Intermediate Accounting 19e Earl K Stice James D Stice - Test Bank

Intermediate Accounting 19e Earl K Stice James D Stice – Test Bank

 

Instant Download – Complete Test Bank With Answers

 

 

Sample Questions Are Posted Below

 

Chapter 5—Statement of Cash Flows and Articulation

 

MULTIPLE CHOICE

 

1. In a statement of cash flows, payments to acquire debt instruments of other entities would typically be classified as cash outflows for

a.	financing activities.
b.	equity activities.
c.	operating activities.
d.	investing activities.

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         OBJ:   LO 2

TOP:   AICPA FN-Reporting                      MSC:  AACSB Reflective Thinking

 

2. A gain on the sale of a plant asset in the ordinary course of business should be presented in a statement of cash flows prepared using the indirect method as

a.	a cash inflow from investing activities.
b.	a cash inflow from financing activities.
c.	a deduction from net income.
d.	an addition to net income.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Reporting                      MSC:  AACSB Reflective Thinking

 

3. In a statement of cash flows prepared using the direct method, if wages payable increased during the year, the cash paid for wages would be

a.	the same as salary expense.
b.	salary expense plus wages payable at the beginning of the year.
c.	salary expense plus the increase in wages payable from the beginning to the end of the year.
d.	salary expense less the increase in wages payable from the beginning to the end of the year.

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

4. In a statement of cash flows using the direct method, which of the following would increase reported cash flows from operating activities?

a.	Dividends received from investments
b.	Gain on sale of equipment
c.	Gain on sale of a business segment
d.	Sale of treasury stock

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

5. In a statement of cash flows, if equipment is sold at a gain, the amount shown as a cash inflow from investing activities equals the carrying amount of the equipment

a.	with no addition or subtraction.
b.	plus the gain and less the amount of tax attributable to the gain.
c.	plus the gain only.
d.	plus both the gain and the amount of tax attributable to the gain.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         OBJ:   LO 2

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

6. In a statement of cash flows, proceeds from issuing equity instruments should be classified as cash inflows from

a.	brokerage activities.
b.	financing activities.
c.	investing activities.
d.	operating activities.

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         OBJ:   LO 2

TOP:   AICPA FN-Reporting                      MSC:  AACSB Reflective Thinking

 

7. When preparing a statement of cash flows using the indirect method, the amortization of trademarks should be reported as a(n)

a.	increase in cash flows from investing activities.
b.	reduction in cash flows from investing activities.
c.	increase in cash flows from operating activities.
d.	reduction in cash flows from operating activities.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Reporting                      MSC:  AACSB Reflective Thinking

 

8. A loss on the sale of machinery in the ordinary course of business should be presented in a statement of cash flows (indirect method) as

a.	an addition to net income.
b.	a deduction from net income.
c.	an inflow and outflow of cash.
d.	an outflow of cash.

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

9. When preparing a statement of cash flows using the direct method, amortization of a patent is

a.	shown as an increase in cash flows from operating activities.
b.	shown as a reduction in cash flows from operating activities.
c.	included with supplemental disclosures of noncash transactions.
d.	not reported in the statement of cash flows or related disclosures.

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

10. Cash equivalents would not include short-term investments in

a.	money market funds.
b.	available-for-sale securities.
c.	commercial paper.
d.	certificates of deposit.

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         OBJ:   LO 2

TOP:   AICPA FN-Reporting                      MSC:  AACSB Reflective Thinking

 

11. In preparing a statement of cash flows (indirect method), cash flows from operating activities

a.	is calculated as the difference between revenues and expenses plus the beginning cash balance.
b.	is always equal to the sum of cash flows from investing activities and cash flows from financing activities.
c.	can be calculated by appropriately adding to or deducting from net income those items in the income statement that affect cash and accruals for current assets and current liabilities.
d.	can be calculated by appropriately adding to or deducting from net income those items in the income statement that do not affect cash.

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

12. In preparing a statement of cash flows, which of the following transactions would be considered an investing activity?

a.	Sale of a business segment
b.	Issuance of bonds payable at a discount
c.	Purchase of treasury stock
d.	Sale of capital stock

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               OBJ:   LO 2

TOP:   AICPA FN-Reporting                      MSC:  AACSB Reflective Thinking

 

13. In a statement of cash flows (indirect method), depreciation is treated as an adjustment to reported net income because depreciation

a.	is an inflow of cash to a reserve account for asset replacement.
b.	reduces the reported net income and involves an inflow of cash.
c.	reduces the reported net income but does not involve an outflow of cash.
d.	usually represents a significant portion of operating expenses.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

14. In preparing a statement of cash flows, sale of treasury stock at an amount greater than cost would be classified as a(n)

a.	transfer activity.
b.	operating activity.
c.	investing activity.
d.	financing activity.

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         OBJ:   LO 2

TOP:   AICPA FN-Reporting                      MSC:  AACSB Reflective Thinking

 

15. In a statement of cash flows, receipts from sales of property, plant, and equipment would be classified as cash inflows from

a.	liquidating activities.
b.	operating activities.
c.	investing activities.
d.	financing activities.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               OBJ:   LO 2

TOP:   AICPA FN-Reporting                      MSC:  AACSB Reflective Thinking

 

16. A decrease in accounts receivable should be presented in a statement of cash flows (indirect method) as

a.	an inflow and outflow of cash.
b.	an outflow of cash.
c.	a deduction from net income.
d.	an addition to net income.

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

17. Using the indirect method, cash flows from operating activities would be increased by which of the following?

a.	Gain on sale of investments
b.	Decrease in accounts receivable
c.	Decrease in accounts payable
d.	Increase in prepaid expenses

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

18. Cash inflows from investing result from

a.	decreases in liabilities.
b.	increases in liabilities.
c.	decreases in noncash assets.
d.	increases in noncash assets.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

19. Which of the following statements regarding cash equivalents is correct?

a.	A one-year Treasury note could not qualify as a cash equivalent.
b.	All investments meeting the FASB’s criteria for cash equivalents must be reported as such.
c.	The date a security is purchased determines its “original maturity” for cash equivalent classification purposes.
d.	Once established, management’s policy for classifying items as cash equivalents cannot be changed.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         OBJ:   LO 2

TOP:   AICPA FN-Reporting                      MSC:  AACSB Reflective Thinking

 

20. In a statement of cash flows, payments to acquire bonds or mortgages of other entities should be classified as cash outflows for

a.	lending activities.
b.	operating activities.
c.	investing activities.
d.	financing activities.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               OBJ:   LO 2

TOP:   AICPA FN-Reporting                      MSC:  AACSB Reflective Thinking

 

21. In a statement of cash flows, proceeds from the sale of a company’s own bonds or mortgages should be classified as cash inflows from

a.	leveraging activities.
b.	operating activities.
c.	investing activities.
d.	financing activities.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               OBJ:   LO 2

TOP:   AICPA FN-Reporting                      MSC:  AACSB Reflective Thinking

 

22. Which of the following would not be classified as an operating activity?

a.	Interest income
b.	Income tax expense
c.	Dividend income
d.	Payment of dividends

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         OBJ:   LO 2

TOP:   AICPA FN-Reporting                      MSC:  AACSB Reflective Thinking

 

23. Cash flows from investing activities would be decreased by which of the following?

a.	Issuance of bonds
b.	Issuance of common stock
c.	Purchase of long-term investments
d.	Payment of dividends

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         OBJ:   LO 4

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

24. In a statement of cash flows (indirect method), an increase in inventories should be presented as

a.	a deduction from net income from continuing operations.
b.	an inflow and outflow of cash.
c.	an addition to net income.
d.	an inflow of cash.

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

25. American Corporation purchased a 3-month U.S. Treasury bill. In preparing American’s statement of cash flows, this purchase would

a.	be treated as an outflow from investing activities.
b.	be treated as an outflow from operating activities.
c.	have no effect.
d.	be treated as an outflow from financing activities.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         OBJ:   LO 2

TOP:   AICPA FN-Reporting                      MSC:  AACSB Reflective Thinking

 

26. Which of the following would be an addition to net income when using the indirect method to derive net cash flows from operating activities?

a.	Payment of cash dividends
b.	Decrease in accounts payable
c.	Increase in merchandise inventory
d.	Loss on sale of machinery and equipment

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

27. In a statement of cash flows, which of the following would increase reported cash flows from operating activities using the direct method?

a.	Collection of a note receivable
b.	Dividends received from investments
c.	Gain on purchase of treasury stock
d.	Gain on sale of equipment

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

28. Which of the following would be an example of an investing activity?

a.	Issuance of long-term bonds
b.	Issuance of common stock
c.	Payment of cash dividends
d.	Sale of plant assets

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               OBJ:   LO 2

TOP:   AICPA FN-Reporting                      MSC:  AACSB Reflective Thinking

 

29. In a statement of cash flows, interest payments to lenders and other creditors should be classified as cash outflows for

a.	borrowing activities.
b.	operating activities.
c.	investing activities.
d.	financing activities.

