .......... CHAPMANCOMPANY Statementof CashFlows For the Year EndedMay31. usingthe direct method............ Cashpayments: To suppliers........ and discloses more information............ Net cashprovidedby operatingactivities..............250 $684....250 Cashflowsfrominvestingactivities Purchaseof plant assets....... (b) The Statementof Cash Flows for ChapmanCompany... 14/e.................................... For interest.000 151............for the year ended May 31......... For incometaxes.PROBLEM23-7 (a) Both the direct method and the indirect method for reporting cash flows from operating activities are acceptable in preparing a statement of cashflowsaccordingto GAAP....... Inc........ To retire bondspayable........ net income on the accrual basis is adjusted to the cash basis by adding or deducting noncash items included in net income............850 10........... 2012.... Net increasein cash.......... Cash..000) (115. Intermediate Accounting.............................. For otherexpenses.. the FASB encourages the use of the direct method..............250 Copyright © 2011 John Wiley & Sons.. Under the direct method....000) $ 20. thereby providing a useful link between the statement of cash flows and the incomestatementand balancesheet................. 2011................................................................

..   Kieso............. Cashpaid to suppliers..........150 2....100 24...................................000 $ 43...750 $ 276.000 2..........250 17.....................000 $ 684...............................................255...000. Cashpaid for incometaxes: Incometax expense(given)...................................................................... Cashpaid for interest............000 30......... Solutions Manual    (For Instructor Use Only) 23-61 .....000 Copyright © 2011 John Wiley & Sons......000 $1..000 Cashpaid to employees Salaryexpense.....PROBLEM23-7 (Continued) Note1: Noncashinvestingandfinancingactivities: Issuanceof commonstockfor plant assets$70.250 Cashpaid to suppliers Cost of merchandisesold.000 8......... Increasein accountspayable... Cashpaid to employees....................... Cashcollectedfromcustomers............150 $ 75..... Intermediate Accounting.......850 $ $ $ 8.... Cashpaid for otherexpenses........................000 10...... 14/e............. $1.................... Inc...... $ 722............. Add: Decreasein salariesand wagespayable.............................. Cashpaid for otherexpenses Otherexpenses..000 73................... Less: Increasein interestpayable.......... Add: Increasein prepaidexpenses.. Cashpaid for interest Interestexpense............................... Less: Decreasein merchandiseinventory...................... SupportingCalculations: Cashcollectedfromcustomers Sales Less: Increasein accountsreceivable.... $ 252...........238.................

..000 (17....000) (2.................is presentedbelow.usingthe indirectmethod...... Intermediate Accounting..... Decreasein salariesand wagespayable... Adjustmentsto reconcilenet incometo net cashprovidedby operatingactivities: Depreciationexpense....000 $25..... Increasein prepaidexpenses...................000 30...... Increasein accountspayable...........000) (24....................................... 2012 Cashflowsfromoperatingactivities Net income................ 2012.......................000 2.........   Kieso.. Increasein interestpayable.......................PROBLEM23-7 (Continued) (c) The calculation of the cash flow from operating activities for ChapmanCompany.........250 Copyright © 2011 John Wiley & Sons..... Solutions Manual    (For Instructor Use Only) .....750) 21.... Inc.. Increasein accountsreceivable... Decreasein inventory..... 23-62 $130....... CHAPMANCOMPANY Statementof CashFlows For the Year EndedMay31............................... 14/e............... Net cashprovidedby operatingactivities............ for the year endedMay31........250 $151.......000 8..............

000– $28.000X .000 (3) (OperatingExpenses)less (DepreciationExpense)less (BadDebtExpense) $250.000 Equipmentdepreciation = 9.000– ($10.000 *$21.000– [$14.000(4) (1) (Sales)less(Increasein AccountsReceivables) $950.000 Copyright © 2011 John Wiley & Sons.000 (4) (IncomeTaxes)less(Increasein IncomeTaxesPayable) $45. Intermediate Accounting.000 $ 48.000 877.000 Buildingdepreciation $22.000– $25.000*– $2. Solutions Manual    (For Instructor Use Only) 23-63 .000+ $14.000– $2. 14/e.000 (2) (Costof GoodsSold) plus (Increasein Inventory)less (Increasein AccountsPayable) $600.   Kieso.000– $6.60)] $37.000= $925.000(2) 226.000= $43.000 = $13.000= $608.000(3) 43. Inc.PROBLEM23-8 (a) Net CashProvidedby OperatingActivities Cashreceiptsfromcustomers Cashpayments: Cashpaymentsto suppliers Cashpaymentsfor operatingexpenses Cashpaymentsfor incometaxes Net cashprovidedby operatingactivities $925.000= $226.000(1) $608.000– $22.

.......000 (8...000 $70..........000) (14......$50...000– ($10.. 19...................... Purchaseof equipment  [$70...... Increasein inventory..000...........................000– $10.................000 $22.......... $15..... 2012... Cashflowsfrominvestingactivities Purchaseof investments  [$55...000X 60%)]– $3.000)].000) (32..........000) Net increasein cash..000 1.................000 14.................................. Cashdividendspaid  [($95............................. Adjustmentsto reconcilenet income to net cashprovidedby operating activities: Depreciationexpense.000– ($48....................................000 (15..... 14/e.........................000 23-64 Copyright © 2011 John Wiley & Sons........ $67............000* (43.............000)= $35...000+ $67....... 2012 Cashflowsfromoperatingactivities Net income...000– $260.000 (23................000 2........ Losson sale of equipment........ Gainon sale of investments..000)].........January1............................................. 2012..........................PROBLEM23-8 (Continued) (b) SHARPECOMPANY Statementof CashFlows For the Year EndedDecember31.............. Solutions Manual    (For Instructor Use Only) ............. Increasein incometaxespayable.000– $35.......................December31..............000 Noncashinvestingandfinancingactivities Issuanceof commonstockfor land.........000 (19.........000..000) 6.000 51................... Cash.............000 (5... Saleof investments($35........................................ Cash.............000) 50........................... Inc....... Net cashprovidedby investingactivities....... Net cashusedby financingactivities...... Increasein accountspayable....... Cashflowsfromfinancingactivities Paymentof long-termnotespayable... Issuanceof commonstock..........000)– $92. Net cashprovidedby operatingactivities. Intermediate Accounting.......................000– ($40....000– $25.......................000).000) (70....000+ $15.........000 *$310.....   Kieso.....000) 3............ Saleof equipment  [$10...000= $50.000) 48.000) 35.....000]........ Increasein accountsreceivable(net)......000– ($85....

