Store Company engaged in the following transactions during the 2011 accounting period. The beginning cash balance was $28,600 and ending cash balance was $6,025.
1. Sales on account were $250,000. The beginning Accounts Receivable balance was $87,000
and the ending balance was $83,000.
2. Salaries expense for the period was $56,000. The beginning Salaries Payable balance was
$3,500 and the ending balance was $2,000.
3. Other operating expenses for the period were $125,000. The beginning Other Operating
Expenses Payable balance was $4,500 and the ending balance was $8,500.
4. Recorded $19,500 of depreciation expense. The beginning and ending balances in the
Accumulated Depreciation account were $14,000 and $33,500, respectively.
5. The Equipment account had beginning and ending balances of $210,000 and $240,000
respectively. There were no sales of equipment during the period.
6. The beginning and ending balances in the Notes Payable account were $50,000 and $150,000,
respectively. There were no payoffs of notes during the period.
7. There was $6,000 of interest expense reported on the income statement. The beginning and
ending balances in the Interest Payable account were $1,500 and $1,000, respectively.
8. The beginning and ending Merchandise Inventory account balances were $90,000 and
$108,000, respectively. The company sold merchandise with a cost of $156,000 (cost of goods sold for the period was $156,000). The beginning and ending balances of Accounts Payable were $9,500 and $11,500, respectively.
9. The beginning and ending balances of Notes Receivable were $5,000 and $10,000, res-
pectively. Notes receivable result from long-term loans made to employees. There were no collections from employees during the period.
10. The beginning and ending balances of the Common Stock account were $100,000 and
$120,000, respectively. The increase was caused by the issue of common stock for cash.
11. Land had beginning and ending balances of $50,000 and $41,000, respectively. Land that
cost $9,000 was sold for $12,200, resulting in a gain of $3,200.
LO 2, 3, 4
Income Statement
For the Year Ended December 31, 2012 Sales $1,500,000 Cost of goods sold (797,200)
Gross profit 702,800
Operating expenses
Depreciation expense (22,800)
Rent expense (24,000)
Salaries expense (256,000) Other operating expenses (258,000)
Net income $ 142,000
CHECK FIGURE
Net Cash Flow from Operating Activities: $(110,775)
12. The tax expense for the period was $7,700. The Taxes Payable account had a $950 beginning balance and an $875 ending balance.
13. The Investments account had beginning and ending balances of $25,000 and $29,000,
respectively. The company purchased investments for $18,000 cash during the period, and investments that cost $14,000 were sold for $9,000, resulting in a $5,000 loss.
Required
a. Determine the amount of cash l ow for each item and indicate whether the item should ap-
pear in the operating, investing, or i nancing activities section of a statement of cash l ows.
If an item does not affect the cash l ow statement, make a statement indicating that the cash l ow statement will not be affected. Assume Store Company uses the direct method for show- ing net cash l ow from operating activities.
b. Prepare a statement of cash l ows based on the information you developed in Requirement a.
Problem 14-21A
Using financial statements to prepare a statement of cash flows—
Direct method
The following financial statements were drawn from the records of Raceway Sports:
LO 2, 3, 4
CHECK FIGURES
Net Cash Flow from Operating Activities: $86,800
Net Increase in Cash: $95,400 Balance Sheets
As of December 31
2012 2011
Assets
Cash $123,600 $ 28,200
Accounts receivable 57,000 66,000
Inventory 126,000 114,000
Notes receivable (long-term) 0 30,000
Equipment 147,000 255,000
Accumulated depreciation-equipment (74,740) (141,000)
Land 82,500 52,500
Total assets $461,360 $404,700
Liabilities and equity
Accounts payable (inventory) $ 42,000 $ 48,600
Salaries payable 30,000 24,000
Utilities payable 600 1,200
Interest payable 0 1,800
Notes payable (long-term) 0 60,000
Common stock 300,000 240,000
Retained earnings 88,760 29,100
Total liabilities and equity $461,360 $404,700
Income Statement
For the Year Ended December 31, 2012
Sales revenue $580,000
Cost of goods sold (288,000)
Gross margin 292,000
Operating expenses
Salary expense (184,000)
Depreciation expense (17,740) Utilities expense (12,200)
Operating income 78,060
Nonoperating items
Interest expense (3,000)
Loss on the sale of equipment (1,800)
Net income $ 73,260
Additional Information
1. Sold equipment costing $108,000 with accumulated depreciation of $84,000 for $22,200 cash.
2. Paid a $13,600 cash dividend to owners.
Required
Analyze the data and prepare a statement of cash flows using the direct method.
