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CHAPTER 23
STATEMENT OF CASH FLOWS
IFRS questions are available at the end of this chapter.
TRUE-FALSE
—
Conceptual
Answer
No.
Description
F
1.
Primary purpose of the statement of cash flows.
T
2.
Information provided by statement of cash flows.
T
3.
Classification of operating activities.
F
4.
First step in cash flow statement preparation.
T
5.
Reconciling beginning and ending cash balances.
F
6.
Net income and net cash flow from operating activities.
T
7.
Converting net income to net cash flow from operating activities.
F
8.
Reporting cash receipts/disbursements in direct method.
T
9.
Indirect method adjustments.
F
10.
FASB’s recommended method.
T
11.
Decrease in accounts receivable and cash-basis revenues.
F
12.
Decrease in prepaid expenses.
F
13.
Income from equity method investment.
T
14.
Computing cash receipts from customers.
F
15.
Computing cash payments for operating expenses.
F
16.
Amortization of bond premium.
T
17.
Purchases and sales of trading securities.
T
18.
Disclosing noncash investing and financing activities.
F
19.
Use of cash flow worksheet.
T
20.
Reporting stock dividends on worksheet.
MULTIPLE CHOICE
—
Conceptual
Answer
No.
Description
c
21.
Objective of the statement of cash flows.
c
22.
Primary purpose of the statement of cash flows.
c
S
23.
Answers provided by the statement of cash flows.
b
S
24.
First step in cash flow statement preparation.
d
25.
Definition of cash equivalents.
d
26.
Cash flow effect of a short-term nontrade note payable.
c
S
27.
Reporting revenues and expenses on a cash basis.
b
28.
The effect of an inventory increase on cash flows from operating activities.
b
29.
Cash flow effects of a stock dividend.
b
30.
Effect of a change in dividends payable.
d
31.
Effect of cash dividend declaration on operating cash flows.
c
32.
Cash flow effects of major repairs on machinery.
c
P
33.
Classifying items as investing activities.
b
P
34.
Classification of a financing activity.
b
S
35.
Reporting amortization of bond premium.
c
S
36.
Converting accrual based expense to cash basis.
b
37.
Adjustment to income for inventory increase.
c
38.
Adjustment under the direct and indirect methods.
c
39.
Adjustment to cost of goods sold under the direct method.
Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 2
MULTIPLE CHOICE
—
Conceptual
(cont.)
Answer
No.
Description
a
40.
Adjustment for an increase in accounts payable.
a
41.
Adjustment for a decrease in prepaid insurance.
b
42.
Direct method vs. indirect method.
c
43.
Direct method vs. indirect method.
c
44.
Addition to net income under indirect method.
b
45.
Deduction from net income under indirect method.
b
46.
Statement of cash flows information.
d
47.
Adjustment for equity method investment income.
a
48.
Reporting extraordinary transactions.
d
49.
Events not shown on statement of cash flows.
c
S
50.
Reporting significant noncash transactions.
P
These questions also appear in the Problem-Solving Survival Guide.
S
These questions also appear in the Study Guide.
MULTIPLE CHOICE
—
Computational
Answer
No.
Description
b
51.
Determine net cash flow from investing activities.
b
52.
Determine net cash flow from financing activities.
c
53.
Determine net cash flow from operating activities.
d
54.
Determine net cash flow from investing activities.
c
55.
Determine net cash flow from financing activities.
a
56.
Determine cash flows from investing activities.
d
57.
Determine cash flows from financing activities.
a
58.
Determine net cash flow from operating activities.
c
59.
Determine net cash flow from investing activities.
b
60.
Determine cash received from customers (direct method).
d
61.
Determine taxes paid (direct method).
c
62.
Determine net cash flow from financing activities.
c
63.
Compute net cash used in financing activities.
c
64.
Sale of fixed assets at a gain/cash flow effects.
b
65.
Analysis of plant asset account/cash flow presentation.
c
66.
Sale of equipment at a gain/cash flow effects.
c
67.
Determine depreciation expense for the year.
b
68.
Determine depreciation expense for the year.
a
69.
Calculate equipment purchased during the year.
c
70.
Calculate cost of equipment sold.
a
71.
Determine book value of equipment at end of year.
b
72.
Determine ending balance of accounts payable.
c
73.
Determine ending balance of retained earnings.
d
74.
Determine ending balance of capital stock.
b
75.
Determine the amount of a cash dividend.
d
76.
Reporting a stock dividend.
c
77.
Compute proceeds from issuance of bonds payable.
a
78.
Compute net cash provided by operating activities.
a
79.
Determine net income for period.
a
80.
Compute net cash provided by operating activities.
a
81.
Compute net cash provided by operating activities.
Statement of Cash Flows
23 - 3
MULTIPLE CHOICE
—
Computational
(cont.)
Answer
No.
Description
a
82.
Compute cash flow from investing activities.
c
83.
Compute cash flow from financing activities.
d
84.
Compute cash provided by operating activities.
c
85.
Compute cash provided by investing activities.
a
86.
Compute cash used by financing activities.
a
87.
Compute net cash provided by operating activities.
a
88.
Compute net cash provided by operating activities.
d
89.
Determine net income for period.
c
90.
Compute cash payments for operating expenses.
a
91.
Compute cash payments to suppliers.
c
92.
Compute cash collections from customers.
a
93.
Compute cash payments to suppliers.
c
94.
Determine cash collected from accounts receivable.
b
95.
Determine cash paid on accounts payable to suppliers.
d
96.
Compute net cash provided by investing activities.
a
97.
Compute net cash provided by financing activities.
b
98.
Compute net cash flow from investing activities.
d
99.
Compute net cash flow from financing activities.
b
100.
Determine net income for period.
a
101.
Adjust net income for bad debt provision.
c
102.
Reporting insurance proceeds from a flood loss.
b
103.
Reporting a flood loss.
c
104.
Determine net cash flow from operating activities.
b
105.
Determine net cash flow from operating activities.
MULTIPLE CHOICE
—
CPA Adapted
Answer
No.
Description
a
106.
Determine cash flow from investing activities.
c
107.
Determine cash flow from financing activities.
c
108.
Determine net cash used in investing activities.
b
109.
Determine net cash used in financing activities.
b
110.
Determine net cash provided by investing activities.
b
111.