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               OBJ:   LO 2

TOP:   AICPA FN-Reporting                      MSC:  AACSB Reflective Thinking

 

30. The most likely situation in which reported earnings are positive but operations are consuming rather than generating cash would be a

a.	rapidly growing company.
b.	company reporting large noncash expenses.
c.	company using very conservative accounting standards that lower earnings.
d.	company paying large cash dividends to its shareholders.

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         OBJ:   LO 1

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

31. Which of the following would be subtracted from net income when using the indirect method to derive net cash flows from operating activities?

a.	Decrease in net accounts receivable
b.	Loss on sale of investments
c.	Decrease in salaries and wages payable
d.	Depreciation expense

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

32. Cash flows from financing activities would be reduced by which of the following?

a.	Purchase of inventory
b.	Repayment of long-term debt
c.	Purchase of machinery
d.	Payment of interest

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

33. Noncash investing and financing activities, if material, are

a.	reported in the statement of cash flows under the “all-financial-resources concept.”
b.	reported in the statement of cash flows only if the indirect method is used.
c.	disclosed in a note or separate schedule accompanying the statement of cash flows.
d.	not reported or disclosed because they have no impact on cash.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               OBJ:   LO 4

TOP:   AICPA FN-Reporting                      MSC:  AACSB Reflective Thinking

 

34. Supplemental disclosures required only when the statement of cash flows is prepared using the indirect method include

a.	a schedule reconciling net income with net cash provided by (used in) operating activities.
b.	amounts paid for interest and taxes.
c.	amounts deducted for depreciation and amortization.
d.	significant noncash investing and financing activities.

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         OBJ:   LO 4

TOP:   AICPA FN-Reporting                      MSC:  AACSB Reflective Thinking

 

35. Which of the following is true?

a.	The FASB requires dividends paid to be classified as an operating activity.
b.	The FASB requires interest paid to be classified as a financing activity.
c.	The FASB allows dividends paid to be classified as an operating activity or as a financing activity.
d.	The IASC allows dividends paid to be classified as an operating activity or as a financing activity.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               OBJ:   LO 2

TOP:   AICPA FN-Reporting                      MSC:  AACSB Reflective Thinking

 

36. Which of the following is true?

a.	The IASB requires eight cash flow categories.
b.	The Statement of Cash Flows is classified according to three main categories.
c.	The IASB does not specifically require a Statement of Cash Flows.
d.	The provisions of IAS 7 are less flexible than the U. S. rules.

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         OBJ:   LO 2

TOP:   AICPA FN-Reporting                      MSC:  AACSB Reflective Thinking

 

37. Silken Corp. reported net income of $420,000 for 2014. Changes occurred in several balance sheet accounts as follows:

 

Equipment ……………………………	$35,000 increase
Accumulated depreciation ………………	56,000 increase
Note payable …………………………	42,000 increase

 

Additional information:

·	During 2014, Silken sold equipment costing $35,000, with accumulated depreciation of $16,800, for a gain of $7,000.
·	In December 2014, Silken purchased equipment costing $70,000 with $28,000 cash and a 12% note payable of $42,000.
·	Depreciation expense for the year was $72,800.

 

In Silken’s 2014 statement of cash flows, net cash used in investing activities should be

a.	$30,800.
b.	$16,800.
c.	$2,800.
d.	$49,000.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         OBJ:   LO 4

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

38. The following information was taken from the 2014 financial statements of Glocken Corporation:

 

Accounts receivable, January 1, 2014 ……………..	$  108,000
Accounts receivable, December 31, 2014 ……………	152,000
Sales on account………………………………..	2,190,000
Uncollectible accounts ………………………….	5,000

 

No accounts receivable were written off or recovered during the year. If Glocken prepares a statement of cash flows using the direct method, what amount should be reported as collected from customers in 2014?

a.	$2,239,000
b.	$2,234,000
c.	$2,146,000
d.	$2,141,000

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

39. Daisy Corporation reported net income of $420,000 for 2014.  Changes occurred in several balance sheet accounts as follows:

 

Equipment ……………………………	$35,000 increase
Accumulated depreciation ………………	56,000 increase
Note payable …………………………	42,000 increase

 

Additional information:

·	During 2014, Daisy sold equipment costing $35,000, with accumulated depreciation of $16,800, for a gain of $7,000.
·	In December 2014, Daisy purchased equipment costing $70,000 with $28,000 cash and a 12% note payable of $42,000.
·	Depreciation expense for the year was $72,800.

 

In Daisy’s 2014 statement of cash flows, net cash provided by operating activities should be

a.	$476,000.
b.	$485,800.
c.	$492,800.
d.	$499,800.

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

40. In its accrual basis income statement for the year ended December 31, 2014, Braxton Company reported revenue of $3,500,000. Additional information is as follows:

 

Accounts receivable–December 31, 2013 ……………	$ 650,000
Net income for 2011 …………………………….	140,000
Accounts receivable–December 31, 2014 ……………	1,010,000

 

Nelson should report cash collected from customers in its 2014 statement of cash flows (direct method) in the amount of

a.	$3,760,000.
b.	$3,380,000.
c.	$3,100,000.
d.	$3,140,000.

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

41. Thomson Company’s income statement for the year ended December 31, 2014, reported net income of $360,000. The financial statements also disclosed the following information:

 

Amortization …………………………………..	$ 20,000
Depreciation …………………………………..	60,000
Increase in accounts receivable ………………….	140,000
Increase in inventory …………………………..	48,000
Decrease in accounts payable …………………….	76,000
Increase in salaries payable …………………….	28,000
Dividends paid …………………………………	120,000
Purchase of equipment …………………………..	150,000
Increase in long-term note payable ……………….	300,000

 

Net cash provided by operating activities for 2014 should be reported as

a.	$84,000.
b.	$204,000.
c.	$234,000.
d.	$324,000.

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

42. The following information is available from the financial statements of Barrington Corporation for the year ended December 31, 2014:

 

Net income ……………………………………	$396,000
Depreciation expense …………………………..	102,000
Decrease in accounts receivable …………………	126,000
Increase in inventories ………………………..	90,000
Increase in accounts payable ……………………	24,000
Payment of dividends …………………………..	54,000
Purchase of available-for-sale securities ………..	22,000
Decrease in income taxes payable ………………..	16,000

 

What is Barrington Corporation’s net cash flow from operating activities?

a.	$440,000
b.	$466,000
c.	$520,000
d.	$542,000

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

43. The following information is available from Dodger Corporation’s accounting records for the year ended December 31, 2014:

 

Cash paid to suppliers and employees …………….	$1,020,000
Cash dividends paid ……………………………	60,000
Cash received from customers ……………………	1,740,000
Rent received …………………………………	20,000
Taxes paid ……………………………………	220,000

 

Net cash flow provided by operating activities for 2014 was

a.	$520,000.
b.	$500,000.
c.	$460,000.
d.	$440,000.

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

44. Kirkland Company’s prepaid rent was $40,000 at December 31, 2014, and $15,000 at December 31, 2013. Kirkland’s income statement for 2014 reported rent expense as $10,000. What amount of cash disbursements for rent would be reported in Kirkland’s net cash flows from operating activities for 2014 presented on a direct basis?

a.	$10,000
b.	$20,000
c.	$35,000
d.	$45,000

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

45. Waller Corporation had the following account balances for 2014:

 

	December 31	January 1
Accounts Payable ………………….	$67,200	$58,200
Prepaid Rent Expense ………………	24,600	37,200
Accounts Receivable (net) ………….	84,000	66,600

 

Waller’s 2014 net income is $450,000. What amount should Waller include as net cash provided by operating activities in its 2014 statement of cash flows?

a.	$436,200
b.	$445,200
c.	$453,600
d.	$454,200

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

46. Almondine Company sold a computer for $50,000. The computer’s original cost was $250,000, and the accumulated depreciation at the date of sale was $180,000. The sale of the computer should appear on Almondine’s annual statement of cash flows (indirect method) as

a.	a reduction in cash flows from operating activities of $20,000 and an increase in cash flows from investing activities of $50,000.
b.	an increase in cash flows from operating activities of $20,000 and an increase in cash flows from investing activities of $50,000.
c.	a reduction in cash flows from operating activities of $20,000 and an increase in cash flows from investing activities of $70,000.
d.	an increase in cash flows from operating activities of $20,000 and an increase in cash flows from investing activities of $70,000.

