# 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

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

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. Simple 15–20 Schedule of net cash flow from operating activities— indirect method. periodic inventory. Moderate 25–35 SCF—indirect method. Simple 15–20 Computation of operating activities—direct method. Simple 15–25 Preparation of operating activities section—direct method.   Kieso. Simple 20–30 Preparation of operating activities section—direct method. Moderate 20–30 SCF—direct method. Moderate 20–30 Classification of transactions. Intermediate Accounting. Inc. 14/e. Simple 10–15 Moderate 20–30 Preparation of operating activities section—indirect method. Solutions Manual    (For Instructor Use Only) . Simple 20–30 Preparation of operating activities section—indirect method. Moderate 30–35 E 23 -1 Statement presentation of transactions—indirect method.Ite m Description Level of Difficulty Time (minutes) Classification of transactions.

Moderate 30–40 SCF—indirect method. Solutions Manual    (For Instructor Use Only) 23-5 . Moderate 25–35 Cash provided by operating. and financing activities. Inc. Moderate 30–40 Partial SCF—indirect 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 20–25 Worksheet preparation. 14/e. investing. Moderate 45–55 SCF—indirect method. Moderate 30–40 SCF—indirect method. Intermediate Accounting. Moderate 25–30 Worksheet analysis of selected accounts.   Kieso.SCF—direct method. Moderate 20–25 Worksheet analysis of selected transactions. Moderate 20–30 SCF—direct method.

Complex 50–60 SCF—direct method. Moderate 50–60 SCF—direct method. Moderate 30–40 Indirect SCF. and net cash flow from operating activities. Moderate 30–40 SCF—direct and indirect methods. Solutions Manual    (For Instructor Use Only) .   Kieso. Moderate 30–35 Analysis of transactions’ effect on SCF. Moderate 30–35 SCF theory and analysis of improper SCF. Complex 50–65 SCF—indirect method. Moderate 30–40 Analysis of improper SCF. Moderate 45–60 SCF—indirect method. 14/e. Moderate 30–35 SCF theory and analysis of transactions. Moderate 40–50 SCF—direct and indirect methods from comparative financial statements. direct method. Inc. Intermediate Accounting.SCF—indirect method. 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.

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

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

sales. 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. or improving property.CE23-2 (Continued) (c) Receipts from contributions and investment income that by donor stipulation are restricted for the purposes of acquiring. 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. excess tax benefits shall be determined on an individual award (or portion thereof) basis. Intermediate Accounting. whether the proceeds were received at inception or over the term of the derivative instrument. 14/e. and they shall clearly relate the cash and noncash aspects of transactions involving similar items. 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. Copyright © 2011 John Wiley & Sons.   Kieso. constructing. 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. Those disclosures may be either narrative or summarized in a schedule. other than a financing element inherently included in an at-the-market derivative instrument with no prepayments. Solutions Manual    (For Instructor Use Only) 23-9 . or other long-lived assets or establishing or increasing a permanent endowment or term endowment. equipment. For this purpose. (d) Proceeds received from derivative instruments that include financing elements at inception. Inc.

plant. 6. paying dividends. and equities have changed during the period. payment of cash dividends. 7. Purchase of land—investing. redemption of capital stock. 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. comparative balance sheets and selected transaction data. redemption of debt. The statement of cash flows provides information about a company’s operating. Operating activities involve the cash effects of transactions that enter into the determination of net income. A current income statement provides information about the amount of cash provided from operating activities. 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. Cash sales—operating. Intermediate Accounting. and equipment. Solutions Manual    (For Instructor Use Only) . 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. Examplesof uses of cash include cash used in operating activities. or meeting other recurring costs. and the sale of property. 5. financing.   Kieso. (2) Determine the net cash flow from operating activities. investing activities affect assets while financing activities affect liabilities and stockholders’ equity. and distribute dividends to the owners depends on whether adequate cash is being or will be generated. 4.ANSWERSTO QUESTIONS 1. estimates and valuations. provide for future growth. it provides information about the company’s cash inflows and outflows for the period. This involves analyzing the current year’s income statement. 2. on the other hand. a current income statement. More precisely. and investing activities. issuance of capital stock. Assessing quality of income: Some believe that cash flow information is more reliable than income information because income involves a number of assumptions. 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. This is simply the difference between the beginning and ending cash balances. Comparative balance sheets. (3) Determine cash flows from investing and financing activities. Financing activities. plant. purchase of investments. and certain transaction data all provide information necessary for preparation of the statement of cash flows. 3. issuance of debt. Providing information on financing and investing activities: Cash flows are classified by their effect on balance sheet items. Assessing operating capability: Whether an enterprise is able to maintain its operating capability. Payment of dividends—financing. liabilities. Examples of sources of cash in a statement of cash flows include cash from operating activities. Preparing the statement of cash flows involves three major steps: (1) Determine the change in cash. 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. Operating activities include all transactions and events that are not investing and financing activities. and equipment. Certain 23-10 Copyright © 2011 John Wiley & Sons. and the purchase of property. Comparative balance sheets indicate how assets. Inc. All other changes in balance sheet accounts are analyzed to determine their effect on cash. 14/e. Purchase of treasury stock—financing. sale of investments.

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

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

.. 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...................................... (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............................... the differences are highlighted......000 (9........ Adjustments to reconcile net income to net cash provided by operating activities: Loss on sale of plant assets [(\$18......... plant.... (j) Financing activity............ (a) Cash flows from operating activities Net income...... 18.. Adjustments to reconcile net loss to net cash   provided by operating activities: Depreciation expense.... Gain on sale of available-for-sale securities...............000) 20....... (h) Financing activity.......... and equipment.................... 14/e...................... (i) Significant noncash investing and financing activities.......... 17..... Significant noncash investing and financing activities..000) \$22.................... Cash flows from investing activities Sale of plant assets.................. XXXX (b) Cash flows from financing activities Issuance of common stock..............000 No effect on cash....... Inc...... (a) (b) (c) (d) (e) (f) Operating activity..................................... Examples of noncash transactions are: (1) issuance of stock for noncash assets............. Cash flows from investing activities Sale of available-for-sale securities..... Note to instructor: The change in net accounts receivable is an adjustment to net income under the indirect method...000 \$410.....000 (g) Operating activity...... Cash flows from operating activities Net income................... 23-14 Copyright © 2011 John Wiley & Sons....................000) \$(1........ (2) issuance of stock to liquidate debt............ (l) Operating activity.................................. Investing activity...................   Kieso.......................... Cash flows from financing activities Redemption of bonds payable............ Intermediate Accounting.................... (3) issuance of bonds or notes for noncash assets.......... XXXX \$ (120...... (c) \$ 2.................000) \$ 38............000... \$(50. 19............. (d) Cash flows from operating activities Net loss..........................QuestionsChapter23 (Continued) 16....... Financing activity...... Operating activity...... Solutions Manual    (For Instructor Use Only) ...............000 ÷ 10) x 31/2 ] – \$4..... (k) Investing activity......... Adjustments to reconcile net income to net cash   provided by operating activities: Gain on redemption of bonds payable........... not shown in the statement of cash flows or in any related schedules or notes.....300 \$ 4... Financing activity.....880...

Solutions Manual    (For Instructor Use Only) 23-15 . Copyright © 2011 John Wiley & Sons.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.   Kieso. 21. Intermediate Accounting. It is an optional but efficient device that aids in the preparation of the statement of cash flows. 14/e. Inc. A worksheet is desirable because it allows the orderly accumulation and classification of data that will appear on the statement of cash flows.

. For operatingexpenses (\$50........ Solutions Manual    (For Instructor Use Only) .000).. Issuanceof bondspayable........ Net cashprovidedby financingactivities...000 29......................................000 510.................................... A P-F BRIEFEXERCISE23-4 Cashflowsfromoperatingactivities Cashreceivedfromcustomers (\$200....... 23-16 \$188........................................................................... Paymentof dividends.. Net cashusedby investingactivities............... Intermediate Accounting............................ Inc..........000 BRIEFEXERCISE23-3 (a) (b) (c) (d) (e) (f) P-I A R-F A R-I R-I............................000) (59.................................. Purchaseof equipment.......000– \$13....................000) \$(294.......... Cashpayments: To suppliers (\$120.........000 147.. Purchaseof treasurystock........000– \$21....... \$ 250............................. \$ 180..SOLUTIONSTO BRIEFEXERCISES BRIEFEXERCISE23-1 Cashflowfrominvestingactivities Saleof land......................................000) \$ 364...000+ \$11...000 (415.............. Purchaseof available-for-sale securities........000) (46......... 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) BRIEFEXERCISE23-2 Cashflowfromfinancingactivities Issuanceof commonstock.000 (350........................ 14/e...000).000 Copyright © 2011 John Wiley & Sons...................000)..........   Kieso.....000– \$12.................000 \$118.................

