True False Questions

Chapter 15 “How Well Am I Doing?
”--Statement of Cash Flows
True/False Questions
1. An increase in inventory is classified as a “use” of cash for purposes of constructing

the statement of cash flows.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking

AICPA FN: Reporting LO: 1 Level: Easy
2. In the statement of cash flows, dividend payments to the company's stockholders are
treated as a “use” rather than as a “source” of cash.

3. Under the indirect method of determining the net cash flow from operating activities
on the statement of cash flows, a gain on the sale of equipment would be added to net
income.
Ans: False AACSB: Analytic AICPA BB: Critical Thinking

AICPA FN: Reporting LO: 2,3 Level: Hard
4. Under the indirect method of determining the net cash provided by operating activities
on the statement of cash flows, increases in current liabilities such as accounts payable
are added to net income.

AICPA FN: Reporting LO: 2,3 Level: Medium
5. Under the indirect method of determining the net cash provided by operating activities
on the statement of cash flows, dividends are added to net income.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking

6. Interest paid on borrowed funds would be included as part of a company's financing

activities on the statement of cash flows.

AICPA FN: Reporting LO: 2 Level: Hard
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 15-5

Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
7. The net cash provided by operating activities on the statement of cash flows would
include interest paid to creditors and dividends paid to the company's own
shareholders.

AICPA FN: Reporting LO: 2 Level: Medium
8. A change in deferred taxes is considered to be an operating activity on the statement of

cash flows.

9. Lending money to another company would be classified as a financing activity on the

statement of cash flows.

10. The direct method of preparing the statement of cash flows will usually show a greater
total increase in cash than the indirect method.

AICPA FN: Reporting LO: 3,4 Level: Easy
11. Under the direct method of determining the net cash provided by operations on the
statement of cash flows, the cost of goods sold is converted to a cash basis by
adjusting it for changes in inventories and changes in accounts payable during the
period.
Ans: True AACSB: Analytic AICPA BB: Critical Thinking

AICPA FN: Reporting Appendix: 15 LO: 4 Level: Medium
12. Under the direct method of determining the net cash provided by operating activities
on the statement of cash flows, an increase in inventory would be added to cost of
goods sold to convert cost of goods sold to a cash basis.

AICPA FN: Reporting Appendix: 15 LO: 4 Level: Hard
15-6 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

13. Under the direct method of determining the net cash provided by operating activities
on the statement of cash flows, an increase in prepaid expenses would be added to
selling and administrative expenses to convert selling and administrative expenses to a
cash basis.

AICPA FN: Reporting Appendix: 15 LO: 4 Level: Hard
14. Accounts receivable is not considered to be a cash equivalent for purposes of

preparing the statement of cash flows.

15. The Financial Accounting Standards Board (FASB) recommends that companies use
the direct method rather than the indirect method in preparing their statement of cash
flows.

Multiple Choice Questions
16. Which of the following would be considered a “use” of cash for purposes of
constructing a statement of cash flows?
A) a decrease in accounts receivable.
B) an increase in accounts payable.
C) an increase in common stock.
D) a decrease in bonds payable.
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking

17. Which of the following would be considered a “source” of cash for purposes of
constructing a statement of cash flows?
A) an increase in accounts payable.
B) dividends paid to the company's own shareholders.
C) a decrease in accrued liabilities.
D) an increase in accounts receivable.
Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking


18. Evita Corporation prepares its statement of cash flows using the indirect method.
Evita's statement showed “Net cash provided by operating activities” to be $46,000.
Under the direct method, this number would have been:
A) $0.
B) $46,000.
C) greater than $46,000.
D) less than $46,000 but greater than $0.
Ans: B AACSB: Analytic AICPA BB: Critical Thinking

AICPA FN: Reporting Appendix: 15 LO: 2,3,4 Level: Easy
19. Under the indirect method, which item would be deducted from net income as part of
the process of arriving at cash provided by operating activities on the statement of
cash flows?
A) Patent amortization expense
B) Increase in accounts payable
C) Increase in prepaid expenses
D) Decrease in accounts receivable
Ans: C AACSB: Analytic AICPA BB: Critical Thinking

20. A decrease in the prepaid expenses account of $1,000 over the course of a year would
be shown on the company's statement of cash flows prepared under the indirect
method as:
A) an addition to net income of $1,000 in order to arrive at net cash provided by
operating activities.
B) a deduction from net income of $1,000 in order to arrive at net cash provided by
C) an addition of $1,000 under financing activities.
D) a deduction of $1,000 under financing activities.
Ans: A AACSB: Analytic AICPA BB: Critical Thinking


21. An increase in the taxes payable account of $1,000 over the course of a year would be
shown on the company's statement of cash flows prepared under the indirect method
as:
B) a deduction from net income of $1,000 in order to arrive at net cash provided by

22. Luella Corporation prepares its statement of cash flows using the indirect method.
Which of the following would be added to net income in the operating activities
section of the statement?
Depreciation Loss on Sale

Expense of Equipment
A) Yes Yes
B) Yes No
C) No Yes
D) No No

23. Gioja Corporation prepares its statement of cash flows using the indirect method.
Which of the following would be deducted from net income in the operating activities
section of the statement?
Increase in Taxes Payable Increase in Dividends Payable

A) Yes Yes
B) Yes No
C) No Yes
D) No No
Ans: D AACSB: Analytic AICPA BB: Critical Thinking


24. Olaf Corporation prepares its statement of cash flows using the direct method. The
following items were listed on Olaf's income statement. Which of these items would
also be listed in the operating activities section of Olaf's statement of cash flows?
Depreciation Expense Gain on Sale of Equipment

A) Yes Yes
B) Yes No
C) No Yes
D) No No

AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Medium
25. During the year the balance in the prepaid expenses account increased by $6,000. In
order to adjust the company's net income to a cash basis using the direct method on the
statement of cash flows, it would be necessary to:
A) deduct the $6,000 from the operating expenses reported on the income
statement.
B) add the $6,000 to the operating expenses reported on the income statement.
C) deduct the $6,000 from the cost of goods sold reported on the income statement.
D) add the $6,000 to the cost of goods sold reported on the income statement.

AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Hard
26. In a statement of cash flows, all of the following would be classified as operating
activities except:
A) interest paid to creditors.
B) dividends received on stock in another company held as an investment.
C) dividends paid to the company's own common stockholders.
D) interest received on a long-term note receivable.


27. In a statement of cash flows, a change in accounts payable account would be classified
as:
A) an operating activity.
B) a financing activity.
C) an investing activity.
D) a noncash item that need not appear on the statement of cash flows.

28. A decrease in the plant and equipment account of $100,000 over the course of a year
would be shown on the company's statement of cash flows prepared under the indirect
method as:
B) a deduction from net income of $100,000 in order to arrive at net cash provided
by operating activities.
C) an addition of $100,000 under investing activities.
D) a deduction of $100,000 under investing activities.

29. Which of the following should be classified as an investing activity on a statement of

cash flows?
A) cash received from the sale of office equipment that was sold at a loss.
B) cash used to purchase a long-term investment in bonds of another corporation.
C) cash received from the issuance of Iguato Corporation common stock.
D) both A and B above
E) all of the above

30. Which of the following should be classified as an investing activity on a statement of

cash flows?
A) cash paid for income taxes.
B) cash paid for dividends to stockholders.
C) cash paid to employees for services rendered.
D) none of the above


31. A company declared and paid a cash dividend. The dividend would appear on the
company's statement of cash flows as:
A) an addition to net income in order to arrive at net cash provided by operating
activities under the indirect method.
B) a deduction from net income in order to arrive at net cash provided by operating
activities under the indirect method.
C) a deduction under investing activities.
D) a deduction under financing activities.

32. Dividends paid to a company's own stockholders of $80,000 would be shown on the
company's statement of cash flows prepared under the indirect method as:
A) an addition of $80,000 under investing activities.
B) a deduction of $80,000 under investing activities.

33. Which of the following should be classified as a financing activity on a statement of

cash flows?
A) cash used to retire bonds payable.
B) an increase in deferred income taxes.
C) cash dividends received on an investment in stock.
D) both A and C above
E) none of the above

34. Which of the following sections of the statement of cash flows will be prepared
differently if the direct method is used instead of the indirect method?
A) operating activities section
B) investing activities section
C) financing activities section
D) all of the above

AICPA FN: Reporting Appendix: 15 LO: 3,4 Level: Easy

35. In the statement of cash flows, the sum total of the net cash provided by operating
activities, investing activities, and financing activities would be equal to:
A) zero.
B) the beginning balance of cash and cash equivalents.
C) the ending balance of cash and cash equivalents.
D) the increase or decrease in cash and cash equivalents.

36. Excerpts from Neuwirth Corporation's comparative balance sheet appear below:
Ending Balance Beginning Balance

Cash and cash equivalents ............. $37,000 $27,000
Accounts receivable ...................... $24,000 $28,000
Inventory ....................................... $65,000 $68,000
Which of the following classifications of changes in balance sheet accounts as sources

and uses is correct?
A) The change in Accounts Receivable is a source; The change in Inventory is a
source.
B) The change in Accounts Receivable is a use; The change in Inventory is a use.
C) The change in Accounts Receivable is a source; The change in Inventory is a
use.
D) The change in Accounts Receivable is a use; The change in Inventory is a
source.


37. Excerpts from Deblois Corporation's comparative balance sheet appear below:

Cash and cash equivalents ................... $22,000 $28,000
Accounts payable ................................ $18,000 $17,000
Accrued wages and salaries payable ... $34,000 $37,000

A) The change in Accounts Payable is a source; The change in Accrued Wages and
Salaries payable is a source.
B) The change in Accounts Payable is a use; The change in Accrued Wages and
Salaries payable is a source.
C) The change in Accounts Payable is a source; The change in Accrued Wages and
Salaries payable is a use.
D) The change in Accounts Payable is a use; The change in Accrued Wages and
Salaries payable is a use.

