Name Chapter 3--Income Flows versus Cash Flows: Key Relationships in the

Dynamics of a Business
Description
Instructions Modify

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Question 1 Multiple Choice 0 points Modify Remove

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One rationale for the statement of cash flows is to
Answer ensure that the cash account balances at year-end.
reconcile differences between net income and cash receipts and
disbursements.
calculate the company’s free cash flow.
examine the cash effects of income from discontinued operations,
extraordinary items and changes in accounting principles.
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Question 2 Multiple Choice 0 points Modify Remove

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Which of the following is not one of the reasons why net income differs from cash
flows from operations under the indirect method of calculating cash flows?
Answer non-cash items, such as depreciation and amortization
changes in working capital accounts
gains and losses related to the sale of plant, property and equipment
sale or repurchase of capital stock
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Question 3 Multiple Choice 0 points Modify Remove

Question
A company in the growth phase of its product life cycle will normally have the
following pattern of cash flows
Answer Negative cash flows from operations, negative cash flows from
investing and positive cash flows from financing.
Negative or positive cash flows from operations, negative cash flows
from investing and positive cash flows from financing.
Positive cash flows from operations, positive cash flows from
investing and positive cash flows from financing.
Negative or positive cash flows from operations, negative cash flows
from investing and negative cash flows from financing.
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Question 4 Multiple Choice 0 points Modify Remove

Question
Which of the following is an adjustment that would need to be made to net income
 when calculating cash flows from operations under the indirect method
Answer Subtract depreciation expense
add depreciation expense
add an increase in accounts receivable
add a decrease in accounts payable
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Question 5 Multiple Choice 0 points Modify Remove

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If a firm is growing and expanding its accounts receivable and inventories faster
than its current operating liabilities its cash flow from operation will normally be
Answer greater than net income
less than net income
greater than the change in working capital from operations
greater than the change in cash
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Question 6 Multiple Choice 0 points Modify Remove

Question
Firms with short operating cycles will experience less of a lag between the creation
and delivery of their products and the collection of cash from customers, for this
reason
Answer their cash flow from operations will be much greater than their
working capital from operations.
their cash flow from operations will not differ much from their
working capital from operations.
their cash flow from operations will be much less than their working
capital from operations.
there will be no relation between their cash flow from operations and
working capital from operations.
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Question 7 Multiple Choice 0 points Modify Remove

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Normally, cash flows from operations will peak during which phase of the product
life cycle?
Answer Introduction
Growth
Maturity
Decline
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Question 8 Multiple Choice 0 points Modify Remove

 Question
Normally, cash flows from investing activities will start providing cash during
which phase of the product life cycle?
Answer Introduction
Growth
Maturity
Decline
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Question 9 Multiple Choice 0 points Modify Remove

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Normally, cash flows from financing will start using cash during which phase of
the product life cycle?
Answer Introduction
Growth
Maturity
Decline
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Question 10 Multiple Choice 0 points Modify Remove

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Free cash flows to all debt and common equity shareholders represents the excess
of cash flows from
Answer operating activities over cash flows for financing activities
investing over cash flows for operating activities
investing over cash flows for financing activities
operating activities over cash flows for investing activities
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Question 11 Multiple Choice 0 points Modify Remove

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When preparing the statement of cash flows using the indirect method an increase
in inventories would appear as
Answer a decrease in the operating activities section
an increase in the operating activities section
a use of cash in the investing activities section
a source of cash in the investing activities section
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Question 12 Multiple Choice 0 points Modify Remove

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When preparing the statement of cash flows using the indirect method an increase
in accounts payable would appear as
 Answer a decrease in the operating activities section
an increase in the operating activities section
a use of cash in the investing activities section
a source of cash in the investing activities section
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Question 13 Multiple Choice 0 points Modify Remove