.................................000) 585......12/31/12... Solutions Manual    (For Instructor Use Only) 23-17 ......... Net cashprovidedby financingactivities............ Cash..........................000).000 18............ Cash................... Cashpaymentsto suppliers.............000 153................................... Purchases.............. Intermediate Accounting........... \$ 41.....   Kieso...................................000 Copyright © 2011 John Wiley & Sons........000 18................000 13...................000 (12..............................................000 \$510........................ 14/e............................................ Net increasein cash..............................................000) 11.........................000) (11... \$500.........000– \$61........000 BRIEFEXERCISE23-7 Cost of goodssold.......................................... Deduct: Increasein accountspayable (\$69.....000 \$486....................000 \$30................. Adjustmentsto reconcilenet income to net cashprovidedby operating activities: Depreciationexpense.000– \$54..........000 8.... BRIEFEXERCISE23-5 Cashflowsfromoperatingactivities Net income..........000 BRIEFEXERCISE23-8 Net cashprovidedby operatingactivities................... Net cashprovidedby operatingactivities............... Net cashusedby investingactivities.....000)..................................... Add: Increasein inventory(\$113............................000 \$438...1/1/12.. \$420........... Inc... Increasein inventory.............000– \$95...........................................................000 333.000 BRIEFEXERCISE23-6 Sales Add: Decreasein accountsreceivable (\$72......... \$531....... Increasein accountspayable.............000 (963.Net cashprovidedby operatingactivities........... Increasein accountsreceivable.............. Cashreceiptsfromcustomers............000 \$41..000).......000 \$21..............................000 518.................

..............400) 10..........000) 12..000 17................... Solutions Manual    (For Instructor Use Only) .. Increasein inventory..800b).............. Increasein net accountsreceivable (\$26................ Adjustmentsto reconcilenet income(loss) to net cashprovidedby operatingactivities Depreciationexpense....300) (11........   Kieso................ Adjustmentsto reconcilenet incometo net cash providedby operatingactivities Depreciationexpense..........000) 81..................................840 b (\$20........... Increasein accountspayable..160 \$31.............................................. Cashpaid for expenses(\$60...... Inc..................................BRIEFEXERCISE23-9 (a) (b) a Cashflowsfromoperatingactivities Cashreceivedfromcustomers.....040) \$40......... Net cashprovidedby operatingactivities.000 (8.......... 14/e....... Increasein accountsreceivable........900 Copyright © 2011 John Wiley & Sons............ \$50.............. Intermediate Accounting.............. 23-18 (\$70.....000) (7.............. Net cashprovidedby operatingactivities........................000 58................................... (\$29....840)... Increasein accountsreceivable.....................................................900 BRIEFEXERCISE23-11 Cashflowsfromoperatingactivities: Net loss.................................100) 72............................ Net cashprovidedby operating activities...............000– \$1...........000– \$1........................200) BRIEFEXERCISE23-10 Cashflowsfromoperatingactivities Net income..................................................900 \$60..................160) \$31.900 \$ 2..........960a – \$18...000– \$2...000) (8......... Net cashprovidedby operating activities.................................... \$90....840 Cashflowsfromoperatingactivities Net income..........

.......................000 10.........000* *\$10....................000 Investing—Saleof Equipment..................... Paid-in Capital in Excessof Par— CommonStock........................................ Equipment.......................... 14/e.................. ....000) Copyright © 2011 John Wiley & Sons............................ Inc.............................000 120...... AccumulatedDepreciation—Equipment.000 \$40.............000 114................ 120........................ 10............. (b) No effect (c) Noncashinvestingandfinancingactivities: Purchaseof landthroughissuanceof commonstock......................000– \$32........000 40............ Financing—CashDividends.....000 RetainedEarnings.. Solutions Manual    (For Instructor Use Only) 23-19 .............................000 32....................................000 317................ 317.......BRIEFEXERCISE23-12 (a) Land..................................... 40.................................... CommonStock........................... Intermediate Accounting..............................................................000 2.........000 BRIEFEXERCISE23-13 (a) (b) (c) (d) Operating—NetIncome........................   Kieso....................... RetainedEarnings..000 30.000– (\$40...................000 Equipment............... Investing—Purchaseof Equipment.................... 114......................... Operating—Gainon Sale of Equipment...........

... Accumulateddepreciation([\$25...................... Operating—addto net income.................. Intermediate Accounting..   Kieso...... Losson sale................... (b) Shownin the financingactivitiessectionof a statementof cashflowsas follows: Saleof commonstock.............. Operating—addto net income..... \$25..................................... Financingactivity.................................000) (5..... Investingactivity............ Inc.300) \$ 4...........000) 15.. Solutions Manual    (For Instructor Use Only) .......... EXERCISE23-2 (20–30minutes) (a) Plant assets(cost)..... Operating—deductfromnet income................ Saleproceeds..................000÷ 10] X 6)....... The sale proceeds of \$5......................................... Investingactivity... 14/e.......000) 10.......... Financingactivity. Financingactivity..................000 Copyright © 2011 John Wiley & Sons.................. 23-20 \$ 5.300 are reported in the investing activities section of the statementof cashflowsas follows: Saleof plant assets...............................300 \$330... Financingactivity. Significantnoncashinvestingandfinancingactivity............. Significantnoncashinvestingandfinancingactivity.........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........................ It is added to net incometo arrive at net cash provided by operatingactivities....... Bookvalueat date of sale.................

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

... 14/e............000 \$ 60.....000 (170.................... 23-22 \$1...........................   Kieso. Decreasein inventory...000 \$1.000) (120.......................................... Net cashprovidedby operatingactivities................. Solutions Manual    (For Instructor Use Only) ..................000) (275.....155... Intermediate Accounting....000 300..............”It is shownas follows: Noncashinvestingandfinancingactivities Purchaseof investmentby issuance of commonstock....... Adjustmentsto reconcilenet income to net cashprovidedby operatingactivities: Depreciationexpense.....................................000) 105.... 2012 Cashflowsfromoperatingactivities Net income.......................050............000 The purchase of treasury stock is reported as a cash payment in the financing activitiessectionof the statementof cashflows.....................................000 310................. (h) \$900.... EXERCISE23-3 (15–25minutes) RODRIQUEZCOMPANY Partial Statementof CashFlows For the Year EndedDecember31.. Decreasein accountsreceivable..... Decreasein accountspayable. Inc................. Decreasein accruedexpensespayable....EXERCISE23-2 (Continued) (g) The exchange of common stock for an investment in Plumlee is reported as a “noncashinvestingand financingactivity...... Increasein prepaidexpenses....000 Copyright © 2011 John Wiley & Sons.

..... For operatingexpenses...675............000 (c) \$1......000– \$60....000 120.................   Kieso....675........................................... Add: Increasein prepaid expenses................. Deduct: Decreasein inventories.000* \$170... Cashreceiptsfromcustomers..................000 \$4...............................055....... 14/e........... \$7............210......000 Computations: (a) Cashreceiptsfromcustomers Sales.........exclusive of depreciation.000) Copyright © 2011 John Wiley & Sons.................000+ (\$700...........000 *\$450..... Cashpaymentsfor operating expenses Operatingexpenses...000 310............. Intermediate Accounting.... Cashpayments: To suppliers.............000 \$4..000 275..........900.....000 \$1... Solutions Manual    (For Instructor Use Only) 23-23 ..........380...380..................... Inc....000 290......400........ Cashpaymentsto suppliers.............................EXERCISE23-4 (20–30minutes) RODRIQUEZCOMPANY Partial Statementof CashFlows For the Year EndedDecember31..........000 \$7.........700........ (b) (c) \$6.........000 (b) 1. Add: Decreasein accrued Add: expensespayable...000 300. Add: Decreasein accounts payable........ 2012 Cashflowsfromoperatingactivities Cashreceiptsfromcustomers. Purchases............000 4.......000 Cashpaymentsto suppliers Cost of goodssold.........155.................090.. Net cashprovidedby operating activities. 6.....000 \$1...................... Add: Decreasein accounts receivable.....................000 (a) \$4..210............... Cashpaymentsfor operating expenses.......

000 15....... 653...... Cashreceiptsfromcustomers......................500 (c) Computationof cashreceiptsfromcustomers: Servicerevenue.... Add: Decreasein incometaxespayable Add (\$8.....000 \$ 40.. Net cashprovidedby operating activities.................. 14/e.000).000 (b) 44.000– \$31............. Deduct: Increasein accountspayable Deduct (\$46..................... Cashpayments: For operatingexpenses......000).000)..EXERCISE23-5 (20–30minutes) NORMANCOMPANY Partial Statementof CashFlows For the Year EndedDecember31........... For incometaxes....500– \$4.................................................. Solutions Manual    (For Instructor Use Only) ....... Cashpaymentsfor incometaxes.....   Kieso........... Computationof cashpayments: Operatingexpensesper incomestatement.........................500 \$840.............500 \$ 44..........500 Copyright © 2011 John Wiley & Sons........000 (a) \$609..000 4.......... Intermediate Accounting......... Inc........... Cashpaymentsfor operatingexpenses...........000 \$862..........000 22.................. Incometax expenseper incomestatement...............000– \$37...........................500 \$208..000 \$609....... (a) (b) (c) 23-24 \$862..000 \$624........... Add: Decreasein accountsreceivable Ad (\$59......... 2012 Cashflowsfromoperatingactivities Cashreceiptsfromcustomers...................