38. Excerpts from Aultman Corporation's comparative balance sheet appear below:

Cash and cash equivalents ................... $62,000 $29,000
Property, plant, and equipment............ $371,000 $345,000
Long-term debt .................................... $75,000 $73,000

A) The change in Property, Plant, and Equipment is a use; The change in Long-
Term Debt is a source.
B) The change in Property, Plant, and Equipment is a source; The change in Long-
Term Debt is a use.
C) The change in Property, Plant, and Equipment is a use; The change in Long-
Term Debt is a use.
D) The change in Property, Plant, and Equipment is a source; The change in Long-
Term Debt is a source.


39. Swinger Corporation's comparative balance sheet appears below:
Ending Beginning
Balance Balance
Assets:
Current assets:
Cash and cash equivalents ......................... $ 47,000 $ 31,000
Accounts receivable .................................. 23,000 22,000
Inventory ................................................... 66,000 64,000
Total current assets ....................................... 136,000 117,000
Property, plant, and equipment..................... 356,000 338,000
Less accumulated depreciation.................. 184,000 161,000
Net property, plant, and equipment .............. 172,000 177,000
Total assets ................................................... $308,000 $294,000
Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable ...................................... $ 17,000 $ 16,000
Accrued wages and salaries payable ......... 32,000 31,000
Accrued income taxes payable .................. 25,000 27,000
Notes payable ............................................ 11,000 13,000
Total current liabilities ................................. 85,000 87,000
Long-term debt ............................................. 83,000 80,000
Deferred income taxes .................................. 38,000 34,000
Total liabilities .............................................. 206,000 201,000
Stockholders’ equity:
Common stock........................................... 27,000 24,000
Retained earnings ...................................... 75,000 69,000
Total stockholders’ equity ............................ 102,000 93,000
Total liabilities and stockholders’ equity ..... $308,000 $294,000
The company's net income (loss) for the year was $10,000 and its cash dividends were
$4,000. The total dollar amount of all of the items that would be classified as sources
when compiling a simplified statement of cash flows is:
A) $29,000
B) $16,000
C) $45,000
D) $25,000


Solution:
Sources
Net income ............................................................ $10,000
Increases in liabilities (and contra asset accounts):
Increase in accumulated depreciation ................. 23,000
Increase in accounts payable .............................. 1,000
Increase in accrued wages and salaries payable . 1,000
Increase in long-term debt .................................. 3,000
Increase in deferred income taxes ...................... 4,000
Increases in capital stock accounts:
Increase in common stock .................................. 3,000
Total sources.......................................................... $45,000

40. Illies Corporation's comparative balance sheet appears below:
Ending Beginning
Balance Balance
Assets:
Current assets:
Cash and cash equivalents ......................... $ 40,000 $ 33,000
Inventory ................................................... 67,000 69,000
Property, plant, and equipment..................... 358,000 339,000
Less accumulated depreciation.................. 156,000 132,000
Total assets ................................................... $328,000 $330,000

Notes payable ............................................ 19,000 22,000
Long-term debt ............................................. 82,000 86,000
Deferred income taxes .................................. 25,000 23,000
Total liabilities .............................................. 202,000 206,000
Common stock........................................... 23,000 22,000
$4,000. The total dollar amount of all of the items that would be classified as uses
when compiling a simplified statement of cash flows is:
A) $7,000
B) $40,000
C) $29,000
D) $33,000


Solution:
Uses
Increases in noncash assets:
Increase in property, plant, and equipment .......... $19,000
Decreases in liabilities:
Decrease in accounts payable ............................... 1,000
Decrease in accrued wages and salaries payable .. 2,000
Decrease in notes payable .................................... 3,000
Decrease in long-term debt................................... 4,000
Dividends paid ......................................................... 4,000
Total uses ................................................................. $33,000

41. The following information relates to Penha, Inc. for last year:
Net income ............................................................ $117,000

Net increase in all current assets except cash ........ $31,000
Net increase in current liabilities ........................... $45,000
Dividends paid on common stock ......................... $20,000
Depreciation expense ............................................ $8,000
Gain on sale of investments................................... $3,000
What is Penha's net cash provided by operating activities for last year on the statement
of cash flows? (Assume that current liabilities do not contain any notes payable.)
A) $108,000
B) $116,000
C) $136,000
D) $139,000

Solution:
Net income ............................................................................ $117,000

Adjustments needed to convert net income to a cash basis:
Depreciation charges ......................................................... 8,000
Add (deduct) changes in current asset accounts affecting
revenue or expense:
Increase in all current assets except cash .......................... ( 31,000)
Add (deduct) changes in current liability accounts affecting
revenue or expense:
Increase in current liabilities ............................................. 45,000
Add (deduct) gains or losses on sale of assets:
Gain on sale of investments ............................................... ( 3,000)
Net cash provided by operating activities............................. $136,000

42. Morey Company's net income last year was $27,000 and cash dividends declared and
paid to the company's stockholders totaled $13,000. Changes in selected balance sheet
accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Accounts receivable ................ $8,000
Inventory ................................. $(3,000)
Prepaid expenses ..................... $4,000
Credit balances:
Accumulated depreciation ....... $18,000
Accounts payable .................... $6,000
Taxes payable .......................... $(4,000)
Bonds payable ......................... $10,000
Based solely on this information, the net cash provided by operations under the
indirect method on the statement of cash flows would be:
A) $16,000
B) $45,000
C) $38,000
D) $25,000

Solution:
Net income ......................................................................... $27,000

Adjustments needed to convert net income to cash basis:
Depreciation charges ...................................................... 18,000
Add (deduct) changes in current asset accounts
affecting revenue or expense:
Increase in accounts receivable ................................... ( 8,000)
Decrease in inventory .................................................. 3,000
Increase in prepaid expenses ....................................... ( 4,000)
Add (deduct) changes in current liability accounts
Increase in accounts payable ....................................... 6,000
Decrease in taxes payable............................................ ( 4,000)
Net cash provided by operating activities .......................... $38,000

43. Norlund Company's net income last year was $21,000. Changes in selected balance
sheet accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Accounts receivable ................ $8,000
Inventory ................................. $9,000
Prepaid expenses ..................... $(3,000)
Credit balances:
Accumulated depreciation ....... $15,000
Accounts payable .................... $(5,000)
Accrued liabilities ................... $11,000
Taxes payable .......................... $7,000
Deferred taxes ......................... $0
Based solely on this information, the net cash provided by operations under the
indirect method on the statement of cash flows would be:
A) $63,000
B) $36,000
C) $7,000
D) $35,000


Solution:
Net income ......................................................................... $21,000

Depreciation charges ...................................................... 15,000
Add (deduct) changes in current asset accounts
Increase in accounts receivable ................................... ( 8,000)
Increase in inventory ................................................... ( 9,000)
Decrease in prepaid expenses ...................................... 3,000
Add (deduct) changes in current liability accounts
Decrease in accounts payable ...................................... ( 5,000)
Increase in accrued liabilities ...................................... 11,000
Increase in taxes payable ............................................. 7,000
Net cash provided by operating activities .......................... $35,000
44. Alaric Corporation recently sold equipment for $16,000. The equipment was
purchased five years ago for $100,000. The accumulated depreciation on the
equipment on the date of sale was $75,000. Alaric uses the indirect method to prepare
its statement of cash flows. What net effect will this sale have on the investing
activities section of Alaric's statement of cash flows for the current year?
A) no effect
B) $7,000 increase
C) $9,000 decrease
D) $16,000 increase


45. Roble Corporation's balance sheet and income statement appear below:
Comparative Balance Sheet
Ending Beginning
Balance Balance
Assets:
Cash and cash equivalents ......................... $ 28 $ 22
Accounts receivable .................................. 65 61
Inventory ................................................... 45 47
Plant and equipment .................................. 658 520
Accumulated depreciation ......................... ( 296) ( 288)
Total assets ................................................ $500 $362
Liabilities and stockholders’ equity:

Accounts payable ...................................... $ 28 $ 29
Wages payable ........................................... 22 20
Taxes payable ............................................ 28 24
Bonds payable ........................................... 151 200
Deferred taxes............................................ 16 17
Common stock ........................................... 55 50
Retained earnings ...................................... 200 22
Total liabilities and stockholders’ equity .. $500 $362
Income Statement
Sales........................................................... $1,485
Cost of goods sold ..................................... 989
Gross margin ............................................. 496
Selling and administrative expense ........... 172
Net operating income ................................ 324
Gain on sale of plant and equipment ......... 19
Income before taxes...................................
............................................................... 343
Income taxes .............................................. 103
Net income ................................................ $ 240
Cash dividends were $62. The company sold equipment for $19 that was originally
purchased for $5 and that had accumulated depreciation of $5. The net cash provided
by (used by) operations for the year was:
A) $255
B) $236
C) $324
D) $298


Solution:
Net income .................................................................................. $240

Depreciation charges ............................................................... 13
Add (deduct) changes in current asset accounts affecting
revenue or expense:
Increase in accounts receivable ............................................ ( 4)
Decrease in inventory ........................................................... 2
Add (deduct) changes in current liability accounts affecting
revenue or expense:
Decrease in accounts payable ............................................... ( 1)
Increase in wages payable .................................................... 2
Increase in taxes payable ...................................................... 4
Add (deduct) gains or losses on sales of assets:
Gain on sale of plant and equipment .................................... ( 19)
Add (deduct) changes in the Deferred Income Taxes account:
Decreases in deferred taxes liability ..................................... ( 1)
Net cash provided by operating activities ................................... $236

46. Ivory Corporation's balance sheet and income statement appear below:
Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 63 53
Total assets ................................................ $319 $345

Wages payable ........................................... 26 25
Taxes payable ............................................ 16 17
Bonds payable ........................................... 127 120
Deferred taxes............................................ 18 19
Common stock ........................................... 63 60
Income Statement
Sales........................................................... $386
Gross margin ............................................. 147
Net operating income ................................ ( 38)
............................................................... (30)
Income taxes .............................................. 0
Net income ................................................ ($ 30)
by (used by) investing activities for the year was:
A) ($18)
B) ($1)
C) $1
D) $19


Solution:
Additions to plant and equipment ............. *

............................................................... ($18)
Proceeds from sale of equipment .............. 19
Net cash provided by investing activities .. $ 1
*$443 + $15 − $440 = $18
47. Daubenspeck Corporation's balance sheet and income statement appear below:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 65 57
Total assets ................................................ $580 $451