.PROBLEM23-9 (a) DINGELCORPORATION Statementof CashFlows For the Year EndedDecember31..................000) Paymentof short-termnotespayable..........................................................250)* 800(c) 250 (1........................... Adjustmentsto reconcilenet incometo net cashprovidedby operatingactivities: Losson sale of equipment........................000) 37.... Intermediate Accounting........ Inc.............................. Increasein accountspayable... Sale of equipment.......................................... Solutions Manual    (For Instructor Use Only) 23-65 ........... Proceedsfromflooddamageto building.............................. Cash....... $15..... Net cashprovidedby investingactivities............January1...... (6.............................................. Cashflowsfrominvestingactivities Sale of investments.......000) Net cashusedby financingactivities................... Purchaseof equipment(cash).......................................................................................000 (13......... Copyrightamortization..................................000) Increasein cash..500 2.000) 1.. $2......................500 (15............................ Depreciationexpense......750) (2................. Gainon sale of investment...... 2012 Cashflowsfromoperatingactivities Net income........ 14/e..500 4..............................250) 2..................December31............. 2012................ Increasein inventory............................500) (3. Increasein accountsreceivable(net)...........000 $38.........   Kieso............000 29.... Cash...................................... Netcashflowprovidedbyoperatingactivities.... 25.............. 2012....500 Supplementaldisclosuresof cashflowinformation: Cashpaid duringthe year for: Interest.500 13.... Gainfromflooddamage..000 Cashflowsfromfinancingactivities Paymentof dividends...............................750(a) $ 5..... (5........................... (1.......000 Copyright © 2011 John Wiley & Sons..200(b) (13.......................

.......000+ $4.. Solutions Manual    (For Instructor Use Only) .......   Kieso.... Intermediate Accounting.... Inc....000)– ($29...750– $6.......000)] 23-66 Copyright © 2011 John Wiley & Sons... $5..000 *[($33...Incometaxes.. 14/e.

...................500) $ 800 For a severelyfinanciallytroubledfirm: Operating: Investing: Financing: (2) $20................................................................................. For a recentlyformedfirmwhichis experiencingrapidgrowth: Operating: Investing: Financing: Probablya cashinflow.........................................300 (2... Intermediate Accounting.....000 $21...........................000 SupportingComputations: (a) Endingretainedearnings................... Probably a cash inflow as assets are sold to provide needed cash.........700 (2.................... 14/e.......... $ 5.............................. (3............000 Accumulateddepreciation(30%X $11........000) $15...... Probablya largecashinflowto financeexpansion.... Losson sale............. Purchasedequipmentby issuingnotespayable...................... Probablya cashinflowfromdebt financing(borrow-ing funds)as a sourceof cashat highinterestcost................... Decreasein accumulateddepreciation............. Probablya largecashoutflowas the firmexpands. Proceedsfromsale.300) $ 7.......PROBLEM23-9 (Continued) Noncashinvestingandfinancingactivities: Retirednotepayableby issuingcommonstock......................................................750 (5.. Net income......................................500) $ 5... Beginningretainedearnings. Solutions Manual    (For Instructor Use Only) 23-67 .... $11... (c) (b) (1) Accumulateddepreciationon equipmentsold................ Bookvalue................................ Depreciationexpense..............................   Kieso.............. Inc.........000 16...................200 $ 3...............000).....750 Probablya small cashinflowor a cashoutflow................................... (b) Cost ........ Copyright © 2011 John Wiley & Sons..

CA 23-6 (Time 20–30 minutes) Purpose—provides the student the opportunity to examine the effects of a securitization on the statement of cash flows. The student is required to indicate whether a cash inflow or a cash outflow results from the transaction. or operating section of the statement. 14/e. Intermediate Accounting. The student is required to analyze a statement of sources and application of cash and indicate the proper treatment of various transactions. to identify the categories of activities reported in the statement of cash flows. 23-68 Copyright © 2011 John Wiley & Sons.TIMEANDPURPOSEOF CONCEPTSFORANALYSIS CA 23-1 (Time 30–35 minutes) Purpose—to develop an understanding of the proper composition and presentation of the statement of cash flows. Inc. including ethical dimensions. Solutions Manual    (For Instructor Use Only) . to identify and describe the two methods of reporting cash flows from operations. financing.   Kieso. The student is required to indicate whether a transaction belongs in the investing. CA 23-4 (Time 20–30 minutes) Purpose—to help the student identify the sections of the statement of cash flows. The student is required to prepare the statement using the indirect method. CA 23-5 (Time 30–40 minutes) Purpose—to identify and explain reasons and purposes for preparing a statement of cash flows. The student must also discuss the proper disclosure of the transaction. and to describe the presentation of noncash transactions. and to discuss the rationale behind the statement. CA 23-2 (Time 30–35 minutes) Purpose—to illustrate the proper form of the statement of cash flows. CA 23-3 (Time 30–35 minutes) Purpose—to help a student identify whether a transaction creates a cash inflow or a cash outflow.

an expense not requiring the outlay of cash during the period. (c) 1. 3. Individual items should not be grouped together. The information shown in such a statement is useful to a variety of users of financial statements in making economic decisions regarding the enterprise. The statement should add back to (or deduct from) net income certain items that did not use (or provide) cash during the period. The title of the statement should be Statement of Cash Flows. should be presented with appropriate modifications in terminology as investing or financing activities. 5. The presentation of the combined total of depreciation and depletion is probably acceptable.000 option plan wage and salary expense should be included in the statement as an amount added back to net income. (i) The $25. The general rule is that related items should be shown separately in proximity when the result contributes information useful to the user of the statement. Another objective is to complete the disclosure of changes in financial position during the period. 4. The only apparent adjustments in this situation are the amounts to be added back to net income for the depreciation and depletion expense. The total should be added back to net income in the computation of the net cash flow from operating activities. Intermediate Accounting. Solutions Manual    (For Instructor Use Only) 23-69 . The issuance of the 16. 2. Stock dividends or stock splits need not be disclosed in the statement because these transactions do not significantly affect financial position. if any. Inc. 14/e. and for changes in current assets and liabilities. should be shown in a separate schedule or note. it is likely that no additional relevant information would be added by showing depletion as a separate item. The resulting total should be described as net cash provided by operating activities. and operating activities. Since these transactions significantly change the corporation’s capital structure. as was the case for the $14.000 shares of common stock in exchange for the preferred stock should be shown as a noncash financing activity. In this situation. Copyright © 2011 John Wiley & Sons. Cash flows from extraordinary items.000 item. The format used should separate the cash flows into investing. Both the outlay for acquisitions and the proceeds from retirements should be reported as investing activities. financing. 4. The expenditures for plant-asset acquisitions should not be reported net of the proceeds from plant-asset retirements. Noncash investing and financing activities. if significant. 3. but immaterial items may be combined. they should be disclosed.SOLUTIONSTO CONCEPTSFORANALYSIS CA 23-1 (a) The main purpose of the statement of cash flows is to show the change in cash from one period to the next. (b) The following are weaknesses in form and format of Maloney Corporation’s Statement of Sources and Application of Cash: 1.000 payroll expense. it appears the expense was not recorded or that there is an offsetting error elsewhere in the statement. for any wage or salary expense related to the employee stock option plans.   Kieso. 2. Another objective of a statement of the type shown is to summarize the financing and investing activities of the entity. including the extent to which the enterprise has generated cash or near cash assets from operations during the period. The details provide useful information about changes in financial position during the period. (ii) Since the statement balances and no reference is made to the $25.