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         OBJ:   LO 3 | LO 4

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

47. Citrus Inc. declared and paid cash dividends of $100,000 on common stock and $75,000 on preferred stock. How would these dividends be presented in Citrus’ statement of cash flows?

a.	As a $100,000 reduction in cash flows from investing activities
b.	As a $175,000 reduction in cash flows from investing activities
c.	As a $100,000 reduction in cash flows from financing activities
d.	As a $175,000 reduction in cash flows from financing activities

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         OBJ:   LO 4

TOP:   AICPA FN-Reporting                      MSC:  AACSB Reflective Thinking

 

48. During 2014, Larson Corp. acquired buildings for $325,000, paying $75,000 cash and signing a 10% mortgage note payable in 10 years for the balance. How should the transaction be shown in the cash flow statement for Larson in 2014?

a.	As a $325,000 reduction in cash flows from investing activities and a $250,000 increase in cash flows from financing activities
b.	As a $325,000 reduction in cash flows from investing activities
c.	As a $75,000 reduction in cash flows from investing activities
d.	As a $250,000 increase in cash flows from financing activities

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         OBJ:   LO 4

TOP:   AICPA FN-Reporting                      MSC:  AACSB Reflective Thinking

 

Dingo Boot Company uses the direct method to prepare its statement of cash flows. The company had the following cash flows during 2014:

 

Cash receipts from the issuance of common stock ………	$400,000
Cash receipts from customers ……………………….	200,000
Cash receipts from dividends on long-term investments …	30,000
Cash receipts from repayment of loan made to another company ………………………………………..	220,000
Cash payments for wages and other operating expenses ….	120,000
Cash payments for insurance ………………………..	10,000
Cash payments for dividends ………………………..	20,000
Cash payments for taxes ……………………………	40,000
Cash payment to purchase land ………………………	80,000

 

 

49. See information regarding Dingo Boot Company above. The net cash provided by (used in) operating activities is

a.	$60,000.
b.	$40,000.
c.	$30,000.
d.	$(20,000).

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

50. See information regarding Ding Boot Company above. The net cash provided by (used in) investing activities is

a.	$220,000.
b.	$140,000.
c.	$60,000.
d.	$(80,000).

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               OBJ:   LO 4

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

51. See information regarding Dingo Boot Company above. The net cash provided by (used in) all activities is

a.	$580,000.
b.	$410,000.
c.	$380,000.
d.	$(60,000).

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         OBJ:   LO 4

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

52. Stanner Company’s 2014 income statement reported cost of goods sold as $135,000. Additional information is as follows:

 

	December 31, 2014	December 31, 2013
Inventory ……………	$30,000	$22,500
Accounts Payable ……..	13,000	19,500

 

If Stanner uses the direct method, what amount should Stanner report as cash paid to suppliers in its 2014 statement of cash flows?

a.	$121,000
b.	$134,000
c.	$149,000
d.	$136,000

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

53. A gain on the sale of a plant asset should be included in which of the following sections of a statement of cash flows prepared using the direct method?

a.	Investing activities
b.	Operating activities
c.	Financing activities
d.	Any of these, if applied consistently from year to year

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         OBJ:   LO 2

TOP:   AICPA FN-Reporting                      MSC:  AACSB Analytic

 

54. Which of the following is a noncash transaction that should be disclosed in a schedule accompanying the statement of cash flows?

a.	Sale of an investment for cash
b.	Purchase of a machine for cash
c.	Issuance of common stock in exchange for land
d.	Declaration and payment of a cash dividend on common stock

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         OBJ:   LO 4

TOP:   AICPA FN-Reporting                      MSC:  AACSB Analytic

 

55. Which of the following is not a source of cash?

a.	Sale of equipment below book value at a loss
b.	Issuance of bonds payable below par value at a discount
c.	Collection of a long-term note receivable from a customer
d.	Declaration of a cash dividend to be paid in the next accounting period

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         OBJ:   LO 2

TOP:   AICPA FN-Reporting                      MSC:  AACSB Analytic

 

56. A cash dividend that is declared during an accounting period, to be paid in the next accounting period, may be presented in the statement of cash flows in which of the following ways?

a.	A use of cash from operating activities
b.	A noncash transaction presented in a separate schedule
c.	A use of cash from financing activities
d.	A use of cash from investing activities

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         OBJ:   LO 2

TOP:   AICPA FN-Reporting                      MSC:  AACSB Analytic

 

57. The amortization of a bond premium can correctly be presented in the statement of cash flows in which of the following ways?

a.	A positive adjustment to net income in determining cash flows from operating activities
b.	A use of cash in determining cash flows from investing activities
c.	A source of cash in determining cash flows from financing activities
d.	A negative adjustment to net income in determining cash flows from operating activities

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         OBJ:   LO 2

TOP:   AICPA FN-Reporting                      MSC:  AACSB Analytic

 

58. Which of the following is not a cash inflow from investing activities?

a.	Receipts from collections of sales of loans made by the enterprise
b.	Receipts from sales of equity instruments of other entities
c.	Receipts from issuance of equity instruments of the enterprise
d.	Receipts from sales of productive assets

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         OBJ:   LO 2

TOP:   AICPA FN-Reporting                      MSC:  AACSB Analytic

 

59. Which of the following is not classified as a cash outflow from operating activities?

a.	Cash payments to creditors for interest
b.	Cash payments to stockholders for dividends
c.	Cash payments to employees for services rendered
d.	Cash payments on payables to material suppliers

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         OBJ:   LO 2

TOP:   AICPA FN-Reporting                      MSC:  AACSB Analytic

 

60. Which of the following is classified as a cash inflow from financing activities?

a.	Cash received from re-issuance of treasury stock held by the company
b.	Cash received from the sale of stock held as a long-term investment
c.	Cash received as dividends on stock held as a long-term investment
d.	Cash received from the sale of land

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         OBJ:   LO 2

TOP:   AICPA FN-Reporting                      MSC:  AACSB Analytic

 

61. Robinson Company reported a net loss of $23,000 during the year. Comparing beginning and ending balances, you determine the following: (1) accounts receivable increased by $8,000; and (2) accrued expenses payable increased by $5,000. What was the amount of cash used in operating activities during the year?

a.	$26,000
b.	$36,000
c.	$20,000
d.	$10,000

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

62. During 2014, Stewart Company reported revenues on an accrual basis of $70,000. Accounts receivable decreased during the year from $35,000 at the beginning to $24,500 at the end. How much cash was provided by collections from customers during the year?

a.	$45,500
b.	$59,500
c.	$70,000
d.	$80,500

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

63. During the year, Samuels Company reported net income of $300,000, including amortization of intangible assets of $66,000, depreciation of plant assets of $132,000, and amortization of premium on investment in bonds of $20,000. Applying the indirect method, cash provided by operating activities is what amount?

a.	$300,000
b.	$518,000
c.	$478,000
d.	$498,000

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

64. Sapphire Company reported the following information for the year 2014: Sales revenue of $280,000; cost of goods sold of $100,000; selling expenses of $40,000; administrative expenses of $35,000; depreciation of $25,000; interest expense of $8,000; and income tax expense of $28,000. All sales were made for cash and all expenses (other than depreciation and bond premium amortization of $2,000) were paid in cash. All current assets and current liabilities remained unchanged. How much cash was provided by operations for Sapphire Company during 2014?

a.	$44,000
b.	$69,000
c.	$67,000
d.	$71,000

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

65. Net income for Parton Company for 2014 includes the effect of the following transactions involving the sale of fixed assets:

 

	Sales
Asset	Price	Cost	Gain/Loss
X	$     20,000	$      80,000	$      10,000
Y	35,000	$    150,000	$    (28,000)

 

Purchases of fixed assets during 2014 amounted to $340,000. The Accumulated Depreciation account increased $40,000 during 2014. How much was depreciation expense for 2014?

a.	$175,000
b.	$187,000
c.	$197,000
d.	$215,000

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         OBJ:   LO 3

TOP:   AICPA FN-Measurement                MSC:  AACSB Analytic

 

PROBLEM

 

1. Partial balance sheet data and additional information for Bohemian Industries are given below:

 

Bohemian Industries

Partial Balance Sheet

December 31, 2014 and 2013

 

Assets

 

	2014	2013
Cash ………………………………….	$80,000	$20,000
Accounts receivable …………………….	70,000	82,000
Inventory ……………………………..	55,000	33,000
Liabilities
Accounts payable ……………………….	$95,000	$75,000

 

Additional Information:

(a)	Net income for 2014 was $60,000.
(b)	Depreciation expense for 2014 was $25,000.

 

Prepare the operating activities section of the statement of cash flows, using the indirect method, for the year ending December 31, 2014.

 

ANS:

 

Bohemian Industries Partial Statement of Cash Flows–Operating Activities For the Year Ended December 31, 2014
Cash flows from operating activities:
Net income ……………………………				$ 60,000
Adjustments:
+	Depreciation ………………………		$25,000
+	Decrease in accounts receivable ……..		12,000
–	Increase in inventory ………………		(22,000)
+	Increase in accounts payable ………..		20,000	35,000
Net cash provided by operating activities ….				$ 95,000

 

 

PTS:   1                    DIF:    Medium         OBJ:   LO 3               TOP:   AICPA FN-Measurement

MSC:  AACSB Analytic

 

2. The following data were taken from the books of Golden Company.

 

	December 31
	2014	2013
Accounts receivable …………………..	$  170,100	$  150,750
Accounts payable ……………………..	103,500	126,000
Accumulated depreciation (no plant assets were retired during the year)……	234,000	198,000
Inventories ………………………….	238,500	195,000
Other current liabilities ……………..	45,000	27,000
Prepaid insurance …………………….	10,800	12,000
Net income …………………………..	319,500
Long-term liabilities (no principal payments or retirements occurred during 2014) …………………………..	1,500,000	1,500,000

 

Cash dividends of $169,000 were declared and paid during 2011. Also, $56,000 of preferred stock was issued during the period.