............... (b) Computationof cashpaymentsfor operatingexpenses Operatingexpenses......500 \$208.000 8.........................EXERCISE23-6 (15–20minutes) NORMANCOMPANY Partial Statementof CashFlows For the Year EndedDecember31.................................. Net cashprovidedby operatingactivities. Decreasein accountspayable... Inc....000 (4.................000 26................000 \$ 58....................... \$129.....................................500) 118.... Cashpaymentsto suppliers...... \$90................................... Increasein accountspayable.................................... 14/e.000 \$230......000 11.. Decreasein incometaxespayable................   Kieso.................... Decreasein accountsreceivable.......000 17......000– \$71...500 EXERCISE23-7 (15–20minutes) SituationA: SituationB: Cashflowsfromoperatingactivities Cashreceiptsfromcustomers (\$200............000 71...............000)..... Net cashprovidedby operatingactivities.000 \$348.......................000).. 2012 Cashflowsfromoperatingactivities Net income.... Intermediate Accounting........................... Increasein accruedexpenses payable..................................000– \$39............ Deduct: Decreasein prepaidexpenses...................................000 22............000 21.......................................... Cashpaymentsfor operatingexpenses (\$110.............. (a) Computationof cashpaymentsto suppliers Cost of goodssold..... Adjustmentsto reconcilenet income to net cashprovidedby operatingactivities: Depreciationexpense....000 \$211.............. Solutions Manual    (For Instructor Use Only) 23-25 .... Losson sale of equipment........000 \$60................... Plus: Increasein inventory............000 \$310.000 15......000 Copyright © 2011 John Wiley & Sons........... Cashpaymentsfor operating expenses....................

... No. 7 (dividends received) is added to net income..... No..... Inc..... Intermediate Accounting....   Kieso............ No. Incomefromequitymethodinvestment (\$27. Bad debt expense is not handled separately when using the indirect method. Net cashprovidedby operatingactivities.......... Another alternative is to net the Company’spro-rata shareof the dividendagainstthe incomefromequity method investmentamountreportedin the cashflowsfromoperatingactivities...... Solutions Manual    (For Instructor Use Only) .....000X ..............EXERCISE23-8 (20–30minutes) Cashflowsfromoperatingactivities Net income Adjustmentsto reconcilenet income to net cashprovidedby operating activities: Depreciationexpense......... 23-26 Copyright © 2011 John Wiley & Sons. 4 is a significantnoncashinvestingand financingactivity.................. 1 is shown as a cash inflow from the issuance of treasury stock and cash outflow for the purchaseof treasurystock.... Gainon sale of investment [(\$200– \$165)X 100]....000 \$185..500) 12...000 (3....30)........500is deductedfromnet incomein theoperatingactivitiessection...... 8 is not shownon a statementof cashflows.000 (8....000 Othercomments: No. 2 is shownas a cash inflowfrominvestingactivitiesof \$20.......000 \$39.....bothfinancingactivities.. No.............. 3 is a noncashexpense(Bad Debt Expense)in the incomestatement....... Dividendsfromequitymethod investment(\$2...... No........ 14/e.000and the gain of \$3........ No........ 6 is an increase in the investment account related to net income which does not increase cash flow............000X ............ It is part of the change in net accountsreceivable..30).... Decreasein accountsreceivable..... The net income amount must be deducted from net cash flow from operatingactivities.. \$145.100) 600 40.

.............000– \$31..................000).....600)....................... Add: Decreasein incometaxespayable (\$29... \$ 4....................... Intermediate Accounting................. Cashpaymentsto suppliers......300 Incometax expense...............................800 \$532......... Cashpaid for interest... \$ 20........400 8....................................................................................... Cashpaid for incometaxes..........................000*X 1/3)..............000).....000 234...............................500– \$13...000 \$135.............   Kieso...............800)].. Purchases................000).........................000– (\$30...............000 16.800 \$1...... Deduct: Increasein deferredincometaxes (\$5..........................800 Cost of goodssold.........000– \$4.....000 Interestexpense.....000 500 \$ 3. \$141........300– \$4............................100– \$21..............................000 5........EXERCISE23-9 (20–30minutes) (a) (b) (c) (d) (e) Sales Deduct: Increasein accountsreceivable.......................100 Sellingexpenses..500 6.......................... Cashcollectedfromcustomers.....................................................000 \$226............... Solutions Manual    (For Instructor Use Only) 23-27 ................000 6.... Cashpaid for sellingexpenses................800 700 \$ 27................... \$538................ Deduct: Decreasein inventory(\$47... Baddebtsexpense.. \$250..... Deduct: Increasein accountspayable (\$25.................... 14/e.....500) Copyright © 2011 John Wiley & Sons...000 8..............500 *(\$16........................... net of write-offs [\$33....................... Deduct: Depreciation(\$3............. Inc...000– \$3...........000– \$17.......................................................... Deduct: Decreasein unamortizedbonddiscount (\$5....500)...........

the purchaseof property. Solutions Manual    (For Instructor Use Only) .000 14.500– \$27.Plant.Plant& Equipment 12/31/11 Equipmentfromexchangeof B/P Paymentsfor purchaseof PP&E 247. Property.000 Equipmentsold Payments = \$277.000 Equipmentsold 12/31/11 Depreciationexpense ? 178.000 12/31/12 Accumulated depreciation on equipment sold = \$167.000 = \$27. and equipmentin exchange for bonds payable would be disclosed as a noncash investing and financingactivity.000 ? 12/31/12 277.000+ \$45. Intermediate Accounting.000– \$247.000 GAAPstates that investingactivities include the acquisition and dispositionof longterm productiveassets.   Kieso.000+ \$14.EXERCISE23-10 (25–35minutes) (a) The solution can be determined through use of a T-account for property. and Equipment Gainon Sale of Equipment 23-28 32. Note that the acquisition of property.000 45.000 38.500 27. Inc. 14/e. plant.500 (given) (given) Copyright © 2011 John Wiley & Sons. (b) The solution can be determined through use of a T-account for accumulated depreciation.000 – \$178.000 25. Accordingly.000 + \$38.000– \$25. plant. and equipment is an investing activity. AccumulatedDepreciation 167. plant.000 45.000) AccumulatedDepreciation Property.000 = \$50.000 Theentryto reflectthe sale of equipmentis: Cash(proceedsfromsale of equipment) (\$45. and equipment.

Investing activities include the acquisition and disposition of long-term productiveassets. Copyright © 2011 John Wiley & Sons. Dividendsdeclared Dividendsdeclared Cashdividendspaid RetainedEarnings 91. 14/e.000 12/31/11 Dividendsdeclared 12/31/12 Cashdividendspaid = \$5. Solutions Manual    (For Instructor Use Only) 23-29 . Redemptionof B/P BondsPayable 46.000 = \$18. (c) The cash dividends paid can be determined by analyzing T-accounts for Retained Earningsand DividendsPayable.000– \$8.000+ \$31. (d) The redemptionof bondspayableamountis determinedby settingup a T-accountfor BondsPayable.000 Financingactivitiesincludeall cash flowsinvolvingliabilities and stock-holders’ equity otherthanoperatingitems.000 = \$15.Paymentof cashdividendsis thusa financingactivity.EXERCISE23-10 (Continued) The proceeds from the sale of equipment of \$32.   Kieso.000 ? 49.000+ \$18.000 18.000 ? 31.the redemptionof bondspayableis the onlychangenot accountedfor.000 25.000 104. thus.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. Intermediate Accounting.000 12/31/11 Net income 12/31/12 = \$91.000 ? 8.000– \$104.500 are considered an investing activity.000 DividendsPayable 5.

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

.....January1............ Cash........ Cash.......470– \$1.......................... Inc....... Copyright © 2011 John Wiley & Sons.......................................... 14/e.. Solutions Manual    (For Instructor Use Only) (380) 700 1......................................... Retirementof bondspayable...................................... 2012.................................................450* \$4......100 \$1.................... Net cashprovidedby operatingactivities...............................900– \$1........................ Net cashusedby financingactivities......................... \$ 70 EXERCISE23-12 (20–30minutes) FAIRCHILDCOMPANY Statementof CashFlows For the Year EndedDecember31............... Cashflowsfromfinancingactivities Issuanceof capital stock[(\$1.................. Purchaseof plant assets[(\$1............................. Cashpaid for selling/administrative expenses........................................900– \$1.300)+ \$80]....... Cash.....................000** 950*** 540 5................. Cashflowsfrominvestingactivities Saleof held-to-maturityinvestments [(\$1.........................EXERCISE23-11 (Continued) Net increasein cash............. 2012............... Cashpaid for incometaxes....... Intermediate Accounting..800 23-31 ...........................................490 960 250 (130) 120 130 (250) (260) Net increasein cash. Cashpaid for merchandise....................100 \$1..............700)– \$70].............................................800 Noncashinvestingandfinancingactivities Issuanceof commonstockfor plant assets........................................December31................700)– \$70]........ 700 1.....January1.............. 2012 (DirectMethod) Cashflowsfromoperatingactivities Cashcollectionsfromcustomers..............December31...... Net cashprovidedby investingactivities. 2012............................................................... Cash.............................   Kieso...... 2012...... \$6... Paymentof cashdividends.................