Wages payable ........................................... 16 17
Taxes payable ............................................ 14 12
Bonds payable ........................................... 167 200
Deferred taxes............................................ 25 24
Common stock ........................................... 64 60
Income Statement
Sales........................................................... $1,093
Gross margin ............................................. 422
............................................................... 297
Income taxes .............................................. 89
Net income ................................................ $ 208

purchased for $12 and that had accumulated depreciation of $12. The net cash
provided by (used by) financing activities for the year was:
A) ($74)
B) ($33)
C) ($45)
D) $4

Solution:
Financing Activities
Decrease in bonds payable ........................ ($33)
Increase in common stock ......................... 4
Cash dividends paid................................... ( 45)
Net cash used in financing activities ......... ($74)

48. The most recent balance sheet and income statement of Helle Corporation appear
below:
Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 66 58
Total assets ................................................ $377 $352

Wages payable ........................................... 22 20
Taxes payable ............................................ 18 21
Bonds payable ........................................... 22 30
Deferred taxes............................................ 17 16
Common stock ........................................... 61 60
Income Statement
Sales........................................................... $532
Gross margin ............................................. 208
Income taxes .............................................. 21
Net income ................................................ $ 50
Cash dividends were $9. The net cash provided by (used by) operations for the year
was:
A) $46
B) $71
C) $54
D) $4


Solution:
Net income ............................................................. $50

Adjustments to convert net income to cash basis:
Depreciation charges .......................................... 23
Increase in accounts receivable .......................... ( 2)
Increase in inventory .......................................... ( 8)
Decrease in accounts payable ............................. ( 9)
Increase in wages payable .................................. 2
Decrease in taxes payable ................................... ( 3)
Increase in deferred taxes liability ...................... 1
Net cash provided by operating activities .............. $54

49. Guzzi Corporation's most recent balance sheet appears below:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 69 65
Total assets ................................................ $511 $404

Wages payable ........................................... 17 19
Taxes payable ............................................ 19 18
Bonds payable ........................................... 11 10
Deferred taxes............................................ 14 19
Common stock ........................................... 64 60
Net income for the year was $129. Cash dividends were $27. The net cash provided by
(used by) operations for the year was:
A) $184
B) $147
C) $111
D) $18


Solution:
Net income ............................................................. $129

Increase in accounts receivable .......................... ( 5)
Increase in inventory .......................................... ( 4)
Increase in accounts payable .............................. 6
Decrease in wages payable ................................. ( 2)
Increase in taxes payable .................................... 1
Decrease in deferred taxes liability .................... ( 5)
50. Isenberg Corporation's most recent balance sheet appears below:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 75 66
Total assets ................................................ $507 $385

Wages payable ........................................... 19 20
Taxes payable ............................................ 10 9
Bonds payable ........................................... 26 30
Deferred taxes............................................ 21 20
Common stock ........................................... 71 70
The net income for the year was $159. Cash dividends were $34. The net cash
provided by (used by) investing activities for the year was:
A) ($159)
B) ($113)
C) $159
D) $113


Solution:
Investing Activities
Additions to plant and equipment .............. ($159) *
Net cash used by investing activities ......... ($159)
*$689 − $530
51. Minshall Corporation's most recent balance sheet appears below:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 50 62
Total assets ................................................ $380 $353

Wages payable ........................................... 12 15
Taxes payable ............................................ 9 8
Bonds payable ........................................... 132 120
Deferred taxes............................................ 19 25
Common stock ........................................... 42 40
The net income for the year was $26. Cash dividends were $6. The net cash provided
by (used by) financing activities for the year was:
A) $2
B) $8
C) $12
D) ($6)


Solution:
Increase in bonds payable.......................... $12
Net cash used in financing activities ......... $ 8
52. Chain Corporation's most recent balance sheet appears below:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 45 51
Total assets ................................................ $449 $384

Long-term debt .......................................... 77 110
Common stock ........................................... 22 20
The net income for the year was $121. Cash dividends were $30. The net cash
provided by (used by) operations for the year was:
A) $173
B) $138
C) $17
D) $104


Solution:
Net income ............................................................. $121

Decrease in accounts receivable ......................... 1
Decrease in inventory ......................................... 6
Increase in accounts payable .............................. 5
53. La Corporation's most recent balance sheet appears below:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 55 56
Total assets ................................................ $341 $307

Long-term debt .......................................... 214 250
Common stock ........................................... 32 30
Retained earnings ...................................... 47 ( 20)
by (used by) investing activities for the year was:
A) $26
B) $62
C) ($26)
D) ($62)


Solution:
Additions to plant and equipment ............. ($62) *
*$552 − $490
54. Hanna Corporation's most recent balance sheet appears below:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 68 69
Total assets ................................................ $429 $353

Long-term debt .......................................... 311 300
Common stock ........................................... 61 60
by (used by) financing activities for the year was:
A) ($9)
B) $1
C) ($21)
D) $11


Solution:
Increase in long-term debt ......................... $11
Net cash used by financing activities ........ ($ 9)
55. Last year Cummins Company reported a cost of goods sold of $50,000. Inventories
increased by $10,000 during the year, and accounts payable increased by $2,000. The
company uses the direct method to determine the net cash provided by operating
activities on the statement of cash flows. The cost of goods sold adjusted to a cash
basis would be:
A) $42,000
B) $58,000
C) $48,000
D) $60,000

Solution:
Cost of goods sold (as reported) ................ $50,000

Adjustments to a cash basis:
Increase in inventory .............................. 10,000
Increase in accounts payable .................. ( 2,000)
Cost of goods sold (adjusted) .................... $58,000

56. Last year Lawmond Company reported sales of $120,000 on its income statement.
During the year, accounts receivable increased by $20,000 and accounts payable
decreased by $10,000. The company uses the direct method to determine the net cash
provided by operating activities on the statement of cash flows. The sales revenue
adjusted to a cash basis for the year would be:
A) $100,000
B) $90,000
C) $130,000
D) $150,000

AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Hard
Solution:
Sales revenue (as reported) ........................ $120,000

Increase in accounts receivable .............. ( 20,000)
Sales revenue (adjusted) ............................ $100,000
57. Cridge Company's selling and administrative expenses for last year totaled $170,000.
During the year the company's prepaid expense account balance increased by $9,000
and accrued liabilities decreased by $13,000. Depreciation charges for the year were
$15,000. Based on this information, selling and administrative expenses adjusted to a
cash basis under the direct method on the statement of cash flows would be:
A) $177,000
B) $207,000
C) $133,000
D) $163,000


Solution:
Selling and administrative expenses

(as reported) ........................................ $170,000
Increase in prepaid expenses ............... 9,000
Decrease in accrued liabilities ............. 13,000
Period’s depreciation charges .............. ( 15,000)
Selling and administration expenses
(adjusted) ............................................. $177,000

58. Pietras Corporation's balance sheet and income statement appear below:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 55 49
Total assets ................................................ $552 $402

Wages payable ........................................... 14 15
Taxes payable ............................................ 11 12
Bonds payable ........................................... 66 70
Deferred taxes............................................ 19 21
Common stock ........................................... 35 30
Income Statement
Sales........................................................... $1,264
Gross margin ............................................. 436
............................................................... 297
Income taxes .............................................. 89
Net income ................................................ $ 208

by (used by) operations for the year was:
A) $213
B) $257
C) $284
D) $200

Solution:
Sales revenue (as reported).................................... $1,264

Decrease in accounts receivable...................... 1
Total....................................................................... $1,265
Cost of goods sold (as reported) ............................ 828

Increase in inventory ....................................... 6
Increase in accounts payable ........................... ( 2)
Total....................................................................... 832
Selling and administrative expenses (as reported) 152

Decrease in accrued wages payable ................ 1
Period’s depreciation charges ......................... ( 12)
Total....................................................................... 141
Income tax expense ............................................... 89

Decrease in accrued taxes payable .................. 1
Decrease in deferred income taxes .................. 2
Total....................................................................... 92
Net cash provided by operating activities ............. $ 200

59. The most recent balance sheet and income statement of Ganim Corporation appear
below:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 54 63
Total assets ................................................ $388 $333

Accounts payable ...................................... $61 $63
Wages payable ........................................... 20 21
Taxes payable ............................................ 14 16
Bonds payable ........................................... 80 110
Deferred taxes............................................ 11 15
Common stock ........................................... 24 20
Income Statement
Sales........................................................... $920
Gross margin ............................................. 314
Income taxes .............................................. 47
Net income ................................................ $110
was:
A) $125
B) $95
C) $15
D) $157


Solution:
Sales revenue (as reported).................................... $920

Decrease in accounts receivable...................... 2
Total....................................................................... $922

Decrease in inventory ...................................... ( 9)
Decrease in accounts payable.......................... 2
Total....................................................................... 599

Decrease in accrued wages payable ................ 1
Period’s depreciation charges ......................... ( 13)
Total....................................................................... 145

Decrease in accrued taxes payable .................. 2
Decrease in deferred income taxes .................. 4
Total....................................................................... 53
Net cash provided by operating activities ............. $125

60. Ostiguy Corporation's most recent comparative balance sheet and income statement
appear below:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 44 46
Total assets ................................................ $394 $339

Long-term debt .......................................... 293 320
Common stock ........................................... 55 50
Income Statement
Sales........................................................... $883
Gross margin ............................................. 303
Income taxes .............................................. 42
Net income ................................................ $ 97
was:
A) $139
B) $153
C) $41
D) $56

AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Easy

Solution:
Sales revenue (as reported)....................................... $883

Decrease in accounts receivable......................... 4
Total.......................................................................... $887
Cost of goods sold (as reported) ............................... 580

Decrease in inventory ......................................... ( 2)
Increase in accounts payable .............................. ( 1)
Total.......................................................................... 577

Depreciation charges .......................................... ( 49)
Total.......................................................................... 115
Income tax expense (as reported) ............................. 42
Net cash provided by operating activities ................ $153
61. Last year Martson Company sold equipment with a net book value of $110,000 for
$130,000 in cash. This equipment was originally purchased for $200,000. What will
be the net effect of this transaction on the net cash provided by investing activities on
the statement of cash flows?
A) A net deduction of $70,000 from cash.
B) A net addition of $70,000 to cash.
C) A net deduction of $20,000 from cash.
D) A net addition of $20,000 to cash.

