Exam 16: Reporting the Statement of Cash Flows

Mercury Company reports depreciation expense of $40,000 for Year 2. Also, equipment costing $150,000 was sold for its book value in Year 2. There were no other equipment purchases or sales during the year. The following selected information is available for Mercury Company from its comparative balance sheet. Compute the cash received from the sale of the equipment. At December 31 Year 2 Year 1 Equipment \ 600,000 \ 750,000 Accumulated Depreciation-Equipment 428,000 500,000

Northington, Inc. is preparing the company's statement of cash flows for the fiscal year just ended. Using the following information, determine the amount of cash flows from operating activities using the indirect method: Net income \ 182,000 Gain on the sale of equipment 12,300 Proceeds from the sale of equipment 92,300 Depreciation expense - equipment 50,000 Payment of bonds at maturity 100,000 Purchase of land 200,000 Issuance of common stock 300,000 Increase in merchandise inventory 35,400 Decrease in accounts receivable 28,800 Increase in accounts payable 23,700 Payment of cash dividends 32,000

A company had net cash flows from operations of $341,000, net income of $286,000 and average total assets of $1,850,000. The cash flow on total assets ratio equals:

Rowan, Inc.'s, income statement is shown below. Based on this income statement and the other information provided, calculate the net cash provided by operations using the indirect method. Rowan, Inc. Income Statement For Year Ended December 31, 20X1 Sales \ 248,000 Cost of goods sold 116,000 Grost profit \ 132,000 Operating expenses Wages and salaries expense \ 44,000 Rent expense 16,000 Depreciation expense 30,000 Other operating expenses 18,000 Income from operations \ 24,000 Gain on sale of equipment \ 26,000 Income before income taxes \ 50,000 Income taxes expense \ 17,500 Net income \ 32,500 Additional information: Increase in accounts receivable \ 4,000 Increase in accounts payable 16,000 Increase in income taxes payable 300 Decrease in prepaid expenses 10,000 Decrease in merchandise inventory 14,000 Decrease in long-term notes payable 20,000

Explain how the cash flows from operating activities section of the statement of cash flows is prepared using the indirect method.

Noncash investing and financing activities may be disclosed in:

A company had average total assets of $3,216,000, total cash flows of $1,320,000, cash flows from operations of $554,000, and cash flows for plant assets of $850,000. The cash flow on total assets ratio equals:

Fernwood Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available: Retained earnings balance at the beginning of the year \2 33,000 Cash dividends declared for the year 50,000 Proceeds from the sale of equipment 85,000 Gain on the sale of equipment 4,500 Cash dividends payable at the beginning of the year 22,000 Cash dividends payable at the end of the year 30,000 Net income for the year 110,000 The amounc of cash paid for dividends was:

The following information is available for the Brookstone Company: Brookstone Company Balance Sheets At December 31 Brookstone Company Income Statement For Year Ended December 31, 20X2 Sales \ 288,000 Cost of goods sold \ 97,080 Depreciation expense 35,280 Other operating expenses 57,600 Interest expense 2,400 (192,360 Other gains (losses): Loss on sale of equipment (10,080) Income before taxes 85,560 Income taxes expense 33,180 Net income \ 52,180 Additional information: (1) There was no gain or loss on the sales of the long-term investments, nor on the bonds retired. (2) Old machinery with an original cost of $45,060 was sold for $2,520 cash. (3) New machinery was purchased for $81,060 cash. (4) Cash dividends of $40,320 were paid. (5) Additional shares of stock were issued for cash. Prepare a complete statement of cash flows for calendar-year 20X2 using the indirect method.

Use the following information about the current year's operations of a company to calculate the cash paid for merchandise. Cost d goods sold \ldots\ldots\ldots\ldots\ldots\ldots\ldots\ldots\ldots\ldots \ 500,000 Merchandise inventory. January 1\ldots\ldots\ldots\ldots\ldots\ldots 85,000 Mer chandise inventory. December 31\ldots\ldots\ldots\ldots\ldots 97,000 Accounts payable, January 1\ldots\ldots\ldots\ldots\ldots\ldots\ldots\ldots 68,000 Accounts payable, December 31\ldots\ldots\ldots\ldots\ldots\ldots 60,000

The indirect method for computing and reporting net cash flows from operating activities involves adjusting the net income figure to obtain net cash provided or used by operating activities.

A company had average total assets of $1,660,000, total cash flows of $1,320,000, cash flows from operations of $205,000, and cash flows from financing of $750,000. The cash flow on total assets ratio equals:

Explain how cash flows from investing and financing activities are determined.

An example of a transaction that must be disclosed as a noncash investing and financing activity includes all but which of the following?

Use the following financial statements and additional information to (1) prepare a complete statement of cash flows for the year ended December 31, 20X2. The cash provided or used by operating activities should be reported using the direct method, and (2) compute the company's cash flow on total assets ratio for 20X2. Derby CompanyBalance Sheet sAt December 31 202 201 Assets: Cash \ 85,600 \ 65,200 Accounts receivable, net 72,850 56,750 Merchandise inventory 157,750 144,850 $\begin{array}{c}\text {Derby Company}\\\text {Income Statement}\\\text {For Year Ended December 31, 20X2}\\\begin{array}{l|l|l}\hline \text { Sales } & & \$ 488,000 \\\hline \text { Cost of goods sold } & \$ 212,540 & \\\hline \text { Depreciation expense } & 43,000 & \\\hline \text { Other operating expenses } & 106,260 & \\\hline \text { Interest expense } & 6,400 & (368,200\\\hline \text { Other gains (losses): } & \\\hline \text { Gain on sale of equipment } && 4,700 \\\hline \text { Income before taxes } && 124,500 \\\hline \text { Income taxes expense } && 41,100 \\\hline \text { Net income } && \begin{array}{l} \underline{\$} \\\underline{83}, 400 \\\end{array} \\\hline\end{array}\end{array}$ Additional Information a.A $20,000 note payable is retired at its carrying value in exchange for cash. b.The only changes affecting retained earnings are net income and cash dividends paid. c.New equipment is acquired for $120,000 cash. d.Received cash for the sale of equipment that had cost $85,000, yielding a gain of $4,700. e.Prepaid expenses relate to Other Expenses on the income statement. f.All purchases and sales of merchandise inventory are on credit.

A cash equivalent must be readily convertible to a known amount of cash, and must be sufficiently close to its maturity so its market value is unaffected by interest rate changes.

The payment of cash dividends never changes the balance of retained earnings.

The statement of cash flows reports all but which of the following:

For each of the following separate cases, use the information provided to calculate the missing cash inflow or cash outflow using the direct method. (a) Accounts receivable balances: Beginning of year \ldots\ldots\ldots\ldots\ldots\ldots\ldots\ldots\ldots \ 60,000 End of year \ldots\ldots\ldots\ldots\ldots\ldots\ldots\ldots\ldots\ldots 63,000 Sales revenue (all on credit) \ldots\ldots\ldots\ldots\ldots\ldots 395,000 Cash received from customers underline (b) Accounts payable balances: Beginning of year \ 42,000 End of year 31,000 Merchandise inventory balances: Beginning of year 50,000 End of year 52,500 Cost of goods sold. 250,000 Cash \ (c) Interest payable balances: Beginning of year \ 7,500 End of year 8,200 Interest expense 31,000 Cash paid for interest \

Investing activities include receiving cash dividends from investments in other companies' stocks.