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596 Chapter 13 Statement of Cash Flows

Brief Exercises accounting

LO3 B
BRIEF Olympic, Inc., had the following positive and negative cash flows during the current year:
EXERCISE 13.1
E
C
Cash Flows from
Operations (Direct) Positive cash flows:
Received from customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $240,000
Interest and dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000
Sale of plant assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330,000
Negative cash flows:
Paid to suppliers and employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $127,000
Purchase of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,000

Determine the amount of cash provided by or used for operating activities by the direct method.

LO7 B
BRIEF Garagiola Company had net income in the current year of $430,000. Depreciation expense for the
EXERCISE 13.2
E year totaled $67,000. During the year the company experienced an increase in accounts receivable
Cash Flows from (all from sales to customers) of $35,000 and an increase in accounts payable (all to suppliers) of
Operations (Indirect) $56,000. Compute the amount of cash provided by or used for operating activities by the indirect
method.

LO3 B
BRIEF Georgia Products Co. had the following positive cash flows during the current year: received cash
EXERCISE 13.3
E from customers of $750,000; received bank loans of $35,000; and received cash from the sale of
Cash Flows from common stock of $145,000. During the same year, cash was paid out to purchase inventory for
Operations (Direct) $335,000, to employees for $230,000, and for the purchase of plant assets of $190,000. Calculate
the amount of cash provided by or used for operating activities by the direct method.

LO7 B
BRIEF Patterson Company reported net income for the current year of $666,000. During the year the
EXERCISE 13.4
E company’s accounts receivable increased by $50,000, inventory decreased by $23,000, accounts
Cash Flows from payable decreased by $55,000, and accrued expenses payable increased by $14,000. Determine the
Operations (Indirect) amount of cash provided by or used for operating activities by the indirect method.

LO4 B
BRIEF Old Alabama Company purchased investments for $45,000 and plant assets for $127,000 dur-
EXERCISE 13.5
E ing the current year, during which it also sold plant assets for $66,000, at a gain of $6,000. The
Cash Flows from company also purchased treasury stock for $78,000 and sold a new issue of common stock for
Investing $523,000. Determine the amount of cash provided by or used for investing activities for the year.

LO4 B
BRIEF Texas, Inc., sold common stock for $560,000 and preferred stock for $36,000 during the cur-
EXERCISE 13.6
E rent year. In addition, the company purchased treasury stock for $35,000 and paid dividends on
Cash Flows from common and preferred stock for $24,000. Determine the amount of cash provided by or used for
Financing Activities
F financing activities during the year.

LO3 B
BRIEF Dane, Inc., reported cost of goods sold of $100,100 during the current year. Following are the
EXERCISE 13.7
E beginning and ending balances of merchandise inventory and accounts payable for the year:
Cash Payment for
Merchandise
Beginning Ending
Merchandise inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $35,000 $43,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,000 30,000

Determine the amount of cash payments for purchases during the year.

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Exercises 597

LO2 B
BRIEF Tyler, Inc.’s cash balance at December 31, 2011, the end of its financial reporting year, was
EXERCISE 13.8
E $155,000. During 2011, cash provided by operations was $145,000, cash used in investing activi-
D
Determining Beginning ties was $67,000, and cash provided by financing activities was $10,000. Calculate the amount of
Cash Balance Tyler’s beginning cash balance at January 1, 2011.

LO6 B
BRIEF Zephre Company reported net income for the year of $56,000. Depreciation expense for the year
EXERCISE 13.9
E was $12,000. During the year, accounts receivable increased by $4,000, inventory decreased by
Reconciling Net $6,000, accounts payable increased by $3,000, and accrued expenses payable decreased by $2,000.
Income to Cash from Reconcile the amount of net income to the amount of cash provided by or used for operating
Operations activities.

LO2 B
BRIEF Watson, Inc., had a cash balance at the beginning of the year of $89,000. During the year, the
EXERCISE 13.10
E following cash flows occurred:
Preparing Statement
of Cash Flows
From operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $136,000
From investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (56,000)
From financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34,000)

Prepare an abbreviated statement of cash flows, including a reconciliation of the beginning and
ending cash balances for the year.

Exercises accounting

EXERCISE 13.1
E Wallace Company’s statement of cash flows for the current year is summarized as follows:
LO1
Using a Statement
U
of Cash Flows
o
LO2 Cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000
Cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (120,000)
Cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,000
Increase in cash during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $168,000
Cash balance, beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000
Cash balance, end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $243,000

a. Briefly explain what is included in each of the first three categories listed (i.e., the cash from
operating, investing, and financing activities categories).
b. On the basis of the limited information presented above, describe the company’s change in
cash position during the year and your interpretation of the strength of the company’s current
(end-of-year) cash position.

LO1 EXERCISE 13.2

E Auto Supply Company’s 2011 statement of cash flows appears in Exhibit 13–8. Study the state-
U
Using a Statement ment and respond to the following questions:
LO2 of Cash Flows
o a. What was the company’s free cash flow in 2011?
b. What were the major sources and uses of cash from financing activities during 2011? Did the
net effect of financing activities result in an increase or a decrease in cash during the year?
LO6
c. What happened to the total amount of cash and cash equivalents during the year? Assuming
2011 was a typical year, is the firm in a position to continue its dividend payments in the
future? Explain.

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598 Chapter 13 Statement of Cash Flows

d. Look at the reconciliation of net income to net cash provided by operating activities, and
explain the following:
1. Net loss (gain) from the sale of marketable securities.
2. Increase in accounts receivable.

LO4 EXERCISE 13.3

E An analysis of the Marketable Securities control account of Prosper Products, Inc., shows the
C
Computing Cash following entries during the year:
Flows

Balance, Jan. 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 290,000

Debit entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,000
Credit entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (140,000)
Balance, Dec. 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 275,000

In addition, the company’s income statement includes a $35,000 loss on sales of marketable
securities. None of the company’s marketable securities is considered a cash equivalent.
Compute the amounts that should appear in the statement of cash flows as:
a. Purchases of marketable securities.
b. Proceeds from sales of marketable securities.

LO3 EXERCISE 13.4

E During the current year, Tachnic, Inc., made cash sales of $285,000 and credit sales of $460,000.
Comparing Net Sales
C During the year, accounts receivable decreased by $32,000.
LO6 and Cash Receipts
an a. Compute for the current year the amounts of:
1. Net sales reported as revenue in the income statement.
2. Cash received from collecting accounts receivable.
3. Cash received from customers.
b. Write a brief statement explaining why cash received from customers differs from the amount
of net sales.

