CHAPTER 23 Statement of Cash Flows OPTIONAL ASSIGNMENT CHARACTERISTICS TABLE Item
Description
BE23-7
Computation of cash payments to suppliers—direct method.
E23-1 E23-8 E23-9 E23-10 E23-11 E23-12
Classification of transactions. Schedule of net cash flow from operating activities—indirect method. SCF—direct method (note: correct ending balance of Allowance = $2,300). Classification of transactions. SCF—indirect method. SCF—direct method.
P23-1 P23-2 P23-6 P23-7
SCF—indirect method. SCF—indirect method. SCF—indirect method, & net cash flow from operating activities, direct method. (b & c) SCF—direct method with indirect method reconciliation for operating activities.
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BRIEF EXERCISE 23-7
Beg. purch End.
Inventory 95,000 518,000 COGS 113,000
Accounts Payable Beg. 510,000 purch End.
payments
500,000
61,000 518,000 69,000
EXERCISE 23-1 a) b) c) d) e) f) g) h) i) j) k) l)
Operating—add to net income (note: 455 level item; will not be tested in 356). Financing activity (−). Investing activity (+). Operating—add to net income. Noncash investing and financing activity. Financing activity (+). Operating—add to net income. Financing activity (−). Noncash investing and financing activity. Financing activity (−). Operating—deduct from net income. Investing activity (−).
EXERCISE 23-8 Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense.................................................................... Gain on sale of investment [($200 – $165) X 100]........................ Decrease in accounts receivable .................................................. Undistributed earnings from equity method investment (a) .......... Net cash provided by operating activities ..............................................
$ 145,000
39,000 (3,500) 12,000 (7,500) $ 185,000
(a) [equity income ($27,000 x 30%) – dividends ($2,000 x 30%)] = $7,500 EXERCISE 23-9 (correct ending balance of allowance: $1,100 + $5,000 − $3,800 = $2,300) (1) Beg. Sales End.
Accounts Receivable 30,000 Write-offs 538,800 collections 33,000
(2) Beg. purch End.
Inventory 47,000 234,000 COGS 31,000
(3)
OR 3,800 532,000
250,000
Interest Expense Bond Discount ($5,000 − $4,500) Cash
Accounts Receivable (NET: A/R – allowance) Beg.* 28,900 Bad debt exp 5,000 532,000 Sales 538,800 collections End.** 30,700 * $30,000 − $1,100 ** $33,000 − $2,300 Accounts Payable (to suppliers for inventory) Beg. 17,000 payments 226,000 purch 234,000 End. 25,000 4,300 500 3,800
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EXERCISE 23-9 continued (4) payments
(5)
Income Taxes Payable Beg 27,800 Exp* End
29,100 19,700 21,000
* current exp = $20,400 − $700 incr in deferred inc taxes** (**note: 455 level item; will not be tested in 356)
Selling expenses (141,500 1,000* 5,000) Cash
135,500 135,500
* [($16,500 − $13,500) X 1/3]
Note that there are no related prepaid/accrued balance sheet accounts EXERCISE 23-10 (1) Property, Plant & Equipment Beg. 247,000 Purch (B/P) 25,000 sale Purch (cash) 50,000 End. 277,000
(2) 45,000
sale
Accumulated Depreciation Beg. 27,000 Depr exp End.