............................000 $3..................... (b) PACIFICCLOTHINGSTORE Statementof CashFlows For the Year EndedJanuary31. and financing........000 is the correct increase in cash....................... Supplementaldisclosureof cashflowinformation: Cashpaid for interest..................... about the actual increase in cash—$109.......... having suffered an $11............. The long-term borrowing of $620..........000 Copyright © 2011 John Wiley & Sons................................000) (95........................000 (10.... Inc... 2012 Cashflowsfromoperatingactivities Net loss. Payments should not be netted against increases in long-term borrowings................. Solutions Manual    (For Instructor Use Only) . 14/e.................. Net increasein cash...... Net cashusedby investingactivities.......... Purchaseof fixturesandequipment............... Cashflowsfrominvestingactivities Saleof investment............. and it also presents significant noncash investing and financing activities in a separate schedule.......... CA 23-2 (a) From the information given................ Lenny is wrong.... however..... Gainfromsale of investment................   Kieso........ Intermediate Accounting.............000 of debt should be shown as use of cash from financing activities.....000 (25............ Adjustmentsto reconcilenet income to net cashprovidedby operating activities: Depreciationexpense.000 net loss................................000 should be shown as cash provided and the retirement of $441...000) 380.............000 $109.. the statement of cash flows is not prepared in correct form.... Net cashprovidedby operatingactivities. The details of changes in long-term debt should be shown separately...000 120... Purchaseof treasurystock.. Lenny is correct........ 23-70 $ (11.......................CA 23-1 (Continued) 6..................000) 55........000 44.. Net cashprovidedby financingactivities........000)* $ 80.................. The sources and uses format is not an acceptable form........... Cashflowsfromfinancingactivities Saleof capital stock......000) 370........ it appears that from an operating standpoint Pacific Clothing Store did not have a superb first year...... The correct form classifies cash flows from three activities—operating.000) (305... Purchaseof investment... investing.....000 (330......

CA 23-2 (Continued)
Noncashinvestingandfinancingactivities
Issuanceof notefor truck..............................................
*Computationof net income(loss)
Salesof merchandise....................................................
Interestrevenue............................................................
Gainon saleof investment($120,000– $95,000)..................
Total revenues......................................................
Merchandisepurchases.................................................
Operatingexpenses($170,000– $80,000).........................
Depreciation.................................................................
Interestexpense...........................................................
Total expenses.....................................................
Net loss.......................................................................

$ 30,000
$382,000
8,000
25,000
415,000
$253,000
90,000
80,000
3,000
(426,000)
$ (11,000)

CA 23-3
1.

The earnings are treated as an inflow of cash and should be reported as part of the net cash
provided by operating activities in the statement of cash flows. There should be $810,000 of
income before extraordinary items because extraordinary items should be separated from operating
activities.

2.

The $315,000 depreciation expense is neither an inflow nor an outflow of cash. Because
depreciation is an expense, it was deducted in the computation of net income. Accordingly, the
$315,000 must be added back to income before extraordinary items in the operating activities
section because it was deducted in determining earnings, but it was not a use of cash.

3.

The write-off of uncollectible accounts receivable against the allowance account has no effect on
cash because the net accounts receivable remain unchanged. An adjustment to income is only
necessary if the net receivable amount increases or decreases. Because the net receivable amount
is the same before and after the write-off, an adjustment to income would not be made.
The $51,000 of bad debt expense does not affect cash would be added back to income because it
affects the amount of net accounts receivable. The recording of bad debt expense reduces the net
receivable because the allowance account increases. Although bad debt expense is not usually
treated as a separate item to be added back to income from operations, it is accounted for by
analyzing the accounts receivable at the net amount and then making the necessary adjustment to
income based on the change in the net amount of receivables.

4.

The $6,000 gain realized on the sale of the machine is an ordinary gain, not an extraordinary gain,
for accounting purposes. This $6,000 gain must be deducted from net income to arrive at net
cash provided by operating activities. The proceeds of $36,000 ($30,000 + $6,000) are shown as a
cash inflow from investing activities.

5.

Generally, extraordinary items are investing or financing activities and the cash inflow or outflow
resulting from such events should be reported in the investing or financing activities section of the
statement of cash flows. In this case, no cash flow resulted from the lightning damage. The net
loss (a noncash event) must be added back to net income (under the indirect method) as one of
the adjustments to reconcile net income to net cash flow provided by operating activities.

Copyright © 2011 John Wiley & Sons, Inc.   Kieso, Intermediate Accounting, 14/e, Solutions Manual    (For Instructor Use Only)

23-71

CA 23-3 (Continued)
6.

The $75,000 use of cash should be reported as a cash outflow from investing activities. The
$200,000 issuance of common stock and the $425,000 issuance of the mortgage note, neither of
which affects cash, should be reported as noncash financing and investing activities.

7.

This conversion is not an inflow or an outflow of cash, but it is a significant noncash financing
activity and should be reported in a separate schedule or note.

CA 23-4
Where to Present

How to Present

1.

Investing and operating

Cash provided by sale of fixed assets, $4,750 as an investing
activity. In addition, the loss of $2,250 [($20,000 x 3 1/2) ÷ 10] –
$4,750 on the sale would be added back to net income.

2.

Operating

The impairment reduced earnings from operations but did not
use cash. The amount of $15,000 is added back to net income.

3.

Financing

Cash provided by the issuance of capital stock of $16,000.

4.

Operating

The net loss of $2,100 is presented as loss from operations, and
depreciation of $2,000 and amortization of $400 are added
back to the loss from operations. Net cash provided by operating
activities is $300.

5.

Not reported in statement.

6.