Solution:
Disposal of equipment ............................... ($200,000)
Proceeds from sale of equipment............... 130,000
Net cash used in investing activities .......... ($ 70,000)

62. The following transactions occurred last year at Jobb Company:
Issuance of shares of the company’s own common stock ................ $100,000

Dividends paid to the company’s own shareholders ........................ $7,000
Dividends received from investments in other companies’ shares .. $2,000
Interest paid on the company’s own bonds ...................................... $25,000
Repayment of principal on the company’s own bonds .................... $90,000
Proceeds from sale of the company’s used equipment ..................... $9,000
Purchase of land ............................................................................... $120,000
Based solely on the above information, the net cash provided by financing activities
for the year on the statement of cash flows would be:
A) $3,000
B) $(131,000)
C) $(22,000)
D) $353,000

Solution:
Increase in common stock ......................... $100,000
Cash dividends paid ................................... ( 7,000)
Decrease in bonds payable ........................ ( 90,000)
Net cash provided by financing activities.. $ 3,000
63. Last year Burdic Company's cash account decreased by $4,000. Net cash provided by
investing activities was $31,000. Net cash used in financing activities was $38,000.
On the statement of cash flows, the net cash flow provided by (used in) operating
activities was:
A) $(4,000)
B) $(11,000)
C) $(7,000)
D) $3,000


Solution:
Decrease in cash ................................................. ($ 4,000)

Less: Net cash provided by investing activities .. ( 31,000)
Add: Net cash used in financing activities ......... 38,000
Net cash provided by operating activities ........... $ 3,000
Use the following to answer questions 64-68:
Krech Corporation's comparative balance sheet appears below:
Ending Beginning
Balance Balance
Assets:
Current assets:
Cash and cash equivalents........................ $ 31,000 $ 28,000
Accounts receivable ................................. 18,000 20,000
Inventory .................................................. 70,000 66,000
Total current assets ...................................... 119,000 114,000
Property, plant, and equipment ................... 374,000 354,000
Less accumulated depreciation ................ 190,000 165,000
Net property, plant, and equipment ............. 184,000 189,000
Total assets .................................................. $303,000 $303,000

Accounts payable ..................................... $ 13,000 $ 9,000
Accrued wages and salaries payable ........ 31,000 33,000
Accrued income taxes payable ................. 28,000 29,000
Notes payable ........................................... 21,000 20,000
Total current liabilities ................................ 93,000 91,000
Long-term debt ............................................ 76,000 73,000
Deferred income taxes................................. 39,000 40,000
Total liabilities ............................................ 208,000 204,000
Stockholders’ equity: ..................................
Common stock ......................................... 28,000 26,000
Retained earnings ..................................... 67,000 73,000
Total stockholders’ equity ........................... 95,000 99,000
Total liabilities and stockholders’ equity .... $303,000 $303,000
The company's net income (loss) for the year was ($3,000) and its cash dividends were
$3,000.

64. Which of the following classifications of changes in balance sheet accounts as sources
source
B) The change in Accounts Receivable is a source; The change in Inventory is a
use
C) The change in Accounts Receivable is a use; The change in Inventory is a use
D) The change in Accounts Receivable is a use; The change in Inventory is a
source

A) The change in Accounts Payable is a use; The change in Accrued Wages and
Salaries payable is a source
B) The change in Accounts Payable is a source; The change in Accrued Wages and
Salaries payable is a use

A) The change in Property, Plant, and Equipment is a source; The change in Long-
Term Debt is a source
B) The change in Property, Plant, and Equipment is a use; The change in Long-
Term Debt is a use
C) The change in Property, Plant, and Equipment is a source; The change in Long-
Term Debt is a use
D) The change in Property, Plant, and Equipment is a use; The change in Long-


67. The total dollar amount of all of the items that would be classified as sources when
compiling a simplified statement of cash flows is:
A) $34,000
B) $3,000
C) $28,000
D) $37,000

Solution:
Sources
Decreases in noncash assets:
Decrease in accounts receivable ............................ $ 2,000
Increase in accumulated depreciation .................... 25,000
Increase in accounts payable ................................. 4,000
Increase in notes payable ....................................... 1,000
Increase in long-term debt ..................................... 3,000
Increases in capital stock accounts:
Increase in common stock ..................................... 2,000
Total sources............................................................. $37,000
68. The total dollar amount of all of the items that would be classified as uses when
A) $34,000
B) $3,000
C) $37,000
D) $28,000


Solution:
Uses
Net loss $ 3,000
Increase in inventory ............................................. 4,000
Increase in property, plant, and equipment ........... 20,000
Decrease in accrued wages and salaries payable .. 2,000
Decrease in accrued income taxes payable ........... 1,000
Decrease in deferred income taxes ........................ 1,000
Dividends.................................................................. 3,000
Total uses .................................................................. $34,000
The most recent comparative balance sheet of Giacomelli Corporation appears below:
Ending Beginning
Balance Balance
Assets:
Current assets:
Cash and cash equivalents..........................................................................
$ 37,000 $ 29,000
Inventory ................................................... 70,000 68,000
Property, plant, and equipment .................... 424,000 399,000
Less accumulated depreciation ................. 231,000 200,000
Total assets ................................................... $320,000 $320,000


Notes payable ............................................ 22,000 18,000
Long-term debt ............................................. 77,000 80,000
Deferred income taxes.................................. 26,000 24,000
Total liabilities ............................................. 201,000 190,000
Common stock .......................................... 31,000 30,000
source
B) The change in Accounts Receivable is a source; The change in Inventory is a
use
C) The change in Accounts Receivable is a use; The change in Inventory is a
source
D) The change in Accounts Receivable is a use; The change in Inventory is a use

A) The change in Accounts Payable is a source; The change in Accrued Wages and
B) The change in Accounts Payable is a use; The change in Accrued Wages and


A) The change in Property, Plant, and Equipment is a use; The change in Long-
B) The change in Property, Plant, and Equipment is a source; The change in Long-
C) The change in Property, Plant, and Equipment is a use; The change in Long-
Term Debt is a use
D) The change in Property, Plant, and Equipment is a source; The change in Long-
Term Debt is a use


Hirshberg Corporation's comparative balance sheet appears below:
Ending Beginning
Balance Balance
Assets:
Current assets:
Cash and cash equivalents..........................................................................
$ 42,000 $ 31,000
Inventory ................................................... 66,000 70,000
Property, plant, and equipment .................... 401,000 377,000
Less accumulated depreciation ................. 207,000 177,000
Total assets ................................................... $324,000 $319,000

Notes payable ............................................ 12,000 9,000
Long-term debt ............................................. 83,000 81,000
Deferred income taxes.................................. 29,000 33,000
Total liabilities ............................................. 196,000 197,000
Common stock .......................................... 27,000 28,000
$4,000.

72. The total dollar amount of all of the items that would be classified as sources when
A) $11,000
B) $39,000
C) $43,000
D) $54,000

Solution:
Sources
Net income $11,000
Decreases in noncash assets:
Decrease in inventory ............................................ 4,000
Increase in accumulated depreciation ................... 30,000
Increase in wages and salaries payable ................. 4,000
Increase in notes payable ...................................... 3,000
Increase in long-term debt ..................................... 2,000
Total sources................................................................ $54,000
73. The total dollar amount of all of the items that would be classified as uses when
A) $11,000
B) $39,000
C) $54,000
D) $43,000


Solution:
Uses
Increase in accounts receivable ................................ $ 4,000
Increase in property, plant, and equipment .............. 24,000
Decrease in accounts payable ................................... 2,000
Decrease in accrued income taxes payable .............. 4,000
Decrease in deferred income taxes ........................... 4,000
Decrease in capital stock accounts:
Decrease in common stock ....................................... 1,000
Dividends..................................................................... 4,000
Total uses ..................................................................... $43,000

Waite Company's comparative balance sheet and income statement for last year appear below:
Statement of Financial Position
Ending Beginning
Balance Balance
Cash ..................................................... $ 27,000 $ 22,000
Accounts receivable ............................ 56,000 60,000
Inventory ............................................. 48,000 36,000
Prepaid expenses ................................. 14,000 11,000
Long-term investments........................ 270,000 230,000
Plant and equipment ............................ 440,000 440,000
Accumulated depreciation ................... ( 306,000) ( 276,000)
Total assets .......................................... $549,000 $523,000
Accounts payable ................................ $ 43,000 $ 33,000

Accrued liabilities ............................... 20,000 25,000
Taxes payable ...................................... 6,000 9,000
Bonds payable ..................................... 130,000 150,000
Deferred taxes ..................................... 22,000 20,000
Common stock .................................... 120,000 110,000
Retained earnings ................................ 208,000 176,000
Total liabilities and owners’ equity ..... $549,000 $523,000
Income Statement
Sales .......................................................... $510,000

Cost of goods sold ..................................... 280,000
Gross margin ............................................. 230,000
Selling and administrative expense ........... 150,000
Net operating income ................................ 80,000
Income taxes.............................................. 24,000
Net income ................................................ $ 56,000
The company declared and paid $24,000 in cash dividends during the year. The following
questions pertain to the company's statement of cash flows.