....... Cashpaid for operatingexpenses.000) 9...... Cash.........January1........000c 11... Cashflowsfrominvestingactivities Saleof equipment [\$30..200– \$800) ***(\$930– \$30) + (\$250– \$200) EXERCISE23-13 (30–40minutes) ANDREWSINC...600)– (\$1......000) (60..400c 8.............................300) **\$4.............................. Net cashprovidedby operatingactivities....000 Copyright © 2011 John Wiley & Sons....150a \$151.................. Net cashusedby financingactivities.................... 2012... Cashflowsfromfinancingactivities Principalpaymenton short-termloan..... Cashpaid to suppliers.....................000................................ Purchaseof equipment [\$154...................................000) (2...000– (\$130...... Net decreasein cash.... Intermediate Accounting.000 \$ 6................................................000– (\$30.........000) (17............... Inc.. Principalpaymenton long-termloan......000)]. 14/e..................000) (7...7)] + \$2.000– \$30........................................   Kieso....750d 253.............. 2012 Cashflowsfromoperatingactivities Cashreceivedfromcustomers............900– \$1............. Solutions Manual    (For Instructor Use Only) . Statementof CashFlows For the Year EndedDecember31..........000X .. Cashpaid for interest.................................000a 11..... Purchaseof available-for-sale investments................150a 72..............000) (6...000) (15..900– (\$1....... Dividendpayments.000 (54............December31...................... Net cashusedby investingactivities....700– (\$1............ 23-32 \$325.... \$ 70 *\$6........750– \$1...... Cash..........EXERCISE23-12 (Continued) Noncashinvestingandfinancingactivities Issuanceof commonstockfor plant assets........................ 2012..000) (3.. Cashpaid for incometaxes.......000b 82..................

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

............................ Purchaseof available-for-sale investments...................................................000]............ Net cashprovidedby operatingactivities.................000– [\$25.......000* 4...................... Increasein accountspayable... Intermediate Accounting......... Amortizationof copyright...........................................January1........000X 30%)+ \$2....December31..... Gainon sale of equipment.........000) 9.............................000– (\$130......000 \$11........000) (13..000– \$30......000)]......000) (6.000) (17. Increasein accountsreceivable..... Increasein salariesandwagespayable.... 2012... Adjustmentsto reconcilenet incometo net cashprovidedby operatingactivities: Depreciationexpense...000) (15.............................................000) Net decreasein cash. Cashflowsfrominvestingactivities Saleof equipment[(\$30.....000 (2...................................000) (7...............000) (2..........................000 \$31.....................................000 (3................. Dividendpayments.....000 4..................000– (\$30..... Cash........   Kieso......750** *\$35....... Decreasein inventories.....000 4..........000X 70%)] 23-34 Copyright © 2011 John Wiley & Sons.........000) 20........... Net cashusedby investingactivities. \$27............. Purchaseof equipment [\$154....... Decreasein incometaxespayable............ Statementof CashFlows For the Year EndedDecember31......000 (1..............000 72....000) (60.....400 \$ 8......................................EXERCISE23-14 (30–40minutes) ANDREWSINC................. 14/e.....000) (2.. Principalpaymenton long-termloan.............................. Inc.000 \$ 6............ 2012................... Supplementaldisclosuresof cashflowinformation: Cashpaid duringthe year for: Interest Incometaxes 45...... 2012 Cashflowsfromoperatingactivities Net income.. Solutions Manual    (For Instructor Use Only) .... Net cashusedby financingactivities.......000 (54............ Increasein prepaidrent........................000) 11........ Cashflowsfromfinancingactivities Principalpaymenton short-termloan.................. Cash.....................................................

14/e. Solutions Manual    (For Instructor Use Only) 23-35 . Intermediate Accounting.750+ (\$6.000) Copyright © 2011 John Wiley & Sons.000– \$4.**\$6. Inc.   Kieso.

...........000– \$9... Intermediate Accounting................ Losson sale of plant assets [(\$60...... Net cashusedby investingactivities................... 2012.....000) 155....000 4................ Cashbalance.... 14/e..000* \$ 28...............000 5...................000 335................... Net increasein cash...................000– \$4...........................000 (10....... Increasein currentliabilities........ 2012.............000 10........000 34....... 2012 Cashflowsfromoperatingactivities Net income.........000 **Supportingcomputation (purchaseof plant assets) Plant assets.............................December31......... Plant assets.............   Kieso... Saleof held-to-maturityinvestments.. Less: Plant assetssold...... Adjustmentsto reconcilenet incometo net cashprovidedby operatingactivities: Depreciationexpense......................000) 65...... Net cashprovidedby financingactivities................ Paymentof dividends.........000 \$ 15..................................... Cashflowsfromfinancingactivities Issuanceof bondspayable............ 23-36 \$ 46..000 (27...000 Copyright © 2011 John Wiley & Sons................................................... Losson sale of investments............. Solutions Manual    (For Instructor Use Only) ..000 \$180........000 \$215................ 2011....................................... Net cashprovidedby operatingactivities..............................000].................................December31........ Increasein currentassets otherthancash...000= \$46.000 78............................000 (60............................000)** (138............000 8.......................................January1.............000X . *Net income\$59.....EXERCISE23-15 (25–35minutes) MORGANSTERNCOMPANY Statementof CashFlows For the Year EndedDecember31.............December31...........................................000 (180..000 9.... Purchaseof plant assets..... 2012.......000) 75....... Inc........000) 18........................... Cashbalance...........000 32...20) – \$8......... Plant assetspurchasedduring2012..... Cashflowsfrominvestingactivities Saleof plant assets.

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

.. Retirementof bondspayable..................750 \$22..............................500 41...................................375) 24....................December31..................................... 2012. 23-38 \$30............................. Cashflowsfromfinancingactivities Paymentof dividends..................875 1.................... Cash...........................   Kieso......... Inc..... Adjustmentsto reconcilenet incometo net cashprovidedby operatingactivities: Depreciationexpense..500 (2........................ Noncashinvestingandfinancingactivities Issuanceof bondsfor land......875 (9................ Saleof available-for-sale investments.000 (19........................................................250 \$13.500 Copyright © 2011 John Wiley & Sons.... Net cashprovidedby investingactivities.......... Statementof CashFlows For the Year EndedDecember31................................... Issuanceof capital stock.....................500 \$32..... Solutions Manual    (For Instructor Use Only) ............. 2012 Cashflowsfromoperatingactivities Net income............... 14/e.EXERCISE23-17 (30–40minutes) (a) OCHOAINC................................... Cashflowsfrominvestingactivities Purchaseof land............375) (20.......... Net cashprovidedby operatingactivities. Gainon sale of investment.................................750 (11........................... Net increasein cash......................000) 11.......January1............................................000) 10.........250 8....000) 12......................... 2012....... Intermediate Accounting.......... Cash.... Net cashusedby financingactivities...........

000 25. Inc. 2012 Assets Cash Currentassets otherthancash Investments Plant assets(net) Land \$ 32.000 9.500 **\$25.375*** \$198.000 73.000+ \$11.500** 85.375 Copyright © 2011 John Wiley & Sons.500+ \$30. 14/e.000 45.125a 54. Intermediate Accounting.000+ \$22.250– \$ 9.   Kieso.750 29.EXERCISE23-17 (Continued) (b) OCHOAINC.875– \$2. BalanceSheet December31.375 Equities Currentliabilities Long-termnotes payable Bondspayable Commonstock Retainedearnings \$ 15.000– \$20.500* \$198.500 ***\$24.375 a \$20. Solutions Manual    (For Instructor Use Only) 23-39 .000) *\$40.000– (\$12.500 27.000+ \$22.

.....000) (48......................000) Decreasein cash.800 5..December31.....................................000 Operating—DepreciationExpense...................... Net cashprovidedby operatingactivities...................................................... Adjustmentsto reconcilenet incometo net cashprovidedby operatingactivities: Depreciationexpense.... Inc.000 16....................EXERCISE23-18 (25–30minutes) POPOVICHCOMPANY Statementof CashFlows(partial) For the Year EndedDecember31...............400) xxx \$ xxx EXERCISE23-19 (20–25minutes) RetainedEarnings................................................................. Intermediate Accounting.....000) Cashflowsfromfinancingactivities Paymentof cashdividends... Cashflowsfrominvestingactivities Purchaseof machinery......600 (62..000 50.....000 (21........800 23-40 15........800]...............................600 72..................................................................................................   Kieso.......000) 35...................................................200)– \$5.............800 22...................... Cost of machineryconstructed....January1.. Cash................ Extraordinaryrepairson machinery........000 \$16..... Losson sale of equipment......................... Net cashusedby investingactivities.. Financing—CashDividends............................................ 2012 Cashflowsfromoperatingactivities Net income...............................000– \$25.......... RetainedEarnings............................800 Copyright © 2011 John Wiley & Sons... 2012.....................000 Operating—NetIncome....... Cash... 14/e........ Saleof machinery [(\$66................................................. (15........................ (38..................................... 15......000) (96......... 2012.................... \$ 50...... 50.......................... AccumulatedDepreciation—Machinery.. 16........ Solutions Manual    (For Instructor Use Only) ............