LO3 EXERCISE 13.5

E The general ledger of MPX, Inc., provides the following information relating to purchases of
C
Computing Cash merchandise:
Paid for Purchases
of Merchandise
End of Beginning
Year of Year
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $820,000 $780,000
Accounts payable to merchandise suppliers . . . . . . . . . . . . . . . . . . 430,000 500,000

The company’s cost of goods sold during the year was $2,975,000. Compute the amount of cash
payments made during the year to suppliers of merchandise.

LO3 EXERCISE 13.6

E During the current year, Maine Savings and Loan Association made new loans of $15 million. In
Reporting Lending
R addition, the company collected $36 million from borrowers, of which $30 million was interest
LO6 Activities and Interest
Ac revenue. Explain how these cash flows will appear in the company’s statement of cash flows, indi-
Revenue
R cating the classification and the dollar amount of each cash flow.

LO2 EXERCISE 13.7

E The accounting staff of Wyoming Outfitters, Inc., has assembled the following information for the
F
Format of a Statement year ended December 31, 2011:
of Cash Flows

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Exercises 599

Cash and cash equivalents, Jan. 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,800

Cash and cash equivalents, Dec. 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,800
Cash paid to acquire plant assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,000
Proceeds from short-term borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Loans made to borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Collections on loans (excluding interest) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000
Interest and dividends received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,000
Cash received from customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 795,000
Proceeds from sales of plant assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,000
Cash paid to suppliers and employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 635,000
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,000
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,000

Using this information, prepare a statement of cash flows. Include a proper heading for the finan-
cial statement, and classify the given information into the categories of operating activities, invest-
ing activities, and financing activities. Determine net cash flows from operating activities by the
direct method. Place brackets around the dollar amounts of all cash disbursements.

LO8 EXERCISE 13.8

E Indicate how you would expect the following strategies to affect the company’s net cash flows
E
Effects of Business from operating activities (1) in the near future and (2) in later periods (after the strategy’s long-
Strategies term effects have “taken hold”). Fully explain your reasoning.
a. A successful pharmaceutical company substantially reduces its expenditures for research and
development.
b. A restaurant that previously sold only for cash adopts a policy of accepting bank credit cards,
such as Visa and MasterCard.
c. A manufacturing company reduces by 50 percent the size of its inventories of raw materials
(assume no change in inventory storage costs).
d. Through tax planning, a rapidly growing real estate developer is able to defer significant
amounts of income taxes.
e. A rapidly growing software company announces that it will stop paying cash dividends for the
foreseeable future and will instead distribute stock dividends.

LO6 EXERCISE 13.9

E An analysis of the annual financial statements of Conner Corporation reveals the following:
A Analysis of
An a. The company had a $5 million extraordinary loss from insurance proceeds received due to a
LO7 Possible Reconciling
P tornado that destroyed a factory building.
Items
It b. Depreciation for the year amounted to $8 million.
c. During the year, $2 million in cash was transferred from the company’s checking account into
a money market fund.
d. Accounts receivable from customers increased by $4 million over the year.
e. Cash received from customers during the year amounted to $167 million.
f. Prepaid expenses decreased by $1 million over the year.
g. Dividends declared during the year amounted to $7 million; dividends paid during the year
amounted to $6 million.
h. Accounts payable (to suppliers of merchandise) increased by $2.5 million during the year.
i. The liability for accrued income taxes payable amounted to $5 million at the beginning of the
year and $3 million at year-end.
In the computation of net cash flows from operating activities by the indirect method, explain
whether each of the above items should be added to net income, deducted from net income, or
omitted from the computation. Briefly explain your reasons for each answer.

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LO7 EXERCISE 13.10

E The following data are taken from the income statement and balance sheet of Keaner Machinery, Inc.:
C
Computation of Net
Cash Flows from Dec. 31, Jan. 1,
Operating Activities— 2011 2011
Indirect Method Income statement:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $385,000
Depreciation Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,000
Amortization of Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
Gain on Sale of Plant Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000
Loss on Sale of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000
Balance sheet:
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $335,000 $380,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 503,000 575,000
Prepaid Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,000 10,000
Accounts Payable (to merchandise suppliers) . . . . . . . . . . . . . . . . . 379,000 410,000
Accrued Expenses Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,000 155,000

Using this information, prepare a partial statement of cash flows for the year ended December 31,
2011, showing the computation of net cash flows from operating activities by the indirect method.

LO2 EXERCISE 13.11

E Among the transactions of Beeler, Inc., were the following:
C
Classifying Cash a. Made payments on accounts payable to merchandise suppliers.
Flows b. Paid the principal amount of a note payable to First Bank.
c. Paid interest charges relating to a note payable to First Bank.
d. Issued bonds payable for cash; management plans to use this cash in the near future to expand
manufacturing and warehouse capabilities.
e. Paid salaries to employees in the finance department.
f. Collected an account receivable from a customer.
g. Transferred cash from the general bank account into a money market fund.
h. Used the cash received in d, above, to purchase land and a building suitable for a manufactur-
ing facility.
i. Made a year-end adjusting entry to recognize depreciation expense.
j. At year-end, purchased for cash an insurance policy covering the next 12 months.
k. Paid the quarterly dividend on preferred stock.
l. Paid the semiannual interest on bonds payable.
m. Received a quarterly dividend from an investment in the preferred stock of another corporation.
n. Sold for cash an investment in the preferred stock of another corporation.
o. Received cash upon the maturity of an investment in cash equivalents. (Ignore interest.)

Instructions
Most of the preceding transactions should be included among the activities summarized in a statement
of cash flows. For each transaction that should be included in this statement, indicate whether the
transaction should be classified as an operating activity, an investing activity, or a financing activity.
If the transaction should not be included in the current year’s statement of cash flows, briefly explain
why not. (Assume that net cash flows from operating activities are determined by the direct method.)

LO2 EXERCISE 13.12

E Among the transactions of Marvel Manufacturing were the following:
C
Classifying Cash 1. Made payments on accounts payable to office suppliers.
Flows 2. Paid the principal amount of a mortgage to Seventh Bank.
3. Paid interest charges relating to a mortgage to Seventh Bank.
4. Issued preferred stock for cash; management plans to use this cash in the near future to pur-
chase another company.