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When preparing the statement of cash flows using the indirect method the payment
of dividends would appear as
Answer a decrease in the operating activities section
an increase in the operating activities section
a use of cash in the financing activities section
a source of cash in the financing activities section
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Question 14 Multiple Choice 0 points Modify Remove

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When preparing the statement of cash flows using the indirect method the purchase
of equipment would appear as
Answer a use of cash in the investing activities section
a source of cash in the investing activities section
a use of cash in the financing activities section
a source of cash in the financing activities section
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Question 15 Multiple Choice 0 points Modify Remove

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In a statement of cash flows, proceeds from issuing equity instruments should be
classified as cash inflows from
Answer lending activities.
operating activities.
investing activities.
financing activities.
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Question 16 Multiple Choice 0 points Modify Remove

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An example of an item that is deducted from net income when preparing the
operating activities section of the statement of cash using the indirect method is
Answer
depreciation expense.
compensation expense related to stock option plans.
 income from an investment accounted for using the equity method.
unrealized losses on trading investments
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Question 17 Multiple Choice 0 points Modify Remove

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Which of the following is not an expense excluded when calculating EBITDA?
Answer depreciation expense
administrative expense
interest expense
tax expense
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Question 18 Multiple Choice 0 points Modify Remove

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Which of the following is the correct formula for calculating cash collections from
customers?
Answer sales for the period plus accounts receivable at the beginning of the
period
sales for the period plus accounts receivable at the beginning of the
period minus accounts receivable at the end of the period
sales for the period plus accounts receivable at the end of the period
sales for the period plus accounts receivable at the end of the period
minus accounts receivable at the beginning of the period
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Question 19 Multiple Choice 0 points Modify Remove

Question
Outback Corp. recorded sales of $1,300,000 in 2006, in addition the company’s
accounts receivable balance grew from $120,000 at the beginning of 2006 to
$165,000 at the end of 2006. How much cash did Outback collect from customers
in 2006?
Answer $1,300,000
$1,345,000
$1,255,000
$1,135,000
Correct Feedback $1,300,000 + $120,000 - $165,000
Incorrect Feedback $1,300,000 + $120,000 - $165,000
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Question 20 Multiple Choice 0 points Modify Remove

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Toro Company recognized $655,000 of cost of goods sold in 2006, in addition its
 implementation of a just-in-time inventory system allowed it to reduce its
inventory from $325,000 at the beginning of the year to $230,000 at the end of
2006. How much cash did Toro spend for inventory in 2006?
Answer $655,000
$980,000
$560,000
$620,000
Correct Feedback $655,000 + $230,000 - $325,000 = $560,000
Incorrect Feedback $655,000 + $230,000 - $325,000 = $560,000
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Question 21 Multiple Choice 0 points Modify Remove

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Fizzzle Inc. sold a piece of equipment during the period for $230,000 and recorded
a gain of $45,000 on the sale. How should this gain be treated when preparing the
operating activities section of the statement of cash flows using the indirect
method?
Answer A sale of equipment is a investing activity, the transaction will not
affect the operating activities section.
The gain is added back to net income in the operating activities
section.
The gain is subtracted from net income in the operating activities
section.
The entire sales price is subtracted from net income in the operating
activities section.
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Question 22 Multiple Choice 0 points Modify Remove

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The expense incurred by issuing stock options should be
Answer classified as a financing activity.
added back to net income in the operating activities section.
subtracted from net income in the operating activities section.
does not appear in the statement of cash flows.
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Question 23 Multiple Choice 0 points Modify Remove

Question
Lagos Corp. recorded sales of $345,000 in 2006, in addition its accounts receivable
and accounts payable balances at the beginning and end of 2006 were as follows:
Jan. 1, 2006 Dec. 31, 2006
Accounts Receivable $65,000 $90,000
Accounts Payable $32,000 $28,000
 How much cash did Lagos collect from customers in 2006?
Answer $345,000
$320,000
$324,000
$316,000
Correct Feedback $345,000 +$65,000 - $90,000 = $320,000
Incorrect Feedback $345,000 +$65,000 - $90,000 = $320,000
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Question 24 Multiple Choice 0 points Modify Remove

