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Chapter 23 Statement of Cash Flows-Solutions at End of Problems

Use the following information for questions 1 through 3.


The balance sheet data of Kohler Company at the end of 2013 and 2012 follow:
2013 2012
Cash $ 100,000 $ 140,000
Accounts receivable (net) 240,000 180,000
Merchandise inventory 280,000 180,000
Prepaid expenses 40,000 100,000
Buildings and equipment 360,000 300,000
Accumulated depreciation—buildings and equipment (72,000) (32,000)
Land 360,000 160,000
Totals $1,308,000 $1,028,000
Accounts payable $272,000 $220,000
Accrued expenses 48,000 72,000
Notes payable—bank, long-term 160,000
Mortgage payable 120,000
Common stock, $10 par 836,000 636,000
Retained earnings (deficit) 32,000 (60,000)
$1,308,000 $1,028,000
Land was acquired for $200,000 in exchange for common stock, par $200,000, during the year;
all equipment purchased was for cash. Equipment costing $20,000 was sold for $8,000; book
value of the equipment was $16,000 and the loss was reported as an ordinary item in net
income. Cash dividends of $40,000 were charged to retained earnings and paid during the year;
the transfer of net income to retained earnings was the only other entry in the Retained
Earnings account. In the statement of cash flows for the year ended December 31, 2013, for
Naley Company:

1. The net cash provided by operating activities was


a. $104,000.
b. $132,000.
c. $112,000.
d. $96,000.

2. The net cash provided (used) by investing activities was


a. $52,000.
b. $(80,000).
c. $(272,000).
d. $(72,000).

3. The net cash provided (used) by financing activities was


a. $ -0-.
b. $(40,000).
c. $(80,000).
d. $120,000.

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Use the following information for questions 4 and 5.
Napier Co. provided the following information on selected transactions during 2013:
Purchase of land by issuing bonds $500,000
Proceeds from issuing bonds 1,000,000
Purchases of inventory 1,900,000
Purchases of treasury stock 300,000
Loans made to affiliated corporations 700,000
Dividends paid to preferred stockholders 200,000
Proceeds from issuing preferred stock 800,000
Proceeds from sale of equipment 100,000

4. The net cash provided (used) by investing activities during 2013 is


a. $100,000.
b. $(600,000).
c. $(1,100,000).
d. $(2,500,000).

5. The net cash provided by financing activities during 2013 is


a. $1,100,000.
b. $1,300,000.
c. $1,600,000.
d. $1,800,000.

Use the following information for questions 6 through 10.


Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA.
One statement that the enterprise is anxious to have prepared is a statement of cash flows.
Financial statements of Harlan Mining Co. for 2013 and 2012 are provided below.

BALANCE SHEETS
12/31/13 12/31/12
Cash $306,000 $ 144,000
Accounts receivable 270,000 162,000
Merchandise inventory 288,000 360,000
Property, plant and equipment $456,000 $720,000
Less accumulated depreciation (240,000) 216,000 (228,000) 492,000
$1,080,000 $1,158,000

Accounts payable $ 132,000 $ 72,000


Income taxes payable 264,000 294,000
Bonds payable 270,000 450,000
Common stock 162,000 162,000
Retained earnings 252,000 180,000
$1,080,000 $1,158,000

INCOME STATEMENT
For the Year Ended December 31, 2013
Sales $6,300,000
Cost of sales 5,364,000
Gross profit 936,000
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Selling expenses $450,000
Administrative expenses 144,000 594,000
Income from operations 342,000
Interest expense 54,000
Income before taxes 192,000
Income taxes 72,000
Net income $ 216,000
The following additional data were provided:
1. Dividends for the year 2013 were $144,000.
2. During the year, equipment was sold for $180,000. This equipment cost $264,000
originally and had a book value of $216,000 at the time of sale. The loss on sale was
incorrectly charged to cost of sales.
3. All depreciation expense is in the selling expense category.
Questions 6 through 10 relate to a statement of cash flows (direct method) for the year ended
December 31, 2013, for Harlan Mining Company.

6. The net cash provided by operating activities is


a. $306,000.
b. $216,000.
c. $180,000.
d. $150,000.

7. The net cash provided (used) by investing activities is


a. $(264,000).
b. $36,000.
c. $180,000.
d. $(216,000).

8. Under the direct method, the cash received from customers is


a. $6,408,000.
b. $6,192,000.
c. $6,300,000.
d. $6,330,000.

9. Under the direct method, the total taxes paid is


a. $72,000.
b. $30,000.
c. $42,000.
d. $102,000.

10. The net cash provided (used) by financing activities is


a. $(180,000).
b. $36,000.
c. $(324,000).
d. $144,000.

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Use the following information for questions 11 and 12.
Equipment that cost $350,000 and had a book value of $156,000 was sold for $180,000. Data
from the comparative balance sheets are:
12/31/13 12/31/12
Equipment $2,160,000 $1,950,000
Accumulated Depreciation 660,000 570,000

11. Depreciation expense for 2013 was


a. $308,000.
b. $284,000.
c. $54,000.
d. $36,000.