74. The net cash provided by (used in) operating activities last year was:
A) $56,000
B) $79,000
C) $86,000
D) $33,000

Solution:
Operating Activities
Net income ............................................................... $56,000
Adjustments to convert net income to a cash basis:
Depreciation charges ............................................. $30,000
Decrease in accounts receivable ............................ 4,000
Increase in inventory ............................................. ( 12,000)
Increase in prepaid expenses ................................. ( 3,000)
Increase in accounts payable ................................. 10,000
Decrease in accrued liabilities ............................... ( 5,000)
Decrease in taxes payable ..................................... ( 3,000)
Increase in deferred taxes ...................................... 2,000 23,000
Net cash provided by operating activities ................ $79,000
75. The net cash provided by (used in) investing activities last year was:
A) $(40,000)
B) $40,000
C) $(30,000)
D) $30,000

Solution:
Increase in long-term investments ............. ($40,000)
Net cash used in investing ......................... ($40,000)

76. The net cash provided by (used in) financing activities last year was:
A) $10,000
B) $(10,000)
C) $(34,000)
D) $34,000

Solution:
Decrease in bonds payable ........................ ($20,000)
Increase in common stock ......................... 10,000
Net cash used in financing activities ......... ($34,000)

Meganas Company's net income last year was $183,000. Changes in the company's balance
sheet accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Cash ............................................ $(4,000)
Accounts receivable ................... $(8,000)
Inventory .................................... $13,000
Prepaid expenses ........................ $(9,000)
Long-term investments .............. $60,000
Plant and equipment ................... $45,000
Credit balances:
Accumulated depreciation.......... $56,000
Accounts payable ....................... $3,000
Accrued liabilities ...................... $8,000
Taxes payable ............................. $(2,000)
Bonds payable ............................ $(60,000)
Deferred taxes ............................ $6,000
Common stock ........................... $20,000
Retained earnings ....................... $66,000
The company declared and paid cash dividends of $117,000 last year. The following
questions pertain to the company's statement of cash flows.
77. The net cash provided by (used in) operating activities last year was:
A) $258,000
B) $183,000
C) $239,000
D) $202,000


Solution:
Net income ............................................................ $183,000
Depreciation charges .......................................... $56,000
Decrease in accounts receivable ......................... 8,000
Increase in inventory .......................................... ( 13,000)
Decrease in prepaid expenses ............................. 9,000
Increase in accounts payable .............................. 3,000
Increase in accrued liabilities ............................. 8,000
Decrease in taxes payable .................................. ( 2,000)
Increase in deferred income taxes ...................... 6,000 75,000
Net cash provided by operating activities ............. $258,000
78. The net cash provided by (used in) investing activities last year was:
A) $(105,000)
B) $105,000
C) $(85,000)
D) $85,000

Solution:
Additions to plant and equipment .............. ($ 45,000)
Additions to long-term investments .......... ( 60,000)
Net cash used by investing activities ......... ($105,000)

79. The net cash provided by (used in) financing activities last year was:
A) $40,000
B) $(40,000)
C) $157,000
D) $(157,000)

Solution:
Decrease in bonds payable ........................ ($ 60,000)
Net cash used in financing activities ......... ($157,000)
Sparks Company recorded the following events last year:
Issuance of shares of the company’s own common stock............. $170,000

Purchase of bonds issued by other companies .............................. $90,000
Dividends paid to the company’s own shareholders ..................... $33,000
Dividends received from investments in other companies’ shares $13,000
Repayment of principal on the company’s own bonds ................. $370,000
Interest paid on the company’s own bonds ................................... $5,000
Collection of the principal amount of a loan made to another
company..................................................................................... $210,000
Purchase of equipment .................................................................. $430,000
On the statement of cash flows, some of these events are classified as operating activities,
some are classified as investing activities, and some are classified as financing activities.

80. Based solely on the information above, the net cash provided by (used in) financing
activities on the statement of cash flows would be:
A) $(39,000)
B) $1,321,000
C) $(233,000)
D) $(238,000)

Solution:
Issuance of common stock ......................... $170,000
Repayment of bonds .................................. ( 370,000)
Net cash used by financing activities ........ ($233,000)
81. Based solely on the information above, the net cash provided by (used in) investing
activities on the statement of cash flows would be:
A) $(310,000)
B) $(1,321,000)
C) $(520,000)
D) $(890,000)

Solution:
Purchase of bonds ...................................... ($ 90,000)
Collection of loan ...................................... 210,000
Purchase of equipment............................... ( 430,000)
Net cash used by investing activities ......... ($310,000)

Bebout Corporation's balance sheet and income statement appear below:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 40 49
Total assets ................................................ $456 $391

Wages payable .......................................... 20 24
Taxes payable ............................................ 13 15
Bonds payable ........................................... 150 200
Deferred taxes ........................................... 18 24
Common stock .......................................... 31 30
Income Statement
Sales .......................................................... $1,196
Gross margin ............................................. 410
Income before taxes .................................. 233
Income taxes.............................................. 70
Net income ................................................ $ 163
Cash dividends were $40. The company sold equipment for $14 that was originally purchased
for $9 and that had accumulated depreciation of $7.

82. The net cash provided by (used by) operations for the year was:
A) $180
B) $168
C) $208
D) $221

Solution:
Net income ............................................................ $163
Depreciation charges.......................................... $25
Increase in accounts receivable.......................... ( 8)
Decrease in inventory ........................................ 9
Increase in accounts payable.............................. 3
Decrease in wages payable ................................ ( 4)
Decrease in taxes payable .................................. ( 2)
Decrease in deferred income taxes .................... ( 6)
Gain on sale of plant and equipment ................. ( 12) 5
83. The net cash provided by (used by) investing activities for the year was:
A) ($88)
B) $14
C) ($74)
D) $74

Solution:
Proceeds from sale of equipment .............. $14
Purchase of plant and equipment............... ( 88) *
*$619 − ($540 − $9) = $619 − $531 = $88

84. The net cash provided by (used by) financing activities for the year was:
A) $1
B) ($40)
C) ($50)
D) ($89)

Solution:
Cash dividends paid ................................... ( 40)
Net cash used by financing activities ........ ($89)

The most recent balance sheet and income statement of Cowger Corporation appear below:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 60 54
Total assets ................................................ $272 $260

Wages payable .......................................... 18 16
Taxes payable ............................................ 10 9
Bonds payable ........................................... 98 130
Deferred taxes ........................................... 27 25
Common stock .......................................... 35 30
Income Statement
Sales .......................................................... $677
Gross margin ............................................. 246
Income taxes.............................................. 21
Net income ................................................ $ 50
Cash dividends were $9.
A) $71
B) $65
C) $35
D) $15


Solution:
Net income .............................................................. $50
Depreciation charges............................................ $20
Decrease in accounts receivable .......................... 3
Increase in inventory............................................ ( 6)
Decrease in accounts payable .............................. ( 7)
Increase in wages payable.................................... 2
Increase in income taxes payable......................... 1
Increase in deferred income taxes payable .......... 2 15
Net cash provided by operating activities ............... $65
A) ($8)
B) $8
C) $28
D) ($28)

Solution:
Additions to plant and equipment .............. ($28)
A) ($36)
B) ($32)
C) $5
D) ($9)


Solution:
Karner Corporation's most recent balance sheet appears below:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 63 56
Total assets ................................................ $410 $361

Wages payable .......................................... 24 25
Taxes payable ............................................ 8 9
Bonds payable ........................................... 64 60
Deferred taxes ........................................... 18 22
Common stock .......................................... 61 60
Net income for the year was $76. Cash dividends were $19.

A) $78
B) $109
C) $2
D) $74

Solution:
Net income ............................................................... $76
Depreciation charges............................................. $32
Increase in accounts receivable............................. ( 10)
Increase in inventory............................................. ( 7)
Decrease in accounts payable ............................... ( 7)
Decrease in wages payable ................................... ( 1)
Decrease in income taxes payable ........................ ( 1)
Decrease in deferred income taxes payable .......... ( 4) 2
A) ($27)
B) $27
C) $59
D) ($59)

Solution:

A) ($14)
B) $4
C) ($19)
D) $1

Solution:
Increase in bonds payable .......................... $ 4

Financial statements of Casagrande Corporation follow:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 33 35
Total assets ................................................ $379 $332

Long-term debt .......................................... 112 150
Common stock .......................................... 82 80
Income Statement
Sales .......................................................... $941
Gross margin ............................................. 343
Income taxes.............................................. 45
Net income ................................................ $105
A) $134
B) $29
C) $76
D) $150


Solution:
Net income ............................................................... $105
Depreciation charges............................................. $29
Increase in accounts receivable............................. ( 7)
Decrease in inventory ........................................... 2
Increase in accounts payable................................. 5 29
A) $40
B) ($40)
C) ($69)
D) $69

Solution:
A) ($63)
B) ($27)
C) ($38)
D) $2

Solution:
Decrease in long-term debt ........................ ($38)

Kozusko Corporation's most recent comparative balance sheet appears below:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 51 52
Total assets ................................................ $379 $347

Long-term debt .......................................... 48 50
Common stock .......................................... 51 50
A) $44
B) ($39)
C) $101
D) $70


Solution:
Net income ............................................................ $31
Depreciation charges.......................................... $69
Decrease in inventory ........................................ 1
Increase in accounts payable.............................. 8 70
A) $89
B) ($89)
C) $20
D) ($20)

Solution:
A) ($2)
B) $1
C) ($6)
D) ($7)

Solution:
Decrease in long-term debt ........................ ($2)

(Appendix) Van Wyck Company's comparative balance sheet and income statement for last
year appear below:

Ending Beginning
Balance Balance
Cash ........................................................... $ 63,000 $ 30,000
Inventory ................................................... 26,000 44,000
Prepaid expenses ....................................... 13,000 19,000
Long-term investments.............................. 260,000 190,000
Plant and equipment .................................. 460,000 460,000
Accumulated depreciation ......................... ( 298,000) ( 260,000)
Total assets ................................................ $615,000 $551,000

Accrued liabilities ..................................... 25,000 17,000
Taxes payable ............................................ 12,000 19,000
Bonds payable ........................................... 110,000 150,000
Deferred taxes ........................................... 36,000 19,000
Common stock .......................................... 100,000 70,000
Total liabilities and owners’ equity ........... $615,000 $551,000
Income Statement
Sales .......................................................... $900,000
Gross margin ............................................. 410,000
Income taxes.............................................. 42,000
Net income ................................................ $ 98,000
The company declared and paid $20,000 in cash dividends during the year. The company uses
the direct method to determine the net cash provided by operating activities.