 

Compute the net cash flow provided by (used in) operating activities during 2014 for Golden Company.

 

ANS:

Cash flows from operating activities:
Net income …………………………		$319,500
Adjustments:
Depreciation expense ………………	$36,000
Increase in accounts receivable …….	(19,350)
Increase in inventories ……………	(43,500)
Decrease in prepaid insurance ………	1,200
Decrease in accounts payable ……….	(22,500)
Increase in other current liabilities .	18,000	(30,150)
Net cash provided by operating activities .		$289,350

 

 

PTS:   1                    DIF:    Medium         OBJ:   LO 3               TOP:   AICPA FN-Measurement

MSC:  AACSB Analytic

 

3. Partial balance sheet data and additional information for Samuelson Company are listed below:

 

Samuelson Company Partial Balance Sheet December 31, 2014 and 2013
Assets	2014	2013
Cash …………………………………..	$ 22,000	$ 16,000
Accounts receivable ……………………..	218,000	260,000
Inventory ………………………………	85,000	95,000
Liabilities
Accounts payable ………………………..	$105,000	$135,000

 

Additional Information:

(a)	Net income for 2014 was $15,000.
(b)	Depreciation expense for 2014 was $30,000.
(c)	Sales for 2014 totaled $490,000; cost of goods sold was $350,000.

 

Compute the amount of cash paid in 2011 for inventory purchases.

 

ANS:

Cost of goods sold ……………………………..	$350,000
Inventory, ending ………………………………	85,000
Inventory, beginning ……………………………	(95,000)
Purchases ……………………………………..	$340,000
Accounts payable, beginning ……………………..	135,000
Accounts payable, ending ………………………..	(105,000)
Cash payments for inventory ……………………..	$370,000

 

 

PTS:   1                    DIF:    Medium         OBJ:   LO 3               TOP:   AICPA FN-Measurement

MSC:  AACSB Analytic

 

4. Partial balance sheet data and additional information for Earth Moving Industries are given below:

 

Earth Moving Industries Comparative Balance Sheet December 31, 2014 and 2013
Assets	2014	2013
Land, buildings, and equipment ……………	$425,000	$300,000
Accumulated depreciation–buildings and equipment …………………………….	(75,000)	(50,000)
Equities
Common stock ($25 par)……………………	300,000	200,000
Additional paid-in capital ……………….	40,000	0
Retained earnings ……………………….	30,000	20,000

 

Additional information:

(a)	June 15, 2014–issued 4,000 shares of common stock for cash.
(b)	July 1, 2014–purchased new equipment for cash.
(c)	December 31, 2014–paid cash dividends of $40,000.

 

Prepare the investing and financing activities sections of the statement of cash flows for the year ending December 31, 2014.

 

ANS:

 

Earth Moving Industries Partial Statement of Cash Flows–Investing and Financing Activities For the Year Ended December 31, 2014
Cash flows from investing activities:
Purchase of equipment …………………	$(125,000)
Net cash used in investing activities …..		$(125,000)
Cash flows from financing activities:
Proceeds from sale of stock ……………	$ 140,000
Payment of dividends ………………….	(40,000)
Net cash provided by financing activities .		$ 100,000

 

 

PTS:   1                    DIF:    Medium         OBJ:   LO 4               TOP:   AICPA FN-Measurement

MSC:  AACSB Analytic

 

5. A review of the financial records of Stonehenge, Inc. for the current year revealed the following information:

(a)		Reported interest expense of $36,000. The Interest Payable balance decreased $4,000.
(b)		Declared and paid cash dividends of $175,000.
(c)		Purchased a $400,000 building with a $220,000 long-term mortgage note. The remainder was paid in cash.
(d)		Issued bonds with a $600,000 par value to retire 6,000 shares of $100 par value preferred stock.
(e)		Held-to-maturity securities with a book value of $7,600 were sold for $9,000 during the year.
(f)		Reported income tax expense of $55,000. The Income Taxes Payable balance increased $15,000.
(g)		The Accounts Payable balance increased $7,740.
(h)		Cash of $127,000 was paid to purchase business assets consisting of:

 

Inventory ………………………………..	$34,700
Machinery and equipment ……………………	52,400
Patents ………………………………….	21,000
Autos and trucks ………………………….	18,900

 

(i)	Sold equipment with a net book value of $95,000 for $99,700.
(j)	Issued $75,000 in common stock to acquire land with a selling price of $120,000. The difference was paid in cash.

 

Explain how each of the preceding items is presented in the cash flow statement, indirect method, or disclosed in the financial statements of Stonehenge, Inc. Indicate “not included” for any item that would not be reported or disclosed. Evaluate each item separately.

 

ANS:

(a)	Cash flows from operating activities:
	Adjustments:
	Subtract Decrease in interest payable ………..			$  (4,000)
	Supplemental Disclosure:
	Cash payments for interest ………………….			$  40,000
(b)	Cash flows from financing activities:
	Payment of cash dividends …………………….			$(175,000)
(c)	Cash flows from investing activities:
	Purchase of building …………………………			$(180,000)
	Supplemental Disclosure:
	Issuance of $220,000 long-term mortgage note to acquire a building.
(d)	Supplemental Disclosure:
	Issuance of $600,000 in bonds to retire 6,000 shares of $100 par value preferred stock.
(e)	Cash flows from operating activities:
	Adjustments:
	Subtract Gain on sale of held-to-maturity securities ………………………………..			$  (1,400)
	Cash flows from investing activities:
	Sale of held-to-maturity securities ……………			$   9,000
(f)	Cash flows from operating activities:
	Adjustments:
	Add Increase in income taxes payable …………			$  15,000
	Supplemental Disclosure:
	Cash payments for income taxes ………………			$ (40,000)
(g)	Cash flows from operating activities:
	Adjustments:
	Add Increase in accounts payable …………….			$   7,740
(h)	Cash flows from investing activities:
	Purchase of machinery and equipment ……………			$ (52,400)
	Purchase of patents ………………………….			(21,000)
	Purchase of autos and trucks ………………….			(18,900)
Note:		Inventory would be analyzed as a net increase (decrease) for the period as an adjustment to net income in the cash flows from operating activities section.
(i)	Cash flows from operating activities:
	Adjustments:
	Subtract Gain on sale of equipment …………..			$  (4,700)
	Cash flows from investing activities:
	Sale of equipment ……………………………			$  99,700
(j)	Cash flows from investing activities:
	Purchase of land …………………………….			$ (45,000)
	Supplemental Disclosure:
	Issuance of $75,000 in common stock to acquire land.

 

 

PTS:   1                    DIF:    Medium         OBJ:   LO 4               TOP:   AICPA FN-Measurement

MSC:  AACSB Analytic

 

6. A comparative balance sheet for Meyerson Industries is given below:

 

Meyerson Industries Comparative Balance Sheet December 31, 2014 and 2013
Assets	2014	2013
Cash ………………………………….	$ 50,000	$ 20,000
Accounts receivable …………………….	100,000	92,000
Merchandise inventory …………………..	30,000	43,000
Land, buildings, and equipment …………..	325,000	200,000
Accumulated depreciation–buildings and equipment ……………………………	(75,000)	(50,000)
Total assets ……………………….	$430,000	$305,000
Liabilities and Stockholders’ Equity
Accounts payable ……………………….	$ 75,000	$ 85,000
Common stock ($25 par) ………………….	275,000	200,000
Paid-in capital in excess of par …………	50,000	0
Retained earnings ………………………	30,000	20,000
Total liabilities and stockholders’ equity	$430,000	$305,000

 

Additional data from the company’s records were:

(a)	On July 1, 2014, exchanged 3,000 shares of common stock for equipment.
(b)	On December 31, 2014, paid cash dividends of $40,000 and income taxes of $10,000.

 

Prepare a cash flow statement for Meyerson Industries for the year ended December 31, 2014, using the indirect method. Include any necessary supplemental disclosures.

