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CHAPTER 13
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 goods 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
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
BASIC EXERCISES
BE 13–1
A. Investing D. Operating
B. Investing E. Operating
C. Operating F. Financing
BE 13–2
Net income……………………………………………………………………...………… $224,500
Adjustments to reconcile net income to net cash flow from
operating activities:
Depreciation……………………………………………………..…………………… 11,575
Amortization of patents…………………………………..………………………… 2,500
Gain from sale of investments…………………………….……………………… (33,190)
Net cash flow from operating activities……………………..……………… $205,385
BE 13–3
Net income…………………………………..……………………………………………… $75,800
Changes in current operating assets and liabilities:
Increase in accounts receivable………………………………...………………… (5,000)
Increase in inventory…………………………….…………………………………… (7,450)
Increase in accounts payable………………………….…………………………… 3,380
Net cash flow from operating activities………………….…………………… $66,730
Note: The change in dividends payable impacts the cash paid for dividends,
which is disclosed under financing activities.
BE 13–4
Cash flows from operating activities:
Net income…………………………………….………………………… $396,200
Adjustments to reconcile net income to net cash flow
from operating activities:
Depreciation………………………………...……………………… 61,250
Loss on disposal of equipment……………………………..… 27,600
Changes in current operating assets and liabilities:
Increase in accounts receivable……………………………… (9,000)
Increase in accounts payable……………………….………… 3,350
Net cash flow from operating activities…………………… $479,400
13-2
© 2017 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
BE 13–5
The gain on the sale of land is subtracted from net income in the Operating Activities
section.
Gain on sale of land………………………….……………………………………… $ (40,000)
The purchase and sale of land is reported as part of cash flows from investing
activities as shown below.
Cash received from sale of land…………………..……………………………… 240,000
Cash paid for purchase of land………………………..………………………… (400,000)
BE 13–6
Cash flows from financing activities:
Cash received from issuing common stock $800,000
Cash received from issuing bonds 700,000
Cash paid for dividends (90,000)
Net cash from financing activities $1,410,000
Appendix 2 BE 13–7
Sales……………………………………………………………………………………… $112,000
Decrease in accounts receivable……………………………………………………… 10,500
Cash received from customers……………………………………………………… $122,500
Appendix 2 BE 13–8
Cost of goods sold……………………………………………………………………… $240,000
Increase in inventories………………………………………………………………… 19,200
Increase in accounts payable………………………………………………………… (12,000)
Cash paid for merchandise…………………………………………………………… $247,200
13-3
© 2017 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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