Chapter 14

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 Chapter 14, P 1.

Cash Flow Classification Effect on Cash

Operating Investing Financing Noncash
Transaction Activity Activity Activity Transaction Increase Decrease No Effect

1. Earned a net income.

2. Declared and paid cash
dividend.
3. Issued stock for cash.
4. Retired long-term debt
by issuing stock.
5. Paid accounts payable.
6. Purchased inventory
with cash.
7. Purchased a one-year
insurance policy with cash.
8. Purchased a long-term
investment with cash.
9. Sold trading securities at a
gain.
10. Sold a machine at a loss.
11. Retired fully depreciated
equipment.
12. Paid interest on debt.
13. Purchased available-for-sale
securities (long-term).
14. Received dividend income.
15. Received cash on account.
16. Converted bonds to common
stock.
17. Purchased ninety-day
Treasury bill.

*Cash equivalent.
Copyright ã Houghton Mifflin Company. All rights reserved. Ch.14--P1-1
 Chapter 14, P 2.

1. Statement of cash flows prepared

Sharma Fabrics, Inc.

Statement of Cash Flows
For the Year Ended December 31, 20x3

Cash Flows from Operating Activities

Net Income
Adjustments to Reconcile Net Income to
Net Cash Flows from Operating Activities
Depreciation, Building
Depreciation, Equipment
Amortization, Patent
Gain on Sale of Equipment
Changes in Current Assets and
Current Liabilities
Increase in Accounts Receivable
Decrease in Inventory
Decrease in Prepaid Expenses
Decrease in Accounts Payable
Decrease in Accrued Liabilities —
Net Cash Flows from Operating Activities $ —
Cash Flows from Investing Activities
Purchase of Equipment
Sale of Equipment
Purchase of Patent
Net Cash Flows from Investing Activities —
Cash Flows from Financing Activities
Issue of Notes Payable
Repayment of Notes Payable
Issue of Common Stock
Dividends Paid
Net Cash Flows from Financing Activities —
Net Increase in Cash $ —
Cash at Beginning of Year
Cash at End of Year $ —

Schedule of Noncash Investing and Financing Transactions

Issue of Mortgage for Building

Issue of Mortgage for Land
$ —
Copyright ã Houghton Mifflin Company. All rights reserved. Ch.14--P2-1
 Chapter 14, P 2. (Continued)

2. Causes of increase in cash identified

3. Computation and assessment of cash flow yield and free cash flow

Net Cash Flows from Operating Activities

Cash Flow Yield =
Net Income

= = #DIV/0! times

Net Cash Flows from Operating Activities –

Free Cash Flow =
Dividends – Net Capital Expenditures

= – – +
= $ —

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.14--P2-2

 Chapter 14, P 3.

1. Statement of cash flows prepared

Karidis Ceramics, Inc.

Statement of Cash Flows
For the Year Ended December 31, 20x3
Cash Flows from Operating Activities
Net Income
Adjustments to Reconcile Net Income to
Net Cash Flows from Operating Activities
Depreciation, Building
Depreciation, Equipment
Amortization, Intangibles
Gain on Sale of Investments
Changes in Current Assets and
Current Liabilities
Decrease in Accounts Receivable
Increase in Inventory
Decrease in Prepaid Expenses
Decrease in Accounts Payable
Decrease in Accrued Liabilities —
Net Cash Flows from Operating Activities $ —
Cash Flows from Investing Activities
Purchase of Investments
Sale of Investments
Net Cash Flows from Investing Activities —
Cash Flows from Financing Activities
Issue of Bonds
Repayment of Notes Payable
Repayment of Mortgage
Issue of Notes Payable
Dividends Paid
Net Cash Flows from Financing Activities —
Net Decrease in Cash $ —
Cash at Beginning of Year
Cash at End of Year $ —

Schedule of Noncash Investing and Financing Transactions

Issue of Mortgage for Building

Issue of Mortgage for Land
$ —
Copyright ã Houghton Mifflin Company. All rights reserved. Ch.14--P3-1
 Chapter 14, P 3. (Continued)

2. Causes of decrease in cash identified

3. Computation and assessment of cash flow yield and free cash flow

Net Cash Flows from Operating Activities

Cash Flow Yield =
Net Income

= = not meaningful

Net Cash Flows from Operating Activities –

Free Cash Flow =
Dividends – Net Capital Expenditures

= – –
= $ —

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.14--P3-2

 Chapter 14, P 4.

1. Work sheet prepared

Karidis Ceramics, Inc.