Question
Which of the following companies would you expect to report significant amounts
of cash provided by financing activities?
Answer A yet to be profitable biotechnology company.
A mature company operating in the oil refinery industry.
A profitable established company in the retail industry.
A large multinational pharmaceutical company.
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Question 25 Fill in the Blank 0 points Modify Remove

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Under the _________________________, firms begin with net income to calculate
cash flow from operations for the period.
Answer indirect method
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Question 26 Fill in the Blank 0 points Modify Remove

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An increase in accounts receivable during a period indicates that a firm did not
collect as much ____________________ as the amount of revenues included in net
income.
Answer cash
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Question 27 Fill in the Blank 0 points Modify Remove

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The period in which a firm commences the manufacture of its product to the time it
receives cash is called the ______________________________.
Answer operating cycle
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Question 28 Fill in the Blank 0 points Modify Remove

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The length of the operating cycle is another factor that may cause cash flow from
 operations to differ from
__________________________________________________.
Answer working capital from operations
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Question 29 Fill in the Blank 0 points Modify Remove

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Cash flows from ____________________ activities will normally be positive
during the introduction and growth phases of the product life cycle.
Answer financing
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Question 30 Fill in the Blank 0 points Modify Remove

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Cash flows from ____________________ activities will normally be negative
during all of the introduction and growth phase of the product life cycle.
Answer investing
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Question 31 Fill in the Blank 0 points Modify Remove

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____________________ activities relate to the normal operations of the firm,
selling goods and providing services.
Answer Operating
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Question 32 Fill in the Blank 0 points Modify Remove

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____________________ activities relate to the acquisition and sale of noncurrent
assets, particularly property, plant and equipment.
Answer Investing
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Question 33 Fill in the Blank 0 points Modify Remove

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____________________ activities relate to transactions between the firm and its
creditors and owners.
Answer Financing
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Question 34 Fill in the Blank 0 points Modify Remove

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Free cash flows to all debt and common equity shareholders represents the excess
of cash flow from operations over cash flows from
___________________________________.
Answer investing activities
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Question 35 Fill in the Blank 0 points Modify Remove

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Interest expense and interest revenue would be classified as
____________________ activities in the statement of cash flows.
Answer operating
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Question 36 Fill in the Blank 0 points Modify Remove

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The acquisition of new investments would be classified as
____________________ activities in the statement of cash flows.
Answer investing
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Question 37 Fill in the Blank 0 points Modify Remove

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The receipt of dividends from an investee would be classified as
____________________ activities in the statement of cash flows.
Answer operating
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Question 38 Fill in the Blank 0 points Modify Remove

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The payment of dividends would be classified as ____________________
activities in the statement of cash flows.
Answer financing
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Question 39 Fill in the Blank 0 points Modify Remove

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Under the ______________________________ of preparing the statement of cash
flow’s operating activities section firms list the cash flows from selling goods and
services and then subtract the cash outflows to providers of goods and services.
Answer direct method
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Question 40 Fill in the Blank 0 points Modify Remove

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One factor that may cause cash flow from operations to differ from net income is
the length of the ______________________________.
Answer operating cycle
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Question 41 Fill in the Blank 0 points Modify Remove

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 Many analysts use ____________________ as a crude measure of a firm’s ability
to pay down debt.
Answer EBITDA
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Question 42 Fill in the Blank 0 points Modify Remove

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EBITDA not only ignores four expenses but also ignores changes in
__________________________________________________ accounts.
Answer operating working capital
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Question 43 Fill in the Blank 0 points Modify Remove

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Cash flow from operations should include none of the cash flows associated with
marketable securities if such transactions are viewed as
___________________________________.
Answer investing activities
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Question 44 Fill in the Blank 0 points Modify Remove