167,000 38,000 178,000
(1) payments to purchase PP&E are classified as cash flows from investing activities (−); note that the purchase of PP&E by issuing bonds payable is classified as a noncash investing & financing activity (2) proceeds from the sale of equipment are classified as cash flows from investing activities (+) and equals: Cash $ 32,500 BV ($45,000 − $27,000) 18,000 Gain $ 14,500 (3) Div decl
Retained Earnings Beg 18,000 NI End
91,000 31,000 104,000
payments
Dividends Payable Beg 15,000 Div decl End
5,000 18,000 8,000
(3) cash dividends paid are classified as cash flows from financing activities (−) (4) payments
Bonds Payable Beg 22,000 issue End
Note: no amortization of bond discount/premium 46,000 25,000 49,000
(4) payments for redemption of bonds payable are classified as cash flows from financing activities (−)
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EXERCISE 23-11 FAIRCHILD COMPANY Statement of Cash Flows For the Year Ended December 31, 2012 Cash flows from operating activities Net income ..................................................................................................................... $ 810 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense .................................................................................... $ 30 Gain on sale of investments ........................................................................... (80) Increase in receivables ($1,750 − $1,300) ..................................................... (450) Decrease in inventory ($1,600 − $1,900) ....................................................... 300 Increase in accounts payable ($1,200 − $800) .............................................. 400 Decrease in accrued liabilities ($200 − $250) ................................................ (50) Net cash provided by operating activities ............................................................... Cash flows from investing activities Purchase of plant assets ....................................................................................... (130) Sale of held-to-maturity investments ($170 + $80) ................................................ 250 Net cash provided by investing activities ............................................................... Cash flows from financing activities Payments on bonds payable .................................................................................... (250) Issuance of capital stock ......................................................................................... 130 Payment of dividends ............................................................................................... (260) Net cash used by financing activities ....................................................................... Net increase in cash .............................................................................................................. Cash at beginning of year ..................................................................................................... Cash at end of year ...............................................................................................................
(380) 700 1,100 $ 1,800
Noncash investing and financing activities Issuance of common stock for plant assets .............................................................
$
T-accounts for I & F accounts: Plant Assets Beg 1,700 Purch (C/S) 70 Purch (cash) 130 Sale End 1,900
Sale
Beg purch end
Accumulated depreciation Beg 0 Depr Exp End L-T Investments (HTM) 1,470 Sale 1,300
Pymts 0
1,170 30 1,200
170
Bonds Payable Beg 250 End Capital Stock Beg Issue (p.a.) Issue (cash) end
Retained Earnings Beg Div decl* 260 NI End * = paid since no div pay acct
$ 960
120
70
1,650 1,400
1,700 70 130 1,900
1,900 810 2,450
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EXERCISE 23-12 (see E23-11 for T-accounts related to I & F activities) FAIRCHILD COMPANY Statement of Cash Flows For the Year Ended December 31, 2012 Cash flows from operating activities Cash collections from customers (1) ................................................................. Cash payments: To suppliers for inventory (2) ....................................................................... $ 4,000 To employees and other suppliers for selling & administrative expenses (3) 950 For income taxes (4) .................................................................................... 540 Net cash provided by operating activities ............................................................... Cash flows from investing activities Purchase of plant assets ....................................................................................... (130) Sale of held-to-maturity investments ($170 + $80) ................................................ 250 Net cash provided by investing activities ............................................................... Cash flows from financing activities Payments on bonds payable .................................................................................... (250) Issuance of capital stock ......................................................................................... 130 Payment of dividends ............................................................................................... (260) Net cash used by financing activities ....................................................................... Net increase in cash .............................................................................................................. Cash at beginning of year ..................................................................................................... Cash at end of year ............................................................................................................... Noncash investing and financing activities Issuance of common stock for plant assets .............................................................