Work Sheet for Statement of Cash Flows
For the Year Ended December 31, 20x3
Account Account
Balances Analysis of Transactions Balances
Description 12/31/x2 Debit Credit 12/31/x3
Debits
Cash (x) —
Accounts Receivable (net) (b) —
Inventory (c) —
Prepaid Expenses (d) —
Long-Term Investments (i) (j) —
Land (k) —
Building (k) —
Equipment —
Intangible Assets (n) —
Total Debits — —

Credits
Accumulated Depreciation,
Building (l)
Accumulated Depreciation,
Equipment (m) —
Accounts Payable (e) —
Notes Payable (f) (g) —
Accrued Liabilities (h) —
Mortgage Payable (o) (k) —
Bonds Payable (p) —
Common Stock —
Paid-in Capital —
Retained Earnings (q) (a) —
Total Credits — — — —

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.14--P4-1

 Chapter 14, P 4. (Continued)

Account Account
Balances Analysis of Transactions Balances
Description 12/31/x2 Debit Credit 12/31/x3
Cash Flows from Operating Activities
Net Income (a)
Decrease in Accounts Receivable (b)
Increase in Inventory (c)
Decrease in Prepaid Expenses (d)
Decrease in Accounts Payable (e)
Decrease in Accrued Liabilities (h)
Gain on Sale of Investments (j)
Depreciation, Building (l)
Depreciation, Equipment (m)
Amortization (n)
Cash Flows from Investing Activities
Purchase of Investments (i)
Sale of Investments (j)
Cash Flows from Financing Activities
Repayment of Notes (f)
Issue of Notes Payable (g)
Repayment of Mortgage (o)
Issue of Bonds (p)
Dividends Paid — (q)
— —
Net Decrease in Cash (x) —
— —

2. Same as solutions to required 1, 2, and 3 in P 3.

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.14--P4-2

 Chapter 14, P 5.

Tanucci Clothing Store

Schedule of Cash Flows from Operating Activities
For the Year Ended June 30, 20xx

Cash Flows from Operating Activities

Cash Receipts from Sales $ — (a)
Cash Payments for
Purchases (b)
Operating Expenses (c)
Income Taxes (d) —
Net Cash Flows from Operating Activities $ —

a. Cash Receipts = Sales – Increase in Accounts Receivable

from Sales = –
= $ —

b. Cash Payments = Cost of Goods + Increase in – Increase in

for Purchases Sold Inventory Accounts Payable
= + –
= $ —

c. Cash Payments = Operating + Increase in + Decrease in – Depreciation

for Operating Expenses Prepaid Accrued and
Expenses Expenses Liabilities Amortization
= + + – ( +
= $ — )

d. Cash Payments = Income Taxes + Decrease in Income

for Income Taxes Taxes Payable
= +
= $ —

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.14--P5-1

Chapter 14, P 6.

1. Statement of cash flows prepared

Flanders Corporation
Statement of Cash Flows
For the Year Ended June 30, 20x2

Cash Flows from Operating Activities

Cash Receipts from Sales (a)
Cash Payments for
Purchases (b)
Operating Expenses (c)
Interest
Income Taxes (d) —
Net Cash Flows from Operating Activities $ —
Cash Flows from Investing Activities
Sale of Equipment (e)
Cash Flows from Financing Activities
Repayment of Mortgage (g)
Repayment of Notes Payable (h)
Issue of Notes Payable (i)
Dividends Paid (j)
Net Cash Flows from Financing Activities —
Net Increase in Cash $ —
Cash at Beginning of Year
Cash at End of Year $ —

Schedule of Noncash Investing and Financing Transactions

Issue of Mortgage for Land and Building (f)

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.14--P6-1

 Chapter 14, P 6. (Continued)

a. Cash Receipts = Sales + Decrease in

from Sales Accounts Receivable
= +
= $ —

b. Cash Payments = Cost of Goods – Decrease in – Increase in

for Purchases Sold Inventory Accounts Payable
= – –
= $ —

c. Cash Payments = Operating – Decrease in – Depreciation

for Operating Expenses Prepaid
Expenses Expenses
= – –
= $ —

d. Cash Payments = Income Taxes – Increase in Income

for Income Taxes Expense Taxes Payable
= –
= $ —

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.14--P6-2

 Chapter 14, P 6. (Continued)

e. Cash —
Accumulated Depreciation
Loss on Sale of Equipment
Property, Plant, and Equipment
Sale of equipment

f. Property, Plant, and Equipment —

Mortgage Payable —
Purchase of land and building

g. Mortgage Payable —
Cash —
Mortgage payment

h. Notes Payable —
Cash —
Repayment of notes payable

i. Cash —
Notes Payable —
Issue of note payable

j. Dividends Payable or Retained Earnings —

Cash —
Payment of cash dividend

2. Causes of increase in cash identified

a.

b.

c.

d.

e.