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

500 7.000 15.000 39.000 2.000 51. equip.000 6.500 53.200 \$ 26.000 4.500 57. 14/e. Intermediate Accounting.000 3.—equip. Inc.000 50.000 (13) (13) 7.000 73. Accum.500 (16) 102.—del.200 Copyright © 2011 John Wiley & Sons.000 (12) 15.500 (10) (11) 46.600 4.700 24.000 (1) 38.000 \$361.000 (7) 4.000 31.600 (8) \$ 2.500 (9) \$361.000 140. Accum.500 200 1.000 (6) \$10.depr.000 10.000 19.500 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.000 73.000 53.000 Balanceat 12/31/12 \$ 16.000 4.000 \$452.000 45.   Kieso.500 46.500 (13) (14) 1.EXERCISE23-21 (45–55minutes) LOWENSTEINCORPORATION Worksheetfor Preparationof Statementof CashFlows For the Year EndedDecember31.800 30.000 6.000 3.000 78.000 39.900 12.000 (3) 23.depr.400 \$452.500 25.200 81.000 (4) (5) 1. 2012 2012 ReconcilingItems Debit Credit (17) \$ 7.000 2.500 19.500 50.000 (2) \$ 6.—bldg.000 (3) 2.000 50.000 125.000 1.000 15.400 62.depr.000 20.500 22.000 19.000 \$ 16.000 43. Mortgagepayable Bondspayable Commonstock Paid-in capitalin excess Retainedearnings Total credits 23-42 \$ 24. Solutions Manual    (For Instructor Use Only) .600 (15) (15) 10.

000 46.   Kieso.800 (6) (14) (15) (17) 1. in accounts receivable(net) Inc.500 \$253. 14/e.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) 19.000 246.300 7.800 Copyright © 2011 John Wiley & Sons. in notespayable Dec.600 (2) (10) (11) (12) 6. in accountspayable Dec. Intermediate Accounting.000 15. in inventory Inc.900 12.000 (3) 1. Inc.000 (9) 10. in accruedpayables (1) (13) 31.500 253.800 \$253.500 7.000 1. Solutions Manual    (For Instructor Use Only) 23-43 .500 (7) (8) 2.800 10.000 (16) 12.EXERCISE23-21 (Continued) Statementof CashFlowsEffects Operatingactivities Net income Depreciation Dec. in prepaidexpenses Inc.700 24.600 44.

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

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

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...........................................................
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...................................
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)

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

.. Deductbeginninginventory......................... Solutions Manual    (For Instructor Use Only) .......................................360 (420) 940 330 \$1.. (c) Incometaxes.......... Goodsavailablefor sale...... Intermediate Accounting.... Incometaxespaid............................................................... 14/e.............................................................270 \$818 (40) 778 30 \$ 808 Copyright © 2011 John Wiley & Sons................................ Cashpurchases(paymentsfor merchandise).... 23-50 \$1..............................................   Kieso. Addendinginventory................................920 (560) 1.200 720 1............... Addbeginningincometaxespayable.......................... Inc........... Purchases... Deductendingincometaxespayable......... Deductendingaccountspayable...................... Addbeginningaccountspayable.....PROBLEM23-3 (Continued) (b) Cost of goodssold......

........................000 \$ 10...... Solutions Manual    (For Instructor Use Only) 23-51 .. Dividendsreceived.....................................087......................000 4.. Purchaseof equipment.....................000 \$ 765..550) \$1. Cash.152....000b 226.................................. 2012......................................................... 2012...................................................... 14/e........... + Increasein Inventory....January1.................................................................................000) 27...............................160...........   Kieso....... Cash...000 10....... Cashpaid to suppliers............000) (24..........000 58...............000)+ \$8...152....... Saleof land(\$175................ Principalpaymenton long-termdebt. + Decreasein AccountsPayable..........000 a SalesRevenue......................... Cashflowsfromfinancingactivities Proceedsfromissuanceof commonstock.......400 765................. Intermediate Accounting.............................. 1...................000– \$125...........................................800) Net increasein cash......000)....................... Net cashprovidedby operatingactivities...300e 1.000+ \$4.................... – Increasein AccountsReceivable...............450 b \$ 748... Inc.......154.............450a 2...800 12............................050 \$ 67.....500 (10......... Net cashusedby financingactivities.... 2012 (DirectMethod) Cashflowsfromoperatingactivities Cashreceipts: Cashreceivedfromcustomers.....000) (55...... Taxespaid.... Cashflowsfrominvestingactivities Saleof short-terminvestments (\$8......................... 6..PROBLEM23-4 MICHAELSCOMPANY Statementof CashFlows For the Year EndedDecember31.350c 38............. Cashpayments: Cashpaid to suppliers............ \$1.....................850 Copyright © 2011 John Wiley & Sons.000 (7................................................ Dividendspaid....300) (6...............000 7............................ Interestpaid.....000 Cost of GoodsSold......................................................000 (125.... Net cashusedby investingactivities.....December31... Cashreceivedfromcustomers................................000............400d 57............. \$1............ Cashpaid for operatingexpenses...

......................................................................................400 (40................... Decreasein accountspayable................. + Increasein prepaidinsurance......... Increasein inventory............................................................500 9....... Increasein salariesand wagespayable................................................000) (1....000) (5......... Decreasein prepaidrent...................... Amortizationof bondpremium..... Cashpaid for operatingexpenses.........850 \$40........ Net cashprovidedby operatingactivities..................... Intermediate Accounting.......................................... Solutions Manual    (For Instructor Use Only) .............800 Copyright © 2011 John Wiley & Sons.................. – Increasein wagespayable.............................550 \$ 57..........200) (250) (10............................. Interestpaid............................000) \$226...................000) 1........................ Increasein incometaxespayable..................... \$ 39......... – Decreasein prepaidrent........................... 23-52 \$58..... Gainon sale of land.400 e \$ 51.......000) (8.............500) (9........................................ \$276..... Gainon sale of short-terminvestments.............................. Increasein accountsreceivable.................550) 8........... Reconciliationof Net Incometo Net Cash Providedby OperatingActivities: Net income Adjustmentsto reconcilenet incometo net cashprovidedby operatingactivities: Depreciation/amortizationexpense.............550) (7.....................200 250 (2.950 \$67.............. Increasein officesupplies. Increasein prepaidinsurance.............000 (7.....PROBLEM23-4 (Continued) c OperatingExpenses.........................   Kieso............... – Depreciation/Amortizationexpense..................... – Increasein incometaxespayable................. Taxespaid.............350 d Incometax expense.............. + Increasein officesupplies................. + Decreasein bondpremium.......300 InterestExpense.......000) (4.000 1........................ Total adjustments.........................000 2.......400 (1..000) \$ 38................. Inc.. 14/e...........................................750 5..........

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

..000 with statedvalueof \$5 per share... 14/e................ Net cashprovidedby financingactivities......900 \$115.................................... 2012.453............. \$10........... Balance12/31/12........................... 23-54 148............500 \$34... *Net incomeper retainedearningsstatement (\$25.................. 2012............................................................. Intermediate Accounting..000 Commentson NumberedItems (1) Write-off of deficit has no effect on cash......000).000 276......... Noncashinvestingandfinancingactivities Reductionin statedvalueof stockto eliminatedeficit.... Analysis of the capital stock accountshows the following: Balance12/31/11........600shares11/1/12for \$257...................January1.......................... Saleof stock..........................................   Kieso.....028.... Inc.................................... (425.....................411 (6) 257.. 1..........December31..........176........ \$1.......................200 (2) Saleof 29....... (100......................511 Decreasein cash.............200 Restatementof statedvalueof stock...........000) Balance4/1/12................................ Cash......................................000 \$425..................... Saleof bondslessexpenseof sale.................000 \$277............... Solutions Manual    (For Instructor Use Only) ............200 Copyright © 2011 John Wiley & Sons.....................PROBLEM23-5 (Continued) Cashflowsfromfinancingactivities Redemptionof bonds....... (20...........000 \$1.........100) 298........000+ \$90............................................ Incometaxes....................900)(5) 120........... Cash.............000 Supplementaldisclosuresof cashflowinformation: Cashpaid duringthe year for: Interest...

....000) \$10........ \$9...................000 Purchase. Balance12/31/12.800 (173................................................... Amounton assetsold. Inc.... Depreciationchargedagainstincome whichdid not use cash............................200) Copyright © 2011 John Wiley & Sons....000 (5...................................................................................400– \$5.........400) 173..........................000 Balance12/31/12.................... Additionsrequiringcash.......................200 Cashreceivedfromdisposition..........................PROBLEM23-5 (Continued) (3) A patentwaspurchasedfor \$15.................................................... Balance12/31/12........000 (16.............000) \$ (33....................................... \$64.. Intermediate Accounting..................600 (207....000 Analysisof accumulateddepreciation— machinery: Balance12/31/11of Accumulated Depreciation..... \$190....................... 15..................200) 124.................................... \$2. Total.............................................. Balance...........200)– \$9....000) \$ (48.........000 (4) Analysisof the Machineryaccountshowsthe following: Balance12/31/11.. \$130............. 79....................... 14/e.................000................................................. (69.... Solutions Manual    (For Instructor Use Only) 23-55 ...............................000cash......................................000 Total........... Amortizationchargedagainstincomewhich did not usecash...............................Theaccountactivityis analyzedas follows: Balance12/31/11...............   Kieso............. Dispositionof machinery....................400) Losson sale: (\$16......