97. On the statement of cash flows, the sales revenue adjusted to a cash basis would be:
A) $900,000
B) $877,000
C) $923,000
D) $859,000

Solution:
Sales revenue (as reported)........................ $900,000

Increase in accounts receivable.............. ( 23,000)
98. On the statement of cash flows, the cost of goods sold adjusted to a cash basis would
be:
A) $494,000
B) $490,000
C) $486,000
D) $512,000

Solution:

Decrease in inventory ............................ ( 18,000)
Decrease in accounts payable ................ 22,000

99. On the statement of cash flows, the operating expenses adjusted to a cash basis would
be:
A) $270,000
B) $218,000
C) $256,000
D) $322,000

Solution:
Operating expenses (as reported) .............. $270,000

Decrease in prepaid expenses ................ ( 6,000)
Increase in accrued liabilities ................. ( 8,000)
Period’s depreciation charges ................ ( 38,000)
Total ........................................................... $218,000
100. On the statement of cash flows, the income tax expense adjusted to a cash basis would
be:
A) $42,000
B) $36,000
C) $49,000
D) $32,000

Solution:
Income tax expense (as reported) .............. $42,000

Decrease in accrued taxes payable ......... 7,000
Decrease in deferred income taxes ........ ( 17,000)
Income tax expense (adjusted) .................. $32,000

(Appendix) The changes in Tencate Company's balance sheet account balances for last year
appear below:
Increases
(Decreases)
Debit balances:
Cash ............................................ $8,000
Accounts receivable ................... $(6,000)
Inventory .................................... $2,000
Prepaid expenses ........................ $(13,000)
Long-term investments .............. $70,000
Plant and equipment ................... $55,000
Credit balances:
Accumulated depreciation.......... $67,000
Accounts payable ....................... $(14,000)
Accrued liabilities ...................... $2,000
Taxes payable ............................. $7,000
Bonds payable ............................ $(60,000)
Deferred taxes ............................ $(7,000)
Common stock ........................... $20,000
Retained earnings ....................... $101,000
The company’s income statement for the year appears below:
Sales .................................................... $970,000

Cost of goods sold ............................... 530,000
Gross margin ....................................... 440,000
Selling and administrative expense ..... 290,000
Net operating income .......................... 150,000
Income taxes........................................ 45,000
Net income .......................................... $105,000
The company declared and paid $4,000 in cash dividends during the year. The company uses
the direct method to determine the net cash provided by operating activities.

101. On the statement of cash flows, the sales revenue adjusted to a cash basis would be:
A) $978,000
B) $976,000
C) $970,000
D) $964,000

Solution:
Sales revenue (as reported)........................ $970,000

Decrease in accounts receivable ............ 6,000
102. On the statement of cash flows, the cost of goods sold adjusted to a cash basis would
be:
A) $514,000
B) $544,000
C) $546,000
D) $530,000

Solution:

Increase in inventory .............................. 2,000
Decrease in accounts payable ................ 14,000

103. On the statement of cash flows, the operating expenses adjusted to a cash basis would
be:
A) $290,000
B) $372,000
C) $275,000
D) $208,000

Solution:
Operating expenses (as reported) .............. $290,000

Decrease in prepaid expenses ................ ( 13,000)
Increase in accrued liabilities ................. ( 2,000)
Period’s depreciation charges ................ ( 67,000)
Total ........................................................... $208,000
104. On the statement of cash flows, the income tax expense adjusted to a cash basis would
be:
A) $40,000
B) $42,000
C) $45,000
D) $46,000

Solution:
Income tax expense (as reported) .............. $45,000

Increase in accrued taxes payable .......... ( 7,000)
Decrease in deferred income taxes ........ 7,000
Income tax expense (adjusted) .................. $45,000

(Appendix) Cliburn Corporation's balance sheet and income statement appear below:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 64 59
Total assets ................................................ $468 $406

Wages payable .......................................... 27 24
Taxes payable ............................................ 20 22
Bonds payable ........................................... 184 180
Deferred taxes ........................................... 21 24
Common stock .......................................... 83 80
Income Statement
Sales .......................................................... $690
Gross margin ............................................. 234
Income before taxes .................................. 93
Income taxes.............................................. 28
Net income ................................................ $ 65
Cash dividends were $15. The company sold equipment for $11 that was originally purchased
for $3 and that had accumulated depreciation of $1.

A) $73
B) $84
C) $64
D) $79

Solution:
Sales revenue (as reported).................................... $690

Total....................................................................... $688

Increase in inventory.......................................... 5
Increase in accounts payable.............................. ( 7)
Total....................................................................... 454

Increase in wages payable.................................. ( 3)
Period’s depreciation charges ............................ ( 10)
Total....................................................................... 137

Decrease in accrued taxes payable..................... 2
Decrease in deferred income taxes .................... 3
Total....................................................................... 33
Net cash provided by operating activities ............. $ 64

A) ($56)
B) $11
C) ($67)
D) $56

Solution:
Additions to plant and equipment .............. ($67) *
Proceeds from sale of equipment............... 11
*($564 + $3) − $500
A) $3
B) $4
C) ($15)
D) ($8)

Solution:
Increase in bonds payable .......................... $ 4
Net cash used by financing activities ........ ($ 8)

(Appendix) The most recent balance sheet and income statement of Spadafino Corporation
appear below:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 59 70
Total assets ................................................ $406 $374

Wages payable .......................................... 22 19
Taxes payable ............................................ 16 15
Bonds payable ........................................... 176 210
Deferred taxes ........................................... 16 15
Common stock .......................................... 45 40
Income Statement
Sales .......................................................... $722
Gross margin ............................................. 257
Income taxes.............................................. 33
Net income ................................................ $ 78

A) $28
B) $111
C) $106
D) $50

Solution:
Sales revenue (as reported)................................... $722

Increase in accounts receivable......................... ( 1)
Total...................................................................... $721
Cost of goods sold (as reported) ........................... 465

Decrease in inventory ....................................... ( 11)
Decrease in accounts payable ........................... 1
Total...................................................................... 455

Increase in wages payable................................. ( 3)
Period’s depreciation charges ........................... ( 14)
Total...................................................................... 129
Income tax expense .............................................. 33

Increase in accrued taxes payable ..................... ( 1)
Increase in deferred income taxes ..................... ( 1)
Total...................................................................... 31
Net cash provided by operating activities ............ $106

A) ($34)
B) $48
C) ($48)
D) $34

Solution:
A) ($50)
B) ($34)
C) $5
D) ($21)

Solution:

(Appendix) Karpinski Corporation's most recent comparative balance sheet and income
statement appear below:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 57 59
Total assets ................................................ $425 $329

Long-term debt .......................................... 15 20
Common stock .......................................... 74 70
Income Statement
Sales .......................................................... $1,087
Gross margin ............................................. 363
Income taxes.............................................. 55
Net income ................................................ $ 129
A) $34
B) $184
C) $95
D) $163


Solution:
Sales revenue (as reported)................................... $1,087

Increase in accounts receivable......................... ( 9)
Total...................................................................... $1,078
Cost of goods sold (as reported) ........................... 724

Decrease in inventory ....................................... ( 2)
Decrease in accounts payable ........................... 1
Total...................................................................... 723

Period’s depreciation charges ........................... ( 42)
Total...................................................................... 137
Income tax expense .............................................. 55
Net cash provided by operating activities ............ $ 163
A) $82
B) ($124)
C) ($82)
D) $124

Solution:

A) ($32)
B) ($31)
C) $4
D) ($5)

Solution:
Decrease in bonds payable ........................ ($ 5)

Essay Questions
114. Manila Corporation's comparative balance sheet appears below:
Ending Beginning
Balance Balance
Assets:
Current assets:
Cash and cash equivalents ...................... $ 42,000 $ 26,000
Accounts receivable ............................... 22,000 26,000
Inventory ................................................ 77,000 75,000
Total current assets .................................... 141,000 127,000
Property, plant, and equipment.................. 340,000 315,000
Less accumulated depreciation............... 218,000 187,000
Net property, plant, and equipment ........... 122,000 128,000
Total assets ................................................ $263,000 $255,000

Accounts payable ................................... $ 13,000 $ 14,000
Wages and salaries payable .................... 32,000 33,000
Income taxes payable ............................. 28,000 30,000
Notes payable ......................................... 16,000 15,000
Total current liabilities .............................. 89,000 92,000
Long-term debt .......................................... 77,000 78,000
Deferred income taxes ............................... 28,000 25,000
Total liabilities ........................................... 194,000 195,000
Common stock........................................ 28,000 24,000
Retained earnings ................................... 41,000 36,000
Total stockholders’ equity ......................... 69,000 60,000
Total liabilities and stockholders’ equity .. $263,000 $255,000
$2,000.
Required:
Classify the change for the year in each balance sheet account as a source, use, or
neither a source nor a use. (Do this only for the individual accounts-not for totals or
subtotals.)

Ans:
Ending Beginning
Balance Balance Change
Cash and cash equivalents ........... 42,000 26,000 +16,000 Neither
Accounts receivable .................... 22,000 26,000 -4,000 Source
Inventory ..................................... 77,000 75,000 +2,000 Use
Property, plant, and equipment ... 340,000 315,000 +25,000 Use
Less accumulated depreciation.... 218,000 187,000 +31,000 Source
Accounts payable ........................ 13,000 14,000 -1,000 Use

Wages and salaries payable ......... 32,000 33,000 -1,000 Use
Income taxes payable .................. 28,000 30,000 -2,000 Use
Notes payable .............................. 16,000 15,000 +1,000 Source
Long-term debt ............................ 77,000 78,000 -1,000 Use
Deferred income taxes ................. 28,000 25,000 +3,000 Source
Common stock............................. 28,000 24,000 +4,000 Source
Retained earnings ........................ 41,000 36,000 +5,000 *
*The change in retained earnings consists of two elements: net income (loss) and
dividends. The net income of $7,000 is classified as a source and the dividends of
$2,000 are classified as a use.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting

LO: 1 Level: Easy

115. The ending and beginning balances of Diogo Corporation's balance sheet accounts for
the most recent year are listed below:
Ending Beginning
Balance Balance
Assets & Contra-Assets:
Cash and cash equivalents ......................... $40,000 $28,000
Accounts receivable .................................. $17,000 $14,000
Inventory ................................................... $60,000 $62,000
Property and buildings............................... $406,000 $383,000
Accumulated depreciation ......................... $234,000 $205,000

Accounts payable ...................................... $15,000 $12,000
Wages and salaries payable ....................... $35,000 $38,000
Income taxes payable ................................ $22,000 $18,000
Notes payable ............................................ $28,000 $24,000
Long-term debt .......................................... $81,000 $85,000
Deferred income taxes ............................... $27,000 $24,000
Common stock ........................................... $39,000 $36,000
Retained earnings ...................................... $42,000 $45,000
$4,000.
Required:
Classify the change for the year in each balance sheet account as a source, use, or
neither a source nor a use.