EXERCISES—SERIES B
Exercise 14-1B
Use the indirect method to determine cash flows from operating activities
An accountant for Farve Enterprise Companies (FEC) computed the following information by making comparisons between FEC’s 2012 and 2011 balance sheets. Further information was determined by examining the company’s 2012 income statement.
1. The amount of cash dividends paid to the stockholders.
2. The amount of an increase in the balance of an Unearned Revenue account.
3. The amount of a decrease in the balance of an Inventory account.
4. The amount of a decrease in the balance of a Land account.
5. The amount of an increase in the balance of a Prepaid Rent account.
6. The amount of an increase in the balance of a Treasury Stock account.
7. The amount of a decrease in the balance of the Accounts Receivable account.
8. The amount of a gain arising from the sale of land.
9. The amount of an increase in the balance of the Salaries Payable account.
10. The amount of an increase in the balance of the Bonds Payable account.
11. The amount of depreciation expense shown on the income statement.
Required
For each item described above, indicate whether the amount should be added to or subtracted from the amount of net income when determining the amount of net cash flow from operating activities using the indirect method. If an item does not affect net cash flow from operating activities, identify it as being not affected.
Exercise 14-2B
Use the indirect method to determine cash flows from operating activities
Haughton Incorporated presents its statement of cash flows using the indirect method. The following accounts and corresponding balances were drawn from the company’s 2012 and 2011 year-end balance sheets:
LO 1
LO 1
Account Title 2012 2011 Accounts receivable $26,200 $21,400
Accounts payable 9,700 9,300
The 2012 income statement showed net income of $36,300.
Required
a. Prepare the operating activities section of the statement of cash l ows.
b. Explain why the change in the balance in accounts receivable was added to or subtracted
from the amount of net income when you completed Requirement a.
c. Explain why the change in the balance in accounts payable was added to or subtracted from
the amount of net income when you completed Requirement a.
Exercise 14-3B
Use the indirect method to determine cash flows from operating activities
Hong Company presents its statement of cash flows using the indirect method. The following accounts and corresponding balances were drawn from Hong’s 2012 and 2011 year-end balance sheets:
LO 1
Account Title 2012 2011 Accounts receivable $46,000 $38,000
Prepaid rent 2,400 2,800
Interest receivable 900 1,000
Accounts payable 10,500 9,000
Salaries payable 4,200 4,800
Unearned revenue 5,000 4,500
The income statement contained a $500 loss on the sale of equipment, a $700 gain on the sale of land, and $3,200 of depreciation expense. Net income for the period was $47,000.
Required
Prepare the operating activities section of the statement of cash flows.
Exercise 14-4B
Use the direct method to determine cash flows from operating activities
The following accounts and corresponding balances were drawn from Pizzazz Company’s 2012 and 2011 year-end balance sheets:LO 2
Account Title 2012 2011 Unearned revenue $5,000 $6,500
Prepaid rent 2,400 1,800
During the year, $72,000 of unearned revenue was recognized as having been earned. Rent expense for 2012 was $20,000.
Required
Based on this information alone, prepare the operating activities section of the statement of cash flows assuming the direct approach is used.
Exercise 14-5B
Use the direct method to determine cash flows from operating activities
The following accounts and corresponding balances were drawn from Hughes Company’s 2012 and 2011 year-end balance sheets:LO 2
Account Title 2012 2011
Accounts receivable $56,000 $41,000
Interest receivable 6,000 5,000
Other operating expenses payable 22,000 28,000
Salaries payable 15,000 13,000
Income Statement
Sales $725,000
Salary expense (180,000)
Other operating expenses (310,000)
Operating income 235,000
Nonoperating items: Interest revenue 18,000
Net income $253,000
The 2012 income statement is shown below:
Required
a. Use the direct method to compute the amount of cash inl ows from operating activities.
b. Use the direct method to compute the amount of cash outl ows from operating activities.
Exercise 14-6B
Direct versus indirect method of determining cash flows from operating activities
Security Services, Inc. (SSI), recognized $2,400 of sales revenue on account and collected $1,900 of cash from accounts receivable. Further, SSI recognized $900 of operating expenses on account and paid $400 cash as partial settlement of accounts payable.