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Exercises 601

5. Paid salaries to employees in the finance department.

6. Collected an account receivable from a customer.
7. Transferred cash from the general bank account into a money market fund.
8. Used the cash received in 4, above, to purchase Moran Manufacturing Co.
9. Made a year-end adjusting entry to recognize amortization expense.
10. At year-end, purchased for cash an advertising spot on a local radio station for the next eight
months.
11. Paid the annual dividend on preferred stock.
12. Paid the semiannual interest on bonds payable.
13. Received a semiannual dividend from an investment in the common stock of another corporation.
14. Sold for cash an investment in the common stock of another corporation.
15. Received cash upon the maturity of an investment in cash equivalents. (Ignore interest.)

Instructions
Most of the preceding transactions should be included among the activities summarized in a statement
of cash flows. For each transaction that should be included in this statement, indicate whether the
transaction should be classified as an operating activity, an investing activity, or a financing activity.
If the transaction should not be included in the current year’s statement of cash flows, briefly explain
why not. (Assume that net cash flows from operating activities are determined by the direct method.)

LO4 EXERCISE 13.13

E Wofford Company provides the following information related to its investing and financing activi-
C
Cash Flows from ties for the current year:
Investing Activities
Cash receipts:
Sale of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $250,000
Sale of equipment (at $34,000 loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,000
Sale of land (at $50,000 gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,000
Cash payments:
Purchase of equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $178,000
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000
Retirement of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,500
Dividends on preferred and common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000

a. Calculate the net amount of cash provided by or used for investing activities for the year.
b. What impact, if any, do the following facts have on your calculation? (1) Equipment was sold
at a loss, and (2) land was sold at a gain.
c. Briefly explain your decision to exclude any of the items listed above if they were not included
in your calculation in part a.

LO4 EXERCISE 13.14

E Shepherd Industries had the following cash flows by major categories during the current year:
C
Cash Flows from
Financing Activities Cash provided by:
Receipts from customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $560,000
Sale of bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000
Sale of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,000
Interest and dividends received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,000
Sale of equipment (at a $56,000 loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236,000
Cash used for:
Payments to employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $135,000
Payments to purchase inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,000
Dividends on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,000

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602 Chapter 13 Statement of Cash Flows

a. Calculate the net amount of cash provided by or used for financing activities for the year.
b. Briefly justify why you excluded any of the above items in your calculation in part a.
c. Briefly explain your treatment of interest expense in your calculation in part a.

LO1 EXERCISE 13.15

E Statements of cash flow for Home Depot, Inc., for 2009, 2008, and 2007 are included in Appendix
H
Home Depot, Inc. A of this text.
LO2 Using a Statement
U a. Focus on the information for 2009 (year ending January 31, 2010). How does net earnings
of Cash Flows
o compare with net cash provided by or used in operations, and what accounts for the primary
difference between the two amounts?
LO4 b. What are the major uses of cash, other than operations, and how have these varied over the
three-year period presented?
c. Cash flows from both investing and financing activities have been mostly negative for all
three years presented. Considering Home Depot’s overall cash flows, including its cash flows
from operations, would you say that this leads to a negative interpretation of Home Depot’s
cash position at January 31, 2010? Why or why not?
d. Calculate the amount of free cash flow for each of 2007, 2008, and 2009, and comment briefly
on your conclusion concerning this information.

Problem Set A accounting

LO2 PROBLEM 13.1A

P The accounting staff of Harris Company has assembled the following information for the year
F
Format of a Statement ended December 31, 2011:
through
th
thro
rough
ugh
gh
of Cash Flows
o
LO4 Cash sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 800,000
Credit sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500,000
Collections on accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,200,000
Cash transferred from the money market fund to the general bank
account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000
Interest and dividends received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Purchases (all on account) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800,000
Payments on accounts payable to merchandise suppliers. . . . . . . . . . . . . . . . . . 1,500,000
Cash payments for operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,050,000
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,000
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,000
Loans made to borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000
Collections on loans (excluding receipts of interest) . . . . . . . . . . . . . . . . . . . . . . 260,000
Cash paid to acquire plant assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,100,000
Book value of plant assets sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 660,000
Loss on sales of plant assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
Proceeds from issuing bonds payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500,000
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000
Cash and cash equivalents, Jan. 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 489,000

Instructions
Prepare a statement of cash flows in the format illustrated in Exhibit 13–1. Place brackets around
amounts representing cash outflows. Use the direct method of reporting cash flows from operating
activities.
Some of the items above will be listed in your statement without change. However, you will have
to combine certain given information to compute the amounts of (1) collections from customers,
(2) cash paid to suppliers and employees, and (3) proceeds from sales of plant assets. (Hint: Not
every item listed is used in preparing a statement of cash flows.)
LO4 PROBLEM 13.2A
P
R
Reporting Investing An analysis of the income statement and the balance sheet accounts of Headrick, Inc., at December 31,
Activities 2011, provides the following information:

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Problem Set A 603

Income statement items:

Gain on Sale of Marketable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,000
Loss on Sales of Plant Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,000
Analysis of balance sheet accounts:
Marketable Securities account:
Debit entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75,000
Credit entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000
Notes Receivable account:
Debit entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210,000
Credit entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162,000
Plant and Equipment accounts:
Debit entries to plant asset accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196,000
Credit entries to plant asset accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000
Debit entries to accumulated depreciation accounts . . . . . . . . . . . . . . . . . . . . . 75,000

Additional Information
1. Except as noted in 4 below, payments and proceeds relating to investing transactions were
made in cash.
2. The marketable securities are not cash equivalents.
3. All notes receivable relate to cash loans made to borrowers, not to receivables from customers.
4. Purchases of new equipment during the year ($196,000) were financed by paying $60,000 in
cash and issuing a long-term note payable for $136,000.
5. Debits to the accumulated depreciation accounts are made whenever depreciable plant assets are
retired. Thus, the book value of plant assets retired during the year was $45,000 ($120,000 ⫺
$75,000).

Instructions
a. Prepare the investing activities section of a statement of cash flows. Show supporting compu-
tations for the amounts of (1) proceeds from sales of marketable securities and (2) proceeds
from sales of plant assets. Place brackets around numbers representing cash outflows.
b. Prepare the supporting schedule that should accompany the statement of cash flows in order to
disclose the noncash aspects of the company’s investing and financing activities.
c. Assume that Headrick’s management expects approximately the same amount of cash to be
used for investing activities next year. In general terms, explain how the company might gen-
erate cash for this purpose.