Ans:
Ending Beginning
Balance Balance Change
Cash and cash equivalents ..... 40,000 28,000 +12,000 Neither
Accounts receivable .............. 17,000 14,000 +3,000 Use
Inventory ............................... 60,000 62,000 -2,000 Source
Property and buildings .......... 406,000 383,000 +23,000 Use
Accumulated depreciation ..... 234,000 205,000 +29,000 Source
Accounts payable .................. 15,000 12,000 +3,000 Source

Wages and salaries payable ... 35,000 38,000 -3,000 Use
Income taxes payable ............ 22,000 18,000 +4,000 Source
Notes payable ........................ 28,000 24,000 +4,000 Source
Long-term debt ...................... 81,000 85,000 -4,000 Use
Deferred income taxes ........... 27,000 24,000 +3,000 Source
Common stock....................... 39,000 36,000 +3,000 Source
Retained earnings .................. 42,000 45,000 -3,000 *
*The change in retained earnings consists of two elements: net income (loss) and
dividends. The net income of $1,000 is classified as a source and the dividends of
$4,000 are classified as a use.

LO: 1 Level: Easy

116. Burch Company's net income last year was $119,000. Changes in the company's
balance sheet accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Cash ...................................... $29,000
Accounts receivable ............. $(21,000)
Inventory .............................. $12,000
Prepaid expenses .................. $(8,000)
Long-term investments ......... $80,000
Plant and equipment ............. $10,000
Credit balances:
Accumulated depreciation .... $26,000
Accounts payable ................. $23,000
Accrued liabilities ................ $14,000
Taxes payable ....................... $(9,000)
Bonds payable ...................... $(50,000)
Deferred taxes ...................... $4,000
Common stock...................... $20,000
Retained earnings ................. $74,000
The company declared and paid cash dividends of $45,000 last year.
Required:
a. Construct in good form the operating activities section of the company's statement
of cash flows for the year. (Use the indirect method.)
b. Construct in good form the investing activities section of the company's statement
of cash flows for the year.
c. Construct in good form the financing activities section of the company's statement

Ans:
a. Operating activities
Net income .................................................... $119,000
Adjustments:
Depreciation charges ................................. $26,000
Decrease in accounts receivable ................ 21,000
Increase in inventory.................................. (12,000)
Decrease in prepaid expenses .................... 8,000
Increase in accounts payable ..................... 23,000
Increase in accrued liabilities..................... 14,000
Decrease in taxes payable .......................... (9,000)
Increase in deferred taxes .......................... 4,000 75,000
Net cash provided by operating activities ..... $194,000
b. Investing activities:
Increase in long-term investments ................ $(80,000)
Increase in plant & equipment ...................... (10,000)
Net cash used for investing activities ........... $(90,000)
c. Financing activities:
Decrease in bonds payable ............................ $(50,000)
Increase in common stock............................. 20,000
Cash dividends .............................................. (45,000)
Net cash used in financing activities............. $(75,000)
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement

LO: 2,3 Level: Medium

117. Biven Corporation's balance sheet and income statement appear below:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 67 58
Total assets ................................................ $420 $354

Wages payable ........................................... 26 24
Taxes payable ............................................ 11 10
Bonds payable ........................................... 77 90
Deferred taxes............................................ 25 24
Common stock ........................................... 33 30
Income Statement
Sales........................................................... $620
Gross margin ............................................. 239
Income before taxes................................... 156
Income taxes .............................................. 47
Net income ................................................ $109
purchased for $14 and that had accumulated depreciation of $14.
Required:
Prepare a statement of cash flows for the year using the indirect method.

Ans:
Net income ..................................................................... $109

Depreciation charges ................................................... 17
Increase in accounts receivable ................................... (5)
Increase in inventory ................................................... (9)
Decrease in accounts payable ...................................... (6)
Increase in wages payable ........................................... 2
Increase in taxes payable ............................................. 1
Increase in deferred taxes ............................................ 1
Gain on sale of plant and equipment ........................... (20)
Net cash provided by operations .................................... 90
Investing activities:
Proceeds from sale of plant and equipment ................ 20
Increase in plant and equipment .................................. (64)
Net cash used for investing activities ............................. (44)
Financing activities:
Decrease in bonds payable .......................................... (13)
Increase in common stock ........................................... 3
Cash dividends ............................................................ (31)
Net cash used by financing activities ............................. (41)
Net increase (decrease) in cash and cash equivalents .... 5
Cash balance, beginning ................................................. 30
Cash balance, end ........................................................... $35


118. Danford Corporation's balance sheet and income statement appear below:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 40 49
Total assets ................................................ $313 $311

Wages payable ........................................... 14 16
Taxes payable ............................................ 25 22
Bonds payable ........................................... 100 120
Deferred taxes............................................ 16 19
Common stock ........................................... 74 70
Income Statement
Sales........................................................... $546
Gross margin ............................................. 183
Income taxes .............................................. 17
Net income ................................................ $ 40
Required:
Determine the net cash provided by (used by) operating activities for the year using
the indirect method.

Ans:
Net income ...................................................................... $40

Depreciation charges .................................................... 48
Decrease in accounts receivable ................................... 5
Decrease in inventory ................................................... 9
Decrease in accounts payable ....................................... (12)
Decrease in wages payable........................................... (2)
Increase in taxes payable .............................................. 3
Decrease in deferred taxes ........................................... (3)
Gain on sale of plant and equipment ............................ ( 8)
Net cash provided by operations ..................................... $80


119. NOTES TO THE INSTRUCTOR:

* The problem requirement does not indicate whether the indirect or direct method
must be used to determine the net cash provided by operating activities. You can, if
you choose, specify that either (or even both) methods be used. The solution contains
solutions for both methods.
* Due to the length of the problem, you may want to eliminate one or more of the
requirements.
---------------------------------------------------------------------
Dano Company's comparative balance sheet and income statement for last year appear
below:
Ending Beginning
Balance Balance
Cash ........................................................... $ 41,000 $ 20,000
Inventory ................................................... 66,000 53,000
Long-term investments .............................. 310,000 240,000
Total assets ................................................ $685,000 $621,000

Accrued liabilities...................................... 14,000 19,000
Taxes payable ............................................ 32,000 15,000
Bonds payable ........................................... 70,000 110,000
Deferred taxes............................................ 29,000 25,000
Common stock ........................................... 90,000 70,000
Income Statement
Sales........................................................... $540,000
Gross margin ............................................. 320,000
Income taxes .............................................. 36,000
Net income ................................................ $ 84,000

The company declared and paid $34,000 in cash dividends during the year.
Required:
a. Construct in good form the operating activities section of the company's statement
b. Construct in good form the investing activities section of the company's statement
c. Construct in good form the financing activities section of the company's statement
Ans:
a. Operating activities
INDIRECT METHOD
Net income .................................................... $84,000

Adjustments:
Depreciation charges .................................. $29,000
Decrease in accounts receivable ................. 14,000
Increase in inventory .................................. (13,000)
Increase in prepaid expenses ...................... (3,000)
Increase in accounts payable ...................... 18,000
Decrease in accrued liabilities .................... (5,000)
Increase in taxes payable ............................ 17,000
Increase in deferred taxes ........................... 4,000 61,000

DIRECT METHOD
Sales .............................................................. $540,000

Decrease in accounts receivable ................. +14,000 $554,000
Cost of goods sold ......................................... 220,000

Increase in inventory .................................. +13,000
Increase in accounts payable ...................... -18,000 215,000
Selling and administrative expense ............... 200,000

Increase in prepaid expenses ...................... +3,000
Decrease in accrued liabilities .................... +5,000
Depreciation charges .................................. -29,000 179,000
Income tax expense ....................................... 36,000

Increase in taxes payable ............................ -17,000
Increase in deferred taxes ........................... -4,000 15,000
b. Investing activities:
Increase in long-term investments ............. $(70,000)
Net cash used for investing activities ........ $(70,000)
c. Financing activities:
Decrease in bonds payable ........................ $(40,000)
Cash dividends .......................................... ( 34,000)
Net cash used in financing activities ......... $(54,000)

LO: 2,3 Level: Hard

120. Sary Corporation's balance sheet and income statement appear below:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 62 55
Total assets ................................................ $427 $359

Wages payable ........................................... 21 25
Taxes payable ............................................ 15 18
Bonds payable ........................................... 171 170
Deferred taxes............................................ 18 22
Common stock ........................................... 32 30
Income Statement
Sales........................................................... $895
Gross margin ............................................. 338
Income taxes .............................................. 48
Net income ................................................ $113
Required:
Prepare a statement of cash flows in good form using the indirect method.