 

ANS:

 

Meyerson Industries Statement of Cash Flows For the Year Ended December 31, 2014
Cash flows from operating activities:
Net income ……………………….		$ 50,000
Adjustments:
Depreciation expense …………….	$ 25,000
Increase in accounts receivable …..	(8,000)
Decrease in merchandise inventory …	13,000
Decrease in accounts payable ……..	(10,000)	20,000
Net cash provided by operating activities ………………………		$70,000
Cash flows from financing activities:
Payment of cash dividends ………..	$(40,000)
Net cash used in financing activities		(40,000)
Net increase in cash ………………..		$ 30,000
Cash at beginning of year ……………		20,000
Cash at end of year …………………		$ 50,000
Supplemental Disclosures:
The acquisition of equipment by issuing 3,000 shares of $25 par value common stock		$125,000
Income taxes paid …………………		10,000

 

 

PTS:   1                    DIF:    Medium         OBJ:   LO 4               TOP:   AICPA FN-Measurement

MSC:  AACSB Analytic

 

7. The Dakota Corporation prepared, for 2014 and 2013, the following balance sheet data:

 

	December 31
	2014	2013
Cash ………………………………	$   87,375	$   63,750
Available-for-sale securities (not cash equivalents) ……………………..	17,250	105,000
Accounts receivable …………………	90,000	86,250
Merchandise inventory ……………….	187,500	163,500
Prepaid insurance …………………..	1,125	1,500
Land, buildings, and equipment ……….	1,378,875	1,087,500
Accumulated depreciation …………….	(558,750)	(498,750)
Total ……………………………	$1,203,375	$1,008,750
Accounts payable ……………………	$  153,375	$  236,250
Salaries payable ……………………	18,750	26,250
Notes payable–bank (current) ………..	37,500	150,000
Bonds payable ………………………	375,000	0
Common stock ……………………….	600,000	600,000
Retained earnings (deficit) ………….	18,750	(3,750)
Total ……………………………	$1,203,375	$1,008,750

 

Additional information:

(a)	Sold available-for-sale securities (not cash equivalents) costing $87,750 for $90,000.
(b)	Equipment costing $18,750 with a book value of $3,750 was sold for $4,500.
(c)	Issued 8% bonds payable at par, $375,000.
(d)	Purchased new equipment for cash, $310,125.
(e)	Paid cash dividends of $22,500 during the year.
(f)	Net income for 2014 was $45,000.
(g)	Proceeds from the notes payable were used for operating purposes.

 

Prepare a cash flow statement for Dakota Corporation for 2014, using the indirect method. Calculate the Cash Flow to Net Income and the Cash Flow Adequacy ratios.

 

ANS:

 

Dakota Corporation Statement of Cash Flows For the Year Ended December 31, 2014
Cash flows from operating activities:
Net income …………………………					$  45,000
Adjustments:
	–	Gain on sale of available-for-sale securities ……………………		$ (2,250)
	–	Gain on sale of equipment ………..		(750)
	+	Depreciation expense …………….		75,000
	–	Increase in accounts receivable …..		(3,750)
	–	Increase in merchandise inventory …		(24,000)
	+	Decrease in prepaid insurance …….		375
	–	Decrease in accounts payable ……..		(82,875)
	–	Decrease in salaries payable ……..		(7,500)
	–	Decrease in notes payable ………..		(112,500)	(158,250)
Net cash used in operating activities …					$(113,250)
Cash flows from investing activities:
Sale of available-for-sale securities .				$ 90,000
Sale of equipment …………………				4,500
Purchase of equipment ……………..				(310,125)
Net cash used in investing activities …					(215,625)
Cash flows from financing activities:
Proceeds from bond issue …………..				$375,000
Payment of cash dividends ………….				(22,500)
Net cash provided by financing activities					352,500
Net increase in cash ………………..					$  23,625
Cash at beginning of year ……………					63,750
Cash at end of year …………………					$  87,375

 

Ratios:
Cash Flow to Net Income	= Cash Flow from Operations ¸ Net Income
	= ($113,250) ¸ $45,000
	= (2.52)
Cash Flow Adequacy	= Cash Flow from Operations ¸ (Cash Paid for Capital
		Expenditures + Cash Paid for Acquisitions)
	= ($113,250) ¸ ($310,125 + $0)
	= (.365)

 

 

PTS:   1                    DIF:    Medium         OBJ:   LO 4/LO 5      TOP:   AICPA FN-Measurement

MSC:  AACSB Analytic

 

8. The following is a comparative balance sheet for Cool Covers Clothiers Inc. for the years 2014 and 2013:

 

Cool Covers Clothiers Inc. Comparative Balance Sheet December 31, 2014 and 2013
Assets	2014	2013
Cash …………………………….	$  43,000	$  240,000
Accounts receivable ……………….	390,000	210,000
Inventory ………………………..	360,000	450,000
Long-term investments ……………..	0	120,000
Total assets ……………………	$ 793,000	$1,020,000
Liabilities and Equities
Accounts payable ………………….	$ 150,000	$  240,000
Operating expenses payable …………	48,000	30,000
Bonds payable …………………….	140,000	200,000
Common stock ……………………..	250,000	250,000
Retained earnings …………………	205,000	300,000
Total liabilities and equities ……	$ 793,000	$1,020,000

 

The income statement for the year ended December 31, 2014, follows:

 

Cool Covers Clothiers Income Statement For the Year Ended December 31, 2014
Sales		$1,120,000
Cost of goods sold:
Beginning inventory, January 1, 2014	$  450,000
Purchases ………………………	660,000
Cost of goods available ………….	$1,110,000
Less ending inventory, December 31, 2014 ………………………….	360,000	750,000
Gross profit on sales ……………..		$  370,000
Operating expenses ………………..		360,000
Operating income ………………….		$   10,000
Other revenues and expenses:
Loss on sale of long-term investment		(15,000)
Net loss …………………………		$   (5,000)

 

After paying cash dividends, the decrease in retained earnings totaled $95,000. Management is alarmed by the shrinkage in the company’s cash position during 2014. Prepare a statement of cash flows for 2014 using the direct method.

 

ANS:

 

Cool Covers Clothiers Inc. Statement of Cash Flows For the Year Ended December 31, 2014
Cash flows from operating activities:
Cash receipts from customers ……..		$  940,000*
Cash payments for:
Inventory …………………….	$750,000 **
Operating expenses …………….	342,000***	1,092,000
Net cash used in operating activities .		$ (152,000)
Cash flows from investing activities:
Sale of long-term investments …….	$105,000
Net cash flow provided by investing activities ……………………..		105,000
Cash flows from financing activities:
Payment of bonds payable …………	$(60,000)
Payment of dividends …………….	(90,000)
Net cash flow used in financing activities ……………………..		(150,000)
Net decrease in cash ………………		$ (197,000)
Cash at beginning of year ………….		240,000
Cash at end of year ……………….		$   43,000

 

Computations:

 

*	Sales ……………………………………	$1,120,000
	Accounts Receivable, beginning ……………..	210,000
	Accounts Receivable, ending ………………..	(390,000)
	Cash collected from customers …………….	$  940,000
**	Purchases ………………………………..	$  660,000
	Accounts Payable, beginning ………………..	240,000
	Accounts Payable, ending …………………..	(150,000)
	Cash payments for inventory ………………..	$  750,000
***	Operating Expenses ………………………..	$  360,000
	Operating Expenses Payable:
	Beginning ………………………………	30,000
	Ending …………………………………	(48,000)
	Cash payments for operating expenses ………..	$  342,000

 

 

PTS:   1                    DIF:    Medium         OBJ:   LO 4               TOP:   AICPA FN-Measurement

MSC:  AACSB Analytic

 

9. The following is a comparative balance sheet of Conumdrum Corporation for December 31, 2014 and 2013:

 

	December 31
	2014	2013
Cash and cash equivalents …………	$  350,000	$  320,000
Accounts receivable ………………	327,600	356,000
Inventories ……………………..	822,000	780,000
Available-for-sale securities ……..	0	200,000
Equipment ……………………….	2,400,000	2,040,000
Accumulated depreciation ………….	(700,000)	(760,000)
	$3,199,600	$2,936,000
Accounts payable …………………	$  459,000	$  381,000
Bonds payable, due 2017 …………..		400,000
Common stock, $20 par …………….	1,800,000	1,600,000
Paid-in capital in excess of par …..	280,000	200,000
Retained earnings ………………..	660,600	355,000
	$3,099,600	$2,836,000

 

Additional information:

(a)	Net income for 2014, $545,600.
(b)	Depreciation reported on income statement, $140,000.
(c)	Fully depreciated equipment, no salvage value, was scrapped. Equipment was purchased for $560,000.
(d)	Bonds of $400,000 were retired at their face value.
(e)	10,000 shares of common stock were issued for cash at $28 per share.
(f)	Cash dividends declared and paid, $240,000.
(g)	Available-for-sale securities with a book value of $200,000 were sold for $300,000.

 

Prepare a statement of cash flows for Conumdrum Corporation for 2014, using the indirect method. Compute the cash flow to net income and cash flow adequacy ratios.