12. Equipment purchased during 2013 was


a. $560,000.
b. $350,000.
c. $210,000.
d. $366,000.

13. Net cash flow from operating activities for 2013 for Spencer Corporation was $450,000.
The following items are reported on the financial statements for 2013:
Cash dividends paid on common stock 20,000
Depreciation and amortization 12,000
Increase in accounts receivables 24,000
Based on the information above, Spencer’s net income for 2013 was
a. $462,000.
b. $446,000.
c. $414,000.
d. $406,000.

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Chapter 23 Statement of Cash Flows-Solutions

Use the following information for questions 1 through 3.


The balance sheet data of Kohler Company at the end of 2013 and 2012 follow:
2013 2012
Cash $ 100,000 $ 140,000
Accounts receivable (net) 240,000 180,000
Merchandise inventory 280,000 180,000
Prepaid expenses 40,000 100,000
Buildings and equipment 360,000 300,000
Accumulated depreciation—buildings and equipment (72,000) (32,000)
Land 360,000 160,000
Totals $1,308,000 $1,028,000
Accounts payable $272,000 $220,000
Accrued expenses 48,000 72,000
Notes payable—bank, long-term 160,000
Mortgage payable 120,000
Common stock, $10 par 836,000 636,000
Retained earnings (deficit) 32,000 (60,000)
$1,308,000 $1,028,000
Land was acquired for $200,000 in exchange for common stock, par $200,000, during the year;
all equipment purchased was for cash. Equipment costing $20,000 was sold for $8,000; book
value of the equipment was $16,000 and the loss was reported as an ordinary item in net
income. Cash dividends of $40,000 were charged to retained earnings and paid during the year;
the transfer of net income to retained earnings was the only other entry in the Retained
Earnings account. In the statement of cash flows for the year ended December 31, 2013, for
Naley Company:

1. The net cash provided by operating activities was


a. $104,000.
b. $132,000.
c. $112,000.
d. $96,000.

Net Income 132,000 (note 1)


+Depreciation 44,000 (note 2)
+Loss 8,000 (note 3)
Change in AR (60,000)
Change in Inventory (100,000)
Change in Prepaid Expenses 60,000
Change in AP 52,000
Change in Accrued Expenses (24,000)
Net Cash Provided by Operating 112,000

Note 1 Beg Retained Earnings (60,000)


+ Net Income x
-Dividends (40,000)
= End Retained Earnings 32,000
X = 132,000

Note 2 Beg Accum. Depreciation 32,000


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-Accum Depreciation on Sold Equipment (4,000)
+ Depreciation Expense x
= End Accum Depreciation 72,000
X = 44,000

Note 3 Selling Price 8,000


Book Value 16,000
Loss on Sale (8,000)

2. The net cash provided (used) by investing activities was


a. $52,000.
b. $(80,000).
c. $(272,000).
d. $(72,000).

Purchase of Equipment (80,000) *


Cash from Sale of Equipment 8,000
Net Cash used by Investing Activities (72,000)

* Beginning Equipment 300,000


Less cost of equipment sold 20,000
Plus Equipment purchased x
Ending Equipment 360,000
X = 80,000

3. The net cash provided (used) by financing activities was


a. $ -0-.
b. $(40,000).
c. $(80,000).
d. $120,000.

Payment of Note Payable (160,000)


Funds from Mortgage Payable 120,000
Payment of Dividends (40,000)
Net Cash Used by Financing Activities (80,000)

Use the following information for questions 4 and 5.


Napier Co. provided the following information on selected transactions during 2013:
Purchase of land by issuing bonds $500,000
Proceeds from issuing bonds 1,000,000
Purchases of inventory 1,900,000
Purchases of treasury stock 300,000
Loans made to affiliated corporations 700,000
Dividends paid to preferred stockholders 200,000
Proceeds from issuing preferred stock 800,000
Proceeds from sale of equipment 100,000

4.The net cash provided (used) by investing activities during 2013 is


a. $100,000.
b. $(600,000).
c. $(1,100,000).
d. $(2,500,000).

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Loans to Affiliates (700,000)
Sale of Equipment 100,000
Net Cash Used in Investing Activities (600,000)

5. The net cash provided by financing activities during 2013 is


a. $1,100,000.
b. $1,300,000.
c. $1,600,000.
d. $1,800,000.

Proceeds from Bond Issuance 1,000,000


Purchase of Treasury Stock (300,000)
Dividends paid (200,000)
Proceeds from Stock Issuance 800,000
Net Cash Provided by Financing Activities 1,300,000

Use the following information for questions 6 through 10.


Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA.
One statement that the enterprise is anxious to have prepared is a statement of cash flows.
Financial statements of Harlan Mining Co. for 2013 and 2012 are provided below.