Investing and operating

Cash provided by the sale of the investment, $10,600 as an
investing activity. The loss of $1,400 is added back to net
income.

7.

Financing and operating

The retirement is reported as cash used by financing activities of
$24,240. Additionally, the gain (of $1,760 = $26,000 – $24,240)
is deducted from net income in the operating activities section.

CA 23-5
(a) The primary purpose of the statement of cash flows is to provide information concerning the cash
receipts and cash payments of a company during a period. The information contained in the
statement of cash flows, together with related disclosures in other financial statements, may help
investors and creditors
1. assess the company’s ability to generate future net cash inflows.
2. assess the company’s ability to meet its obligations, e.g., pay dividends and meet needs for
external financing.
3. analyze the differences between net income and the associated cash receipts and payments.
(b) The statement of cash flows classifies cash inflows and outflows as those resulting from operating
activities, investing activities, and financing activities.
Cash inflows from operating activities include receipts from the sale of goods and services,
receipts from returns on loans and equity securities (interest and dividends), and all other receipts
that do not arise from transactions defined as financing and investing activities. Cash outflows for
operating activities include payments to buy goods for manufacture and resale, payments to
employees for services, tax payments, payments to creditors for interest, and all other payments
that do not arise from transactions defined as financing and investing activities.

23-72

Copyright © 2011 John Wiley & Sons, Inc.   Kieso, Intermediate Accounting, 14/e, Solutions Manual    (For Instructor Use Only)

CA 23-5 (Continued)
Cash inflows from investing activities include receipts from collections or sales of debt instruments
of other companies, from the sale of the investments in those stocks, and from sales of various
productive fixed assets. Cash outflows for investing activities include payments for stocks of other
companies, purchase of productive fixed assets, and debt instruments of other companies.
Cash inflows from financing activities include proceeds from the company issuing its own stock or
its own debt. Cash outflows for financing activities include payments to shareholders and
debtholders for dividends or retirement of its own stocks and bonds (i.e., treasury stock).
(c) Cash flows from operating activities may be presented using the direct method or the indirect
method. Under the direct method, the major classes of operating cash receipts and cash payments
are shown separately. The indirect method involves adjusting net income to net cash flow from
operating activities by removing the effects of deferrals of past cash receipts and payments,
accruals of future cash receipts and payments, and noncash items from net income.
(d) Noncash investing and financing transactions are to be reported in the related disclosures, either
in a narrative form or summarized within a schedule. Examples of noncash transactions are the
conversion of debt to equity, acquiring assets by assuming directly related liabilities, and exchanging noncash assets or liabilities for other noncash assets or liabilities. For transactions that
are part cash and part noncash, only the cash portion should be reported in the statement of cash
flows.

CA 23-6
(a) It is true that selling current assets, such as receivables and notes to factors, will generate cash
flows for the company, but this practice does not cure the systemic cash problems for the
organization. In short, it may be a bad business practice to liquidate assets, incurring expenses
and losses, in order to “window dress” the cash flow statement.
The ethical implications are that Brockman creates a short-term cash flow at the longer-term
expense of the company’s operations and financial position. Barbara’s idea creates the deceiving
illusion that the company is successfully generating positive cash flows.
(b) Barbara Brockman should be told that if she executes her plan, the company may not survive.
While the factoring of receivables and the liquidation of inventory will indeed generate cash, the
actual amount of cash the company receives will be less than the carrying value of the receivables
and the raw materials. In addition, the company would still have the future expenditure of
replenishing its raw materials inventories, at a cost higher than the sales price.
As chief accountant for Brockman Guitar, it is your responsibility to work with the company’s chief
financial officer to devise a coherent strategy for improving the company’s cash flow problems.
One strategy may be to downsize the organization by selling excess property, plant, and
equipment to repay long-term debt. In addition, Brockman Guitar may be a good candidate for a
quasi-reorganization discussed on KWW website.

Copyright © 2011 John Wiley & Sons, Inc.   Kieso, Intermediate Accounting, 14/e, Solutions Manual    (For Instructor Use Only)

23-73

Intermediate Accounting.410 million. 2008. 14/e. $15. The two items most responsible for the decrease in cash provided by operating activities in 2009are net earnings($13.370millionthat P&Gpaid to purchasetreasurystock.” The most significant item in the financing activitiessectionis the $6. (c) Deferred taxes are reported in the operating activities section of P&G’s statement of cash flows. and $14.FINANCIALREPORTINGPROBLEM (a) P&G uses the indirect method to compute and report net cash provided by operating activities. and 2009 are $13.238millionthat P&G spent on “capital expenditures.   Kieso.The amountsof net cashprovidedby operating activities for 2007. (b) The most significant item in the investingactivities section is the $3.919 million.008 million. (d) Depreciationand amortizationis reportedin the operatingactivities sectionof P&G’s statementof cashflowsas an add backto net incomebecauseit is a noncashcharge in the incomestatement.082). The $596 million is reportedas an add back to net incomebecauseit is a noncash charge in the income statement. 23-74 Copyright © 2011 John Wiley & Sons. respectively. Inc.436)and depreciationand amortization($3. Solutions Manual    (For Instructor Use Only) .

Intermediate Accounting.   Kieso.689million $2. (In millions) Net cashprovidedby operatingactivities (b) Coca-Cola PepsiCo $8.236million PepsiCo. Solutions Manual    (For Instructor Use Only) 23-75 . Copyright © 2011 John Wiley & Sons.5%.152million PepsiCo Capitalspending $2. (d) Both Coca-Cola and PepsiCo report depreciation and amortization in the operating activitiessection: Coca-Cola. Inc. has decreased net cash provided by operating activities by $138 million or 2.732million (c) The Coca-Cola Companyhas increasednet cash providedby operating activities from 2007 to 2009 by $1. $1. Only Coca-Cola has a favorabletrendin the generationof internalfundsfromoperations. PepsiCo.635million Depreciationand amortizationis reportedin the operatingactivitiessectionbecauseit is a noncashchargein the incomestatement.0%.128million Themostsignificantfinancingactivitiesitemsin 2009: Coca-Cola Issuancesof debt PepsiCo Cashdividendspaid $14.036 million or 14.186 $6. 14/e. PepsiCo’strendis relativelyflat.COMPARATIVEANALYSISCASE (a) Both Coca-Cola and PepsiCo use the indirect method of computing and reporting net cashprovidedby operatingactivitiesin 2007–2009.$1.796 Themostsignificantinvestingactivitiesitemsin 2009: Coca-Cola Purchaseof otherinvestments $2. Inc.