LO4 PROBLEM 13.3A

P An analysis of the income statement and the balance sheet accounts of Hayes Export Co. at
R
Reporting Investing December 31, 2011 provides the following information:
Activities
Income statement items:
Gain on Sale of Plant Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,000
Loss on Sales of Marketable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000
Analysis of balance sheet accounts:
Marketable Securities account:
Debit entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 78,000
Credit entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,000
Notes Receivable account:
Debit entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,000
Credit entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Plant and Equipment accounts:
Debit entries to plant asset accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
Credit entries to plant asset accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,000
Debit entries to accumulated depreciation accounts . . . . . . . . . . . . . . . . . . . . . 100,000

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604 Chapter 13 Statement of Cash Flows

Additional Information
1. Except as noted in 4 below, payments and proceeds relating to investing transactions were
made in cash.
2. The marketable securities are not cash equivalents.
3. All notes receivable relate to cash loans made to borrowers, not to receivables from customers.
4. Purchases of new equipment during the year ($150,000) were financed by paying $50,000 in
cash and issuing a long-term note payable for $100,000.
5. Debits to the accumulated depreciation accounts are made whenever depreciable plant assets
are sold or retired. Thus, the book value of plant assets sold or retired during the year was
$40,000 ($140,000 ⫺ $100,000).

Instructions
a. Prepare the investing activities section of a statement of cash flows. Show supporting compu-
tations for the amounts of (1) proceeds from sales of marketable securities and (2) proceeds
from sales of plant assets. Place brackets around amounts representing cash outflows.
b. Prepare the supplementary schedule that should accompany the statement of cash flows in
order to disclose the noncash aspects of the company’s investing and financing activities.
c. Does management have more control or less control over the timing and amount of cash out-
lays for investing activities than for operating activities? Explain.

LO3 PROBLEM 13.4A

P The following income statement and selected balance sheet account data are available for Treece,
R
Reporting Operating Inc., at December 31, 2011:
LO8 Cash Flows by the
C
Direct Method
D
TREECE, INC.
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2011
Revenue:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,850,000
Dep Exp 115,000
Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,000
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000
Gain on sales of marketable securities . . . . . . . . . . . . . . . . . . . 4,000
Total revenue and gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,028,000
Costs and expenses:
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,550,000
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 980,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185,000
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000
Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,805,000
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 223,000

End of Beginning
Year of Year
Selected account balances:
Accounts receivable . . . . . . . . . . +70,000
........................ $ 650,000 $ 720,000
Accrued interest receivable . . . . -3,000
........................ 9,000 6,000
Inventories . . . . . . . . . . . . . . . . . -35,000
........................ 800,000 765,000
Short-term prepayments . . . . . . -5,000
........................ 20,000 15,000
8,000
Accounts payable (merchandise suppliers) . . . . . . . . . . . . . . . . 570,000 562,000
Accrued operating expenses payable . . . . . . -29,000
.............. 65,000 94,000
Accrued interest payable . . . . . . . . . . . . . . . . 9,000
.............. 21,000 12,000
Accrued income taxes payable . . . . . . . . . . . . -13,000
.............. 22,000 35,000

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Problem Set A 605

Additional Information
1. Dividend revenue is recognized on the cash basis. All other income statement amounts are
recognized on the accrual basis.
2. Operating expenses include depreciation expense of $115,000.

Instructions
a. Prepare a partial statement of cash flows, including only the operating activities section of the
statement and using the direct method. Place brackets around numbers representing cash pay-
ments. Show supporting computations for the following:
1. Cash received from customers
2. Interest and dividends received
3. Cash paid to suppliers and employees
4. Interest paid
5. Income taxes paid
b. Management of Treece, Inc., is exploring ways to increase the cash flows from operations.
One way that cash flows could be increased is through more aggressive collection of receiv-
ables. Assuming that management has already taken all the steps possible to increase rev-
enue and reduce expenses, describe two other ways that cash flows from operations could be
increased.

LO6 PROBLEM 13.5A

P Using the information presented in Problem 13.4A, prepare a partial statement of cash flows for
R
Reporting Operating the current year, showing the computation of net cash flows from operating activities by the indi-
Cash Flows by the
C rect method. Explain why the decline in accounts receivable over the year was added to net income
LO7
Indirect Method
In in computing the cash flows from operating activities.

LO2 PROBLEM 13.6A

P You are the controller for 21st Century Technologies. Your staff has prepared an income statement
P
Preparing a Statement for the current year and has developed the following additional information by analyzing changes
through
th
thro
hrough
ugh
gh
of Cash Flows: A
o in the company’s balance sheet accounts.
LO4 Comprehensive
C
Problem without a
P
Worksheet
W 21st CENTURY TECHNOLOGIES
LO6 INCOME STATEMENT

LO8
x
e cel FOR THE YEAR ENDED DECEMBER 31, 2011
Revenue:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,200,000
Interest revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
Gain on sales of marketable securities . . . . . . . . . . . . . . . . . . . . 34,000
Total revenue and gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,274,000
Costs and expenses:
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,620,000
Operating expenses (including depreciation
of $150,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,240,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,000
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Loss on sales of plant assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000
Total costs, expenses, and losses . . . . . . . . . . . . . . . . . . . . . 3,014,000
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 260,000

Additional Information
1. Accounts receivable increased by $60,000.
2. Accrued interest receivable decreased by $2,000.

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606 Chapter 13 Statement of Cash Flows

3. Inventory decreased by $60,000, and accounts payable to suppliers of merchandise decreased

by $16,000.
4. Short-term prepayments of operating expenses increased by $6,000, and accrued liabilities for
operating expenses decreased by $8,000.
5. The liability for accrued interest payable increased by $4,000 during the year.
6. The liability for accrued income taxes payable decreased by $14,000 during the year.
7. The following schedule summarizes the total debit and credit entries during the year in other
balance sheet accounts:

Debit Credit
Entries Entries
Marketable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60,000 $ 38,000
Notes Receivable (cash loans made to borrowers) . . . . . . . . . . . . . . . 44,000 28,000
Plant Assets (see paragraph 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 36,000
Notes Payable (short-term borrowing) . . . . . . . . . . . . . . . . . . . . . . . . . 92,000 82,000
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Additional Paid-in Capital—Capital Stock . . . . . . . . . . . . . . . . . . . . . . 160,000
Retained Earnings (see paragraph 9) . . . . . . . . . . . . . . . . . . . . . . . . . 120,000 260,000

8. The $36,000 in credit entries to the Plant Assets account is net of any debits to Accumulated
Depreciation when plant assets were retired. Thus, the $36,000 in credit entries represents the
book value of all plant assets sold or retired during the year.
9. The $120,000 debit to Retained Earnings represents dividends declared and paid during the
year. The $260,000 credit entry represents the net income shown in the income statement.
10. All investing and financing activities were cash transactions.
11. Cash and cash equivalents amounted to $244,000 at the beginning of the year and to $164,000
at year-end.