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.14--P6-3

Chapter 14, P 6. (Continued)

3. Computation and assessment of cash flow yield and free cash flow

Net Cash Flows from Operating Activities

Cash Flow Yield =
Net Income

$ —
= = #DIV/0! times

Net Cash Flows from Operating Activities –

Free Cash Flow =
Dividends – Net Capital Expenditures

= $ — – $ — – $0 +
= $ —

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.14--P6-4

 Chapter 14, P 7.

Cash Flow Classification Effect on Cash

Operating Investing Financing Noncash
Transaction Activity Activity Activity Transaction Increase Decrease No Effect
1. Incurred a net loss.
2. Declared and issued a stock
dividend.
3. Paid a cash dividend.
4. Collected accounts
receivable.
5. Purchased inventory
with cash.
6. Retired long-term debt with
cash.
7. Sold available-for-sale
securities at a loss.
8. Issued stock for equipment.
9. Purchased a one-year
insurance policy with cash.
10. Purchased treasury stock
with cash.
11. Retired a fully depreciated
truck (no gain or loss).
12. Paid interest on note.
13. Received cash dividend on
investment.
14. Sold treasury stock.
15. Paid income taxes.
16. Transferred cash to money
market account.
17. Purchased land and
building with a mortgage.

*Cash equivalent.
Copyright ã Houghton Mifflin Company. All rights reserved. Ch.14--P7-1
Chapter 14, P 8.

1. Statement of cash flows prepared

O'Brien Corporation
Statement of Cash Flows
For the Year Ended December 31, 20x2

Cash Flows from Operating Activities

Net Income
Adjustments to Reconcile Net Income to
Net Cash Flows from Operating Activities
Depreciation
Gain on Sale of Furniture and Fixtures
Changes in Current Assets and
Current Liabilities
Decrease in Accounts Receivable
Decrease in Inventory
Decrease in Prepaid Rent
Decrease in Accounts Payable
Decrease in Income Taxes Payable —
Net Cash Flows from Operating Activities $ —

Cash Flows from Investing Activities

Sale of Furniture and Fixtures $ — *
Purchase of Furniture and Fixtures
Net Cash Flows from Investing Activities —

Cash Flows from Financing Activities

Repayment of Notes Payable
Issue of Notes Payable
Dividends Paid
Net Cash Flows from Financing Activities —
Net Increase in Cash $ —
Cash at Beginning of Year
Cash at End of Year $ —

Schedule of Noncash Investing and Financing Transactions

Conversion of Bonds into Common Stock

* – + = $ —

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.14--P8-1

 Chapter 14, P 8. (Continued)

2. Causes of increase in cash identified

3. Computation and assessment of cash flow yield and free cash flow

Net Cash Flows from Operating Activities

Cash Flow Yield =
Net Income

$ —
20x2: = = #DIV/0! times
$ —

Net Cash Flows from Operating Activities –

Free Cash Flow =
Dividends – Net Capital Expenditures

20x2: = $ — – – +
= $ —

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.14--P8-2

 Chapter 14, P 9.

1. Work sheet prepared

O'Brien Corporation
Work Sheet for Statement of Cash Flows
For the Year Ended December 31, 20x2

Account Account
Balances Analysis of Transactions Balances
Description 12/31/x1 Debit Credit 12/31/x2
Debits
Cash (x) —
Accounts Receivable (net) (b) —
Inventory (c) —
Prepaid Rent (d) —
Furniture and Fixtures (h) (g) —
Total Debits — —

Credits
Accumulated Depreciation (g) (i) —
Accounts Payable (e) —
Income Taxes Payable (f) —
Notes Payable (j) (k) —
Bonds Payable (l) —
Common Stock (l) —
Paid-in Capital (l) —
Retained Earnings (m) (a) —
Total Credits — — — —

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.14--P9-1

 Chapter 14, P 9. (Continued)

Account Account
Balances Analysis of Transactions Balances
Description 12/31/x1 Debit Credit 12/31/x2
Cash Flows from Operating Activities
Net Income (a)
Decrease in Accounts Receivable (b)
Decrease in Inventory (c)
Decrease in Prepaid Rent (d)
Decrease in Accounts Payable (e)
Decrease in Income Taxes Payable (f)
Gain on Sale of Furniture and
Fixtures (g)
Depreciation (i)
Cash Flows from Investing Activities
Sale of Furniture and Fixtures (g)
Purchase of Furniture and Fixtures (h)
Cash Flows from Financing Activities
Repayment of Notes Payable (j)
Issue of Notes Payable (k)
Dividends Paid — (m)
— —
Net Increase in Cash — (x)
— —

2. Same as solutions to required 1, 2, and 3 in P 8.

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.14--P9-2