 

ANS:

 

Conumdrum Corporation Statement of Cash Flows For the Year Ended December 31, 2014
Cash flows from operating activities:
Net income ……………………………..						$545,600
Adjustments:
	–	Gain on sale of available-for-sale securities ……………………….			$(100,000)
	+	Depreciation expense ……………….			140,000
	+	Decrease in accounts receivable ……..			28,400
	–	Increase in inventories …………….			(42,000)
	+	Increase in accounts payable ………..			78,000	104,400
Net cash provided by operating activities ….						$650,000
Cash flows from investing activities:
Purchase of equipment ………………….					$(560,000)
Sale of available-for-sale securities ……					300,000
Net cash used in investing activities ……..						(260,000)
Cash flows from financing activities:
Retirement of bonds at face …………….					$(400,000)
Issuance of common stock ……………….					280,000
Payment of dividends …………………..					(240,000)
Net cash used in by financing activities …..						(360,000)
Net increase in cash and cash equivalents ….						$ 30,000
Cash and cash equivalents at beginning of year						320,000
Cash and cash equivalents at end of year …..						$350,000

 

Ratios:
Cash Flow to Net Income	=	Cash Flow from Operations ¸ Net Income
	=	$650,000 ¸ $545,600
	=	1.19
Cash Flow Adequacy	=	Cash Flow from Operations	¸	(Cash Paid for Capital Expenditures + Cash Paid for Acquisitions)
	=	$650,000 ¸ ($560,000 + $0)
	=	1.16

 

 

PTS:   1                    DIF:    Medium         OBJ:   LO 4 | LO 5    TOP:   AICPA FN-Measurement

MSC:  AACSB Analytic

 

10. The following pertains to the Excelsior Corp. for the year ended December 31, 2014.

 

Depreciation expense …………………………….	$ 12,000
Issuance of common stock …………………………	105,000
Cash dividends paid ……………………………..	18,600
Increase in inventory ……………………………	43,500
Decrease in accounts receivable …………………..	68,700
Decrease in accounts payable ……………………..	27,600
Retirement of long-term debt ……………………..	120,000
Net income ……………………………………..	150,000
Proceeds from sale of equipment ($15,000 loss) ……..	63,000
Purchase of equipment ……………………………	84,000
Cash and cash equivalents, beginning of year ……….	200,000

 

Prepare a statement of cash flows in good form using the indirect method. Calculate the cash flow to net income and cash flow adequacy ratios for the company.

 

ANS:

 

Excelsior Corp. Statement of Cash Flows For the Year Ended December 31, 2014
Cash flows from operating activities:
Net income ……………………………..					$ 150,000
Adjustments:
	+	Depreciation ………………………		$ 12,000
	+	Loss on sale of equipment …………..		15,000
	+	Decrease in accounts receivable ……..		68,700
	–	Increase in inventory ………………		(43,500)
	–	Decrease in accounts payable ………..		(27,600)	24,600
Net cash provided by operating activities ….					$ 174,600
Cash flows from investing activities:
Proceeds from sale of equipment …………..				$ 63,000
Purchase of equipment ……………………				(84,000)
Net cash used in investing activities ……..					(21,000)
Cash flows from financing activities:
Issuance of common stock …………………				$105,000
Retirement of long-term debt ……………..				(120,000)
Payment of dividends …………………….				(18,600)
Net cash used in financing activities ……..					(33,600)
Net increase in cash and cash equivalents ….					$120,000
Cash and cash equivalents, beginning of year .					200,000
Cash and cash equivalents, end of year …….					$320,000

 

Ratios:

 

Cash Flow to Net Income	=	Cash Flow from Operations		¸	Net Income
	=	$174,600 ¸ $150,000
	=	1.16
Cash Flow Adequacy	=		Cash Flow from Operations	¸	(Cash Paid for Capital Expenditures + Cash Paid for Acquisitions)
	=		$174,600 ¸ ($84,000 + $0)
	=		2.08

 

 

PTS:   1                    DIF:    Medium         OBJ:   LO 4 | LO 5    TOP:   AICPA FN-Measurement

MSC:  AACSB Analytic

 

11. Fortune One Corporation provides the following account balances for 2014 and 2013:

 

	12/31/14	12/31/13
Accounts Receivable ……………………..	$138,000	$ 96,000
Inventory ………………………………	206,000	168,000
Accounts Payable ………………………..	90,000	68,000
Salaries Payable ………………………..	16,000	20,000
Sales ………………………………….	536,000
Cost of Goods Sold ………………………	396,000
Depreciation Expense …………………….	22,000
Salaries Expense ………………………..	18,000
Other Expenses ………………………….	56,000

 

a.	Use the simultaneous analysis matrix to prepare the operating activities section of the statement of cash flows.
b.	Prepare the operating activities section of the statement of cash flows under the indirect method.

 

 

ANS:

a.

 

Description	Income Statement	Adjustments	Statement of Cash Flows
Sales	536,000	-42,000	494,000
Cost of Goods Sold	(396,000)	-38,000 +22,000	(412,000)
Depreciation Expense	(22,000)	+22,000	0
Salaries Expense	(18,000)	-4,000	(22,000)
Other Expenses	(56,000)	–	(56,000)
Net Income	44,000		4,000

 

Operating activities:
Cash collected from customers ……………………	$494,000
Cash paid for inventory …………………………	412,000
Cash paid for salaries ………………………….	22,000
Cash paid for other expenses …………………….	56,000
Cash flow from operations ……………………..	$  4,000

 

b.

 

Net income …………………………………….		$44,000
Add:	Depreciation …………………………….	22,000
	Increase in accounts payable ………………	22,000
Less:	Increase in accounts receivable ……………	(42,000)
	Increase in inventory …………………….	(38,000)
	Decrease in salaries payable ………………	(4,000)
	Cash flow from operations …………………	$ 4,000

 

 

PTS:   1                    DIF:    Challenging    OBJ:   LO 3               TOP:   AICPA FN-Measurement

MSC:  AACSB Analytic

 

12. Lakeview Corporation provides the following account balances for 2014 and 2013:

 

	12/31/14	12/31/13
Accounts Receivable …………………..	$ 70,600	$ 62,400
Inventory ……………………………	148,200	158,600
Accounts Payable ……………………..	39,000	51,000
Short-term Notes Payable (for inventory) ..	41,600	40,000
Sales ……………………………….	616,600
Cost of Goods Sold ……………………	490,000
Depreciation Expense ………………….	18,200
Amortization Expense ………………….	2,600
Other Expenses ……………………….	56,000
Loss on Sale of Building ………………	3,000
Gain on Sale of Investments ……………	13,000

 

a.	Use the simultaneous analysis matrix to prepare the operating activities section of the statement of cash flows.
b.	Prepare the operating activities section of the statement of cash flows under the indirect method.

 

 

ANS:

a.

 

Description	Income Statement	Adjustments	Statement of Cash Flows
Sales	616,600	-8,200	608,400
Cost of goods sold	(490,000)	-10,400 +12,000 -1,600	(490,000)
Depreciation Expense	(18,200)	+18,200	0
Amortization Expense	(2,600)	+2,600	0
Other Expenses	(56,000)	–	(56,000)
Loss on Sale of Building	(3,000)	+3,000	0
Gain on Sale of Investments	13,000	+13,000	0
Net Income	59,800		62,400

 

Operating Activities:
Cash collected from customers ……………………	$608,400
Cash paid for inventory …………………………	490,000
Cash paid for other expenses …………………….	56,000
Net cash flows from operating activities ………….	$ 62,400

 

b.

 

Net income …………………………………….		$59,800
Add:	Depreciation …………………………….	18,200
	Amortization …………………………….	2,600
	Loss on sale of building ………………….	3,000
	Decrease in inventory …………………….	10,400
	Increase in short-term notes payable ……….	1,600
Less:	Increase in accounts receivable ……………	(8,200)
	Decrease in accounts payable ………………	(12,000)
	Gain on sale of investments ……………….	(13,000)
	Cash flow from operations …………………	$62,400

 

 

PTS:   1                    DIF:    Medium         OBJ:   LO 3               TOP:   AICPA FN-Measurement

MSC:  AACSB Analytic

 

13. FJR Company is preparing a forecast of its net income for the year 2014. In addition, FJR plans to construct a forecasted statement of cash flows for 2014. The balance sheet and income statement data for 2013 are presented below, as well as a forecast of the balance sheet for 2014. Management expects sales in 2014 to rise to $6,000,000. In order to achieve this level of increase, management estimates that operating expenses (specifically sales commissions) will rise to $410,134.

 

Prepare a forecasted income statement and forecasted statement of cash flows (using the indirect method) for the year ended December 31, 2014, for FJR Company. Calculate the cash flow to net income and cash flow adequacy ratios.  There were no changes in stockholders’ equity other than net income and cash dividends.