Instructions
a. Prepare a statement of cash flows for the current year. Use the direct method of reporting cash
flows from operating activities. Place brackets around dollar amounts representing cash out-
flows. Show separately your computations of the following amounts:
1. Cash received from customers
2. Interest received
3. Cash paid to suppliers and employees
4. Interest paid
5. Income taxes paid
6. Proceeds from sales of marketable securities
7. Proceeds from sales of plant assets
8. Proceeds from issuing capital stock
b. Explain the primary reason why:
1. The amount of cash provided by operating activities was substantially greater than the
company’s net income.
2. There was a net decrease in cash over the year, despite the substantial amount of cash
provided by operating activities.
c. As 21st Century’s controller, you think that through more efficient cash management, the
company could have held the increase in accounts receivable for the year to $10,000, with-
out affecting net income. Explain how holding down the growth in receivables affects cash.
Compute the effect that limiting the growth in receivables to $10,000 would have had on the
company’s net increase or decrease in cash (and cash equivalents) for the year.

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Problem Set A 607

LO1 PROBLEM 13.7A

P Satellite 2010 was founded in 2010 to apply a new technology for efficiently transmitting closed-
P
Prepare and Analyze circuit (cable) television signals without the need for an in-ground cable. The company earned a
through
th
thro
hrough
ugh
gh profit of $115,000 in 2010, its first year of operations, even though it was serving only a small
a Statement of
Cash Flows with a
C test market. In 2011, the company began dramatically expanding its customer base. Management
LO9 expects both sales and net income to more than triple in each of the next five years.
Worksheet
W
Comparative balance sheets at the end of 2010 and 2011, the company’s first two years of
x
e cel operations, follow. (Notice that the balances at the end of the current year appear in the right-hand
column.)

Additional Information
The following information regarding the company’s operations in 2011 is available in either the
company’s income statement or its accounting records:
1. Net income for the year was $440,000. The company has never paid a dividend.
2. Depreciation for the year amounted to $147,000.
3. During the year the company purchased plant assets costing $2,200,000, for which it paid
$1,850,000 in cash and financed $350,000 by issuing a long-term note payable. (Much of the
cash used in these purchases was provided by short-term borrowing, as described below.)
4. In 2011, Satellite 2010 borrowed $1,450,000 against a $6 million line of credit with a local
bank. In its balance sheet, the resulting obligations are reported as notes payable (short-term).
5. Additional shares of capital stock (no par value) were issued to investors for $500,000 cash.

SATELLITE 2010
COMPARATIVE BALANCE SHEETS
December 31,
2010 2011
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80,000 $ 37,000
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 850,000
Plant and equipment (net of accumulated
depreciation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000 2,653,000
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $780,000 $3,540,000

Liabilities & Stockholders’ Equity

Notes payable (short-term) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ –0– $1,450,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000 63,000
Accrued expenses payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000 32,000
Notes payable (long-term) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390,000 740,000
Capital stock (no par value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 700,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,000 555,000
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $780,000 $3,540,000

Instructions
a. Prepare a worksheet for a statement of cash flows, following the general format illustrated in
Exhibit 13–7. (Note: If this problem is completed as a group assignment, each member of the
group should be prepared to explain in class all entries in the worksheet, as well as the group’s
conclusions in parts c and d.)
b. Prepare a formal statement of cash flows for 2011, including a supplementary schedule of
noncash investing and financing activities. (Follow the format illustrated in Exhibit 13–8.
Cash provided by operating activities is to be presented by the indirect method.)
c. Briefly explain how operating activities can be a net use of cash when the company is operat-
ing so profitably.
d. Because of the expected rapid growth, management forecasts that operating activities will be
an even greater use of cash in the year 2012 than in 2011. If this forecast is correct, does Satel-
lite 2010 appear to be heading toward illiquidity? Explain.

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608 Chapter 13 Statement of Cash Flows

LO1 PROBLEM 13.8A

P Miracle Tool, Inc., sells a single product (a combination screwdriver, pliers, hammer, and crescent
P
Prepare and Analyze wrench) exclusively through television advertising. The comparative income statements and bal-
through
th
thro
hrough
ugh
gh ance sheets are for the past two years.
a Statement of Cash
Flows; Involves
F
LO9 Additional Information
Preparation of a
P
Worksheet
W The following information regarding the company’s operations in 2011 is available from the com-
pany’s accounting records:
x
e cel 1. Early in the year the company declared and paid a $4,000 cash dividend.
2. During the year marketable securities costing $15,000 were sold for $14,000 cash, resulting in
a $1,000 nonoperating loss.
3. The company purchased plant assets for $20,000, paying $2,000 in cash and issuing a note
payable for the $18,000 balance.
4. During the year the company repaid a $10,000 note payable, but incurred an additional
$18,000 in long-term debt as described in 3.
5. The owners invested $15,000 cash in the business as a condition of the new loans described in
paragraph 4.

MIRACLE TOOL, INC.

COMPARATIVE INCOME STATEMENT
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2011
2010 2011
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $500,000 $350,000
Less: Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 140,000
Gross profit on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $300,000 $210,000
Less: Operating expenses (including depreciation
of $34,000 in 2010 and $35,000 in 2011) . . . . . . . . . . . . . . . . . 260,000 243,000
Loss on sale of marketable securities . . . . . . . . . . . . . . . . . . . –0– 1,000
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,000 ($ 34,000)

MIRACLE TOOL, INC.