Required
Based on this information alone:
a. Prepare the operating activities section of the statement of cash l ows under the direct
method.
b. Prepare the operating activities section of the statement of cash l ows under the indirect
method.
Exercise 14-7B
The direct versus the indirect method of determining cash flows from operating activities
The following accounts and corresponding balances were drawn from Littlejohn Company’s 2012 and 2011 year-end balance sheets:
LO 1 , 2
LO 1 , 2
Account Title 2012 2011
Accounts receivable $89,000 $92,000
Prepaid rent 1,100 1,500
Utilities payable 2,100 2,600
Other operating expenses payable 42,000 49,000
Income Statement
Sales $312,000
Rent expense (36,000)
Utilities expense (41,900) Other operating expenses (189,000)
Net income $ 45,100
The 2012 income statement is shown below:
Required
a. Prepare the operating activities section of the statement of cash l ows using the direct
method.
b. Prepare the operating activities section of the statement of cash l ows using the indirect
method.
Exercise 14-8B
Determining cash flow from investing activities
On January 1, 2011, Oswalt Company had a balance of $156,000 in its Land account. During 2011, Oswalt sold land that had cost $66,000 for $98,000 cash. The balance in the Land account on December 31, 2011, was $220,000.
Required
a. Determine the cash outl ow for the purchase of land during 2011.
b. Prepare the investing activities section of the 2011 statement of cash l ows.
LO 3
Exercise 14-9B
Determining cash flow from investing activities
On January 1, 2011, Artex Company had a balance of $65,600 in its Office Equipment account.
During 2011, Artex purchased office equipment that cost $21,600. The balance in the Office Equipment account on December 31, 2011, was $65,000. The 2011 income statement contained a gain from the sale of equipment for $5,000. On the date of sale, accumulated depreciation on the equipment sold amounted to $8,300.
Required
a. Determine the cost of the equipment that was sold during 2011.
b. Determine the amount of cash l ow from the sale of ofi ce equipment that should be shown
in the investing activities section of the 2011 statement of cash l ows.
Exercise 14-10B
Determining cash flows from investing activities
The following accounts and corresponding balances were drawn from Callon Company’s 2012 and 2011 year-end balance sheets:
LO 3
LO 3
Account Title 2012 2011 Investment securities $ 98,000 $106,000
Machinery 565,000 520,000
Land 90,000 140,000
Other information drawn from the accounting records:
1. Callon incurred a $4,000 loss on the sale of investment securities during 2012.
2. Old machinery with a book value of $7,000 (cost of $32,000 minus accumulated deprecia-
tion of $25,000) was sold. The income statement showed a gain on the sale of machinery of
$5,500.
3. Callon incurred a loss of $2,500 on the sale of land in 2012.
Required
a. Compute the amount of cash l ow associated with the sale of investment securities.
b. Compute the amount of cash l ow associated with the purchase of machinery.
c. Compute the amount of cash l ow associated with the sale of machinery.
d. Compute the amount of cash l ow associated with the sale of land.
e. Prepare the investing activities section of the statement of cash l ows.
Exercise 14-11B
Determining cash flows from financing activities
On January 1, 2011, MMC Company had a balance of $700,000 in its Bonds Payable account.
During 2011, MMC issued bonds with a $200,000 face value. There was no premium or discount associated with the bond issue. The balance in the Bonds Payable account on December 31, 2011, was $400,000.
Required
a. Determine the cash outl ow for the repayment of bond liabilities assuming that the bonds
were retired at face value.
b. Prepare the i nancing activities section of the 2011 statement of cash l ows.
Exercise 14-12B
Determining cash flows from financing activities
On January 1, 2011, Graves Company had a balance of $200,000 in its Common Stock account.
During 2011, Graves paid $15,000 to purchase treasury stock. Treasury stock is accounted for using the cost method. The balance in the Common Stock account on December 31, 2011, was
$240,000. Assume that the common stock is no par stock.
Required
a. Determine the cash inl ow from the issue of common stock.
b. Prepare the i nancing activities section of the 2011 statement of cash l ows.
LO 4
LO 4
Exercise 14-13B
Determining cash flows from financing activities
The following accounts and corresponding balances were drawn from Poole Company’s 2012 and 2011 year-end balance sheets:
LO 4
Account Title 2012 2011 Bonds payable $300,000 $210,000 Common stock 550,000 450,000
Other information drawn from the accounting records:
1. Dividends paid during the period amounted to $40,000.
2. There were no bond liabilities repaid during the period.
Required
a. Compute the amount of cash l ow associated with the issue of bond liabilities.
b. Compute the amount of cash l ow associated with the issue of common stock.
c. Prepare the i nancing activities section of the statement of cash l ows.