.....................900 Facevalueof bonds........................... Changein discountaccount........... Discounton \$125.........PROBLEM23-5 (Continued) (5) Fundsto redeembonds(\$100.............. Chargefor majorrepairswhichusedcash.... 23-56 \$100.........000of bondssold (\$125.............03)...................................000 10.......................589) \$120...................400 75 2......... Amortizationto 3/31/12not requiringcash (\$6.325– \$100..........   Kieso...... Balance12/31/12..000 (6) Faceamountof bondsissued......................... Proceedsof issue.............750 839 (4..............900).................009)... \$100..................... Amortizationfor ninemonths..325 \$102.......................................... Intermediate Accounting...325 \$ (1...........000X 1....589/477months(a)) X 9 months= \$87 (a) (40 yearsX 12 months)– 3 (7) Purchaseof stockrequiringcash............200) Copyright © 2011 John Wiley & Sons.. \$2...............................................000 (7....000X ...................................411 (87)* \$4...............500 \$110....... Unamortizedpremium12/31/11...... Inc. Depreciationchargedagainstincomewhich did not requirecash..200) 392..which did not requirecash............................................ Solutions Manual    (For Instructor Use Only) ................................000) (\$ 31.........................whichdid not provide cashbut wascreditedto income...............................425) \$125............... Total.... 14/e..........000)... Expenseof issuance............... Balance12/31/12..................... Gainon redemption (\$102............. Bookvalueof bonds............................................................................ \$100.....502 *(\$4................000 \$3.................................500 \$400.......................... (8) Analysisof accumulateddepreciation— Building Balanceof accumulateddepreciation12/31/11........... 70%of subsidiary’sincomefor year (\$15............................. Balanceat date of redemption...........800 (424.....000÷ 20) X 1/4.......

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

........ (\$1.... 14/e....7502 105...250= \$375.......500– \$4.PROBLEM23-6 (a) Net CashFlowfromOperatingActivities Cashreceivedfromcustomers. Cashpayments: Cashpaymentsto suppliers... Intermediate Accounting.250) **Increasein accruedpayables 23-58 Copyright © 2011 John Wiley & Sons....625– \$750**– \$5.......   Kieso.....000– \$10. Inc..........675 *Writeoffof accountsreceivable.............6753 481.425 1 \$540......400= \$105.. \$524..500+ \$5..... Net cashprovidedby operatingactivities......000+ \$6.850 2 \$380.... Solutions Manual    (For Instructor Use Only) .....650*= \$524........000– \$10.......400– \$2. Cashpaymentsfor operatingexpenses.425 \$ 43.......8501 \$375.....450– \$8.......750 3 \$120........

..........250– (\$38.... \$42......250) 28....................PROBLEM23-6 (Continued) (b) MARCUSINC..500– \$2............125) (31... Losson sale of machinery...............250 750 925 43.....................000 *(\$70.................750 2...............750)* (6................. Net cashusedby investingactivities............ Statementof CashFlows For the Year EndedDecember31..January1... Increasein accountsreceivable(net)............625 (3..........125) 8...................... Cashflowsfromfinancingactivities Reductionin long-termnote payable.......................December31......050) (10..............   Kieso.................................000)...............750) 800 (9............000– \$1.....000– (\$18........................... Saleof machinery.... Net cashprovidedby operatingactivities. Cash...... Gainon sale of investments.................... Purchaseof machinery \$30.........500) Copyright © 2011 John Wiley & Sons........ Adjustmentsto reconcilenet income to net cashprovidedby operating activities: Depreciationexpense.................. 2012........750– \$3.....000) (21......... 2012................................250)– (\$60......................425 (8...............................750) (15..750 \$42....750)....500 \$ 8..........................................................500– \$25..... Increasein accountspayable.... Cash.. Cashflowsfrominvestingactivities Purchaseof investments \$22...... Solutions Manual    (For Instructor Use Only) 23-59 .......................000) 10.. Saleof investments..000) (11.. Intermediate Accounting..... Cashdividendspaid............... Additionto buildings........ Net cashusedby financingactivities.......... Net increasein cash....................250 33............... 2012 Cashflowsfromoperatingactivities Net income....... Inc... Increasein inventory...... Increasein accruedpayables........... 14/e..........200 (4........................

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

.................................000 \$ 684.............. \$ 722............. Less: Decreasein merchandiseinventory... Intermediate Accounting............................. Cashpaid for interest............000 73.... Add: Decreasein salariesand wagespayable...........PROBLEM23-7 (Continued) Note1: Noncashinvestingandfinancingactivities: Issuanceof commonstockfor plant assets\$70.....150 2.......................... Cashcollectedfromcustomers.......000 8..... Cashpaid for otherexpenses..... \$1.. \$ 252............000 \$1........................................... Cashpaid for incometaxes: Incometax expense(given).........000 Copyright © 2011 John Wiley & Sons...................................000 10...................250 17....   Kieso...238.... Increasein accountspayable.............. Cashpaid for interest Interestexpense................... Solutions Manual    (For Instructor Use Only) 23-61 .............150 \$ 75.......000...000 30.......100 24.000 Cashpaid to employees Salaryexpense....255................000 2.750 \$ 276................................................................250 Cashpaid to suppliers Cost of merchandisesold... Cashpaid to suppliers... SupportingCalculations: Cashcollectedfromcustomers Sales Less: Increasein accountsreceivable.. 14/e....... Cashpaid for otherexpenses Otherexpenses. Cashpaid to employees.................. Less: Increasein interestpayable................... Inc..........850 \$ \$ \$ 8.000 \$ 43.......................... Add: Increasein prepaidexpenses.................

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

000 Equipmentdepreciation = 9.000– \$22.000= \$43. Intermediate Accounting.000= \$925.000(4) (1) (Sales)less(Increasein AccountsReceivables) \$950.000– \$2.000 Buildingdepreciation \$22.000– \$25.000 Copyright © 2011 John Wiley & Sons.PROBLEM23-8 (a) Net CashProvidedby OperatingActivities Cashreceiptsfromcustomers Cashpayments: Cashpaymentsto suppliers Cashpaymentsfor operatingexpenses Cashpaymentsfor incometaxes Net cashprovidedby operatingactivities \$925.   Kieso.000 (4) (IncomeTaxes)less(Increasein IncomeTaxesPayable) \$45.000 \$ 48.000 877.60)] \$37.000 = \$13.000– \$28.000– (\$10.000+ \$14.000*– \$2. Inc.000 (2) (Costof GoodsSold) plus (Increasein Inventory)less (Increasein AccountsPayable) \$600.000– \$6.000– [\$14.000(2) 226.000= \$608.000 *\$21.000(3) 43.000= \$226.000 (3) (OperatingExpenses)less (DepreciationExpense)less (BadDebtExpense) \$250. Solutions Manual    (For Instructor Use Only) 23-63 .000(1) \$608. 14/e.000X .

........................December31... Increasein inventory.000 (19.........000) 6........000X 60%)]– \$3....January1.......000 (15.............000]..... Adjustmentsto reconcilenet income to net cashprovidedby operating activities: Depreciationexpense.......................... Cash..000 *\$310.... Increasein accountsreceivable(net). Inc.000) 50........ Saleof equipment  [\$10.. Increasein accountspayable. Increasein incometaxespayable.............. Intermediate Accounting...............000 1... Cashdividendspaid  [(\$95...........000= \$50....000– \$260............000– (\$40........ Net cashprovidedby investingactivities.............   Kieso.................. Issuanceof commonstock......000– (\$10..000)= \$35.. Net cashusedby financingactivities... Saleof investments(\$35..............000).....000) (32.....000 Noncashinvestingandfinancingactivities Issuanceof commonstockfor land..000 (23........000 (5.000+ \$15.................000)]......................000) (14...000– (\$85........................... 2012.000– \$25...000 2............................................. Gainon sale of investments............. 2012 Cashflowsfromoperatingactivities Net income..................................... 2012...... 14/e.. Purchaseof equipment  [\$70..................................000 \$70..................................000...........000) 48......\$50..000) Net increasein cash.............000 14.000) 3... 19.......... Cashflowsfrominvestingactivities Purchaseof investments  [\$55............000* (43.....................................PROBLEM23-8 (Continued) (b) SHARPECOMPANY Statementof CashFlows For the Year EndedDecember31.000) 35.000 23-64 Copyright © 2011 John Wiley & Sons..............................................000– (\$48.000– \$10...000 51..........000)].. Solutions Manual    (For Instructor Use Only) ..... Losson sale of equipment................ \$15..000.............000 \$22.................000)– \$92...000 (8..000) (70....... \$67............................ Cash. Net cashprovidedby operatingactivities.000+ \$67....000– \$35...................... Cashflowsfromfinancingactivities Paymentof long-termnotespayable................