Determine net cash provided by financing activities.
c
112.
Determine net cash provided by operating activities.
a
113.
Determine net cash used by investing activities.
a
114.
Determine net cash provided by financing activities.
c
115.
Determine depreciation charged to operations.
b
116.
Cash disbursements for insurance (direct method).
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Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 4
EXERCISES
Item
Description
E23-117
Direct and indirect methods (essay).
E23-118
Classification of cash flows.
E23-119
Classification of cash flows and transactions.
E23-120
Effects of transactions on statement of cash flows.
E23-121
Effects of transactions on statement of cash flows.
E23-122
Effects of transactions on statement of cash flows.
E23-123
Calculations for statement of cash flows.
E23-124
Calculations for statement of cash flows.
E23-125
Cash flows from operating activities (direct/indirect).
E23-126
Statement of cash flows (indirect method).
E23-127
Preparation of statement of cash flows (format provided).
PROBLEMS
Item
Description
P23-128
Statement of cash flows (indirect method).
P23-129
Statement of cash flows (direct/indirect).
P23-130
A complex statement of cash flows (indirect method).
CHAPTER LEARNING OBJECTIVES
1.
Describe the purpose of the statement of cash flows.
2.
Identify the major classifications of cash flows.
3.
Differentiate between net income and net cash flows from operating activities.
4.
Contrast the direct and indirect methods of calculating net cash flow from operating
activities.
5.
Determine net cash flows from investing and financing activities.
6.
Prepare a statement of cash flows.
7.
Identify sources of information for a statement of cash flows.
8.
Discuss special problems in preparing a statement of cash flows.
9.
Explain the use of a worksheet in preparing a statement of cash flows.
Statement of Cash Flows
23 - 5
SUMMARY OF LEARNING OBJECTIVES BY QUESTIONS
Item
Type
Item
Type
Item
Type
Item
Type
Item
Type
Item
Type
Item
Type
Learning Objective 1
1.
TF
2.
TF
21.
MC
22.
MC
S
23.
MC
Learning Objective 2
3.
TF
4.
TF
5.
TF
S
24.
MC
25.
MC
26.
MC
117.
E
Learning Objective 3
6.
TF
7.
TF
S
27.
MC
Learning Objective 4
8.
TF
9.
MC
28.
MC
29.
MC
30.
MC
31.
MC
117.
E
Learning Objective 5
32.
MC
55.
MC
62.
MC
108.
MC
113.
MC
120.
E
51.
MC
56.
MC
63.
MC
109.
MC
114.
E
121.
E
52.
MC
57.
MC
106.
MC
110.
MC
118.
E
122.
E
53.
MC
59.
MC
107.
MC
111.
MC
119.
E
Learning Objective 6
10.
TF
58.
MC
68.
MC
75.
MC
82.
MC
89.
MC
124.
E
11.
TF
60.
MC
69.
MC
76.
MC
83.
MC
112.
MC
125.
E
12.
TF
61.
MC
70.
MC
77.
MC
84.
MC
115.
MC
126.
E
P
33.
MC
64.
MC
71.
MC
78.
MC
85.
MC
116.
MC
127.
E
P
34.
MC
65.
MC
72.
MC
79.
MC
86.
MC
121.
E
128.
P
S
35.
MC
66.
MC
73.
MC
80.
MC
87.
MC
122.
E
129.
P
S
36.
MC
67.
MC
74.
MC
81.
MC
88.
MC
123.
E
130.
P
Learning Objective 7
13.
TF
38.
MC
42.
MC
46.
MC
93.
MC
97.
MC
14.
TF
39.
MC
43.
MC
90.
MC
94.
MC
118.
E
15.
TF
40.
MC
44.
MC
91.
MC
95.
MC
120.
E
37.
MC
41.
MC
45.
MC
92.
MC
96.
MC
Learning Objective 8
16.
TF
48.
MC
98.
MC
103.
MC
120.
E
127.
E
17.
TF
49.
MC
99.
MC
104.
MC
121.
E
128.
P
18.
MC
S
50.
MC
100.
MC
105.
MC
122.
E
129.
P
30.
MC
53.
MC
101.
MC
118.
E
125.
E
130.
P
47.
MC
76.
MC
102.
MC
119.
E
126.
E
Learning Objective 9
19.
TF
20.
TF
Note:
TF = True-False
MC = Multiple Choice
E = Exercise
P = Problem
Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 6
TRUE FALSE
—
Conceptual
1.
The primary purpose of the statement of cash flows is to provide cash-basis information
about the company’s operating, investing, and financing activities.
2.
The statement of cash flows provides information to help investors and creditors assess
the cash and noncash investing and financing transactions during the period.
3.
Companies classify some cash flows relating to investing or financing activities as
operating activities.
4.
The first step in the preparation of the statement of cash flows is to determine the net cash
flow from operating activities.
5.
The net increase (decrease) in cash reported on the statement of cash flows should
reconcile the beginning and ending cash balances reported in the comparative balance
sheets.
6.
Under the accrual basis of accounting, net income is usually the same as net cash flow
from operating activities.
7.
A company can convert net income to net cash flow from operating activities through
either the direct method or the indirect method.
8.
The direct method, also called the reconciliation method, reports cash receipts and cash
disbursements from operating activities.
9.
The indirect method adjusts net income for items that affected reported net income but did
not affect cash.
10.
The FASB encourages the use of the indirect method over the direct method.
11.
When accounts receivable decrease during a period, cash-basis revenues are higher than
revenues reported on an accrual basis.
12.
When prepaid expenses decrease during a period, expenses on the accrual-basis are
lower than they are on a cash-basis.
13.
Income from an investment in common stock using the equity method is added to net
income in computing net cash provided from operating activities.
14.
Cash receipts from customers are computed by adding a decrease in accounts receivable
to revenue from sales.
15.
Cash payments for operating expenses are computed by subtracting an increase in
prepaid expenses and a decrease in accrued expenses payable from operating expenses.
16.
A company should add back bond premium amortization to net income to arrive at net
cash flow from operating activities.
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Statement of Cash Flows
23 - 7
17.
Companies report the cash flows from purchases and sales of trading securities as cash
flows from operating activities.
18.
Noncash investing and financing activities are disclosed either in a separate schedule or
in a separate note to the financial statements.
19.