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The issuance of debt would be classified as a (an) ____________________ activity
in the statement of cash flows.
Answer financing
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Question 45 Fill in the Blank 0 points Modify Remove

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Cash collected from customers would appear in the operating activities section of a
statement of cash flows prepared using the ____________________ method
Answer indirect
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Question 46 Fill in the Blank 0 points Modify Remove

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The receipt of cash when employees exercise stock options is a (an)
____________________ activity.
Answer financing
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Question 47 Essay 0 points Modify Remove

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The calculation of cash flow from operations under the indirect method involves
two types of adjustments. Discuss each type of adjustment and provide an example
of each type of adjustment.
Answer 1. Adjusting revenues and expenses for changes in non-working capital accounts,
 for example depreciation, amortization and deferred income tax.
2. Adjusting revenues and expenses for changes in operating working capital
accounts, for example accounts receivable and accounts payable, inventories.
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Question 48 Essay 0 points Modify Remove

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Discuss operating, investing and financing cash flows in relation to the various
stages of the product life cycle.
Answer 1. Operating Cash Flows--Operating cash flows begin negative in the introduction
phase and start becoming positive in the growth phase, operating cash flows
reach their peak in the maturity phase and start to decrease at the end of the
maturity phase and into the decline phase.
2. Investing Cash Flows--Investing cash flows begin negative in the introduction
phase and stays negative in the growth phase, investing cash flows become
positive in the maturity phase and start to decrease at the end of the maturity
phase and into the decline phase.
3. Financing Cash Flows--Financing cash flows are positive in the introduction and
growth phase. Financing cash flows start to decrease at the end of the maturity
phase and continue to decrease in the decline phase.
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Question 49 Essay 0 points Modify Remove

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What is working capital from operations? Discuss what types of firms will have
similar net income and working capital from operations? For which types of firms
will net income and working capital from operations be significantly different?
Answer Working capital from operations is defined as net income adjusted for
changes in non-working capital accounts. These changes include
depreciation, amortization, the equity method, deferred tax amounts, the
minority interest in the earnings of consolidated subsidiaries and some
restructuring charges. Companies that have mostly current operating assets,
such as retailers who rent their space, will likely have similar net income
and working capital from operations. Capital intensive firms are more
likely to have significantly different net incomes and working capital from
operations.
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Question 50 Essay 0 points Modify Remove

Question
For the following types of companies discuss whether you think their cash flows
from operations, investing and financing will be positive (the activity provides
cash) or negative (the activity uses cash). Provide support for your answer.

1. Tech Corporation is a developer of computer software for the gaming industry. The
company recently launched its first software title. The company is expanding its
operations by hiring additional developers and administrative staff. The company is not
yet profitable, but expects to break even within two years. Investors view it as having a
first mover advantage and have been happy to invest in the company.
2. Midwest Corporation is a supplier to the agricultural industry. The company is
experiencing its 25th year of profitability, but is concerned that sales have contracted for
the fifth year in a row. Midwest prides itself in paying dividends and having no debt on its
 balance sheet.
3. Semi Inc. manufactures semiconductors. The company has just introduced its ninth new
product and is the leader in market share for the industry. The company continues to
invest in research and development and expand by purchasing competitors. The
company has yet to pay dividends, but is considering it in the future. The company’s
largest current asset is cash, due to its high profit margin.
Answer 1. This company is in the introduction phase. CFO--negative, CFI--negative,
CFF--positive
2. This company is in the late mature to early decline phase. CFO--positive and
declining, CFI--positive and declining, CFF--negative due to dividends.
3. This company is in the growth phase. CFO--positive, CFI--negative, CFF--
positive maybe starting to turn negative.
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Question 51 Essay 0 points Modify Remove

Question
Cilca Corporation is a supplier to the pulp and paper industry. Selected financial
information about Cilca is listed below:

• Purchased real estate for $440,000 in cash. The cash was borrowed from a bank.
• Sold investments for $400,000.
• Paid dividends of $480,000.
• Issued shares of common stock for $200,000.
• Purchased machinery and equipment for $100,000 cash.
• Paid $360,000 on a bank loan.
• Reduced accounts receivable by $80,000.
• Increased accounts payable $160,000.

