ACC C204 - Discussion

Brief Exerscises – Cash flow

1. 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

Liabilities and Stockholders’ Equity

Current liabilities:
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
Stockholders’ equity:
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

The company's net income (loss) for the year was $7,000 and its cash dividends were
$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
+16,00
Cash and cash equivalents........... 42,000 26,000 0 Neither
Accounts receivable..................... 22,000 26,000 -4,000 Source
Inventory...................................... 77,000 75,000 +2,000 Use
+25,00
Property, plant, and equipment.... 340,000 315,000 0 Use
+31,00
Less accumulated depreciation.... 218,000 187,000 0 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.

2. 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 of
cash flows for the year.
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)

3. 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

Liabilities and Stockholders’ Equity

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

The company's net income (loss) for the year was $1,000 and its cash dividends were
$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.