Ans:
Net income ................................................................... $113

Depreciation charges ................................................. 49
Increase in accounts receivable ................................. (4)
Increase in inventory ................................................. (7)
Decrease in accounts payable .................................... (9)
Decrease in wages payable........................................ (4)
Decrease in taxes payable ......................................... (3)
Decrease in deferred taxes ........................................ ( 4)
Net cash provided by operations .................................. 131
Increase in plant and equipment ................................ ( 105)
Net cash used for investing activities ........................... ( 105)
Increase in bonds payable ......................................... 1
Increase in common stock ......................................... 2
Cash dividends .......................................................... ( 28)
Net cash used by financing activities ........................... ( 25)
Net change in cash and cash equivalents ..................... 1
Cash balance, beginning ............................................... 26
Cash balance, end ......................................................... $ 27


121. Boscia Corporation's balance sheet appears below:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 71 69
Total assets ................................................ $494 $475

Wages payable ........................................... 24 21
Taxes payable ............................................ 19 22
Bonds payable ........................................... 226 300
Deferred taxes............................................ 19 18
Common stock ........................................... 22 20
The net income for the year was $108. Cash dividends were $28.
Required:

Ans:
Net income .................................................................. $108

Depreciation charges ................................................ 39
Increase in accounts receivable ................................ (13)
Increase in inventory ................................................ (2)
Increase in accounts payable .................................... 10
Increase in wages payable ........................................ 3
Decrease in taxes payable ........................................ (3)
Increase in deferred taxes ......................................... 1
Net cash provided by operations ................................. 143
Increase in plant and equipment ............................... ( 37)
Net cash used for investing activities .......................... ( 37)
Decrease in bonds payable ....................................... (74)
Increase in common stock ........................................ 2
Cash dividends ......................................................... ( 28)
Net cash used by financing activities .......................... ( 100)
Net change in cash and cash equivalents .................... 6
Cash balance, beginning .............................................. 38
Cash balance, end ........................................................ $ 44

LO: 2,3 Level: Easy

122. Fryberger Corporation's balance sheet and income statement appear below:

Ending Beginning
Balance Balance
Assets:
Cash and cash equivalents ............................. $ 36 $ 33
Accounts receivable ...................................... 46 41
Inventory ....................................................... 53 59
Plant and equipment ...................................... 472 460
Accumulated depreciation ............................. ( 218) ( 214)
Total assets .................................................... $389 $379

Accounts payable .......................................... $ 52 $ 62
Long-term debt .............................................. 289 330
Common stock............................................... 84 80
Retained earnings .......................................... ( 36) ( 93)
Total liabilities and stockholders’ equity ...... $389 $379
Income Statement
Sales .............................................................. $737
Cost of goods sold ......................................... 454
Gross margin ................................................. 283
Selling and administrative expense ............... 173
Net operating income .................................... 110
Income taxes .................................................. 33
Net income .................................................... $ 77
Required:

Ans:
Net income ............................................................... $77

Depreciation charges ............................................. 4
Increase in accounts receivable ............................. (5)
Decrease in inventory ............................................ 6
Decrease in accounts payable ................................ ( 10)
Net cash provided by operations .............................. 72
Increase in plant and equipment ............................ ( 12)
Net cash used for investing activities ....................... ( 12)
Decrease in long-term debt ................................... ( 41)
Increase in common stock ..................................... 4
Cash dividends ...................................................... ( 20)
Net cash used by financing activities ....................... ( 57)
Net cash flow ............................................................ 3
Cash balance, beginning ........................................... 33
Cash balance, end ..................................................... $36


123. Solmonson Corporation's balance sheet appears below:

Ending Beginning
Balance Balance
Assets:
Cash and cash equivalents ............................. $ 29 $ 27
Accounts receivable ...................................... 21 25
Inventory ....................................................... 49 56
Plant and equipment ...................................... 524 420
Accumulated depreciation ............................. ( 283) ( 251)
Total assets .................................................... $340 $277

Accounts payable .......................................... $ 28 $ 34
Long-term debt .............................................. 84 100
Common stock............................................... 51 50
Retained earnings .......................................... 177 93
Total liabilities and stockholders’ equity ...... $340 $277
Required:

Ans:
Net income .................................................................... $105

Depreciation charges .................................................. 32
Decrease in accounts receivable ................................. 4
Decrease in inventory ................................................. 7
Decrease in accounts payable ..................................... ( 6)
Net cash provided by operations ................................... 142
Increase in plant and equipment ................................. ( 104)
Net cash used for investing activities ............................ ( 104)
Decrease in long-term debt ........................................ (16)
Increase in common stock .......................................... 1
Cash dividends ........................................................... ( 21)
Net cash used by financing activities ............................ ( 36)
Net cash flow ................................................................. 2
Cash balance, beginning ................................................ 27
Cash balance, end .......................................................... $ 29

LO: 2,3 Level: Easy

124. Carman Company's comparative balance sheet and income statement for last year
appear below:
Ending Beginning
Balance Balance
Cash ........................................................... $ 70,000 $ 38,000
Inventory ................................................... 24,000 42,000
Long-term investments .............................. 260,000 210,000
Total assets ................................................ $570,000 $518,000

Accrued liabilities...................................... 34,000 25,000
Taxes payable ............................................ 4,000 11,000
Bonds payable ........................................... 160,000 200,000
Deferred taxes............................................ 38,000 25,000
Common stock ........................................... 150,000 120,000
Income Statement
Sales........................................................... $610,000
Gross margin ............................................. 300,000
Income taxes .............................................. 33,000
Net income ................................................ $ 77,000
The company declared and paid $8,000 in cash dividends during the year.
Required:
Construct in good form the operating activities section of the company's statement of
cash flows for the year using the direct method.

Ans:
Sales ................................................................ $610,000

Increase in accounts receivable ....................... -24,000 $586,000
Cost of goods sold 310,000

Decrease in inventory -18,000
Decrease in accounts payable +22,000 314,000
Selling and administrative expense 190,000

Decrease in prepaid expenses -8,000
Increase in accrued liabilities -9,000
Depreciation charges -48,000 125,000
Income tax expense 33,000

Decrease in taxes payable +7,000
Increase in deferred taxes -13,000 27,000
Net cash provided by operating activities $120,000

Appendix: 15 LO: 2,4 Level: Hard

125. Boehning Corporation's balance sheet and income statement appear below:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 50 56
Total assets ................................................ $375 $295

Wages payable ........................................... 20 24
Taxes payable ............................................ 10 9
Bonds payable ........................................... 71 100
Deferred taxes............................................ 15 19
Common stock ........................................... 82 80
Income Statement
Sales........................................................... $954
Gross margin ............................................. 348
Income taxes .............................................. 59
Net income ................................................ $137
Required:
Using the direct method, determine the net cash provided by (used by) operating
activities.

Ans:
Sales ............................................................. $954

Increase in accounts receivable .................... ( 5) $949
Cost of sales ................................................. 606

Decrease in inventory ................................... (6)
Increase in accounts payable ........................ ( 1) 599
Selling and administrative expense .............. 162

Decrease in wages payable ........................... 4
Depreciation charges .................................... ( 28) 138
Income taxes ................................................. 59

Increase in taxes payable .............................. (1)
Decrease in deferred taxes............................ 4 62
Net cash provided by operating activities .... $150

Appendix: 15 LO: 2,4 Level: Medium

126. May Corporation's balance sheet and income statement appear below:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 32 37
Total assets ................................................ $288 $298

Wages payable ........................................... 23 25
Taxes payable ............................................ 12 10
Bonds payable ........................................... 87 110
Deferred taxes............................................ 16 17
Common stock ........................................... 63 60
Income Statement
Sales........................................................... $606
Gross margin ............................................. 210
Income taxes .............................................. 11
Net income ................................................ $ 25
Required:
Prepare the operating activities section of the statement of cash flows using the direct
method. In other words, determine the net cash provided by or used by operating
activities using the direct method.

Ans:
Sales ................................................................ $606

Decrease in accounts receivable ...................... 1 $607
Cost of goods sold ........................................... 396

Decrease in inventory ...................................... (5)
Decrease in accounts payable .......................... 7 398
Selling and administrative expense ................. 174

Decrease in wages payable .............................. 2
Depreciation charges ....................................... ( 24) 152
Income taxes .................................................... 11

Increase in taxes payable ................................. (2)
Decrease in deferred taxes............................... 1 10
Net cash provided by operating activities ....... $ 47


127. Heckler Corporation's balance sheet and income statement appear below:

Ending Beginning
Balance Balance
Assets:
Inventory ................................................... 67 66
Total assets ................................................ $290 $291

Long-term debt .......................................... 198 240
Common stock ........................................... 74 70
Retained earnings ...................................... ( 13) ( 48)
Income Statement
Sales........................................................... $618
Gross margin ............................................. 220
Income taxes .............................................. 19
Net income ................................................ $ 45
Required:
Prepare the operating activities section of the statement of cash flows in good form
using the direct method.

Ans:
Sales .............................................................. $618

Decrease in accounts receivable ................... 3 $621
Cost of goods sold......................................... 398

Increase in inventory ..................................... 1
Increase in accounts payable......................... ( 2) 397
Selling and administrative expense............... 156

Depreciation charges..................................... ( 39) 117
Income taxes ................................................. 19
Net cash provided by operating activities ..... $ 88

LO: 2,4 Level: Easy


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Chapter 15 “How Well Am I Doing?

”--Statement of Cash Flows

1. An increase in inventory is classified as a “use” of cash for purposes of constructing

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: False AACSB: Analytic AICPA BB: Critical Thinking

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking

6. Interest paid on borrowed funds would be included as part of a company's financing

Ans: False AACSB: Analytic AICPA BB: Critical Thinking

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 15-5

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking

8. A change in deferred taxes is considered to be an operating activity on the statement of

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking

9. Lending money to another company would be classified as a financing activity on the

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: False AACSB: Analytic AICPA BB: Critical Thinking

Ans: True AACSB: Analytic AICPA BB: Critical Thinking

Ans: True AACSB: Analytic AICPA BB: Critical Thinking

15-6 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Ans: True AACSB: Analytic AICPA BB: Critical Thinking

14. Accounts receivable is not considered to be a cash equivalent for purposes of

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking

Multiple Choice Questions

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 15-7

Ans: B AACSB: Analytic AICPA BB: Critical Thinking

Ans: C AACSB: Analytic AICPA BB: Critical Thinking

Ans: A AACSB: Analytic AICPA BB: Critical Thinking

15-8 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Ans: A AACSB: Analytic AICPA BB: Critical Thinking

Depreciation Loss on Sale

Ans: A AACSB: Analytic AICPA BB: Critical Thinking

Increase in Taxes Payable Increase in Dividends Payable

Ans: D AACSB: Analytic AICPA BB: Critical Thinking

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 15-9

Depreciation Expense Gain on Sale of Equipment

Ans: D AACSB: Analytic AICPA BB: Critical Thinking

Ans: B AACSB: Analytic AICPA BB: Critical Thinking

Ans: C AACSB: Analytic AICPA BB: Critical Thinking

15-10 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: C AACSB: Analytic AICPA BB: Critical Thinking

29. Which of the following should be classified as an investing activity on a statement of

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking

30. Which of the following should be classified as an investing activity on a statement of

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 15-11

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking

33. Which of the following should be classified as a financing activity on a statement of

Ans: A AACSB: Analytic AICPA BB: Critical Thinking

Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking

15-12 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ending Balance Beginning Balance

Which of the following classifications of changes in balance sheet accounts as sources

Ans: A AACSB: Analytic AICPA BB: Critical Thinking

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 15-13

Ending Balance Beginning Balance

Which of the following classifications of changes in balance sheet accounts as sources