Use the above information to calculate Cilca’s:

a. cash used or provided by investing activities
b. cash used or provided by financing activities
Answer a. cash used or provided by investing activities:
+Sold investments for $400,000.
- Purchased real estate for $440,000
- Purchased machinery and equipment for $100,000 cash.
= $140,000 cash used by investing activities.

b. cash used or provided by investing activities

+Received $440,000 of cash that was borrowed from a bank to purchase
real estate
+Issued shares of common stock for $200,000
- Paid dividends of $480,000
- Paid $360,000 on a bank loan.
= $200,000 cash used by financing activities
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Question 52 Essay 0 points Modify Remove

Question
Luke Corporation is a manufacturer of home furnishings. Selected financial
information about Luke is listed below:

• Borrowed $850,000 from a bank.

Purchased equipment for $210,000 in cash.
• Purchase investments for $285,000.
 • Received dividends of $51,000 from an investment in Davis Corp.
• Paid dividends of $55,000.
• Issued shares of preferred stock for $500,000.
Repurchased outstanding common shares using $100,000 in cash.
• Purchased land for $100,000 cash.
• Paid $36,000 interest expense on a bank loan.
• Increased Inventories by $320,000
• Increased accounts receivable by $217,000.
• Increased accounts payable $85,000.

Use the above information to calculate Luke’s:

a. cash used or provided by investing activities
b. cash used or provided by financing activities
Answer a. cash used or provided by investing activities:
-Purchased investments for $285,000
- Purchased land for $100,000
- Purchased equipment for $210,000 cash.
= $595,000 cash used by investing activities.

b. cash used or provided by investing activities

+Received $850,000 from bank borrowing
+Issued shares of preferred stock for $500,000
- Paid dividends of $55,000
- Paid $100,000 to repurchase outstanding common stock
= $1,1950,000 cash provided by financing activities
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Question 53 Essay 0 points Modify Remove

Question
Discuss the correlations that have been found between net income, net income plus
or minus Type 1 adjustments ( adjustments to net income for revenues, expenses,
gains and losses that are recognized in income and are associated with changes in
noncurrent assets, noncurrent liabilities, and shareholders’ equity, but do not affect
cash by the same amounts for the period), and cash flow from operations.
Answer The study by Robert M. Bowen, David Burgstahler, and Lane A. Daley,
“Evidence on the Relationships Between Earnings and Various Measures
of Cash Flow,” Accounting Review (October, 1986) revealed (1) a high
correlation between net income and net income plus or minus Type 1
adjustments, and (2) a low correlation between net income and cash flow
from operations, and (3) a low correlation between cash flow from
operations and net income plus or minus Type 1 adjustments over time
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Question 54 Essay 0 points Modify Remove

Question
Selected financial statement information for Filmco appears below:

Balance Sheet accounts Jan. 1, 2006 Dec. 31, 2006

Inventory $210,000 $340,000

Accounts Receivable $85,000 $60,000
 Income Statement (partial) For the year ended Dec. 31, 2006

Sales $824,000
Cost of Goods Sold ($658,000)
Gross Profit $166,000

Calculate the amount of cash collected from customers and the amount of cash
spent on inventory for 2006 by Filmco.
Answer cash collected from customers: $824,000 + $85,000 - $60,000 =
$849,000

cash spent on inventory: $658,000 + $340,000 -$210,000 = $788,000

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Question 55 Essay 0 points Modify Remove

Question
J. Jill is a women’s clothing retailer. The company started as a mail order company
and has expanded into mall department stores. The company now receives
approximately half of its revenues from mail order and half from retail outlets.
Over the time period 2002 to 2004 sales increased approximately 25%. Discuss the
relationship between net income, working capital from operations and cash flow
from operations and between cash flows from operating, investing and financing
activities over the three year period.