When numerous adjustments are necessary, companies often use a cash flow worksheet
instead of preparing a statement of cash flows.
20.
The issuance of stock dividends is entered on the cash flow worksheet, but is not reported
in the statement of cash flows.
True-False Answers
—
Conceptual
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
1.
F
6.
F
11.
T
16.
F
2.
T
7.
T
12.
F
17.
T
3.
T
8.
F
13.
F
18.
T
4.
F
9.
T
14.
T
19.
F
5.
T
10.
F
15.
F
20.
T
MULTIPLE CHOICE
—
Conceptual
21.
It is an objective of the statement of cash flows to
a.
disclose changes during the period in all asset and all equity accounts.
b.
disclose the change in working capital during the period.
c.
provide information about the operating, investing, and financing activities of an entity
during a period.
d. none of these.
22.
The primary purpose of the statement of cash flows is to provide information
a.
about the operating, investing, and financing activities of an entity during a period.
b.
that is useful in assessing cash flow prospects.
c.
about the cash receipts and cash payments of an entity during a period.
d. about the entity's ability to meet its obligations, its ability to pay dividends, and its
needs for external financing.
S
23.
Of the following questions, which one would not be answered by the statement of cash
flows?
a.
Where did the cash come from during the period?
b.
What was the cash used for during the period?
c.
Were all the cash expenditures of benefit to the company during the period?
d.
What was the change in the cash balance during the period?
S
24.
The first step in the preparation of the statement of cash flows requires the use of
information included in which comparative financial statements?
a. Statements of cash flows
b. Balance sheets
c. Income statements
d. Statements of retained earnings
Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 8
25.
Cash equivalents are
a. treasury bills, commercial paper, and money market funds purchased with excess
cash.
b.
investments with original maturities of three months or less.
c.
readily convertible into known amounts of cash.
d. all of these.
26.
A company borrows $10,000 and signs a 90-day nontrade note payable. In preparing a
statement of cash flows (indirect method), this event would be reflected as a(n)
a.
addition adjustment to net income in the cash flows from operating activities section.
b. cash outflow from investing activities.
c.
cash inflow from investing activities.
d. cash inflow from financing activities.
S
27.
To arrive at net cash provided by operating activities, it is necessary to report revenues
and expenses on a cash basis. This is done by
a. re-recording all income statement transactions that directly affect cash in a separate
cash flow journal.
b. estimating the percentage of income statement transactions that were originally
reported on a cash basis and projecting this amount to the entire array of income
statement transactions.
c. eliminating the effects of income statement transactions that did not result in a
corresponding increase or decrease in cash.
d. eliminating all transactions that have no current or future effect on cash, such as
depreciation, from the net income computation.
28.
An increase in inventory balance would be reported in a statement of cash flows using the
indirect method (reconciliation method) as a(n)
a.
addition to net income in arriving at net cash flow from operating activities.
b.
deduction from net income in arriving at net cash flow from operating activities.
c.
cash outflow from investing activities.
d. cash outflow from financing activities.
29.
A statement of cash flows typically would
not
disclose the effects of
a.
capital stock issued at an amount greater than par value.
b. stock dividends declared.
c. cash dividends paid.
d.
a purchase and immediate retirement of treasury stock.
30.
When preparing a statement of cash flows (indirect method), which of the following is
not
an adjustment to reconcile net income to net cash provided by operating activities?
a. A change in interest payable
b. A change in dividends payable
c.
A change in income taxes payable
d. All of these are adjustments.
Statement of Cash Flows
23 - 9
31.
Declaration of a cash dividend on common stock affects cash flows from operating
activities under the direct and indirect methods as follows:
Direct Method
Indirect Method
a.
Outflow
Inflow
b.
Inflow
Inflow
c.
Outflow
Outflow
d.
No effect
No effect
32.
In a statement of cash flows, the cash flows from investing activities section should report
a.
the issuance of common stock in exchange for a factory building.
b. stock dividends received.
c.
a major repair to machinery charged to accumulated depreciation.
d. the assignment of accounts receivable.
P
33.
Xanthe Corporation had the following transactions occur in the current year:
1.
Cash sale of merchandise inventory.
2.
Sale of delivery truck at book value.
3.
Sale of Xanthe common stock for cash.
4.
Issuance of a note payable to a bank for cash.
5.
Sale of a security held as an available-for-sale investment.
6.
Collection of loan receivable.
How many of the above items will appear as a cash inflow from investing activities on a
statement of cash flows for the current year?
a. Five items
b. Four items
c. Three items
d. Two items
P
34.
Which of the following would be classified as a financing activity on a statement of cash
flows?
a.
Declaration and distribution of a stock dividend
b.
Deposit to a bond sinking fund
c.
Sale of a loan receivable
d.
Payment of interest to a creditor
S
35.
The amortization of bond premium on long-term debt should be presented in a statement
of cash flows (using the indirect method for operating activities) as a(n)
a. addition to net income.
b. deduction from net income.
c. investing activity.
d. financing activity.
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Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 10
S
36.
Crabbe Company reported $80,000 of selling and administrative expenses on its income
statement for the past year. The company had depreciation expense and an increase in
prepaid expenses associated with the selling and administrative expenses for the year.
Assuming use of the direct method, how would these items be handled in converting the
accrual based selling and administrative expenses to the cash basis?
Increase in
Depreciation
Prepaid Expenses
a.
Deducted From
Deducted From
b.
Added To
Added To
c.
Deducted From
Added To
d.
Added To
Deducted From
37.
When preparing a statement of cash flows (indirect method), an increase in ending
inventory over beginning inventory will result in an adjustment to reported net earnings
because
a.
cash was increased while cost of goods sold was decreased.
b.
cost of goods sold on an accrual basis is lower than on a cash basis.
c.
acquisition of inventory is an investment activity.
d. inventory purchased during the period was less than inventory sold resulting in a net
cash increase.
38.
When preparing a statement of cash flows, a decrease in accounts receivable during a
period would cause which one of the following adjustments in determining cash flow from
operating activities?
Direct Method
Indirect Method
a.
Increase
Decrease
b.
Decrease
Increase
c.
Increase
Increase
d.
Decrease
Decrease
39.
In determining net cash flow from operating activities, a decrease in accounts payable
during a period
a.
means that income on an accrual basis is less than income on a cash basis.
b.
requires an addition adjustment to net income under the indirect method.
c.
requires an increase adjustment to cost of goods sold under the direct method.
d.
requires a decrease adjustment to cost of goods sold under the direct method.