412) = 0.61:1 $6.61) than Coca-Cola’s $0.406+ $23.77:1 The current cash debt coverageratio uses cash generatedfromoperationsduringthe period and providesa better representationof liquidity on an averageday. its ability to repay liabilities with cashflowfromoperationswasgreaterthanPepsioCo’s in 2009. 2.77 vs.325+ $19. Intermediate Accounting.   Kieso.186 ($13.77 of cash flow from operations for every dollar of current debt was approximately 26% higher (0. Since Coca-Cola’s cash debt coverage ratio was approximately 27% larger (0. PepsiCo’s ratio of $0.61 of cash flow from operations per dollar of current debt and indicates PepsiCo was more liquid in 2009 thanCoca-Cola. 0. 14/e.30:1 2 = 0. (f) PepsiCo Currentcash debt coverage $8. 23-76 Copyright © 2011 John Wiley & Sons.38 vs.657) 2 = 0.756+ $8. The cash debt coverage ratio shows a company’s ability to repay its liabilities from cash generated from operating activities without having to liquidate the assets employed in its operations.787) 2 Cashdebt coverage $8. Inc.721+ $12.38:1 $6. Solutions Manual    (For Instructor Use Only) .30) than PepsiCo’s.796 ($22.988) 2 = 0.796 ($8. 0.COMPARATIVEANALYSISCASE(Continued) (e) Coca-Cola 1.186 ($23.

An investor or creditor would want to investigate this increase to ensure that the company is not delinquenton its payments.567 in the prior year. Inc. and (2) accounts payable increase of $2.017.FINANCIALSTATEMENTANALYSISCASE VERMONTTEDDYBEARCO.078:1 Solvency: cash debt coverage ratio (net cash provided by operating activities ÷ averagetotal liabilities) $236. However.600)÷ 2) = .055.085+ $2. however.   Kieso.957).437 [$236.it will not typicallygenerate significant cash flow from operations. (a) Even though prior year income exceeded the current year income by $821. ACCOUNTING.480÷ (($4. This is not surprising.ANALYSIS.012:1 All of these ratios are very low. Significant contributors to the positive cash flow figure in the current year were (1) the depreciation and amortization add-back of $316.480 – ($700.070:1 Profitability: cash return on sales ratio (net cash providedby operating activities ÷ net sales) $236.348 in the prior year. When a companyis in the introductoryphaseof its mainproduct.465+ $1. (b) Liquidity: current cash debt coverageratio (net cash providedby operatingactivities ÷ averagecurrentliabilities) $236.620. 14/e.thus. the current year cash flow from operations exceeded prior year’s cash flow from operationsby $937.416 versus $181. An increase in accounts payable causes an increasein cash fromoperations.480÷ (($4.480÷ $20.995.184.014.566= .ANDPRINCIPLES Copyright © 2011 John Wiley & Sons.386)÷ 2) = . the company’s cash position should be monitoredcloselyto ensurethat it doesnot slide into a distressfinancialstate due to cashshortages. Solutions Manual    (For Instructor Use Only) 23-77 .432 ($838.it shouldbe notedthat inventoriesdid increaseby $1.However.]. the majority of the increasein cash is explainedby the company’sdramatic increasein accounts payable. becauseof the precariousnature of companies in this stage of their lives. Intermediate Accounting.599.523).955 – $17. This apparent paradox can be explained by evaluating the components of cash from operating activities. for a company like the Vermont Teddy Bear Company that is in the early stages of its life.560.059 in the current year versus a decline of $284.

...........................000 Copyright © 2011 John Wiley & Sons.. 2012 Cashflowsfromoperatingactivities Net income............. Less: Purchaseof machinery.............................. Cashat beginningof period.......000 (165.......................................... 542............................ 23-78 $1..............................000 24.Accounting LASKOWSKICOMPANY Statementof CashFlows For the Year EndedDecember31............................................000 200...000 Analysis Laskowski’sfree cashflowis: Net cashprovidedby operatingactivities..................... Cashat end of period.. 14/e......................... Net cashusedby investingactivities.............................. Solutions Manual    (For Instructor Use Only) .000 $ 880.000 $ 672......000 $ 272................... Decreasein inventory..................000) Cashflowsfromfinancingactivities Paymentof cashdividends............ Dividends........ Intermediate Accounting..................000 270................. Net cashprovidedby operatingactivities.................................000) 33...............000 750.. Increasein accountsreceivable....000 (750...........222... Inc......................................000 792.................................. Cashflowsfrominvestingactivities Sale of machinery. Adjustmentsto reconcilenet incometo net cashprovidedby operatingactivities: Depreciationexpense................................................................000 1....................222..... (200...000 130...........000 20.................................. Losson sale of machinery.................... Increasein accountspayable.................................... $ 430.............................000) (480............... Freecashflow.................000) Net increasein cash........   Kieso............... Purchaseof machinery..........

ANALYSIS. Solutions Manual    (For Instructor Use Only) 23-79 . financial reporting should provide information to help investors. assumingoperationsat roughlythe samelevel in future periods. and uncertaintyof prospectivenet cashinflowsto the relatedenterprise. Thus. Copyright © 2011 John Wiley & Sons. and uncertaintyof prospective cash receipts from dividends or interest and the proceeds from the sale. the statement of cash flows provides information relevantto assessinga company’sfuturecashflows.ANDPRINCIPLES(Continued) Laskowski’s free cash flow for the current year ($272. Laskowski’sfree cash flow will not be sufficient to fund the expansionplan. and the inflows and outflows of cash from investing and financing decisions. Thus. timing. Intermediate Accounting. 14/e. Inc. The prospects for those cash receipts are affected by an enterprise’s ability to generate enoughcash to meet its obligationswhen due and its other cashoperatingneeds. The company might explore reducing the dividend or securing additional funds for the expansionthrougha borrowing. or maturity of securities or loans. 1. which affect market prices of the enterprise’s securities.000).000) is less than the amount needed for expansionnext year ($500. and others assess the amounts.ACCOUNTING. paragraph 37.” By reporting cash provided by operations.and to pay cashdividendsand mayalso be affected by perceptionsof investors and creditors generally about that ability.   Kieso. redemption. Principles According to Statement of Financial Accounting Concepts No. “Financial reportingshouldprovideinformationto help present and potential investorsand creditors and other users in assessingthe amounts. creditors.to reinvestin operations. timing.