 

FJR Company Balance Sheet December 31, 2014 (forecasted) and December 31, 2013
	2013	2014
Cash ………………………………….	$  132,000	$  212,000
Other current assets ……………………	756,000	1,196,000
Property, plant, and equipment, net ………	440,000	852,000
Total assets …………………………..	$1,328,000	$2,260,000
Accounts payable ……………………….	$   76,000	$  112,000
Bank loans payable ……………………..	324,000	796,000
Total stockholders’ equity ………………	928,000	1,352,000
Total liabilities and equities …………..	$1,328,000	$2,260,000

 

FJR Company Statement of Income For Year Ended December 31, 2013
Sales ………………………………………….	$3,172,000
Cost of goods sold ………………………………	2,532,000
Gross margin ……………………………………	640,000
Depreciation expense …………………………….	14,576
Other operating expenses …………………………	216,824
Operating profit ………………………………..	408,600
Interest expense ………………………………..	48,600
Income before taxes ……………………………..	360,000
Income taxes ……………………………………	108,000
Net income ……………………………………..	$  252,000

 

 

ANS:

 

FJR Company
Statements of Income
For Years Ended December 31, 2013 & 2014
Description	2013	Forecasted, 12/31/14	Explanations
Sales	$3,172,000	$6,000,000	Given.
Cost of Goods Sold	2,532,000	4,789,407	Same percentage of sales as last year.
Gross Margin	640,000	1,210,593
Depreciation Expense	14,576	28,224	Same percentage of PP&E as last year.
Other Operating Expenses	216,824	410,134	Given.
Operating Profit	408,600	772,235
Interest Expense	48,600	119,400	Same as prior year: 15% of bank loan
Income before Taxes	360,000	652,835
Income Taxes	108,000	195,850	Same as prior year: 30% of Income before Taxes
Net  Income	252,000	456,985

 

FJR Company Forecasted Statement of Cash Flows For Year Ended December 31, 2014
Cash flows from operating activities:
Net income ……………………………	$456,985
Adjustments:
Depreciation ………………………..	28,224
Increase in other current assets ………	(440,000)
Increase in accounts payable ………….	36,000	$ 81,209
Cash flows from investing activities:
Purchase of property, plant and equipment ..		(440,224)
Cash flows from financing activities:
Payment of dividends …………………..	$(32,985)
Borrowings on bank loans ……………….	472,000	439,015
Net increase in cash and cash equivalents ….		$ 80,000
Cash and cash equivalents at beginning of the year ……………………………..		132,000
Cash and cash equivalents at end of year …..		$212,000

 

Ratios:
Cash Flow to Net Income	=	Cash Flow from Operations ¸ Net Income
	=	$81,209 ¸ $456,985
	=	.178
Cash Flow Adequacy	=	Cash Flow from Operations	¸	(Cash Paid for Capital Expenditures + Cash Paid for Acquisitions)
	=	$81,209 ¸ ($440,224 + $0)
	=	.185

 

 

PTS:   1                    DIF:    Challenging    OBJ:   LO 6 | LO 7    TOP:   AICPA FN-Measurement

MSC:  AACSB Analytic

 

14. Patterson, Inc., has the following comparative balance sheets and income statement available for your examination:

 

Patterson, Inc. Balance Sheets December 31, 2014 and 2013 (in thousands)
	2014	2013
Cash …………………………………..	$ 66	$ 36
Accounts Receivable ……………………..	138	96
Inventory ………………………………	206	168
Property, Plant, and Equipment ……………	266	246
Accumulated Depreciation …………………	(70)	(54)
Total Assets ……………………………	$606	$492
Accounts Payable ………………………..	$ 90	$ 68
Income Tax Payable ………………………	16	20
Common Stock ……………………………	406	326
Retained Earnings ……………………….	94	78
Total Equities ………………………….	$606	$492

 

Patterson, Inc. Income Statement For the Year Ended December 31, 2014 (in thousands)
Sales ………………………………….		$536
Cost of Goods Sold ………………………		396
Gross Profit ……………………………		140
Operating Expenses:
Depreciation ………………………….	$22
Income Taxes ………………………….	18
Other ………………………………..	56	96
Net Income ……………………………..		$ 44

 

Additional information:

1.	Fully depreciated equipment costing $6,000 was abandoned on the first day of business of 2014.
2.	A building to store materials was acquired for $26,000.
3.	A stock dividend of $20,000 was declared and distributed, as was a cash dividend of $8,000.
4.	Additional stock was sold during 2014 for cash.

 

Prepare a statement of cash flows for Patterson, Inc., for 2014 employing the indirect

method of identifying cash flows from operating activities.

 

ANS:

 

Patterson, Inc. Statement of Cash Flows For the Year Ended December 31, 2014 (in thousands)
Cash flows from operating activities:
Net income ……………………………		$44
Adjustments for noncash revenue and expense
items:
Depreciation expense …………………	$22
Increase in accounts receivable ……….	(42)
Increase in inventory ………………..	(38)
Increase in accounts payable ………….	22
Decrease in income taxes payable ………	(4)	(40)
Net cash flows from operating activities …		$ 4
Cash flows from investing activities:
Purchase of building …………………..		(26)
Cash flows from financing activities:
Sale of stock …………………………	$60
Payment of cash dividends ………………	(8)
Net cash flows from financing activities …		52
Increase in cash ………………………..		$30
Cash January 1, 2014 …………………….		36
Cash December 31, 2014 …………………..		$66

 

Noncash financing activities consist of the declaration and issuance of a stock dividend in the amount of $20,000.

 

PTS:   1                    DIF:    Medium         OBJ:   LO 4               TOP:   AICPA FN-Measurement

MSC:  AACSB Analytic

 

15. Users of financial statements are interested in the ability of a firm to generate favorable cash flows. This is one reason why the FASB has required the inclusion of a statement of cash flows in the primary financial statements of an enterprise. A cash flow of major interest to investors is the dividends an enterprise has paid in the past and will pay in the future. Investors are particularly interested in the prediction of future dividends. The prediction of the cash flows associated with dividends requires, however, that investors have information regarding other cash flows of the enterprise.

 

Identify cash flows of an enterprise the knowledge of which would be useful to users of the financial statement in the prediction of future dividends.

 

ANS:

Investors may find some assistance in predicting future dividends if they have information regarding the following types of cash flows:

 

a.	The cash flows relating to the basic current operations of the enterprise.
b.	Recurring or occasional cash flows unrelated to current operations, including those related to unexpected events.
c.	Cash flows required to increase operating facilities and inventories or obtained from the sale of operating facilities or inventories not needed for future operations.
d.	Cash received from and paid to bondholders and stockholders in order to finance the firm.
e.	Payments of interest and dividends to investors with priority claims.

 

The presumption is that dividends represent the amount available after the above expected flows are predicted. Many of the above flows as well as dividends are interrelated and this fact must be considered in the process of predicting cash flows. Additionally, an investor must have knowledge regarding the dividend policy of the enterprise and any current and future needs for additional cash holdings that might result in the modification of the dividend policy.

 

PTS:   1                    DIF:    Medium         OBJ:   LO 6

TOP:   AICPA FN-Decision Modeling        MSC:  AACSB Analytic

 

16. A major controversy in the issuance of Statement of Financial Accounting Standards No. 95¸ “Statement of Cash Flows,” centered around the possibility of the Board’s requiring the direct method of reporting operating cash flows. Bankers who responded to the Exposure Draft preceding the issuance of the pronouncement on cash flows expressed a preference for the direct method. Practicing CPAs have been shown in studies to favor the indirect method. The Board has allowed both the indirect and direct methods to be used, although the Board expressed a preference for the direct method.

 

Evaluate the strengths and weaknesses of the direct and indirect methods and why you believe the Board decided to allow preparers of financial statements a choice between the two methods.

 

ANS:

The direct method clearly is more difficult and less familiar to preparers of financial statements. The indirect method of reporting funds flows was used for some 16 years prior to the issuance of Statement No. 95 and is less costly to prepare than the direct method. Nevertheless, the indirect method provides only a reconciliation of net income to cash provided or consumed by operations. The direct method reports information about cash received from customers, cash paid to suppliers and employees, income taxes paid, and other operating receipts and payments. The direct method thus is viewed as being more informative.

 

The indirect method causes the statement of cash flows to be internally inconsistent since gross cash flows must be reported for investing and financing activities while major classes of operating cash flows are not. The indirect method also results in the effects of certain noncash transactions being included in the statement of cash flows when actual cash flows relating to operations could be shown.

 

The process of setting accounting standards is a political process. Undoubtedly, one factor that led the FASB to allow both the indirect and direct methods was the need for compromise in order to ensure that a standard would be issued and reporting would be improved, even though not to the full extent that the Board may have desired.

 

PTS:   1                    DIF:    Medium         OBJ:   LO 3               TOP:   AICPA FN-Reporting

MSC:  AACSB Analytic

 

17. Net income for the Hot Springs Company for the most recent year was $150,000, consisting of $865,000 of revenues, $360,000 of cost of goods sold, and $365,000 of operating expenses. The following changes in current assets and current liabilities have been identified:

 

1.	Accounts receivable increased by $85,000.
2.	Inventory decreased by $37,500.
3.	Accounts payable increased by $82,500.
4.	Accrued operating expenses payable decreased by $45,000.

 

Required:

 

Calculate the cash flows from operating activities for the year, applying the direct method. Identify the individual amounts that would be disclosed in the statement of cash flows where possible.

 

ANS:

Cash flows from operating activities, direct method:

 

Revenues					$ 865,000
Increase in accounts receivable					(85,000)	$ 780,000
Cost of goods sold					$  360,000
Decrease in inventory					(37,500)
Increase in accounts payable					(82,500)	(240,000)
Operating expenses					$  365,000
Decrease in accrued operating expenses payable					45,000	(410,000)
Cash flows from operating activities						$ 130,000

 

 

PTS:   1                    DIF:    Medium         OBJ:   LO 3               TOP:   AICPA FN-Measurement

MSC:  AACSB Analytic

 

Delilah, Inc., presents the following comparative balance sheets and income statement (all amounts in thousands of dollars):

 

Delilah, Inc
Balance Sheet
December 31, 2014 & 2013
					2014	2013
		Cash			$       66	$       36
		Accounts receivable			138	96
		Inventory			206	168
		Building & Equipment			266	246
		Accumulated Depreciation			(70)	(54)
			Total Assets		$    606	$     492
		Accounts payable			$      90	$       68
		Income tax payable			16	20
		Common stock			406	326
		Retained earnings			94	78
			Total Equities		$    606	$     492
		Sales				$     536
		Cost of goods sold				396
			Gross profit			$     140
		Operating Expenses:
			Depreciation		$      22
			Incomes taxes		18
			Other1		56	96
		Net income				$       44

 

¹Includes interest paid in cash of $23.