(1) Beg. Sales End. (2) Beg. purch End. (3)
Receivables (gross) 1,300 Write-offs 6,900 collections 1,750 Inventory 1,900 4,400 COGS 1,600
0 6,450
4,700
(5,490) $ 960
120
(380) 700 1,100 $ 1,800
$
70
(note: no information is given regarding write-offs, bad debts expense, or an allowance account, so all are assumed to be $0
Accounts Payable (assuming for inventory) Beg. 800 payments 4,000 purch 4,400 End. 1,200
Selling & admin. Expenses (930 30*) Accrued liabilities (decrease) Cash
* (see E23-11 T-acct) (4)
$ 6,450
expense = paid since no income taxes payable account
900 50 950
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PROBLEM 23-1 SULLIVAN CORP. Statement of Cash Flows For the Year Ended December 31, 2012 Cash flows from operating activities Net income ..................................................................................... Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense ............................................................ Gain on sale of equipment ($40,000 − $38,000) ................... Undistributed earnings from equity method investment. ....... Decrease in accounts receivable ........................................... Increase in inventories ........................................................... Increase in accounts payable ................................................ Decrease in income taxes payable ........................................ Net cash provided by operating activities ........................ Cash flows from investing activities: Sale of equipment .......................................................................... Loan to TLC Co. (loan receivable) ................................................. Collection of loan receivable .......................................................... Net cash used by investing activities ..............................
$370,000
147,000 (2,000) (35,000) 40,000 (135,000) 60,000 (20,000) $ 425,000 40,000 (300,000) 50,000 (210,000)
Cash flows from financing activities: Payment of dividends ..................................................................... Net cash used by financing activities ............................... Net increase in cash ................................................................................. Cash at beginning of year ........................................................................ Cash at end of year ..................................................................................
(100,000) (100,000) 115,000 700,000 $ 815,000
Noncash investing and financing activities: Issuance of capital lease obligation for office building* ............................ *
$ 400,000
note: capital leases are 455-level items which will not be tested in 356
T-accounts for I & F activities (omitted capital stock & APIC since no change): Property, plant & equipment Dividends Payable Beg. 2,967,000 Beg. Purch (lease) 400,000 sale 60,000 payments 100,000 decl End. 3,307,000 End. Accumulated Depreciation Beg 1,040,000 Sale* 22,000 Depr exp 147,000 End 1,165,000 * $60,000 − $38,000 Investment in Myers Beg. 275,000 Share of NI* 35,000 div 0 End. 310,000 * $140,000 x 25%; $35,000 − $0 = undistributed earnings
Beg. loan End.
Loan Receivable 0 300,000 collect 250,000
50,000
Capital lease obligation Beg Payments* 0 issue End * not paid until 2013!
Div decl
Retained Earnings Beg. 80,000 NI End.
100,000 80,000 80,000
0 400,000 400,000
2,680,000 370,000 2,970,000
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PROBLEM 23-2 HINCKLEY CORPORATION Statement of Cash Flows For the Year Ended December 31, 2012 Cash flows from operating activities Net income ...................................................................................... Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense (equipment) ......................................... Amortization expense (patent) ................................................ Loss on sale of equipment [$2,500 – ($11,000 − $4,400)] ..... Gain from flood damage [$32,000 – ($29,750 − $6,000)] ..... Gain on sale of investments ................................................... Increase in net accounts receivable (1) ($9,250 − $5,500) .... Increase in inventory ($12,000 − $9,000) ............................... Increase in accounts payable ($5,000 − $3,000).................... Net cash provided by operating activities ....................................... Cash flows from investing activities Sale of investments ($3,000 + $1,700) ........................................... Proceeds from flood damage to building ($30,000 + $2,000) ........ Sale of equipment ........................................................................... Purchase of equipment ................................................................... Net cash provided by investing activities ........................................ Cash flows from financing activities Payment of short-term note payable ............................................... Payment of dividends ...................................................................... Net cash used by financing activities .............................................. Increase in cash ....................................................................................... Cash at beginning of year ........................................................................ Cash at end of year ..................................................................................