CASH FLOW STATEMENT (in

thousands)

Cash from operations 12/25/2004 12/27/2003 12/28/2002

Net income 8,706 7,025 18,434
Depreciation & amortization 18,663 16,131 12,672
Net increase (decrease) in assets & liab. 6,696 26,659 10,623
Other adjustments, net 1,396 924 3,996
Net cash provided by (used in) operations 35,461 50,739 45,725

Cash from investments

(Increase) decrease in property & plant -28,784 -34,265 -34,734
Other cash inflow (outflow) -35,434 -1,143 -2,454
Net cash provided by (used in) investing -64,218 -35,408 -37,188

Cash from financing

Issuances (purchases) of equity shares 3,142 870 7,800
Increase (decrease) in borrowings -1,706 -1,648 -1,755
Net cash provided by (used in) financing 1,436 -778 6,045
- - -
Net change cash & cash equivalents -27,321 14,553 14,582
Cash and cash equivalents at start of year 59,287 44,734 30,152
Cash and cash equivalents at year end 31,966 59,287 44,734
Answer Some points that may be addressed:

1. J. Jill is expanding into retail space which results in additional capital

expenditures to construct the interiors of the company’s retail space. From J.
 Jill’s annual report management estimates that the company spends
approximately $1 million dollars decorating each store to its uniform design.
These cash flows can be observed by recognizing the cash used by property
and equipment investing activities section of the cash flow statement. We can
also0 observe increasing depreciation charges, which is consistent with larger
amounts of property and equipment.
2. As sales have increased so has its need for working capital, it is important to
ensure that the company has adequate controls over its working capital.
3. J. Jill is experiencing a net growth in current operating liabilities (as can be
noted in the operating activities section of the cash flow statement). This
attributable to expansion into retail space as rental commitments and other
store opening costs are accrued for.
4. Cash flows from operations are beginning to be exceed cash required by
investing activities, but only because of the net change in current operating
liabilities. Income is also increasing as well as working capital from operations.
5. J. Jill is still issuing equity (but to a lesser degree than in 2004 and 2003) and
paying down debt.
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Question 56 Essay 0 points Modify Remove

Question
Olive Corporation manufactures food processing equipment. Use Olive
Corporation’s two most recent balance sheets and most recent income statement to
prepare a statement of cash flows for 2006. The company paid dividends of $6,250
during 2006.

Olive Corporation
Balance Sheet
As of December 31, 2006 2005
Assets:
Cash and cash equivalents $41,900 $25,000
Accounts Receivable 24,000 6,250
Inventory 30,000 36,000
Current Assets 95,900 67,250

Equipment 42,000 38,500

Less: Accumulated depreciation -14,000 -7,000
Land 25,000 10,000

Total assets $148,900 $108,750

Liabilities
Accounts Payable $17,500 $22,500
Accrued Salaries Payable 5,500 8,000
Rent Expense Payable 2,200 1,000
Income Tax Payable 6,900 4,000
Current Liabilities 32,100 35,500

Long-term note payable 50,000 30,000

Total Liabilities 82,100 65,500

Stockholders’ Equity:
Common stock 42,000 30,000
Retained earnings 24,800 13,250

Total liabilities and stockholders’ equity $148,900 $108,750

Olive Corporation
 Income Statement
For the year ended December 31, 2006

Revenues $147,000
Cost of goods sold -84,000
Gross Profit 63,000

Operating Expenses
Depreciation expense -7,000
Salary expense -14,600
Insurance Expense -2,500
Rent Expense -10,000
Interest Expense -4,200
Total Operating Expenses -38,300