COMPARATIVE BALANCE SHEETS
December 31,
2010 2011
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,000 $ 60,000
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 5,000
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 23,000
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000 122,000
Plant and equipment (net of accumulated
depreciation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 285,000
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $490,000 $495,000

Liabilities & Stockholders’ Equity

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,000 $ 73,000
Accrued expenses payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,000 14,000
Note payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245,000 253,000
Capital stock (no par value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000 135,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,000 20,000
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $490,000 $495,000

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Problem Set B 609

Instructions
a. Prepare a worksheet for a statement of cash flows, following the general format illustrated in
Exhibit 13–7. (Note: If this problem is completed as a group assignment, each member of the
group should be prepared to explain in class all entries in the worksheet, as well as the group’s
conclusions in parts c, d, and e.)
b. Prepare a formal statement of cash flows for 2011, including a supplementary schedule of
noncash investing and financing activities. (Use the format illustrated in Exhibit 13–8. Cash
provided by operating activities is to be presented by the indirect method.)
c. Explain how Miracle Tool, Inc., achieved positive cash flows from operating activities, despite
incurring a net loss for the year.
d. Does the company’s financial position appear to be improving or deteriorating? Explain.
e. Does Miracle Tool, Inc., appear to be a company whose operations are growing or contract-
ing? Explain.
f. Assume that management agrees with your conclusions in parts c, d, and e. What decisions
should be made and what actions (if any) should be taken? Explain.

Problem Set B
LO2 PROBLEM 13.1B
P The accounting staff of Best Company has assembled the following information for the year ended
F
Format of a Statement December 31, 2011:
through
th
thro
hrough
ugh
gh
of Cash Flows
o
LO4 Cash sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 230,000
Credit sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,450,000
Collections on accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,810,000
Cash transferred from the money market fund to the general bank
account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000
Interest and dividends received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
Purchases (all on account) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,822,000
Payments on accounts payable to merchandise suppliers. . . . . . . . . . . . . . . . . . 1,220,000
Cash payments for operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 930,000
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,000
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,000
Loans made to borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 690,000
Collections on loans (excluding receipts of interest) . . . . . . . . . . . . . . . . . . . . . . 300,000
Cash paid to acquire plant assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,700,000
Book value of plant assets sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 520,000
Loss on sales of plant assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
Proceeds from issuing bonds payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000
Cash and cash equivalents, Jan. 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,000

Instructions
Prepare a statement of cash flows in the format illustrated in Exhibit 13–1. Place brackets around
amounts representing cash outflows. Use the direct method of reporting cash flows from operating
activities.
Some of the items above will be listed in your statement without change. However, you will have
to combine certain given information to compute the amounts of (1) collections from customers,
(2) cash paid to suppliers and employees, and (3) proceeds from sales of plant assets. (Hint: Not
every item listed above is used in preparing a statement of cash flows.)

LO4 PROBLEM 13.2B

P An analysis of the income statement and the balance sheet accounts of Schmatah Fashions at
R
Reporting Investing December 31, 2011, provides the following information:
Activities

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610 Chapter 13 Statement of Cash Flows

Income statement items:

Gain on Sales of Marketable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,000
Loss on Sales of Plant Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Analysis of balance sheet accounts:
Marketable Securities account:
Debit entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,000
Credit entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,000
Notes Receivable account:
Debit entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,000
Credit entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000
Plant and Equipment accounts:
Debit entries to plant asset accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220,000
Credit entries to plant asset accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
Debit entries to accumulated depreciation accounts . . . . . . . . . . . . . . . . . . . . 60,000

Additional Information
1. Except as noted in 4, payments and proceeds relating to investing transactions were made in cash.
2. The marketable securities are not cash equivalents.
3. All notes receivable relate to cash loans made to borrowers, not to receivables from customers.
4. Purchases of new equipment during the year ($220,000) were financed by paying $70,000 in
cash and issuing a long-term note payable for $150,000.
5. Debits to the accumulated depreciation accounts are made whenever depreciable plant assets are
retired. Thus, the book value of plant assets retired during the year was $90,000 ($150,000 ⫺
$60,000).

Instructions
a. Prepare the investing activities section of a statement of cash flows. Show supporting compu-
tations for the amounts of (1) proceeds from sales and marketable securities and (2) proceeds
from sales from plant assets. Place brackets around numbers representing cash outflows.
b. Prepare the supporting schedule that should accompany the statement of cash flows in order to
disclose the noncash aspects of the company’s investing and financing activities.
c. Assume that Schmatah Fashions’s management expects approximately the same amount of
cash to be used for investing activities next year. In general terms, explain how the company
might generate cash for this purpose.

LO4 PROBLEM 13.3B

P An analysis of the income statement and the balance sheet accounts of RPZ Imports at December
R
Reporting Investing 31, 2011, provides the following information:
Activities
Income statement items:
Gain on Sales of Plant Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,000
Loss on Sales of Marketable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000
Analysis of balance sheet accounts:
Marketable Securities account:
Debit entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,000
Credit entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Notes Receivable account:
Debit entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
Credit entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,000
Plant and Equipment accounts:
Debit entries to plant asset accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,000
Credit entries to plant asset accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Debit entries to accumulated depreciation accounts . . . . . . . . . . . . . . . . . . . . 75,000

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Problem Set B 611

Additional Information
1. Except as noted in 4, payments and proceeds relating to investing transactions were made in
cash.
2. The marketable securities are not cash equivalents.
3. All notes receivable relate to cash loans made to borrowers, not to receivables from customers.
4. Purchases of new equipment during the year ($140,000) were financed by paying $50,000 in
cash and issuing a long-term note payable for $90,000.
5. Debits to the accumulated depreciation accounts are made whenever depreciable plant assets are
retired. Thus, the book value of plant assets sold or retired during the year was $25,000 ($100,000 ⫺
$75,000).

Instructions
a. Prepare the investing activities section of a statement of cash flows. Show supporting compu-
tations for the amounts of (1) proceeds from sales and marketable securities and (2) proceeds
from sales from plant assets. Place brackets around numbers representing cash outflows.
b. Prepare the supplementary schedule that should accompany the statement of cash flows in
order to disclose the noncash aspects of the company’s investing and financing activities.
c. Does management have more control or less control over the timing and amount of cash out-
lays for investing activities than for operating activities? Explain.

