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CHAPTER 13 (MAN)
STATEMENT OF CASH FLOWS
DISCUSSION QUESTIONS
1. It is costly to accumulate the data needed and to prepare the statement of cash flows.
2. It focuses on the differences between net income and cash flows from operating activities,
and the data needed are generally more readily available and less costly to obtain than is the
case for the direct method.
3. In a separate schedule of noncash investing and financing activities accompanying the
statement of cash flows.
4. The $30,000 increase must be added to income from operations because the amount of cash
paid to merchandise creditors was $30,000 less than the amount of purchases included in the
cost of merchandise sold.
5. The $25,000 decrease in salaries payable should be deducted from income to determine the
amount of cash flows from operating activities. The effect of the decrease in the amount of
salaries owed was to pay $25,000 more cash during the year than had been recorded as an
expense.
6. a. $100,000 gain
b. Cash inflow of $600,000
c. The gain of $100,000 would be deducted from net income in determining net cash flow
from operating activities; $600,000 would be reported as cash flows from investing
activities.
7. Cash flows from financing activities—issuance of bonds, $1,960,000 ($2,000,000 × 98%)
8. a. Cash flows from investing activities—Cash received from the disposal of fixed assets,
$15,000
The $15,000 gain on asset disposal should be deducted from net income in determining
net cash flow from operating activities under the indirect method.
b. No effect
9. The same. The total amount reported as the net cash flow from operating activities is not affected
by the use of the direct or indirect method.
10. Cash received from customers, cash payments for merchandise, cash payments for operating
expenses, cash payments for interest, cash payments for income taxes.
13-1
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PRACTICE EXERCISES
PE 13–1A (MAN)
a. Financing d. Financing
b. Operating e. Investing
c. Operating f. Operating
PE 13–1B (MAN)
a. Investing d. Operating
b. Investing e. Operating
c. Operating f. Financing
PE 13–2A (MAN)
Net income………………………………………………………………………………… $120,400
Adjustments to reconcile net income to net cash flow from
operating activities:
Depreciation……………………………………...…………………………………… 8,400
Amortization of patents………………………………...…………………………… 3,080
Loss from sale of land…………………………..………………………………… 4,480
Net cash flow from operating activities………………………..………………………$136,360
PE 13–2B (MAN)
Net income……………………………………………………………………...………… $175,000
Adjustments to reconcile net income to net cash flow from
operating activities:
Depreciation……………………………………………………..…………………… 8,750
Amortization of patents…………………………………..………………………… 3,250
Gain from sale of investments…………………………….……………………… (18,750)
Net cash flow from operating activities……………………..…………………………$168,250
13-2
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CHAPTER 13 Statement of Cash Flows
PE 13–3A (MAN)
Net income…………………………….…………………………………………………… $207,000
Adjustments to reconcile net income to net cash flow from
operating activities:
Changes in current operating assets and liabilities:
Decrease in accounts receivable………………………………...…………… 5,400
Increase in inventory…………………………………..………………………… (2,520)
Increase in accounts payable……………………………….………………… 1,980
Net cash flow from operating activities…………………………..…………………… $211,860
Note: The change in dividends payable impacts the cash paid for dividends,
which is disclosed under financing activities.
PE 13–3B (MAN)
Net income…………………………………..……………………………………………… $160,000
Adjustments to reconcile net income to net cash flow from
operating activities:
Changes in current operating assets and liabilities:
Increase in accounts receivable………………………………...…………… (3,600)
Increase in inventory…………………………….……………………………… (5,100)
Increase in accounts payable………………………….……………………… 6,900
Net cash flow from operating activities………………….…………………………… $158,200
Note: The change in dividends payable impacts the cash paid for dividends,
which is disclosed under financing activities.
PE 13–4A (MAN)
Cash flows from operating activities:
Net income……………………………………….…………………… $405,000
Adjustments to reconcile net income to net cash flow
from operating activities:
Depreciation…………………………………………...………… 45,000
Gain on disposal of equipment……………………………… (36,900)
Changes in current operating assets and liabilities:
Decrease in accounts receivable……………………..… 25,200
Decrease in accounts payable…………………………… (6,480)
Net cash flow from operating activities……………………..…… $431,820
13-3
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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