40.
When preparing a statement of cash flows, an increase in accounts payable during a
period would require which of the following adjustments in determining cash flows from
operating activities?
Indirect Method
Direct Method
a.
Increase
Decrease
b.
Decrease
Increase
c.
Increase
Increase
d.
Decrease
Decrease
Statement of Cash Flows
23 - 11
41.
When preparing a statement of cash flows, a decrease in prepaid insurance during a
period would require which of the following adjustments in determining cash flows from
operating activities?
Indirect Method
Direct Method
a.
Increase
Decrease
b.
Decrease
Increase
c.
Increase
Increase
d.
Decrease
Decrease
42.
When preparing a statement of cash flows, the following are used for which method in
determining cash flows from operating activities?
Gross Accounts Receivable
Net Accounts Receivable
a.
Indirect
Direct
b.
Direct
Indirect
c.
Direct
Direct
d.
Neither
Indirect
43.
Which of the following statements is correct?
a.
The indirect method starts with income before extraordinary items.
b.
The direct method is known as the reconciliation method.
c. The direct method is more consistent with the primary purpose of the statement of
cash flows.
d. All of these.
44.
When using the indirect method to prepare the operating section of a statement of cash
flows, which of the following is added to net income to compute cash provided by/used by
operating activities?
a. Increase in accounts receivable.
b. Gain on sale of land.
c. Amortization of patent.
d. All of the above are added to net income to arrive at cash flow from operating
activities.
45.
When using the indirect method to prepare the operating section of a statement of cash
flows, which of the following is deducted from net income to compute cash provided
by/used by operating activities?
a. Decrease in accounts receivable.
b. Gain on sale of land.
c. Amortization of patent.
d. All of the above are deducted from net income to arrive at cash flow from operating
activities.
46.
Which of the following is false concerning the statement of cash flows?
a. When pension expense exceeds cash funding, the difference is deducted from
investing activities on the statement of cash flows.
b. The FASB requires companies to classify all income taxes paid as operating cash
outflows.
c. Under U.S. GAAP, the purchase of land by issuing stock will be shown as a cash
outflow under investing activities and a cash inflow under financing activities.
d.
All of the above are true concerning the statement of cash flows.
Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 12
47.
Dolan Company reports its income from investments under the equity method and
recognized income of $25,000 from its investment in Moss Co. during the current year,
even though no dividends were declared or paid by Moss during the year. On Dolan's
statement of cash flows (indirect method), the $25,000 should
a. not be shown.
b.
be shown as cash inflow from investing activities.
c.
be shown as cash outflow from financing activities.
d. be shown as a deduction from net income in the cash flows from operating activities
section.
48.
In reporting extraordinary transactions on a statement of cash flows (indirect method), the
a.
gross amount of an extraordinary gain should be deducted from net income.
b.
net of tax amount of an extraordinary gain should be added to net income.
c.
net of tax amount of an extraordinary gain should be deducted from net income.
d.
gross amount of an extraordinary gain should be added to net income.
49.
Which of the following is shown on a statement of cash flows?
a. A stock dividend
b. A stock split
c.
An appropriation of retained earnings
d. None of these
S
50.
How should significant noncash transactions be reported in the statement of cash flows
according to
FASB Statement
No. 95
?
a. They should be incorporated in the statement of cash flows in a section labeled,
"Significant Noncash Transactions."
b. Such transactions should be incorporated in the section (operating, financing, or
investing) that is most representative of the major component of the transaction.
c.
These noncash transactions are not to be incorporated in the statement of cash flows.
They may be summarized in a separate schedule at the bottom of the statement or
appear in a separate supplementary schedule to the financials.
d.
They should be handled in a manner consistent with the transactions that affect cash
flows.
Multiple Choice Answers
—
Conceptual
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
21.
c
26.
d
31.
d
36.
c
41.
a
46.
b
22.
c
27.
c
32.
c
37.
b
42.
b
47.
d
23.
c
28.
b
33.
c
38.
c
43.
c
48.
a
24.
b
29.
b
34.
b
39.
c
44.
c
49.
d
25.
d
30.
b
35.
b
40.
a
45.
b
50.
c
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Statement of Cash Flows
23 - 13
MULTIPLE CHOICE
—
Computational
Use the following information for questions 51 and 52.
Napier Co. provided the following information on selected transactions during 2013:
Purchase of land by issuing bonds
$500,000
Proceeds from issuing bonds
1,000,000
Purchases of inventory
1,900,000
Purchases of treasury stock
300,000
Loans made to affiliated corporations
700,000
Dividends paid to preferred stockholders
200,000
Proceeds from issuing preferred stock
800,000
Proceeds from sale of equipment
100,000
51.
The net cash provided (used) by investing activities during 2013 is
a. $100,000.
b. $(600,000).
c. $(1,100,000).
d. $(2,500,000).
52.
The net cash provided by financing activities during 2013 is
a. $1,100,000.
b. $1,300,000.
c. $1,600,000.
d. $1,800,000.
Use the following information for questions 53 through 55.
The balance sheet data of Kohler Company at the end of 2013 and 2012 follow:
2013
2012
Cash
$ 100,000
$ 140,000
Accounts receivable (net)
240,000
180,000
Merchandise inventory
280,000
180,000
Prepaid expenses
40,000
100,000
Buildings and equipment
360,000
300,000
Accumulated depreciation
—
buildings and equipment
(72,000)
(32,000)
Land
360,000
160,000
Totals
$1,308,000
$1,028,000
Accounts payable
$272,000
$220,000
Accrued expenses
48,000
72,000
Notes payable
—
bank, long-term
160,000
Mortgage payable
120,000
Common stock, $10 par
936,000
636,000
Retained earnings (deficit)
32,000
(60,000)
$1,308,000
$1,028,000
Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 14
Land was acquired for $200,000 in exchange for common stock, par $200,000, during the year;
all equipment purchased was for cash. Equipment costing $20,000 was sold for $8,000; book
value of the equipment was $16,000 and the loss was reported as an ordinary item in net income.
Cash dividends of $40,000 were charged to retained earnings and paid during the year; the
transfer of net income to retained earnings was the only other entry in the Retained Earnings
account. In the statement of cash flows for the year ended December 31, 2013, for Naley
Company:
53.