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

.750– \$6. 14/e.........000+ \$4.000)– (\$29.. Intermediate Accounting..000)] 23-66 Copyright © 2011 John Wiley & Sons..Incometaxes..... \$5.... Solutions Manual    (For Instructor Use Only) ..   Kieso.... Inc...............000 *[(\$33.

... Intermediate Accounting......................................750 (5..............................................000 16.......................... Beginningretainedearnings............. Bookvalue.......PROBLEM23-9 (Continued) Noncashinvestingandfinancingactivities: Retirednotepayableby issuingcommonstock........ Inc.................500) \$ 5. Copyright © 2011 John Wiley & Sons......... Probablya largecashoutflowas the firmexpands..... (b) Cost ..... \$ 5.... (3...............300) \$ 7............................ Proceedsfromsale..................... Losson sale.. For a recentlyformedfirmwhichis experiencingrapidgrowth: Operating: Investing: Financing: Probablya cashinflow... Probably a cash inflow as assets are sold to provide needed cash................ 14/e.............................700 (2..........................000) \$15..............000)..... Net income..750 Probablya small cashinflowor a cashoutflow...................................................................................... Probablya cashinflowfromdebt financing(borrow-ing funds)as a sourceof cashat highinterestcost........... Decreasein accumulateddepreciation....................200 \$ 3...................... Purchasedequipmentby issuingnotespayable....000 SupportingComputations: (a) Endingretainedearnings.. (c) (b) (1) Accumulateddepreciationon equipmentsold......... \$11............. Probablya largecashinflowto financeexpansion.........................500) \$ 800 For a severelyfinanciallytroubledfirm: Operating: Investing: Financing: (2) \$20.000 \$21...................300 (2...   Kieso.............................. Depreciationexpense................................................. Solutions Manual    (For Instructor Use Only) 23-67 .................000 Accumulateddepreciation(30%X \$11......

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

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

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

and 2009 are \$13. The two items most responsible for the decrease in cash provided by operating activities in 2009are net earnings(\$13. (c) Deferred taxes are reported in the operating activities section of P&G’s statement of cash flows. Solutions Manual    (For Instructor Use Only) . respectively.   Kieso.370millionthat P&Gpaid to purchasetreasurystock.The amountsof net cashprovidedby operating activities for 2007.919 million.FINANCIALREPORTINGPROBLEM (a) P&G uses the indirect method to compute and report net cash provided by operating activities. 2008. Intermediate Accounting.” The most significant item in the financing activitiessectionis the \$6. 23-74 Copyright © 2011 John Wiley & Sons. \$15.410 million. Inc.008 million. The \$596 million is reportedas an add back to net incomebecauseit is a noncash charge in the income statement. (d) Depreciationand amortizationis reportedin the operatingactivities sectionof P&G’s statementof cashflowsas an add backto net incomebecauseit is a noncashcharge in the incomestatement.436)and depreciationand amortization(\$3.082).238millionthat P&G spent on “capital expenditures. (b) The most significant item in the investingactivities section is the \$3. and \$14. 14/e.

Intermediate Accounting.0%. Inc. Inc.5%. Solutions Manual    (For Instructor Use Only) 23-75 . PepsiCo’strendis relativelyflat.COMPARATIVEANALYSISCASE (a) Both Coca-Cola and PepsiCo use the indirect method of computing and reporting net cashprovidedby operatingactivitiesin 2007–2009. PepsiCo. 14/e. (In millions) Net cashprovidedby operatingactivities (b) Coca-Cola PepsiCo \$8.689million \$2. Only Coca-Cola has a favorabletrendin the generationof internalfundsfromoperations.236million PepsiCo.796 Themostsignificantinvestingactivitiesitemsin 2009: Coca-Cola Purchaseof otherinvestments \$2.635million Depreciationand amortizationis reportedin the operatingactivitiessectionbecauseit is a noncashchargein the incomestatement.186 \$6.128million Themostsignificantfinancingactivitiesitemsin 2009: Coca-Cola Issuancesof debt PepsiCo Cashdividendspaid \$14. Copyright © 2011 John Wiley & Sons. \$1.\$1. (d) Both Coca-Cola and PepsiCo report depreciation and amortization in the operating activitiessection: Coca-Cola.   Kieso. has decreased net cash provided by operating activities by \$138 million or 2.152million PepsiCo Capitalspending \$2.732million (c) The Coca-Cola Companyhas increasednet cash providedby operating activities from 2007 to 2009 by \$1.036 million or 14.

2.721+ \$12. Since Coca-Cola’s cash debt coverage ratio was approximately 27% larger (0.38:1 \$6.61) than Coca-Cola’s \$0. 0.988) 2 = 0.787) 2 Cashdebt coverage \$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.61 of cash flow from operations per dollar of current debt and indicates PepsiCo was more liquid in 2009 thanCoca-Cola. 14/e.186 (\$13.30) than PepsiCo’s.77 vs.406+ \$23. its ability to repay liabilities with cashflowfromoperationswasgreaterthanPepsioCo’s in 2009.COMPARATIVEANALYSISCASE(Continued) (e) Coca-Cola 1.186 (\$23.796 (\$22.   Kieso.796 (\$8.756+ \$8. Intermediate Accounting.77:1 The current cash debt coverageratio uses cash generatedfromoperationsduringthe period and providesa better representationof liquidity on an averageday. 23-76 Copyright © 2011 John Wiley & Sons. 0.38 vs.657) 2 = 0.30:1 2 = 0. PepsiCo’s ratio of \$0.61:1 \$6. (f) PepsiCo Currentcash debt coverage \$8.325+ \$19. Inc.77 of cash flow from operations for every dollar of current debt was approximately 26% higher (0.412) = 0. Solutions Manual    (For Instructor Use Only) .

523).ANDPRINCIPLES Copyright © 2011 John Wiley & Sons.184. the current year cash flow from operations exceeded prior year’s cash flow from operationsby \$937.957).070:1 Profitability: cash return on sales ratio (net cash providedby operating activities ÷ net sales) \$236. Inc.600)÷ 2) = . the company’s cash position should be monitoredcloselyto ensurethat it doesnot slide into a distressfinancialstate due to cashshortages. This apparent paradox can be explained by evaluating the components of cash from operating activities.   Kieso.386)÷ 2) = .416 versus \$181. This is not surprising. (a) Even though prior year income exceeded the current year income by \$821. Solutions Manual    (For Instructor Use Only) 23-77 .465+ \$1.014.085+ \$2.480÷ ((\$4.FINANCIALSTATEMENTANALYSISCASE VERMONTTEDDYBEARCO. An increase in accounts payable causes an increasein cash fromoperations.437 [\$236.480÷ ((\$4. 14/e. However.995. becauseof the precariousnature of companies in this stage of their lives. ACCOUNTING.955 – \$17. When a companyis in the introductoryphaseof its mainproduct.566= .ANALYSIS.017. the majority of the increasein cash is explainedby the company’sdramatic increasein accounts payable. however.480 – (\$700.it shouldbe notedthat inventoriesdid increaseby \$1.567 in the prior year.]. and (2) accounts payable increase of \$2.thus. An investor or creditor would want to investigate this increase to ensure that the company is not delinquenton its payments.055.599.560.078:1 Solvency: cash debt coverage ratio (net cash provided by operating activities ÷ averagetotal liabilities) \$236.However.480÷ \$20.059 in the current year versus a decline of \$284.012:1 All of these ratios are very low.432 (\$838.620. Intermediate Accounting.348 in the prior year. Significant contributors to the positive cash flow figure in the current year were (1) the depreciation and amortization add-back of \$316. for a company like the Vermont Teddy Bear Company that is in the early stages of its life.it will not typicallygenerate significant cash flow from operations. (b) Liquidity: current cash debt coverageratio (net cash providedby operatingactivities ÷ averagecurrentliabilities) \$236.

.................. Inc......... Freecashflow.......000 20........ Net cashprovidedby operatingactivities...........000 200.....000 270................................. Increasein accountsreceivable....000 Analysis Laskowski’sfree cashflowis: Net cashprovidedby operatingactivities.......................... Adjustmentsto reconcilenet incometo net cashprovidedby operatingactivities: Depreciationexpense....................................................................222...... Decreasein inventory....................000) (480.. 2012 Cashflowsfromoperatingactivities Net income...................... 14/e................000) 33.......   Kieso....................................... 23-78 \$1..000) Cashflowsfromfinancingactivities Paymentof cashdividends. 542............................ Losson sale of machinery......000 750..........................000 (165.... Net cashusedby investingactivities... Purchaseof machinery.... (200....... Solutions Manual    (For Instructor Use Only) ...............................000 1............................................. Less: Purchaseof machinery......................... Cashat end of period....... Intermediate Accounting...000 \$ 272.............. Cashflowsfrominvestingactivities Sale of machinery........000 24...000 \$ 880............Accounting LASKOWSKICOMPANY Statementof CashFlows For the Year EndedDecember31........000 Copyright © 2011 John Wiley & Sons................................................................. Dividends..........222...................... Increasein accountspayable..... Cashat beginningof period.....................000 130......000 792..................................... \$ 430..........000) Net increasein cash...................................................000 \$ 672.........................................000 (750...........................