a bank’s granting of a loan by crediting the proceedsto a customer’sdemanddeposit accountis a cash paymentby the bankand a cashreceiptof the customerwhenthe entry is made. cash includes not only currencyon hand but demanddeposits with banks or other financial institutions.its ability to pay dividends. Cash also includesother kinds of accounts that have the general characteristics of demand deposits in that the customer may deposit additional funds at any time and also effectively may withdrawfunds at any time without prior notice or penalty. Intermediate Accounting. Assessthe entity’sability to generatepositivefuturenet cashflows b. Assessthe entity’s ability to meet its obligations. not broader measures of liquidity. if used with related disclosures and information in the other financial statements.creditors.PROFESSIONALRESEARCH (a) Accordingto FASBASC230-10-10 (Statementof CashFlows/Overall/ Objectives): 10-1 The primary objective of a statement of cash flows is to provide relevant information about the cash receipts and cash payments of an entity during a period.like workingcapital. Assessthe reasonsfor differencesbetweennet incomeand associatedcash receiptsand payments 23-80 Copyright © 2011 John Wiley & Sons. the basis for the statement of cash flows is cash. All charges and credits to thoseaccountsare cash receiptsor paymentsto both the entity owning the account and the bank holding it. For example. As indicated in the glossary at this same section (230-10-20). Solutions Manual    (For Instructor Use Only) .   Kieso. Thus. (b) SeeFASBASC230-10-10 (Statementof CashFlows—Objectives) 10-2 The information provided in a statement of cash flows.andothers(including donors)to do all of the following: a. Inc. andits needsfor externalfinancing c. 14/e. should help investors.

as discussed in Topic 320. such as from destruction of a building. b. including principal payments on accounts and both short.PROFESSIONALRESEARCH(Continued) d.and long-term notes receivable from customers arising from those sales.   Kieso. The term goods includes certain loans and other debt and equity instruments of other entities that are acquired specifically for resale. Cash payments to other suppliers and employees for other goods or services. Intermediate Accounting. duties. including receipts from collection or sale of accounts and both short. and refundsfromsuppliers. and securities that are classified as trading securities. as discussed in paragraph 230-10-45-21. and other fees or penalties and the cash that would have been paid for income taxes if Copyright © 2011 John Wiley & Sons. fines. 14/e. c. proceedsof insurancesettlementsexceptsfor thosethat are directly related to investing or financing activities. Solutions Manual    (For Instructor Use Only) 23-81 . [FAS 095. 45-17 All of the followingare cashoutflowsfor operatingactivities: a.as discussedin paragraph230-10-45-21.andequitysecurities—interestand dividends. Cash payments to acquire materials for manufacture or goods for resale.and long-term notes payable to suppliers for those materials or goods. Cash receipts from returns on loans.] b. other debt instruments of other entities. (c) Accordingto FASBASC230-10-45-16 to 17: 45-16 All of the followingare cashinflowsfor operatingactivities: a. suchas amountsreceivedto settle lawsuits. Assess the effects on an entity’s financial position of both its cash and noncashinvestingandfinancingtransactionsduringthe period. sequence 101] [The term goods includes certain loans and other debt and equity instruments of other entities that are acquired specifically for resale. Inc. Cash receipts from sales of goods or services. paragraph 23. All other cash receipts that do not stem from transactions defined as investingor financingactivities. PROFESSIONALRESEARCH(Continued) c. Cash payments to governments for taxes.

   Kieso. e. 23-82 Copyright © 2011 John Wiley & Sons. Inc. Cashpaymentmadeto settle an assetretirementobligation.increases in the value of equity instruments issued under share-based payment arrangements that are not included in the cost of goods or services recognizable for financial reporting purposes also had not been deductible in determining taxable income. Solutions Manual    (For Instructor Use Only) . All other cash payments that do not stem from transactions defined as investing or financing activities. 14/e. cash contributionsto charities.) d. such as payments to settle lawsuits. (This is the same amount reportedas a financingcashinflowpursuantto paragraph230-10-45-14(e). f.andcashrefundsto customers. Cashpaymentsto lendersand othercreditorsfor interest. Intermediate Accounting.

.........................550 (500) 13..........................000 $13................ Solutions Manual    (For Instructor Use Only) 23-83 .................................000 $66............... 10............050 (5...000 (19...PROFESSIONALSIMULATION FinancialStatements ELLWOODHOUSE..... Cash...................000) 20............................... 2013. Cashflowsfrominvestingactivities Purchaseof land(c)...................................000 (9...050 10. Cashflowsfromfinancingactivities Paymentof dividends(e)............ Net cashprovidedby operatingactivities. Intermediate Accounting.. Statementof CashFlows For the Year EndedDecember31............. Saleof investments(d).......... 56.............   Kieso.. Cash..... Issuanceof commonstock(g)........................... Net cashusedby financingactivities............... Gainon sale of investment(b)..January1...........500 Net cashprovidedby investingactivities.....000) Net increase(decrease)in cash....................................................... 14/e..................050 Noncashinvestingandfinancingactivities Issuanceof bondsfor equipment..000) (10.500) 15. Adjustmentsto reconcilenet incometo net cashprovidedby operatingactivities: Depreciationexpense(a)... 2013............000 Copyright © 2011 John Wiley & Sons............................................ Inc........................ $32....................December31... Retirementof bondspayable(f).050 55. $42..................INC............................................................. 2013 Cashflowsfromoperatingactivities Net income.............................................

   Kieso.PROFESSIONALSIMULATION(Continued) Explanation DearMr. the transaction has no effect on the changein cashfromJanuary1. the retirementof your bondspayable(item f). Cash flows arising from the issuanceand retirementof debt and equity securities are properly classified as “Cash flows from financing activities. the purchasebeinga $5. 2013. I would like to take this opportunity to explain the changeswhich occurred in your business as a result of cash activities during 2013. IFRSCONCEPTSANDAPPLICATION IFRS23-1 23-84 Copyright © 2011 John Wiley & Sons. involving most of the transactionsused to determinenet income. 2013to December31.) The first category shows the net cash flow which resulted from all of your operating activities. results from the acquisition/disposal of long-term assets including the purchase of another entity’s debt or equity securities.500outflowand the sale beinga $15. 14/e. Inc.but it is not the result of an operatingactivity—itis an investingactivity. Sincerely. Your purchase of land (item c) as well as the sale of your investment portfolio (item d) represent your investing activities during 2013. Note that. pleaselet me know. Solutions Manual    (For Instructor Use Only) . (Please refer to the attached statement of cashflows.If I canfurtherassistyou.Operatingactivitiesare thoseengagedin for the routineconductof business. and your issuanceof commonstock (item g).” These inflows and outflowsgenerallyincludethe long-termliability and stockholders’equityitemson the balance sheet. The gain must be subtractedfromthis sectionbecauseit was includedin net income. cash flows from investing activities. Brauer: Enclosedis your statementof cash flowsfor the year endingDecember31.000 worth of bonds were issued for the purchase of heavy equipment. Examples of your financing activities resulting in cash flows are the paymentof dividends(item e). However. although$32. The second category. 2013. The cash inflow from operations which affects this category is net income. Intermediate Accounting.500inflow. I hope this informationhelps you to better understandthe enclosedstatementof cash flows. this figure must be adjusted. first for depreciation (item a)—becausethis expensedid not involve a cash outlay in 2013—andsecondfor the $500 gain on the sale of your investmentportfolio (itemb).