LO3 PROBLEM 13.4B

P The following income statement and selected balance sheet account data are available for Royce
R
Reporting Operating Interiors, Inc., at December 31, 2011:
LO8 Cash Flows by the
C
Direct Method
D
ROYCE INTERIORS, INC.
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2011
Revenue:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,600,000
Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,000
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
Gain on sales of marketable securities . . . . . . . . . . . . . . . . . . . 3,000
Total revenue and gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,698,000
Costs and expenses:
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,300,000
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,000
Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,770,000
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 928,000

End of Beginning
Year of Year
Selected account balances:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 450,000 $ 440,000
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000 3,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 575,000 550,000
Short-term prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 8,000
Accounts payable (merchandise suppliers) . . . . . . . . . . . . . . . . 415,000 410,000
Accrued operating expenses payable . . . . . . . . . . . . . . . . . . . . 86,000 90,000
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 8,000
Accrued income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 22,000

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612 Chapter 13 Statement of Cash Flows

Additional Information
1. Dividend revenue is recognized on the cash basis. All other income statement amounts are
recognized on the accrual basis.
2. Operating expenses include depreciation expense of $49,000.

Instructions
a. Prepare a partial statement of cash flows, including only the operating activities section of the
statement and using the direct method. Place brackets around numbers representing cash pay-
ments. Show supporting computations for the following:
1. Cash received from customers
2. Interest and dividends received
3. Cash paid to suppliers and employees
4. Interest paid
5. Income taxes paid
b. Management of Royce Interiors, Inc., is exploring ways to increase the cash flows from opera-
tions. One way that cash flows could be increased is through more aggressive collection of
receivables. Assuming that management has already taken all the steps possible to increase
revenue and reduce expenses, describe two other ways that cash flows from operations could
be increased.

LO6 PROBLEM 13.5B

P Using the information presented in Problem 13.4B, prepare a partial statement of cash flows for
R
Reporting Operating the current year, showing the computation of net cash flows from operating activities using the
Cash Flows by the
C indirect method. Explain why the increase in accounts receivable over the year was subtracted
LO7
Indirect Method
In from net income in computing the cash flows from operating activities.

LO2 PROBLEM 13.6B

P You are the controller for Foxboro Technologies. Your staff has prepared an income statement for
P
Preparing a Statement the current year and has developed the following additional information by analyzing changes in
through
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thro
rough
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gh
off Cash Flows: A the company’s balance sheet accounts.
LO4 Comprehensive
C
Problem without a
P
Worksheet
W
LO6

LO8 FOXBORO TECHNOLOGIES

INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2011
Revenue:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,400,000
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Gain on sales of marketable securities . . . . . . . . . . . . . . . . . . . 25,000
Total revenue and gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,485,000
Costs and expenses:
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,500,000
Operating expenses (including depreciation
of $75,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,000
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,000
Loss on sales of plant assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000
Total costs, expenses, and losses . . . . . . . . . . . . . . . . . . . . . 2,550,000
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 935,000

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Problem Set B 613

Additional Information
1. Accounts receivable increased by $60,000.
2. Accrued interest receivable decreased by $5,000.
3. Inventory decreased by $30,000, and accounts payable to suppliers of merchandise decreased
by $22,000.
4. Short-term prepayments of operating expenses increased by $8,000, and accrued liabilities for
operating expenses decreased by $9,000.
5. The liability for accrued interest payable increased by $4,000 during the year.
6. The liability for accrued income taxes payable decreased by $10,000 during the year.
7. The following schedule summarizes the total debit and credit entries during the year in other
balance sheet accounts:

Debit Credit
Entries Entries
Marketable Securities . . . . .G. 25,000
............................... $ 50,000 $ 40,000
Notes Receivable (cash loans made to borrowers) . . . . . . . . . . . . . . . (-) (30,000 ) 27,000
Plant Assets (see paragraph 8) . . L. .8,000
.......................... (350,000 30,000
Notes Payable (short-term borrowing) . . . . . . . . . . . . . . . . . . . . . . . . . 70,000 56,000
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Additional Paid-in Capital—Capital Stock . . . . . . . . . . . . . . . . . . . . . . 100,000
Retained Earnings (see paragraph 9) . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 935,000

8. The $30,000 in credit entries to the Plant Assets account is net of any debits to Accumulated
Depreciation when plant assets were retired. Thus the $30,000 in credit entries represents the
book value of all plant assets sold or retired during the year.
9. The $300,000 debit to Retained Earnings represents dividends declared and paid during the
year. The $935,000 credit entry represents the net income shown in the income statement.
10. All investing and financing activities were cash transactions.
11. Cash and cash equivalents amount to $20,000 at the beginning of the year and to $473,000 at
year-end.

Instructions
a. Prepare a statement of cash flows for the current year. Use the direct method of reporting cash
flows from operating activities. Place brackets around dollar amounts representing cash out-
flows. Show separately your computations of the following amounts:
1. Cash received from customers
2. Interest received
3. Cash paid to suppliers and employees
4. Interest paid
5. Income taxes paid
6. Proceeds from sales of marketable securities
7. Proceeds from sales of plant assets
8. Proceeds from issuing capital stock
b. Explain why cash paid to suppliers is so much higher than cost of goods sold.
c. Does the fact that Foxboro’s cash flows from both investing and financing activities are nega-
tive indicate that the company is in a weak cash position?

LO1 PROBLEM 13.7B

P LGIN was founded in 2010 to apply a new technology for the Internet. The company earned a
P
Prepare and Analyze profit of $190,000 in 2010, its first year of operations. Management expects both sales and net
through
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thro
hrough
ugh
gh
a Statement of Cash income to more than double in each of the next four years.
LO9 Flows
F Comparative balance sheets at the end of 2010 and 2011, the company’s first two years of
operations, appear below. (Notice that the balances at the end of the current year appear in the
right-hand column.)

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614 Chapter 13 Statement of Cash Flows

LGIN
COMPARATIVE BALANCE SHEETS
December 31,
2010 2011
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,000 $ 42,000
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 880,000
Plant and equipment (net of accumulated
depreciation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 680,000 3,140,000
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $740,000 $4,062,000

Liabilities and Stockholders’ Equity

Notes payable (short-term). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0 $1,490,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000 82,000
Accrued expenses payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,000 38,000
Notes payable (long-term) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 785,000
Capital stock (no par value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000 915,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,000 752,000
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $740,000 $4,062,000

Additional Information
The following information regarding the company’s operations in 2011 is available in either the
company’s income statement or its accounting records:
1. Net income for the year was $562,000. The company has never paid a dividend.
2. Depreciation for the year amounted to $125,000.
3. During the year the company purchased plant assets costing $2,585,000, for which it paid
$2,000,000 in cash and financed $585,000 by issuing a long-term note payable. (Much
of the cash used in these purchases was provided by short-term borrowing, as described
below.)
4. In 2011, LGIN borrowed $1,490,000 against a $5 million line of credit with a local bank. In its
balance sheet, the resulting obligations are reported as notes payable (short-term).
5. Additional shares of capital stock (no par value) were issued to investors for $665,000 cash.