PROBLEMS—SERIES B
Problem 14-14B
The direct versus the indirect method to determine cash flows from operating activities
The following accounts and corresponding balances were drawn from Bryan Sports, Inc.’s 2012 and 2011 year-end balance sheets:
LO 1, 2
Account Title 2012 2011 Accounts receivable $36,000 $45,000 Merchandise inventory 65,000 62,000
Prepaid insurance 24,000 20,000
Accounts payable 20,000 25,000
Salaries payable 4,500 3,900
Unearned service revenue 9,500 8,600
Income Statement
Sales $651,500 Cost of goods sold (402,000)
Gross margin 249,500
Service revenue 15,000
Insurance expense (38,000) Salaries expense (175,000) Depreciation expense (8,000)
Operating income 43,500
Gain on sale of equipment 2,500
Net income $ 46,000
Required
a. Prepare the operating activities section of the statement of cash l ows using the direct
method.
b. Prepare the operating activities section of the statement of cash l ows using the indirect
method.
The 2012 income statement is shown below:
Problem 14-15B
Determining cash flows from investing activities
The following information was drawn from the year-end balance sheets of Madison Company:
LO 3
Account Title 2012 2011 Investment securities $ 46,500 $ 50,000
Equipment 275,000 260,000
Buildings 950,000 920,000
Land 110,000 90,000
Additional information regarding transactions occurring during 2012:
1. Investment securities that had cost $7,800 were sold. The 2012 income statement contained a
loss on the sale of investment securities of $1,200.
2. Equipment with a cost of $75,000 was purchased.
3. The income statement showed a gain on the sale of equipment of $10,000. On the date of
sale, accumulated depreciation on the equipment sold amounted to $52,000.
4. A building that had originally cost $70,000 was demolished.
5. Land that had cost $15,000 was sold for $20,000.
Required
a. Determine the amount of cash l ow for the purchase of investment securities during 2012.
b. Determine the amount of cash l ow from the sale of investment securities during 2012.
c. Determine the cost of the equipment that was sold during 2012.
d. Determine the amount of cash l ow from the sale of equipment during 2012.
e. Determine the amount of cash l ow for the purchase of buildings during 2012.
f. Determine the amount of cash l ow for the purchase of land during 2012.
g. Prepare the investing activities section of the 2012 statement of cash l ows.
Problem 14-16B
Determining cash flows from financing activities
The following information was drawn from the year-end balance sheets of Sports Supply, Inc.:
LO 4
Account Title 2012 2011 Bonds payable $700,000 $800,000
Common stock 180,000 140,000
Treasury stock 40,000 25,000
Retained earnings 96,000 80,000
Additional information regarding transactions occurring during 2012:
1. Sports Supply, Inc., issued $70,000 of bonds during 2012. The bonds were issued at face
value. All bonds retired were retired at face value.
2. Common stock did not have a par value.
3. Sports Supply, Inc., uses the cost method to account for treasury stock. Sports Supply, Inc.,
did not resell any treasury stock in 2012.
4. The amount of net income shown on the 2012 income statement was $36,000.
Required
a. Determine the amount of cash l ow for the retirement of bonds that should appear on the
2012 statement of cash l ows.
b. Determine the amount of cash l ow from the issue of common stock that should appear on
the 2012 statement of cash l ows.
c. Determine the amount of cash l ow for the purchase of treasury stock that should appear on the 2012 statement of cash l ows.
d. Determine the amount of cash l ow for the payment of dividends that should appear on the
2012 statement of cash l ows.
e. Prepare the i nancing activities section of the 2012 statement of cash l ows.
Problem 14-17B
Preparing a statement of cash flows
The following information can be obtained by examining a company’s balance sheet and income statement information.
a. Gains recognized on the sale of noncurrent assets.
b. Cash outl ows to pay dividends.
c. Cash inl ows from the issue of common stock.
d. Cash inl ows from the sale of noncurrent assets.
e. Increases in current liability account balances.
f. Cash inl ows from the issue of noncurrent debt.
g. Losses incurred from the sale of noncurrent assets.
h. Decreases in noncash current asset account balances.
i. Cash outl ows to repay noncurrent debt.
j. Increases in noncash current asset account balances.
k. Cash outl ows made to purchase noncurrent assets.
l. Decreases in current liability account balances.
m. Noncash expenses (e.g., depreciation).
n. Cash outl ows to purchase treasury stock.