$ 14,750
1,900 1,250 4,100 (8,250) (1,700) (3,750) (3,000) 2,000 $ 7,300 4,700 32,000 2,500 (20,000) 19,200 (1,000) (5,000) (6,000) 20,500 13,000 $ 33,500
Noncash investing and financing activities: Retired note payable by issuing common stock Purchased equipment by issuing note payable Supplemental disclosures of cash flow information (2): Cash payments for interest Cash payments for income taxes
$ 10,000 $ 16,000 $ 2,000 $ 6,500
(1) Beg NET A/R = $10,000 − $4,500 = $5,500; end NET A/R = $12,250 − $3,000 = $9,250 (2) For the 356 exam, know this concept but may omit actual disclosure on the SCF T-accounts for I & F activities: Investments Beg. 3,000 Purch sale End. 0
Beg End
destroyed
Building 29,750 destroyed 0 Accum depr, building Beg 6,000 exp End
3,000
29,750
Beg Purch (N/P) Purch (cash) end
Equipment 20,000 16,000 sale 20,000 45,000
Accum depr, equip ($11,000 x 40%) Beg Sale 4,400 exp End
6,000
Beg
0
end
Patent 6,250 amort 5,000
11,000
4,500 1,900 2,000
1,250
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PROBLEM 23-2 continued
payment
Dividends payable Beg 5,000 decl End
Common Stock Beg. Issue (N/P) End.
5,000 0
S-T notes payable (nontrade = borrowing!) Beg 4,000 Payment 1,000 End 3,000
Pymt (C/S)
L-T notes payable Beg 10,000 Issue (equip) end
Div decl*
Retained Earnings Beg 0 NI End
33,000 10,000 43,000
6,000 14,750 20,750
* $0 since no end bal in div pay acct 25,000 16,000 31,000
PROBLEM 23-6 (a)
(1) Beg. Sales End.
Net Cash Flows from Operating Activities Cash receipts from customers (1) ............................................................. Cash payments: to suppliers for inventory (2) ................................................................. To employees and other suppliers for operating expenses (3)............ Net cash provided by operating activities .................................................. Accounts Receivable 60,000 Write-offs* 540,000 collections 70,500
OR 4,650 524,850
Beg* Sales End**
$524,850 $375,750 105,675
(481,425) $ 43,425
Accounts Receivable (NET) 58,500 Bad debt exp 5,400 524,850 540,000 collections 68,250
* $1,500 + $5,400 − $2,250 = $4,650
* $60,000 − $1,500
(2) Beg. purch End.
Accounts Payable (assuming for inventory) Beg. 24,750 payments 375,750 purch 386,000 End. 35,000
(3)
Inventory 24,000 386,000 COGS 30,000
380,000
Operating expenses (120,450 8,625 5,400) Accrued payables (increase: $3,375 − $2,625) Cash
** $70,500 − $2,250
106,425 750 105,675
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PROBLEM 23-6 continued (b)
MARCUS INC. Statement of Cash Flows For the Year Ended December 31, 2012 Cash flows from operating activities Net income ........................................................................................ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense (proof: $4,125 + $4,500)...................... Gain on sale of investments .................................................... Loss on sale of machinery ...................................................... Increase in accounts receivable (net) ($68,250 − $58,500).... Increase in inventory ($30,000 − $24,000) ............................. Increase in accounts payable ($35,000 − $24,750) ................ Increase in accrued payables ($3,375 − $2,625) .................... Net cash provided by operating activities .......................................... Cash flows from investing activities Sale of investments ...................................................................... Purchase of investments ............................................................. Sale of machinery ......................................................................... Purchase of machinery ................................................................ Purchase of buildings ................................................................... Net cash used by investing activities ............................................ Cash flows from financing activities Payment of long-term note payable ............................................. Payment of cash dividends ........................................................... Net cash used by financing activities ........................................... Net increase in cash ............................................................................... Cash at beginning of year ....................................................................... Cash at end of year .................................................................................