Income from Operations 24,700

Income Tax Expense -6,900

Net income $17,800

Answer Olive Corporation

Statement of Cash Flows
For the year ended December 31, 2006

Operations
Net income $17,800

Depreciation Expense $ 7,000

Increase in Accounts Receivable (17,750)
Decrease in Inventory 6,000
Decrease in Accounts Payable (5,000)
Decrease in Salaries Payable (2,500)
Increase in Rent Payable 1,200
Increase in Taxes Payable 2,900 (8,150)

Cash Flow from Operations $ 9,650

Investing
Purchases of Equipment (3,500)
Purchase of land (15,000)
Cash Flows from Investing (18,500)

Financing
Sale of common stock 12,000
Issuance of Long-Term Debt 20,000
Payment of dividends (6,250)
Cash Flows from Financing 25,750

Net change in cash 16,900

Cash balance at beginning of year 25,000
Cash balance at end of year $41,900
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Question 57 Essay 0 points Modify Remove

Question
Listed below is a list of cash inflows and cash outflows for Toggle Inc.

1. Cash received from issuing debt

 2. Cash received from interest earned on a bond investment
3. Cash used to purchase property
4. Cash used to repay debt
5. Cash received from collections of loans
6. Cash paid for retiring common stock
7. Cash paid to employees for salaries
8. Cash from the sale of marketable securities
9. Cash used to pay dividends
10. Cash from the sale of services to customers
11. Cash paid to government agencies for taxes
12. Cash received from the sale of equipment

For each item indicate where it should appear on Toggle’s statement of cash flows.
Select from:

a. Cash inflows from operating activities

b. Cash outflows from operating activities
c. Cash inflows from investing activities
d. Cash outflows from investing activities
e. Cash inflows from financing activities
f. Cash outflows from financing activities
Answer 1. Cash received from issuing debt - Cash inflows from financing activities
2. Cash received from interest earned on a bond investment - Cash inflows
from operating activities
3. Cash used to purchase property - Cash outflows from investing activities
4. Cash used to repay debt - Cash outflows from financing activities
5. Cash received from collections of loans - Cash inflows from investing
activities
6. Cash paid for retiring common stock - Cash outflows from financing activities
7. Cash paid to employees for salaries - Cash outflows from operating activities
8. Cash from the sale of marketable securities - Cash inflows from investing
activities
9. Cash used to pay dividends - Cash outflows from financing activities
10. Cash from the sale of services to customers - Cash inflows from operating
activities
11. Cash paid to government agencies for taxes - Cash outflows from operating
activities
12. Cash received from the sale of equipment - Cash inflows from investing
activities
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Question 58 Essay 0 points Modify Remove

Question
Plano Corporation presented the following account balances for 2006 and 2005:
December 31, 2006 December 31, 2005

Dividends payable $20,000 $25,000

Additional Paid-in-Capital $580,000 $230,000
Treasury Stock $185,000 $100,000
Equipment $800,000 $700,000
Accumulated Depreciation $225,000 $140,000
Common Stock $630,000 $560,000
Long-Term Notes Payable $225,000 $125,000
Additional information:
1. Cash dividends of $20,000 were declared on December 15, 2006, payable on
January 15, 2007.
2. The company issued 70,000 shares of $1 par value common stock during 2006.
3. The company repurchased 34,000 shares of its own common stock during the
period. No treasury stock was sold during the period.
4. Additional equipment was purchased by issuing a $100,000 long-term note payable.

Required:
1. Prepare the financing section of Plano’s 2006 statement of cash flows.
2. Indicate if any of the events will be reported as a significant noncash
transaction.
Answer 1. Plan Corporation
Partial Statement of Cash Flows
For the period ended December 31, 2006

Financing
Cash dividends paid ($25,000)
Repurchase of treasury stock ($85,000)
Sale of Common Stock $420,000
Cash Flow from Financing $310,000

2. The issuance of the $100,000 long-term note in exchange for equipment

should be disclosed as a significant non-cash transaction.
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