Required
Construct a table like the one shown below. For each item, indicate whether it would be used in the computation of net cash flows from operating, investing, or financing activities. Also, indicate whether the item would be added or subtracted when determining the net cash flow from operating, investing, or financing activities. Assume the indirect method is used to prepare the operating activities section of the statement of cash flows. The first item has been completed as an example.
LO 1, 3, 4
Item Type of Activity Add or Subtract
a. Operating Subtract
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
Problem 14-18B
Using financial statements to prepare a statement of cash flows—
Indirect method
The following financial statements were drawn from the records of Healthy Products Co.
LO 1, 3, 4
Balance Sheets As of December 31
2012 2011
Assets
Cash $16,120 $ 1,940
Accounts receivable 2,400 2,000
Inventory 2,000 2,600
Equipment 13,700 17,100
Accumulated depreciation—equipment (11,300) (12,950)
Land 13,000 8,000
Total assets $35,920 $18,690
Liabilities and stockholders’ equity
Accounts payable (inventory) $ 3,600 $ 2,400
Long-term debt 3,200 4,000
Common stock 17,000 10,000
Retained earnings 12,120 2,290
Total liabilities and stockholders’ equity $35,920 $18,690
Income Statement
For the Year Ended December 31, 2012
Sales revenue $17,480
Cost of goods sold (6,200)
Gross margin 11,280
Depreciation expense (1,750)
Operating income 9,530
Gain on sale of equipment 1,800 Loss on disposal of land (600)
Net income $10,730
Additional Data
1. During 2012, the company sold equipment for $6,800; it had originally cost $8,400. Accumu-
lated depreciation on this equipment was $3,400 at the time of the sale. Also, the company purchased equipment for $5,000 cash.
2. The company sold land that had cost $2,000. This land was sold for $1,400, resulting in the
recognition of a $600 loss. Also, common stock was issued in exchange for title to land that was valued at $7,000 at the time of exchange.
3. Paid dividends of $900.
Required
Prepare a statement of cash flows using the indirect method.
Problem 14-19B
Using financial statements to prepare a statement of cash flows—
Indirect method
The comparative balance sheets and an income statement for Lind Beauty Products, Inc., are shown on the next page.
LO 1, 3, 4
Balance Sheets As of December 31
2012 2011
Assets
Cash $ 6,300 $ 48,400
Accounts receivable 10,200 7,260 Merchandise inventory 45,200 56,000
Prepaid rent 700 2,140
Equipment 140,000 144,000
Accumulated depreciation (73,400) (118,000)
Land 116,000 50,000
Total assets $245,000 $189,800
Liabilities and equity
Accounts payable (inventory) $ 37,200 $ 40,000
Salaries payable 12,200 10,600
Stockholders’ equity
Common stock, $50 par value 150,000 120,000
Retained earnings 45,600 19,200
Total liabilities and equity $245,000 $189,800
Income Statement
For the Year Ended December 31, 2012 Sales $480,000 Cost of goods sold (264,000)
Gross profit 216,000
Operating expenses
Depreciation expense (11,400)
Rent expense (7,000)
Salaries expense (95,200)
Other operating expenses (76,000)
Net income $ 26,400
Other Information
1. Purchased land for $66,000.
2. Purchased new equipment for $62,000.
3. Sold old equipment that cost $66,000 with accumulated depreciation of $56,000 for
$10,000 cash.
4. Issued common stock for $30,000.
Required
Prepare the statement of cash flows for 2012 using the indirect method.
Problem 14-20B
Using transaction data to prepare a statement of cash flows—
Direct method
Greenstein Company engaged in the following transactions during 2012. The beginning cash balance was $86,000 and ending cash balance was $123,100.
1. Sales on account were $548,000. The beginning Accounts Receivable balance was $128,000
and the ending balance was $90,000.
2. Salaries expense was $232,000. The beginning Salaries Payable balance was $16,000 and the
ending balance was $8,000.
3. Other operating expenses were $236,000. The beginning Other Operating Expenses Payable
balance was $16,000 and the ending balance was $10,000.
4. Recorded $30,000 of depreciation expense. The beginning and ending balances in the
Accumulated Depreciation account were $12,000 and $42,000, respectively.
LO 2, 3, 4