 

18. See information regarding Delilah, Inc. above. The following additional information is provided:

 

1.	Fully depreciated equipment costing $6,000 was abandoned on the first business day of 2014.
2.	A building to store materials was acquired for $26,000.
3.	A stock dividend of $20,000 was declared and distributed as was a cash dividend of $8,000.
4.	Additional stock was sold during 2014 for cash.

 

Required:

 

Compute the following:

 

1.	Cash received from customers
2.	Cash paid to purchase inventory
3.	Cash paid for income taxes
4.	Cash from sale of common stock

 

 

ANS:

	Cash received from customers:
		Sales					$     536
		Increase in accounts receivable ($138 – $96)					(42)
							$     494
	Cash paid to purchase inventory:
		Cost of goods sold					$     396
		Increase in inventory ($206 – $168)					38
		Increase in accounts payable ($90 – $68)					(22)
							$     412
	Cash paid for income taxes:
		Income tax expense					$       18
		Decrease in income tax payable ($20 – $16)					4
							$       22
	Sale of common stock:
		Increase in common stock ($406 – $326)					$       80
		Stock dividend					(20)
							$       60

 

 

PTS:   1                    DIF:    Challenging    OBJ:   LO 3 | LO 4

TOP:   AICPA FN-Measurement | AICPA FN-Reporting              MSC:  AACSB Analytic

 

19. See information regarding Delilah, Inc. above. The following additional information is available:

1.	Fully depreciated equipment costing $6,000 was abandoned on the first business day of 2014.
2.	A building to store materials was acquired for $26,000.
3.	A stock dividend of $20,000 was declared and distributed.
4.	A cash dividend of $8,000 was declared and distributed.
5.	Additional stock was sold during 2014 for cash.

 

Required:

 

1.	Compute the following ratios:
		a.	Cash Flow-to-Net Income
		b.	Cash Flow Adequacy
		c.	Cash Times Interest Earned
2.	What cash flow statement pattern does Delilah, Inc., exhibit?

 

 

ANS:

Cash flow from operations is needed for the three ratios and is determined as follows:

 

	Cash received from customers:
		Sales					$     536
		Increase in accounts receivable ($138 – $96)					(42)
							$     494
	Cash paid to purchase inventory:
		Cost of goods sold					$     396
		Increase in inventory ($206 – $168)					38
		Increase in accounts payable ($90 – $68)					(22)
							$     412
	Cash paid for income taxes:
		Income tax expense					$       18
		Decrease in income tax payable ($20 – $16)					4
							$       22
	Cash paid for operating expenses						$       56
	Cash flow from operations:						$         4
		($494 – $412 – $22 – $56)

 

1.		Cash Flow-to-Net Income:
		Cash Flow from Operations ÷ Net Income = $4 ÷ $44 = .09
			This ratio reflects the extent to which accrual-basis accounting assumptions and adjustments have been included in computing net income.  The results for Delilah, Inc., suggest a lack of adequate cash flow from operations.
2.		Cash Flow Adequacy:
		Cash Flow from Operations ÷ Cash Paid for Capital Expenditures = $4 ÷ $26 = .15
		The cash flow from operations of Delilah, Inc., fell way below the amount needed to pay for the capital expenditures incurred.
3.		Cash Times Interest Earned:
					Cash from operations			$         4
					Cash paid for interest			23
					Cash paid for income taxes			22
					Cash before interest and taxes			$       49
					Cash paid for interest			$       23
					Cash times interest earned ratio:
						$49/$23 =		2.13
		The cash times interest earned ratio is an indicator of a company’s ability to meet its interest obligations. Pretax cash flow is used since interest is paid before any taxes are deducted. Delilah, Inc., exhibits the ability to continue making its interest payments.
2.		The cash flow patterns of Delilah, Inc., suggest a company that is using cash from operations and from borrowing (or from owner investment) to expand.

 

 

PTS:   1                    DIF:    Challenging    OBJ:   LO 5               TOP:   AICPA FN-Measurement

MSC:  AACSB Analytic

 

20. The following information is provided by Horizons Company:

 

Horizons Company

Balance Sheet

December 31, 2014 and 2013

					2014	2013
Assets
	Current Assets:
		Cash			$        212,000	$        132,000
		Accounts receivable-net			644,000	436,000
		Inventory			500,000	308,000
		Prepaid expenses			52,000	12,000
	Total current assets				$     1,408,000	$        888,000
	Long-term Investments				40,000	–
	Land, building, and fixtures				$        872,000	$        452,000
	Less:  Accumulated depreciation				(60,000)	(12,000)
					$        812,000	$        440,000
	Total assets				$     2,260,000	$     1,328,000
Liabilities and Stockholders’ Equity
	Current Liabilities:
		Accounts payable			$        396,000	$        324,000
		Accrued expenses			84,000	76,000
		Dividends payable			28,000	–
	Total current liabilities				$        508,000	$        400,000
	Notes payable-due 2014				400,000	–
	Stockholders’ Equity:
		Common stock			$        932,000	$        692,000
		Retained earnings			420,000	236,000
					1,352,000	928,000
	Total liabilities and stockholders’ equity				$     2,260,000	$     1,328,000

 

Horizons Company

Income Statement

For the Years Ended December 31, 2014 and 2013

 

				2014	2013
	Net credit sales			$     6,000,000	$     3,172,000
	Cost of goods sold			4,860,000	2,532,000
	Gross profit			$     1,140,000	$        640,000
	Expenses			792,000	388,000
	Net income			$        348,000	$        252,000

 

Additional information pertinent to this company is as follows:

 

1.	Cash received from issuing the note was subsequently used to purchase a new building. Common stock sold in 2014 provided additional working capital.
2.	All accounts payable and accounts receivable relate to trade merchandise. No provision was made for uncollectible accounts in 2014 and no receivables were charged against the allowance in 2014.
3.	Accounts payable are recorded net and paid within the discount period.

 

Required:

 

Determine the following amounts:

 

1.	Cash collected from accounts receivable during 2014.
2.	Cash payments for noncurrent assets purchased during 2014.
3.	Cash receipts during 2011 that were not provided by operations.
4.	Cash payments during 2011 on accounts payable to suppliers.

 

 

ANS:

Cash collected from accounts receivable:
Beginning accounts receivable				$        436,000
Add: Sales				6,000,000
Deduct:  Ending accounts receivable				(644,000)
Cash collected from accounts receivable					$     5,792,000
Cash payments to purchase noncurrent assets:
Long-term Investments:
Ending balance				$         40,000
Beginning balance				–
Increase					$         40,000
Land, Building, and Fixtures:
Ending balance				$        872,000
Beginning balance				452,000
Increase					$        420,000
Total cash payments for noncurrent assets					$        460,000
Cash receipts not provided by operations:
Proceeds from long-term note					$        400,000
Proceeds from sale of stock:
Ending balance-Common Stock				$        932,000
Beginning balance-Common Stock				692,000	240,000
					$        640,000
Cash payments on accounts payable to suppliers:
Cost of goods sold				$     4,860,000
Ending inventory				500,000
Beginning inventory				(308,000)
Purchases				$     5,052,000
Beginning accounts payable				$        324,000
Purchases				5,052,000
Ending accounts payable				(396,000)
Cash payments to suppliers					$     4,980,000

 

 

PTS:   1                    DIF:    Challenging    OBJ:   LO 3 | LO 4

TOP:   AICPA FN-Reporting | AICPA FN-Measurement              MSC:  AACSB Analytic

 

21. The following is a partial balance sheet and additional information for the Lakehurst Company:

 

Lakehurst Company

Partial Balance Sheet

December 31, 2014 and 2013

 

Assets:                            2014                2013

Cash                                        $  44,000         $  32,000

Accounts Receivable                 436,000           520,000

Inventory                                  170,000           190,000

 

Liabilities:

Accounts Payable                    $210,000         $270,000

 

Additional information:

(a)  Net income for 2014 was $30,000

(b)  Depreciation Expense for 2014 was $60,000

(c)  Sales for 2014 totaled $980,000

(d)  Cost of Goods Sold for 2014 was $700,000

 

Required:

Compute the total Cash paid in 2014 for Inventory purchases.

 

ANS:

Cost of Goods Sold                            $700,000

Inventory, ending                                  170,000

Inventory, beginning                           (190,000)

Purchases                                            $680,000

Accounts Payable, beginning                270,000

Accounts Payable, ending                  (210,000)

Cash payments for Inventory             $740,000

 

PTS:   1                    DIF:    Medium         OBJ:   LO3               TOP:   AICPA FN-Measurement

MSC:  AACSB Analytic