ISB FADM 20210 Mohali Campus

Practice Set 4
Statement of Cash Flows

QUESTION 1

SOLUTION
a. Cash inflow from an operating activity.
b. Cash inflow from an investing activity.
c. Cash outflow from an investing activity.
d. Cash outflow from an operating activity.
e. Cash inflow from a financing activity.
f. Cash outflow from a financing activity.
g. Cash outflow from an investing activity.

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QUESTION 2

SOLUTION
a. Rent Expense $ 65,000
– Prepaid Rent Decrease (3,000)
= Cash Paid for Rent $ 62,000

b. Interest Income $ 15,500

– Interest Receivable Increase (800)
= Cash Received as Interest $ 14,700

c. Cost of Goods Sold $ 87,000

+ Inventory Increase 4,000
+ Accounts Payable Decrease 3,000
= Cash Paid for Merchandise Purchased $94,000

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QUESTION 3

SOLUTION

a. Net income computation

Service revenue (record when earned) ....................... $200,000
Wages expense (record when incurred, even if unpaid) (40,000) ($25,000 + $15,000)
Net income.................................................................... $160,000

b. Net cash flow computation

Cash inflow from services rendered .......................... $50,000 ($30,000 + $20,000)
Cash outflow for wages paid ..................................... (25,000)
Net cash inflow ......................................................... $25,000

Cash inflow from services rendered will be $150,000 less than service revenue per the
income statement because Penno only collected $50,000 of revenues in cash but reported
$200,000 as revenue. Cash outflow for wages paid will be $15,000 less than wages
expense on the income statement because $15,000 remained unpaid at year-end. The
combined effects of these two items yields an overall difference of $135,000 between net
income and net cash inflow [$160,000 net income and $25,000 net cash inflows].

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QUESTION 4

SOLUTION

LUND CORPORATION
Statement of Cash Flows
For Year Ended December 31, 2017
Operating Activities
Net Income $76,000
Add (Deduct) Items to Convert Income to Cash Basis
Depreciation 29,000
Amortization 6,000
Gain on Sale of Equipment (4,000)
Accounts Receivable Increase (4,000)
Inventory Decrease 13,000
Prepaid Expenses Increase (2,000)
Accounts Payable Increase 9,000
Accrued Liabilities Decrease (3,000)

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 Net Cash Provided by Operating Activities $120,000

Investing Activities
Sale of Equipment 17,000
Purchase of Land (90,000)
Net Cash Used by Investing Activities (73,000)
Financing Activities
Issuance of Common Stock 35,000
Retirement of Bonds Payable (60,000)
Payment of Dividends (29,000)
Net Cash Used by Financing Activities (54,000)
Net Decrease in Cash (7,000)
Cash at Beginning of Year 22,000
Cash at End of Year $ 15,000

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QUESTION 5

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SOLUTION

a. Cash, December 31, 2019 .............................. $11,000

Cash, December 31, 2018 .............................. 5,000
Cash increase during 2019 ............................. $ 6,000

b. (Indirect Method)
WOLFF COMPANY
Statement of Cash Flows
For Year Ended December 31, 2019
Net Cash Flow from Operating Activities
Net Income $56,000
Add (Deduct) Items to Convert Net Income to Cash Basis
Depreciation 17,000
Accounts Receivable Increase (9,000)
Inventory Increase (30,000)
Prepaid Insurance Decrease 2,000
Accounts Payable Decrease (3,000)
Wages Payable Increase 3,000
Income Tax Payable Decrease (1,000)
Net Cash Provided by Operating Activities $35,000
Cash Flows from Investing Activities
Purchase of Plant Assets (55,000)
Cash Flows from Financing Activities
Issuance of Bonds Payable 55,000
Payment of Dividends (29,000)
Net Cash Provided by Financing Activities 26,000

Net Increase in Cash 6,000

Cash at Beginning of Year 5,000
Cash at End of Year $11,000

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QUESTION 6

SOLUTION

Increase or decrease
Balance sheet item during the year
Trade receivables, net Increase

Inventories Increase

Other assets Decrease

Accounts payable Decrease

Accrued income taxes, net Decrease

Long-term tax liabilities Increase

Other liabilities Increase

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QUESTION 7

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SOLUTION

a. Cash, December 31, 2019.......................................... $49,000

Less: Cash, December 31, 2018 ................................ 28,000
Cash increase during 2019 ......................................... $21,000

b.
ARCTIC COMPANY
Statement of Cash Flows
For Year Ended December 31, 2019
Operating Activities
Cash Received from Customers $736,000
Cash Paid for Merchandise Purchased $ 542,000
Cash Paid to Employees 190,000
Cash Paid for Advertising 28,000
Cash Paid for Interest 12,000 772,000
Net Cash Used by Operating Activities (36,000)

Investing Activities
Sale of Land 70,000
Purchase of Equipment (183,000)*
Net Cash Used by Investing Activities (113,000)

Financing Activities
Issuance of Bonds Payable 200,000
Purchase of Treasury Stock (30,000)
Net Cash Provided by Financing Activities 170,000

Net Increase in Cash 21,000

Cash at Beginning of Year 28,000
Cash at End of Year $ 49,000

* The equipment purchased is equal to the sum of the increase in PPE assets account ($138,000) and the book
value of the land sold ($45,000).

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