The net cash provided by operating activities was
a. $104,000.
b. $132,000.
c. $112,000.
d. $96,000.
54.
The net cash provided (used) by investing activities was
a. $52,000.
b. $(80,000).
c. $(272,000).
d. $(72,000).
55.
The net cash provided (used) by financing activities was
a. $ -0-.
b. $(40,000).
c. $(80,000).
d. $120,000.
56.
The following information on selected cash transactions for 2013 has been provided by
Mancuso Company:
Proceeds from sale of land
$190,000
Proceeds from long-term borrowings
400,000
Purchases of plant assets
144,000
Purchases of inventories
680,000
Proceeds from sale of Mancuso common stock
240,000
What is the cash provided (used) by investing activities for the year ended December 31,
2013, as a result of the above information?
a. $46,000
b. $256,000.
c. $190,000.
d. $830,000.
57.
Selected information from Dinkel Company's 2013 accounting records is as follows:
Proceeds from issuance of common stock
$
600,000
Proceeds from issuance of bonds
1,800,000
Cash dividends on common stock paid
240,000
Cash dividends on preferred stock paid
90,000
Purchases of treasury stock
180,000
Sale of stock to officers and employees not included above
150,000
Statement of Cash Flows
23 - 15
Dinkel's statement of cash flows for the year ended December 31, 2013, would show net
cash provided (used) by financing activities of
a. $90,000.
b. $(330,000).
c. $240,000.
d. $2,040,000.
Use the following information for questions 58 through 62.
Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA.
One statement that the enterprise is anxious to have prepared is a statement of cash flows.
Financial statements of Harlan Mining Co. for 2013 and 2012 are provided below.
BALANCE SHEETS
12/31/13
12/31/12
Cash
$306,000
$ 144,000
Accounts receivable
270,000
162,000
Merchandise inventory
288,000
360,000
Property, plant and equipment
$456,000
$720,000
Less accumulated depreciation
(240,000)
216,000
(228,000)
492,000
$1,080,000
$1,158,000
Accounts payable
$ 132,000
$
72,000
Income taxes payable
264,000
294,000
Bonds payable
270,000
450,000
Common stock
162,000
162,000
Retained earnings
252,000
180,000
$1,080,000
$1,158,000
INCOME STATEMENT
For the Year Ended December 31, 2013
Sales
$6,300,000
Cost of sales
5,364,000
Gross profit
936,000
Selling expenses
$450,000
Administrative expenses
144,000
594,000
Income from operations
342,000
Interest expense
54,000
Income before taxes
192,000
Income taxes
72,000
Net income
$
216,000
The following additional data were provided:
1.
Dividends for the year 2013 were $144,000.
2.
During the year, equipment was sold for $180,000. This equipment cost $264,000 originally
and had a book value of $216,000 at the time of sale. The loss on sale was incorrectly
charged to cost of sales.
3.
All depreciation expense is in the selling expense category.
Questions 58 through 62 relate to a statement of cash flows (direct method) for the year ended
December 31, 2013, for Harlan Mining Company.
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Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 16
58.
The net cash provided by operating activities is
a. $306,000.
b. $216,000.
c. $180,000.
d. $150,000.
59.
The net cash provided (used) by investing activities is
a. $(264,000).
b. $36,000.
c. $180,000.
d. $(216,000).
60.
Under the direct method, the cash received from customers is
a. $6,408,000.
b. $6,192,000.
c. $6,300,000.
d. $6,330,000.
61.
Under the direct method, the total taxes paid is
a. $72,000.
b. $30,000.
c. $42,000.
d. $102,000.
62.
The net cash provided (used) by financing activities is
a. $(180,000).
b. $36,000.
c. $(324,000).
d. $144,000.
63.
During 2013, Stout Inc. had the following activities related to its financial operations:
Carrying value of convertible preferred stock in Stout,
converted into common shares of Stout
$
360,000
Payment in 2013 of cash dividend declared in 2012 to
preferred shareholders
186,000
Payment for the early retirement of long-term bonds payable
(carrying amount $2,420,000)
2,450,000
Proceeds from the sale of treasury stock (on books at cost of $258,000)
300,000
The amount of net cash used in financing activities to appear in Stout's statement of cash
flows for 2013 should be
a. $1,790,000.
b. $1,976,000.
c. $2,336,000.
d. $2,348,000.
Statement of Cash Flows
23 - 17
64.
Hager Company sold some of its plant assets during 2013. The original cost of the plant
assets was $750,000 and the accumulated depreciation at date of sale was $700,000.
The proceeds from the sale of the plant assets were $185,000. The information
concerning the sale of the plant assets should be shown on Hager's statement of cash
flows (indirect method) for the year ended December 31, 2013, as a(n)
a. subtraction from net income of $35,000 and a $50,000 increase in cash flows from
financing activities.
b.
addition to net income of $35,000 and a $85,000 increase in cash flows from investing
activities.
c. subtraction from net income of $35,000 and a $85,000 increase in cash flows from
investing activities.
d.
addition of $85,000 to net income.
65.
An analysis of the machinery accounts of Noller Company for 2013 is as follows:
Machinery, Net of
Accumulated
Accumulated
Machinery
Depreciation
Depreciation
Balance at January 1, 2013
$500,000
$125,000
$375,000
Purchases of new machinery in 2013
for cash
200,000
—
200,000
Depreciation in 2013
—
100,000
(100,000)
Balance at Dec. 31, 2013
$700,000
$225,000
$475,000
The information concerning Noller's machinery accounts should be shown in Noller's
statement of cash flows (indirect method) for the year ended December 31, 2013, as a(n)
a.
subtraction from net income of $100,000 and a $200,000 decrease in cash flows from
financing activities.
b. addition to net income of $100,000 and a $200,000 decrease in cash flows from
investing activities.
c.
$100,000 increase in cash flows from financing activities.
d.
$200,000 decrease in cash flows from investing activities.
66.
Equipment which cost $213,000 and had accumulated depreciation of $114,000 was sold
for $121,000. This transaction should be shown on the statement of cash flows (indirect
method) as a(n)
a.
addition to net income of $22,000 and a $121,000 cash inflow from financing activities.
b. deduction from net income of $22,000 and a $99,000 cash inflow from investing
activities.
c. deduction from net income of $22,000 and a $121,000 cash inflow from investing
activities.
d.
addition to net income of $22,000 and a $99,000 cash inflow from financing activities.