   Kieso. investing and financing—along with changes in cash and cash equivalents. (2) The definition of cash equivalentsusedin IFRS is not the sameto that usedin U. GAAP. and international settings. U. (3) IFRS requires that non-cash investing and financing activities be excluded from the statement of cash flows. GAAP. This requirement is interpreted to mean that non-cash investingand financingactivitiesshouldbe disclosedin the notesto the financialstatements instead of in the financial statements.S. 14/e.S. GAAP.S.A major difference is that in certainsituationsbankoverdraftsare consideredpart of cashand cashequivalents under IFRS (which is not the case in U. GAAP. (2) Both IFRS and U. “Cash Flow Statements. GAAP.S. companies choose for the most part to use the indirect method for reporting net cash flows from operatingactivities. bank overdrafts are classified as financing activities. Other similarities include: (1) Companies preparing financial statements under IFRS must prepare a statement of cash flows as an integral part. these non-cash activities should be reported elsewhere. GAAP.S.the statementof cashflowsis a requiredstatementfor IFRS. Instead. Intermediate Accounting. GAAP). In both U. Under U. companies may present this informationin the cashflowstatement. Notable differences are (1) IFRS encourages companies to disclose the aggregate amount of cash flows that are attributable to the increase in operating capacity separately from those cash flows that are required to maintain operating capacity. (3) Similar to U. GAAP.the content and presentation of an IFRS statement of cash flows is similar to one used for U.S.S.the disclosurerequirementsrelatedto the statementof cashflowsare more extensiveunderU.IAS 7. Under U.S. Inc.In addition. the cash flow statement can be preparedusing either the indirect or direct methodunder IFRS.S.IFRSallowsinterestpaidandreceivedto be classified as either operatingor investingactivities. GAAPclassifiesinterest paid and receivedas an operatingactivity.S. Copyright © 2011 John Wiley & Sons. IFRS23-2 As in U. Solutions Manual    (For Instructor Use Only) 23-85 . GAAP require that the statement of cash flows should have three major sections—operating.S.However.” provides the overall IFRS requirements for cash flow information.

the FASB and the IASB are involved in a joint project on the presentation and organization of information in the financial statements. Financingactivity.IFRS23-3 Presently. (4) non-cashexchangesof property. Investingactivity.   Kieso. Non-cashinvestingandfinancingactivity(presentedin the notes). IFRS23-5 (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) 23-86 Operating—addto net income. Copyright © 2011 John Wiley & Sons. 14/e. Inc. U. IFRS23-4 Examples of non-cash transactions are: (1) issuance of shares for non-cash assets. GAAP rules related to cash flow reportingare lessflexiblethanIFRS. Operating—addto net income. Financingactivity. Financingactivity. Intermediate Accounting. the majority of IASB members express a preferencefor not requiring use of the direct method of reporting operating cash flows. The FASB favors presentation of operating cash flows using the direct methodonly. However. So the two Boardswill have to resolvetheir differencesin this area in order to issuea converged standard for the statement of cash flows. Non-cashinvestingandfinancingactivity(presentedin the notes). Solutions Manual    (For Instructor Use Only) . (2) issuanceof shares to liquidate debt.but this is not a majorconcern.S.and(5) refinancingof long-termdebt. Operating—addto net income. Operating—deductfromnet income. Investingactivity.andequipment. Financingactivity. (3) issuanceof bondsor notes for non-cash assets.plant.

. Accordingly...IFRS23-6 1. Solutions Manual    (For Instructor Use Only) 23-87 ...000 Theentryto reflectthe sale of equipmentis: Cash(proceedsfromsale of equipment) ($45... 45....000 = $27.000 14.. plant. 27....000 12/31/12 Accumulated depreciation on equipment sold = $167..000+ $45....   Kieso.500 AccumulatedDepreciation........000 Property.. plant.000 IFRS states that investing activities include the acquisition and disposition of longterm productiveassets..000).. Intermediate Accounting.000– $247. The solution can be determined through use of a T-account for property...500– $27.......... the purchaseof property..000 38... 14/e. and equipmentin exchangefor bondspayablewouldbe disclosedin the notes as a non-cash investing and financingactivity.. Gainon Sale of Equipment..... and equipment. and equipment is an investing activity.....Plant...000 45... The solution can be determined through use of a T-account for accumulated depreciation.Plant& Equipment 12/31/11 Equipmentfromexchangeof B/P Paymentsfor purchaseof PP&E 247...... Note that the acquisition of property.000 = $50.. AccumulatedDepreciation 167.....000 – $178..000 ? 12/31/12 277..000– $25...... plant..000 Equipmentsold 12/31/11 Depreciationexpense ? 178.. and Equipment.... 32.500 (given) (given) Copyright © 2011 John Wiley & Sons...000 25.....000 + $38.000+ $14. Property.. Inc........... 2....000 Equipmentsold Payments = $277....

000 18. Intermediate Accounting.the redemptionof bondspayableis the onlychangenot accountedfor. The redemptionof bondspayableamountis determinedby settingup a T-accountfor BondsPayable. 14/e. 4.000 = $15.500 are considered an investing activity.000 25.000 31.000 12/31/12 ? The problem states that there was no amortization of bond premium or discount.000 DividendsPayable 5.000– $8. thus. Investing activities include the acquisition and disposition of long-term productiveassets.000+ $31. The cash dividends paid can be determined by analyzing T-accounts for Retained Earningsand DividendsPayable. BondsPayable Redemptionof B/P 46.IFRS23-6 (Continued) The proceeds from the sale of equipment of $32. 23-88 Copyright © 2011 John Wiley & Sons. 3.000 Cashdividendspaid 12/31/11 Dividendsdeclared ? 8. Inc.000 12/31/12 Cashdividendspaid = $5.000 104. Solutions Manual    (For Instructor Use Only) .000 = $18.   Kieso.000 Dividendsdeclared 12/31/11 Net income 12/31/12 = $91.000 Financing activities include all cash flows involving liabilities and equity other than operatingitems.000– $104. RetainedEarnings Dividendsdeclared ? 91.000 12/31/11 Issuanceof B/P for PP&E 49.Paymentof cashdividendsis thusa financingactivity.000+ $18.