BALANCE SHEETS
12/31/13 12/31/12
Cash $306,000 $ 144,000
Accounts receivable 270,000 162,000
Merchandise inventory 288,000 360,000
Property, plant and equipment $456,000 $720,000
Less accumulated depreciation (240,000) 216,000 (228,000) 492,000
$1,080,000 $1,158,000

Accounts payable $ 132,000 $ 72,000


Income taxes payable 264,000 294,000
Bonds payable 270,000 450,000
Common stock 162,000 162,000
Retained earnings 252,000 180,000
$1,080,000 $1,158,000

INCOME STATEMENT
For the Year Ended December 31, 2013
Sales $6,300,000
Cost of sales 5,364,000
Gross profit 936,000
Selling expenses $450,000
Administrative expenses 144,000 594,000
Income from operations 342,000
Interest expense 54,000
Income before taxes 192,000
Income taxes 72,000
Net income $ 216,000
The following additional data were provided:
1. Dividends for the year 2013 were $144,000.

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2. During the year, equipment was sold for $180,000. This equipment cost $264,000
originally and had a book value of $216,000 at the time of sale. The loss on sale was
incorrectly charged to cost of sales.
3. All depreciation expense is in the selling expense category.
Questions 6 through 10 relate to a statement of cash flows (direct method) for the year ended
December 31, 2013, for Harlan Mining Company.

6. The net cash provided by operating activities is


a. $306,000.
b. $216,000.
c. $180,000.
d. $150,000.

Direct Method:
Cash received from Customers (See # 8) 6,192,000
Less Cash paid for Merchandise (5,196,000)
Less Cash spent Selling/Admin ( 534,000)
Less Cash paid for Interest ( 54,000)
Less Cash paid for Taxes(See # 9) ( 102,000)
Net Cash Provided by Operating Activities 306,000

Cash Paid for Merchandise:


Cost of sales 5,364,000
Less Loss on Equipment sale (36,000)
Less Decrease in Inventory (72,000)
Less Increase in AP (60,000)
Cash paid 5,196,000

Cash spent on Selling/Administrative


Selling/Administrative 594,000
Less Depreciation expense included (60,000)
Cash paid for selling/administrative 534,000

Selling/administrative and interest expense treated as cash since there were no


accrued liabilities shown on the balance sheet.

Reconciliation/Indirect Method
Net Income 216,000
+Depreciation Expense 60,000
+Loss on Equipment Sale 36,000
Change in AR (108,000)
Change in Inventory 72,000
Change in AP 60,000
Change in Taxes Payable (30,000)
Net Cash Provided by Operating Activities 306,000

7. The net cash provided (used) by investing activities is


a. $(264,000).
b. $36,000.
c. $180,000.
d. $(216,000).
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Sale of Equipment 180,000
Net Cash Provided by Investing Activities 180,000

8. Under the direct method, the cash received from customers is


a. $6,408,000.
b. $6,192,000.
c. $6,300,000.
d. $6,330,000.

Beginning AR 162,000
Sales 6,300,000
Less Ending AR (270,000)
Cash received from customers 6,192,000

9. Under the direct method, the total taxes paid is


a. $72,000.
b. $30,000.
c. $42,000.
d. $102,000.

Beginning Taxes Payable 294,000


Plus Income Tax Expense 72,000
Less Income Taxes Paid x
Ending Taxes Payable 264,000
X = $102,000

10. The net cash provided (used) by financing activities is


a. $(180,000).
b. $36,000.
c. $(324,000).
d. $144,000.

Payment of Dividends (144,000)


Redemption of Bonds (180,000)
Net Cash Used in Financing Activities (324,000)

Use the following information for questions 11 and 12.


Equipment that cost $350,000 and had a book value of $156,000 was sold for $180,000. Data
from the comparative balance sheets are:
12/31/13 12/31/12
Equipment $2,160,000 $1,950,000
Accumulated Depreciation 660,000 570,000

11. Depreciation expense for 2013 was


a. $308,000.
b. $284,000.
c. $54,000.
d. $36,000.

Beginning Accum Depreciation 570,000


Less Depreciation on Equipment Sold (194,000)
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Plus 2013 Depreciation Expense x
Ending Accum Depreciation 660,000

X = $284,000

12. Equipment purchased during 2013 was


a. $560,000.
b. $350,000.
c. $210,000.
d. $366,000.

Beginning Equipment $1,950,000


Less Cost of Equipment Sold (350,000)
Plus Equipment Purchased X
Ending Equipment $2,160,000

X = $560,000

13. Net cash flow from operating activities for 2013 for Spencer Corporation was $450,000.
The following items are reported on the financial statements for 2013:
Cash dividends paid on common stock 20,000
Depreciation and amortization 12,000
Increase in accounts receivables 24,000
Based on the information above, Spencer’s net income for 2013 was
a. $462,000.
b. $446,000.
c. $414,000.
d. $406,000.

Net Income X
+ Depreciation/Amortization 12,000
-Increase in AR (24,000)
Net Cash Flows from Operating $450,000

X = $462,000

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