67.
During 2013, equipment was sold for $312,000. The equipment cost $504,000 and had a
book value of $288,000. Accumulated Depreciation
—
Equipment was $1,374,000 at
12/31/12 and $1,470,000 at 12/31/13. Depreciation expense for 2013 was
a. $120,000.
b. $192,000.
c. $312,000.
d. $384,000.
Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 18
Use the following information for questions 68 and 69.
Equipment that cost $350,000 and had a book value of $156,000 was sold for $180,000. Data
from the comparative balance sheets are:
12/31/13
12/31/12
Equipment
$2,160,000
$1,950,000
Accumulated Depreciation
660,000
570,000
68.
Depreciation expense for 2013 was
a. $308,000.
b. $284,000.
c. $54,000.
d. $36,000.
69.
Equipment purchased during 2013 was
a. $560,000.
b. $350,000.
c. $210,000.
d. $366,000.
Use the following information for questions 70 through 74.
Financial statements for Kiner Company are given below:
Kiner Company
Balance Sheet
January 1, 2013
Assets
Equities
Cash
$
320,000
Accounts payable
$
152,000
Accounts receivable
288,000
Buildings and equipment
1,200,000
Accumulated depreciation
—
buildings and equipment
(400,000)
Common stock
920,000
Patents
144,000
Retained earnings
480,000
$1,552,000
$1,552,000
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Statement of Cash Flows
23 - 19
Kiner Company
Statement of Cash Flows
For the Year Ended December 31, 2013
Increase (Decrease) in Cash
Cash flows from operating activities
Net income
$400,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accounts receivable
$(128,000)
Increase in accounts payable
64,000
Depreciation
—
buildings and equipment
120,000
Gain on sale of equipment
(48,000)
Amortization of patents
16,000
24,000
Net cash provided by operating activities
424,000
Cash flows from investing activities
Sale of equipment
96,000
Purchase of land
(200,000)
Purchase of buildings and equipment
(384,000)
Net cash used by investing activities
(488,000)
Cash flows from financing activities
Payment of cash dividend
(120,000)
Sale of common stock
320,000
Net cash provided by financing activities
200,000
Net increase in cash
136,000
Cash, January 1, 2013
320,000
Cash, December 31, 2013
$456,000
Total assets on the balance sheet at December 31, 2013 are $2,216,000. Accumulated deprecia-
tion on the equipment sold was $112,000.
70.
When the equipment was sold, the Buildings and Equipment account received a credit of
a. $96,000.
b. $208,000.
c. $160,000.
d. $112,000.
71.
The book value of the buildings and equipment at December 31, 2013 was
a. $1,016,000.
b. $1,040,000.
c. $1,424,000.
d. $1,176,000.
72.
The accounts payable at December 31, 2013 were
a. $88,000.
b. $216,000.
c. $64,000.
d. $296,000.
Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 20
73.
The balance in the Retained Earnings account at December 31, 2013 was
a. $360,000.
b. $880,000.
c. $760,000.
d. $1,000,000.
74.
Capital stock (plus any additional paid-in capital) at December 31, 2013 was
a. $800,000.
b. $920,000.
c. $520,000.
d. $1,240,000.
Use the following information for questions 75 and 76.
The balance in retained earnings at December 31, 2012 was $720,000 and at December 31,
2013 was $582,000. Net income for 2013 was $500,000. A stock dividend was declared and
distributed which increased common stock $250,000 and paid-in capital $110,000. A cash
dividend was declared and paid.
75.
The amount of the cash dividend was
a. $248,000.
b. $278,000.
c. $388,000.
d. $638,000.
76.
The stock dividend should be reported on the statement of cash flows (indirect method) as
a.
an outflow from financing activities of $250,000.
b.
an outflow from financing activities of $360,000.
c.
an outflow from investing activities of $360,000.
d.
Stock dividends are not shown on a statement of cash flows.
77.
The following information was taken from the 2013 financial statements of Dunlop
Corporation:
Bonds payable, January 1, 2013
$
500,000
Bonds payable, December 31, 2013
3,000,000
During 2013
A $450,000 payment was made to retire bonds payable with a face amount of
$500,000.
Bonds payable with a face amount of $200,000 were issued in exchange for
equipment.
In its statement of cash flows for the year ended December 31, 2013, what amount should
Dunlop report as proceeds from issuance of bonds payable?
a. $2,500,000
b. $2,750,000
c. $2,800,000
d. $3,200,000
Statement of Cash Flows
23 - 21
78.
Lindsay Corporation had net income for 2013 of $2,000,000. Additional information is as
follows:
Depreciation of plant assets
$1,200,000
Amortization of intangibles
240,000
Increase in accounts receivable
420,000
Increase in accounts payable
540,000
Lindsay's net cash provided by operating activities for 2013 was
a. $3,560,000.
b. $3,440,000.
c. $3,320,000.
d. $1,680,000.
79.
Net cash flow from operating activities for 2013 for Spencer Corporation was $450,000.
The following items are reported on the financial statements for 2013:
Cash dividends paid on common stock
20,000
Depreciation and amortization
12,000
Increase in accounts receivables
24,000
Based on the information above, Spencer
’s net income for
2013 was
a. $462,000.
b. $446,000.
c. $414,000.
d. $406,000.
80.
During 2013, Orton Company earned net income of $434,000 which included deprecia-
tion expense of $78,000. In addition, the company experienced the following changes in
the account balances listed below:
Increases
Decreases
Accounts payable
$45,000
Accounts receivable
$12,000
Inventory
36,000
Accrued liabilities
24,000
Prepaid insurance
33,000
Based upon this information what amount will be shown for net cash provided by
operating activities for 2013?
a. $542,000
b. $515,000
c. $335,000
d. $317,000
81.
Minear Company reported net income of $390,000 for the year ended 12/31/13. Included
in the computation of net income were: depreciation expense, $60,000; amortization of a
patent, $32,000; income from an investment in common stock of Brett Inc., accounted for
under the equity method, $48,000; and amortization of a bond discount, $12,000. Minear
also paid an $80,000 dividend during the year. The net cash provided by operating
activities would be reported at:
a. $446,000.
b. $366,000.
c. $334,000.
d. $254,000.