....... Gainfromflooddamage.....000) Paymentof short-termnote payable..... Increasein accountspayable...........500 (20............. Patent amortization...........................000) 32.....300 (6.... Gainon sale of equityinvestment.................. $14........200 Cashflowsfromfinancingactivities Paymentof dividends............................000 4........................ Depreciationexpense....000+ $25................000) Net cashusedby financingactivities....... Adjustmentsto reconcilenet incometo net cashprovidedby operatingactivities: Losson sale of equipment. Intermediate Accounting.......250 (1............ Solutions Manual    (For Instructor Use Only) 23-89 ........................ Net cashprovidedby investingactivities........ Sale of equipment..000 Financing activities include all cash flows involving liabilities and equity other than operating items.... Purchaseof equipment(cash).....000) Copyright © 2011 John Wiley & Sons....000– $49. (1....... Inc.........   Kieso..900(d) 1................. redemption of bonds payable is considered a financing activity............000) 2.............................. Therefore....................... Increasein accountsreceivable(net)............................ Proceedsfromflooddamageto building..... 2012 Cashflowsfromoperatingactivities Net income....... Cashflowsfrominvestingactivities Sale of equityinvestments............................ Netcashflowprovidedbyoperatingactivities................ (7........... 14/e................700) (3.000 = $22........................................................100(b) (8.............750) (3................................................ Increasein inventory..........................................IFRS23-6 (Continued) Redemptionof bondspayable= $46..000 19.250)(c) 1...................... IFRS23-7 DINGELCORPORATION Statementof CashFlows For the Year EndedDecember31........700 2..... (5..............450) 7.750(a) $ 4..

............................................000)........... Depreciationexpense........................... Bookvalue...............................................000 $ 6.........................................................400 (2..............................................................250) (d) Accumulateddepreciationon equipmentsold....................................   Kieso................................................ 2012....... Purchasedequipmentby issuingnote payable........................................ 2012......... Gainon flooddamage............000) 23.............. Proceedsfromsale................... Beginningretainedearnings.............. Accumulateddepreciation(40%X $11..100 (c) Cost......... Proceedsfrominsurance............... Incometaxes....................... IFRS23-7 (Continued) Supplementaldisclosuresof cashflowinformation: Cashpaid duringthe year for: Interest...............000) $14............................................... Net income..000 *Presentedin the notesto the financialstatements....December31.. Accumulateddepreciation.......000 16.................. 20.......................500 13....................January1............................................................ Solutions Manual    (For Instructor Use Only) ................................. 14/e..................000 $33...................................600 (2. $20........................750 (32........ Cash...................... Non-cashinvestingand financingactivities:* Retirednotepayableby issuingordinaryshares.......... $ 4................500 $10......................400) 6.750 (6.... Bookvalue..750 (b) Cost................................... Cash..... $11.......... Intermediate Accounting..................................... SupportingComputations: 23-90 (a) Endingretainedearnings.....................000 (4....................................900 Copyright © 2011 John Wiley & Sons......000 $21......500) $ 1............ Losson sale........500 $ 2....000) ($ 8.....................750 (6... $29......................................................................... Inc...........500) $ 4...................... Decreasein accumulateddepreciation....................................Increasein cash..................................................

they generally result from the transactions and other events that enter into the determinationof profitor loss.investingandfinancingactivities. investingand financingactivities. investing and financing activities in a manner which is most appropriate to its business.and (g) cash receipts and payments from contracts held for dealing or trading purposes.IFRS23-8 (a) According to IAS 7. (b) According to paragraph 10. cashpaymentsto suppliersfor goodsand services. Solutions Manual    (For Instructor Use Only) 23-91 .” Further.” IAS 7 doesnot mentionanythingaboutworkingcapital. Classificationby activity providesinformationthat allows users to assessthe impact of those activities on the financial position of the entity and the amount of its cash and cashequivalents. Intermediate Accounting.” Copyright © 2011 John Wiley & Sons. “Information about the cash flows of an entity is useful in providingusers of financial statementswith a basis to assessthe ability of the entity to generate cash and cash equivalents and the needs of the entity to utilise those cash flows. Inc. cashreceiptsfromroyalties.The objectiveof this Standardis to require the provision of information about the historical changes in cash and cash equivalents of an entity by meansof a statementof cash flowswhichclassifiescash flowsduring the periodfromoperating.” (c) According to paragraph 14.fees.commissionsandotherrevenue. “The statement of cash flows shall report cash flows during the period classified by operating. Therefore. (f) cash payments or refunds of income taxes unless they can be specifically identifiedwith financingand investingactivities. cashpaymentsto and on behalf of employees.annuitiesand otherpolicybenefits. 14/e.Examplesof cashflowsfromoperatingactivitiesare: (a) (b) (c) (d) (e) cashreceiptsfromthesaleof goodsandtherenderingof services. The economicdecisions that are taken by users require an evaluation of the ability of an entity to generate cash and cash equivalents and the timing and certaintyof their generation. “Cash flows from operating activities are primarily derived from the principal revenue-producing activities of the entity. paragraph11 states “An entity presents its cash flows from operating.   Kieso.This informationmayalso be usedto evaluatethe relationships amongthoseactivities. cash receipts and cash payments of an insurance entity for premiums and claims.

The amountsof net cash providedby operatingactivities for 2010 and 2009 are £1. (d) Depreciationand amortizationis reportedin the operatingactivities sectionof M&S’s statementof cashflowsas an addbackto net incomebecauseit is a non-cashcharge in the incomestatement.0 millionthat M&S spent on “property.229. 23-92 Copyright © 2011 John Wiley & Sons. (c) M&S does not report deferred income taxes on its statement of cash flows. Inc. It does report income tax expense as an add back to net income in the operating activities section. plant and equipment.6 million. respectively.0 million and £1.IFRS23-9 (a) M&S uses the indirect method to compute and report net cash provided by operating activities. The two items most responsible for the decreasein cash providedby operating activities in 2010 comparedto 2009 are theloweroperatingprofitandthesmallerincreasein payables. (b) The most significant item in the investingactivities section is the £352. Solutions Manual    (For Instructor Use Only) .” The most significant item in the financingactivitiessectionis repaymentof syndicatedbankfacility (SeeNote28).   Kieso. Intermediate Accounting.290. 14/e.

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