T-accounts for I & F activities: Investments (AFS) Beg. 38,500 Purch 8,750 sale End. 22,250
Beg purch End
sale
Beg purch End
Machinery 18,750 15,000 sale 30,000 Accum depr, Machinery Beg 750 exp End
25,000
3,750
pymt
2,250 4,125 5,625
Buildings 56,250 11,250 67,500 Accum depr, bldgs Beg exp End
Beg No ∆ End
Stk div* Cash div**
9,000 4,500 13,500
$ 42,500
8,625 (3,750) 800 (9,750) (6,000) 10,250 750 $ 43,425 28,750 (8,750) 2,200 (15,000) (11,250) (4,050) (10,000) (21,125) (31,125) 8,250 33,750 $ 42,000
Land 7,500 7,500 L-T note payable Beg 10,000 End
31,000 21,000
Common stock, no par Beg Stk div end
125,000 25,000 150,000
Retained Earnings 25,000 Beg. 21,125 NI End.
42,625 42,500 39,000
* given (proof: $125,000 x 20%) ** given, but must = paid since no div pay acct
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PROBLEM 23-7 (a)
CHAPMAN COMPANY Statement of Cash Flows For the Year Ended May 31, 2012
Cash flows from operating activities Cash receipts from customers (1) ...................................................... Cash payments: To suppliers for inventory (1) ........................................................ To employees and other suppliers (1) ($276,850 + $10,150) ...... For interest paid (1) ....................................................................... For income taxes (2) ..................................................................... Net cash provided by operating activities ..........................................
$ 1,238,250 $ 684,000 287,000 73,000 43,000
(1,087,000) 151,250
Cash flows from investing activities Purchase of plant assets (3) .............................................................. Cash flows from financing activities Payment on bonds payable ............................................................... Issuance of common stock ................................................................ Payment of dividends ......................................................................... Net cash used by financing activities .................................................
(28,000)
(30,000) 20,000 (105,000) (115,000)
Net increase in cash ....................................................................................... Cash at beginning of fiscal year ..................................................................... Cash at end of fiscal year ...............................................................................
$
Noncash investing and financing activities Issuance of common stock for plant assets (3) .................................... (1) (2) (3)
(c)
8,250 20,000 28,250
$ 70,000
see related T-account all income tax expense paid (given info) but also since no income taxes payable account purchase of plant assets from $28,000 cash & $70,000 from common stock (noncash)
CHAPMAN COMPANY Statement of Cash Flows For the Year Ended May 31, 2012
Cash flows from operating activities Net income ......................................................................................... Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense ................................................................ Increase in accounts receivable ($75,000 − $58,000) ............... Decrease in merchandise inventory ($220,000 − $250,000) ..... Increase in prepaid expenses ($9,000 − $7,000) ...................... Increase in accounts payable ($123,000 − $115,000)............... Decrease in salaries payable ($47,250 − $72,000) .................... Increase in interest payable ($27,000 − $25,000) ..................... Net cash provided by operating activities ................................................
$130,000
$25,000 (17,000) 30,000 (2,000) 8,000 (24,750) 2,000 $151,250
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PROBLEM 23-7 continued
Beg Incr End
Beg Sales End
Beg purch End
pymts
pymts
pymts
Cash 20,000 8,250 28,250 Accounts Receivable (no allow) 58,000 w/o 0 1,255,250 Collect 1,238,250 75,000 Merchandise Inventory 250,000 692,000 COGS 220,000
Beg Pymt End
Prepaid Expenses 7,000 10,150 exp 9,000
Beg Purch End
Plant Assets 502,000 98,000 600,000 Accumulated depreciation Beg exp end
722,000
Accounts Payable (for inventory) Beg 115,000 684,000 purch 692,000 end 123,000 Salaries Payable Beg 276,850 exp end
72,000 252,100 47,250
Interest Payable Beg 73,000 exp end
25,000 75,000 27,000
pymts
Bonds Payable Beg 30,000 end Common Stock Beg Issue (p.a.) Issue (cash) End
Div*
Retained earnings Beg 105,000 NI End
* declared = paid since no dividend pay acct
8,150
125,000 25,000 150,000
100,000 70,000
280,000 70,000 20,000 370,000
120,000 130,000 145,000