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Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 22
82.
In preparing Titan Inc.’s statement of cash flows for the year ended December 31,
2013,
the following amounts were available:
Collect note receivable
$370,000
Issue bonds payable
426,000
Purchase treasury stock
210,000
What amount should be reported on Titan, Inc.’s statement of cash flows for investing
activities?
a. $370,000
b. $160,000
c. $796,000
d. $216,000
83.
In
preparing Titan Inc.’s statement of cash flows for the year ended December 31,
2013,
the following amounts were available:
Collect note receivable
$370,000
Issue bonds payable
426,000
Purchase treasury stock
210,000
What amount should be reported o
n Titan, Inc’s statement of cash flows for financing
activities?
a. $
56,000
b. $796,000
c. $216,000
d. $160,000
84.
Jarvis, Inc. reported net income of $39,000 for the year ended December 31, 2013
Included in net income were depreciation expense of $8,400 and a gain on sale of
equipment of $1,700. Each of the following accounts increased during 2013:
Accounts receivable
$2,200
Inventory
$4,500
Prepaid rent
$6,800
Available-for-sale securities
$1,000
Accounts payable
$5,000
What is the amount of cash provided by operating activities for Jarvis, Inc. for the year
ended December 31, 2013?
a. $36,200
b. $38,900
c. $27,200
d. $37,200
85.
Jarvis, Inc. reported net income of $39,000 for the year ended December 31, 2013
Included in net income were depreciation expense of $8,400 and a gain on sale of
equipment of $1,700. The equipment had an historical cost of $40,000 and accumulated
depreciation of $24,000. Each of the following accounts increased during 2013:
Patents
$7,500
Prepaid rent
$6,800
Available-for-sale securities
$1,000
Bonds payable
$5,000
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Statement of Cash Flows
23 - 23
What is the amount of cash provided by or used by investing activities for Jarvis, Inc. for
the year ended December 31, 2013?
a. ( $
6,800)
b. $16,700
c. $
9,200
d. $14,200
86.
Jarvis, Inc. reported net income of $34,000 for the year ended December 31, 2013.
Included in net income was a gain on early extinguishment of debt of $60,000 related to
bonds payable with a book value of $1,200,000. Each of the following accounts increased
during 2013:
Notes receivable
$45,000
Deferred tax liability
$10,000
Treasury stock
$150,000
What is the amount of cash used by financing activities for Jarvis, Inc. for the year ended
December 31, 2013?
a. $1,290,000
b. $1,300,000
c. $
220,000
d. $
255,000
87.
During 2013, Greta Company earned net income of $172,000 which included depreciation
expense of $39,000. In addition, the Company experienced the following changes in the
account balances listed below:
Decreases
Increases
Accounts receivable
......
$
6,000
Accounts payable…...
$22,500
Prepaid expenses
..........
16,500
Inventory…………….
..18,000
Accrued liabilities
............
12,000
Based upon this information what amount will be shown for net cash provided by
operating activities for 2013.
a. $226,000.
b. $212,500.
c. $122,500.
d. $113,500.
88.
Cashman Company reported net income of $285,000 for the year ended 12/31/13.
Included in the computation of net income were: depreciation expense, $45,000;
amortization of a patent, $24,000; income from an investment in common stock of Linda
Inc., accounted for under the equity method, $36,000; and amortization of a bond
premium, $9,000. Cashman also paid a $60,000 dividend during the year. The net cash
provided by operating activities would be reported at:
a. $309,000.
b. $261,000.
c. $249,000.
d. $201,000.
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Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 24
89.
Net cash flow from operating activities for 2013 for Graham Corporation was $350,000.
The following items are reported on the financial statements for 2013:
Depreciation and amortization
$ 20,000
Cash dividends paid on common stock
12,000
Increase in accounts receivable
24,000
Based onl
y on the information above, Graham’s net income for
2013 was:
a. $306,000.
b. $314,000.
c. $346,000.
d. $354,000.
90.
Donnegan Company reported operating expenses of $365,000 for 2013. The following
data were extracted from the company’s financial records:
12/31/12
12/31/13
Prepaid Expenses
$
60,000
$69,000
Accrued Expenses
210,000
255,000
On a statement of cash flows for 2013, using the direct method, cash payments for
operating expenses should be:
a. $419,000.
b. $401,000.
c. $329,000.
d. $311,000.
91.
The following information was taken from the 2013 financial statements of Jenny Gardner
Corporation:
Inventory, January 1, 2013
$
90,000
Inventory, December 31, 2013
120,000
Accounts payable, January 1, 2013
75,000
Accounts payable, December 31, 2013
120,000
Sales
600,000
Cost of goods sold
420,000
If the direct method is used in the 2013 statement of cash flows, what amount should
Jenny Gardner report as cash payments to suppliers?
a. $405,000
b. $435,000
c. $465,000
d. $495,000
92.
Alex Company prepares its statement of cash flows using the direct method for operating
activities. For the year ended December 31, 2013, Alex Company reports the following
activity:
Sales on account
$1,200,000
Cash sales
740,000
Decrease in accounts receivable
610,000
Increase in accounts payable
72,000
Increase in inventory
48,000
Cost of good sold
900,000
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Statement of Cash Flows
23 - 25
What is the amount of cash collections from customers reported by Alex Company for the
year ended December 31, 2013?
a. $1,940,000
b. $1,810,000
c. $2,550,000
d. $1,330,000
93.
Alex Company prepares its statement of cash flows using the direct method for operating
activities. For the year ended December 31, 2013, Alex Company reports the following
activity:
Sales on account
$1,200,000
Cash sales
740,000
Decrease in accounts receivable
610,000
Increase in accounts payable
72,000
Increase in inventory
48,000
Cost of goods sold
900,000
What is the amount of cash payments to suppliers reported by Alex Company for the year
ended December 31, 2013?
a. $
876,000
b. $ 924,000
c. $1,020,000
d. $
780,000
Questions 94 through 97 are based on the data shown below related to the statement of cash
flows for Putnam, Inc.:
Putnam, Inc.