Instructions
a. Prepare a formal statement of cash flows for 2011, including a supplementary schedule of
noncash investing and financing activities. (Follow the format illustrated in Exhibit 13–8.
Cash provided by operating activities is to be presented by the indirect method.)
b. Briefly explain how operating activities can be a net use of cash when the company is operat-
ing so profitably.
c. Because of the expected rapid growth, management forecasts that operating activities will
include an even greater use of cash in the year 2012 than in 2011. If this forecast is correct,
does LGIN appear to be heading toward insolvency? Explain.

LO1 PROBLEM 13.8B

P Extra-Ordinaire, Inc., sells a single product (Pulsa) exclusively through newspaper advertising.
P
Prepare and Analyze The comparative income statements and balance sheets are for the past two years.
through
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thro
hrough
ugh
gh
a Statement of Cash
LO9 Flows; Involves
F
Preparation of a
P
Worksheet
W

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Problem Set B 615

EXTRA-ORDINAIRE, INC.
COMPARATIVE INCOME STATEMENT
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2011
2010 2011
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $640,000 $ 410,000
Less: Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310,000 190,000
Gross profit on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330,000 220,000
Less: Operating expenses (including depreciation of
$28,000 in 2010 and $29,000 in 2011) . . . . . . . . . . . . . . . . . . . 260,000 250,000
Loss on sale of marketable securities . . . . . . . . . . . . . . . . . . . 0 4,000
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 70,000 $ (34,000)

EXTRA-ORDINAIRE, INC.
COMPARATIVE BALANCE SHEETS
December 31,
2010 2011
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,000 $ 60,000
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,000 12,000
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 35,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000 128,000
Plant and equipment (net of accumulated depreciation) . . . . . . . . . . . 250,000 241,000
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $459,000 $476,000

Liabilities & Stockholders’ Equity

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 70,000
Accrued expenses payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000 14,000
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235,000 237,000
Capital stock (no par value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,000 143,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 12,000
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $459,000 $476,000

Additional Information
The following information regarding the company’s operations in 2011 is available from the com-
pany’s accounting records:
1. Early in the year the company declared and paid a $4,000 cash dividend.
2. During the year marketable securities costing $15,000 were sold for $11,000 cash, resulting in
a $4,000 nonoperating loss.
3. The company purchased plant assets for $20,000, paying $8,000 in cash and issuing a note
payable for the $12,000 balance.
4. During the year the company repaid a $10,000 note payable, but incurred an additional
$12,000 in long-term debt as described in 3, above.
5. The owners invested $35,000 cash in the business as a condition of the new loans described in
paragraphs 3 and 4, above.

Instructions
a. Prepare a worksheet for a statement of cash flows, following the example shown in Exhibit 13–7.
b. Prepare a formal statement of cash flows for 2011, including a supplementary schedule of
noncash investing and financing activities. (Use the format illustrated in Exhibit 13–8. Cash
provided by operating activities is to be presented by the indirect method.)
c. Explain how Extra-Ordinaire, Inc., achieved positive cash flows from operating activities,
despite incurring a net loss for the year.

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616 Chapter 13 Statement of Cash Flows

d. Does the company’s financial position appear to be improving or deteriorating? Explain.

e. Does Extra-Ordinaire, Inc., appear to be a company whose operations are growing or contracting?
Explain.
f. Assume that management agrees with your conclusions in parts c, d, and e. What decisions
should be made and what actions (if any) should be taken? Explain.

Critical Thinking Cases

LO1 CASE 13.1
C This case is based on the statement of cash flows for Allison Corporation, illustrated in
A
Another Look at Exhibit 13–1. Use this statement to evaluate the company’s ability to continue paying the current
Allison Corporation
A level of dividends—$40,000 per year. The following information also is available:
1. The net cash flows from operating activities shown in the statement are relatively normal for
Allison Corporation. Net cash flows from operating activities have not varied by more than a
few thousand dollars in any of the past three years.
2. The net outflow for investing activities was unusually high, because the company modernized
its production facilities during the year. The normal investing cash outflow is about $45,000
per year, the amount required to replace existing plant assets as they are retired. Over the long
run, marketable securities transactions and lending transactions have a very small impact on
Allison’s net cash flows from investing activities.
3. The net cash flows from financing activities were unusually large in the current year because
of the issuance of bonds payable and capital stock. These securities were issued to finance the
modernization of the production facilities. In a typical year, financing activities include only
short-term borrowing transactions and payments of dividends.
Instructions
a. Solely on the basis of the company’s past performance, do you believe that the $40,000 annual
dividend payments are secure? That is, does the company appear able to pay this amount in divi-
dends every year without straining its cash position? Do you think it more likely that Allison
Corporation will increase or decrease the amount of dividends that it pays? Explain fully.
b. Should any of the unusual events appearing in the statement of cash flows for the current year
affect your analysis of the company’s ability to pay future dividends? Explain.
LO1 CASE 13.2
C Individuals generally do not prepare statements of cash flows concerning their personal activities.
C
Cash Budgeting for But they do engage in cash budgeting—if not on paper, then at least in their heads.
You as a Student
Y Assume it is December 29—a Monday. While you are in school, you share a small apartment
LO8
with another student and work part-time, both near your school to minimize expenses. In two days
your rent for January, $200, will be due. You now have $140 in the bank; every Friday you receive
a paycheck for $100. You probably see the problem. And it probably doesn’t look too serious; you
can find a way to deal with it. That’s what budgeting is all about.
Let’s take this example a step further. In addition to the facts given above, your weekly cash
payments include meals, $30; entertainment, $20; and gasoline, $10.
Instructions
a. Using the following cash budget, compute your cash balance at the end of weeks 2, 3, and 4.

Week
1 2 3 4
Beginning cash balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 140 $(20) $ ? $ ?
Expected cash receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 100 100 100
Less: Expected cash outlays:
Monthly rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (200)
Meals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30)
Entertainment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20)
Gasoline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10)
Ending cash balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (20) $ ? $ ? $ ?

b. Evaluate your financial situation.

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