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

Assessthe reasonsfor differencesbetweennet incomeand associatedcash receiptsand payments 23-80 Copyright © 2011 John Wiley & Sons.like workingcapital. Solutions Manual    (For Instructor Use Only) . All charges and credits to thoseaccountsare cash receiptsor paymentsto both the entity owning the account and the bank holding it.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. For example. Thus. Inc.   Kieso.its ability to pay dividends. 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. (b) SeeFASBASC230-10-10 (Statementof CashFlows—Objectives) 10-2 The information provided in a statement of cash flows. not broader measures of liquidity. Assessthe entity’s ability to meet its obligations. 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. if used with related disclosures and information in the other financial statements. andits needsfor externalfinancing c. cash includes not only currencyon hand but demanddeposits with banks or other financial institutions.andothers(including donors)to do all of the following: a. Assessthe entity’sability to generatepositivefuturenet cashflows b. Intermediate Accounting. should help investors. the basis for the statement of cash flows is cash. 14/e. As indicated in the glossary at this same section (230-10-20).

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

cash contributionsto charities.andcashrefundsto customers. 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.   Kieso. f. All other cash payments that do not stem from transactions defined as investing or financing activities. 23-82 Copyright © 2011 John Wiley & Sons. (This is the same amount reportedas a financingcashinflowpursuantto paragraph230-10-45-14(e). Solutions Manual    (For Instructor Use Only) . 14/e. such as payments to settle lawsuits. Intermediate Accounting. Cashpaymentsto lendersand othercreditorsfor interest. e. Inc.) d.

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

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

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

... Gainon Sale of Equipment.. and Equipment......000 IFRS states that investing activities include the acquisition and disposition of longterm productiveassets... AccumulatedDepreciation 167........000 25... and equipment is an investing activity.000 Theentryto reflectthe sale of equipmentis: Cash(proceedsfromsale of equipment) (\$45..   Kieso...... Inc.000 Equipmentsold 12/31/11 Depreciationexpense ? 178........500 AccumulatedDepreciation..Plant..000)..000 Property.. Note that the acquisition of property.000+ \$45. The solution can be determined through use of a T-account for accumulated depreciation. Intermediate Accounting.. 32... Accordingly.000 14....... 14/e. the purchaseof property.. Property.000 = \$50. plant............ and equipment...Plant& Equipment 12/31/11 Equipmentfromexchangeof B/P Paymentsfor purchaseof PP&E 247. and equipmentin exchangefor bondspayablewouldbe disclosedin the notes as a non-cash investing and financingactivity..000 ? 12/31/12 277.000– \$247.000 38.IFRS23-6 1. The solution can be determined through use of a T-account for property. plant.........500 (given) (given) Copyright © 2011 John Wiley & Sons.. 45..000 + \$38....000 45...000 = \$27.....000– \$25...000 12/31/12 Accumulated depreciation on equipment sold = \$167.........500– \$27... plant..000+ \$14... 2. Solutions Manual    (For Instructor Use Only) 23-87 .000 Equipmentsold Payments = \$277.000 – \$178.... 27...

000+ \$31.000 25. Inc. The cash dividends paid can be determined by analyzing T-accounts for Retained Earningsand DividendsPayable.000– \$8.000 12/31/11 Issuanceof B/P for PP&E 49. 14/e. 4.000 Dividendsdeclared 12/31/11 Net income 12/31/12 = \$91. RetainedEarnings Dividendsdeclared ? 91. Solutions Manual    (For Instructor Use Only) .000 18.000– \$104.000+ \$18. BondsPayable Redemptionof B/P 46.000 = \$15.IFRS23-6 (Continued) The proceeds from the sale of equipment of \$32. 3.000 = \$18.000 Cashdividendspaid 12/31/11 Dividendsdeclared ? 8.the redemptionof bondspayableis the onlychangenot accountedfor.Paymentof cashdividendsis thusa financingactivity.000 Financing activities include all cash flows involving liabilities and equity other than operatingitems.000 104.500 are considered an investing activity.000 12/31/12 Cashdividendspaid = \$5.   Kieso. Investing activities include the acquisition and disposition of long-term productiveassets.000 DividendsPayable 5.000 31. Intermediate Accounting. The redemptionof bondspayableamountis determinedby settingup a T-accountfor BondsPayable. 23-88 Copyright © 2011 John Wiley & Sons.000 12/31/12 ? The problem states that there was no amortization of bond premium or discount. thus.

Therefore........................... Solutions Manual    (For Instructor Use Only) 23-89 ...................... Cashflowsfrominvestingactivities Sale of equityinvestments...300 (6.......000– \$49......000 4..................500 (20.. (5.............750(a) \$ 4....................... 14/e............. Depreciationexpense..................700) (3............000 = \$22.   Kieso......000 19................... (7.......IFRS23-6 (Continued) Redemptionof bondspayable= \$46...900(d) 1............ (1...000) Paymentof short-termnote payable.........000) 32..................000+ \$25.... Inc............................................................................................000) Copyright © 2011 John Wiley & Sons...........750) (3..... Increasein accountspayable...... Adjustmentsto reconcilenet incometo net cashprovidedby operatingactivities: Losson sale of equipment....700 2.100(b) (8....... Netcashflowprovidedbyoperatingactivities................000) 2... \$14...............................000 Financing activities include all cash flows involving liabilities and equity other than operating items.. Gainfromflooddamage.. Proceedsfromflooddamageto building.....................450) 7.......... IFRS23-7 DINGELCORPORATION Statementof CashFlows For the Year EndedDecember31................................................250)(c) 1............................. Increasein inventory. Increasein accountsreceivable(net).......250 (1. 2012 Cashflowsfromoperatingactivities Net income..000) Net cashusedby financingactivities............ Patent amortization..... Sale of equipment. Gainon sale of equityinvestment.....................200 Cashflowsfromfinancingactivities Paymentof dividends......... Net cashprovidedby investingactivities.......... Purchaseof equipment(cash)......... Intermediate Accounting.... redemption of bonds payable is considered a financing activity............................................................

................................. \$11..................... IFRS23-7 (Continued) Supplementaldisclosuresof cashflowinformation: Cashpaid duringthe year for: Interest....................................500 13..........................................................500) \$ 1................ \$ 4.................... 2012......................................... Beginningretainedearnings..000 \$21.........................................750 (6......... 14/e........... 2012............ \$29... Solutions Manual    (For Instructor Use Only) ................................000)................................... Proceedsfrominsurance..................... Accumulateddepreciation......250) (d) Accumulateddepreciationon equipmentsold.............. Proceedsfromsale................... Net income........500 \$10............................900 Copyright © 2011 John Wiley & Sons.. Accumulateddepreciation(40%X \$11..................... SupportingComputations: 23-90 (a) Endingretainedearnings...... Losson sale................................... Decreasein accumulateddepreciation.................................................................... Bookvalue.............................................. \$20................................................................................January1..500) \$ 4....................... Depreciationexpense.................000) 23....... Cash.........................000 \$33......................................000) (\$ 8...................................................................... Intermediate Accounting........... Bookvalue..................................................000 *Presentedin the notesto the financialstatements....... Cash..........................................December31....000) \$14.600 (2..........................................750 (b) Cost....400) 6.... Inc............. Purchasedequipmentby issuingnote payable................. 20......... Gainon flooddamage..............000 (4.............100 (c) Cost............ Non-cashinvestingand financingactivities:* Retirednotepayableby issuingordinaryshares....400 (2.............................................500 \$ 2..............Increasein cash.750 (32......000 \$ 6................   Kieso........................000 16.............. Incometaxes.........750 (6....

” IAS 7 doesnot mentionanythingaboutworkingcapital. paragraph11 states “An entity presents its cash flows from operating.commissionsandotherrevenue.fees.This informationmayalso be usedto evaluatethe relationships amongthoseactivities.” Copyright © 2011 John Wiley & Sons. (b) According to paragraph 10. investing and financing activities in a manner which is most appropriate to its business. cash receipts and cash payments of an insurance entity for premiums and claims.Examplesof cashflowsfromoperatingactivitiesare: (a) (b) (c) (d) (e) cashreceiptsfromthesaleof goodsandtherenderingof services. “Cash flows from operating activities are primarily derived from the principal revenue-producing activities of the entity.annuitiesand otherpolicybenefits.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.and (g) cash receipts and payments from contracts held for dealing or trading purposes. Inc. investingand financingactivities. cashpaymentsto and on behalf of employees. 14/e.IFRS23-8 (a) According to IAS 7. Therefore. 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.   Kieso. cashreceiptsfromroyalties. Intermediate Accounting. they generally result from the transactions and other events that enter into the determinationof profitor loss. 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. (f) cash payments or refunds of income taxes unless they can be specifically identifiedwith financingand investingactivities. “The statement of cash flows shall report cash flows during the period classified by operating.” (c) According to paragraph 14.” Further. cashpaymentsto suppliersfor goodsand services. Solutions Manual    (For Instructor Use Only) 23-91 . “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.investingandfinancingactivities.

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