Chapter Seventeen

Challenge Exercise 17-1

Expands on E17-2
LO: 1

An analysis of comparative balance sheets, the current year’s income statement, and the general ledger
accounts of Guillen Corp. uncovered the following items. Assume all items involve cash unless there is
information to the contrary.
(a) Payment of interest on notes payable.
(b) Exchange of land for patent.
(c) Sale of building for an amount greater than book value.
(d) Payment of dividends.
(e) Depreciation.
(f) Receipt of dividends on investment in stock.
(g) Sales.
(h) Issuance of capital stock.
(i) Amortization of patent.
(j) Issuance of bonds for land.
(k) Purchase of land.
(l) Conversion of bonds into common stock.
(m) Sale of land for an amount less than cost.
(n) Retirement of bonds.
(o) Cost of goods sold.
(p) Purchase of treasury stock.
(q) Increase in accounts receivable.

Instructions:
Indicate where each item should be reported in the statement of cash flows (indirect method), using
these categories: (1) operating activity (added to net income), (2) operating activity (deducted from net
income), (3) investing activity, (4) financing activity, (5) significant noncash investing and financing
activity, or (6) not separately reported in the statement of cash flows. More than one number can be
used per item.

Copyright © 2015 John Wiley & Sons, Inc.    Weygandt, Accounting Principles, 12/e, Challenge Exercises (For Instructor Use Only) Page 17-1
Challenge Exercise 17-2
Expands on: E17-8
LO: 2

Here are comparative balance sheets for Migitsu Company. Prepare a statement of cash flows—indirect
method.

MIGITSU COMPANY
Comparative Balance Sheets
December 31
Assets 2017 2016
Cash $ 73,000$ 22,000
Accounts receivable 87,000 76,000
Inventory 170,000 191,000
Land 72,000 100,000
Equipment 260,000 200,000
Accumulated depreciation - equipment (66,000)(32,000)
Total $596,000
$557,000
Liabilities and Stockholders’ Equity
Accounts payable $ 37,000 $ 47,000
Bonds payable 150,000 210,000
Common stock ($1 par) 216,000 174,000
Retained earnings 193,000 126,000
Total $596,000 $557,000
Additional information:
1. Net income for 2017 was $100,000.
2. Cash dividends of $33,000 were declared and paid.
3. Bonds payable amounting to $60,000 were redeemed for cash $60,000.
4. Common stock was issued for $42,000 cash.
5. Equipment that cost $50,000 and had a book value of $30,000 was sold for $36,000 during 2017; land was
sold at cost.

Instructions
(a) Prepare a statement of cash flows for 2017 using the indirect method.
(b) Compute free cash flow for 2017.

Copyright © 2015 John Wiley & Sons, Inc.    Weygandt, Accounting Principles, 12/e, Challenge Exercises (For Instructor Use Only) Page 17-2