Comparative Balance Sheets
December 31,
2013
2012
Assets:
Current Assets:
Cash
$
690,000
$
540,000
Accounts Receivable (net)
1,560,000
1,080,000
Inventory
1,950,000
1,260,000
Prepaid Expenses
351,000
315,000
Total Current Assets
4,551,000
3,195,000
Long-Term Investments
225,000
Plant Assets:
Property, Plant & Equipment
2,190,000
1,440,000
Accumulated Depreciation
(450,000)
(270,000)
Total Plant Assets
1,740,000
1,170,000
Total Assets
$6,516,000
$4,365,000
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Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 26
Equities:
Current Liabilities:
Accounts Payable
$1,275,000
$1,095,000
Accrued Expenses
309,000
282,000
Dividends Payable
201,000
Total Current Liabilities
1,785,000
1,377,000
Long-Term Notes Payable
825,000
Stockholders' Equity:
Common Stock
3,000,000
2,400,000
Retained Earnings
906,000
588,000
Total Equities
$6,516,000
$4,365,000
Putnam, Inc.
Comparative Income Statements
December 31,
2013
2012
Net Credit Sales
$7,020,000
$3,753,000
Cost of Goods Sold
3,915,000
1,881,000
Gross Profit
3,105,000
1,872,000
Expenses (including Income Tax)
2,586,000
1,374,000
Net Income
$
519,000
$
498,000
Additional Information:
a. Accounts receivable and accounts payable relate to merchandise held for sale in the
normal course of business. The allowance for bad debts was the same at the end of
2013 and 2012, and no receivables were charged against the allowance. Accounts
payable are recorded net of any discount and are always paid within the discount
period.
b. The proceeds from the note payable were used to finance the acquisition of property,
plant, and equipment. Capital stock was sold to provide additional working capital.
94.
What amount of cash was collected from 2013 accounts receivable?
a. $7,500,000.
b. $7,020,000.
c. $6,540,000.
d. $3,270,000.
95.
What amount of cash was paid on accounts payable to suppliers during 2013?
a. $4,605,000.
b. $4,425,000.
c. $4,095,000.
d. $3,735,000.
96.
The amount to be shown on the cash flow statement as net cash provided by investing
activities would total what amount?
a. $225,000.
b. $750,000.
c. $795,000.
d. $975,000.
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Statement of Cash Flows
23 - 27
97.
The amount to be shown on the cash flow statement as net cash provided by financing
activities would total what amount?
a. $1,425,000.
b. $825,000.
c. $600,000.
d. $408,000.
Use the following information for questions 98 and 99.
Fleming Company provided the following information on selected transactions during 2013:
Dividends paid to preferred stockholders
$
150,000
Loans made to affiliated corporations
700,000
Proceeds from issuing bonds
800,000
Proceeds from issuing preferred stock
1,050,000
Proceeds from sale of equipment
450,000
Purchases of inventories
1,200,000
Purchase of land by issuing bonds
300,000
Purchases of treasury stock
600,000
98.
The net cash provided (used) by investing activities during 2013 is
a. $(600,000).
b. $(250,000).
c. $100,000.
d. $450,000.
99.
The net cash provided (used) by financing activities during 2013 is
a. $(1,650,000).
b. $450,000.
c. $750,000.
d. $1,100,000.
100.
The net cash provided by operating activities in Sosa Company's statement of cash flows
for 2013 was $135,000. For 2013, depreciation on plant assets was $45,000, amortization
of patent was $8,000, and cash dividends paid on common stock was $54,000. Based
only on the information given above, Sosa
’s net income for
2013 was
a. $135,000.
b. $82,000.
c. $8,000.
d. $136,000.
101.
During 2013, Oldham Corporation, which uses the allowance method of accounting for
doubtful accounts, recorded a provision for bad debt expense of $30,000 and in addition it
wrote off, as uncollectible, accounts receivable of $10,000. As a result of these
transactions, net cash flows from operating activities would be calculated (indirect
method) by adjusting net income with a
a. $30,000 increase.
b. $10,000 increase.
c. $20,000 increase.
d. $20,000 decrease.
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Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 28
Use the following information for questions 102 and 103.
A flood damaged a building and contents. Floods are unusual and infrequent in this area. The
receipts from insurance companies totaled $400,000, which was $120,000 less than the book
values. The tax rate is 30%.
102.
On the statement of cash flows (indirect method), the receipts from insurance companies
should
a.
be shown as an addition to net income of $280,000.
b.
be shown as an inflow from investing activities of $280,000.
c.
be shown as an inflow from investing activities of $400,000.
d. not be shown.
103.
On the statement of cash flows (indirect method), the flood loss should
a.
be shown as an addition to net income of $84,000.
b.
be shown as an addition to net income of $120,000.
c.
be shown as an inflow from investing activities of $84,000.
d. not be shown.
104.
Zook Incorporated, had net income for 2013 of $4,000,000. Additional information is as
follows:
Amortization of patents
$
45,000
Depreciation on plant assets
1,650,000
Long-term debt:
Bond premium amortization
65,000
Interest paid
900,000
Provision for doubtful accounts:
Current receivables
80,000
Long-term nontrade receivables
30,000
What should be the net cash provided by operating activities in the statement of cash
flows for the year ended December 31, 2013, based solely on the above information?
a. $5,820,000.
b. $5,870,000.
c. $5,740,000.
d. $5,840,000.
105.
The net income for the year ended December 31, 2013, for Oliva Company was
$1,500,000. Additional information is as follows:
Depreciation on plant assets
$600,000
Amortization of leasehold improvements
340,000
Provision for doubtful accounts on short-term receivables
120,000
Provision for doubtful accounts on long-term receivables
100,000
Interest paid on short-term borrowings
80,000
Interest paid on long-term borrowings
60,000
Based solely on the information given above, what should be the net cash provided by
operating activities in the statement of cash flows for the year ended December 31, 2013?
a. $2,560,000.
b. $2,660,000.
c. $2,640,000.
d. $2,800,000.
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Statement of Cash Flows
23 - 29
Multiple Choice Answers
—
Computational
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
51.
b
59.
c
67.
c
75.
b
83.
c
91.
a
99.
d
52.
b
60.
b
68.
b
76.
d
84.
d
92.
c
100.
b
53.
c
61.
d
69.
a
77.
c
85.
c
93.
a
101.
a
54.
d
62.
c
70.
c
78.
a
86.
a
94.
c
102.
c
55.
c
63.
c
71.
a
79.
a
87.
a
95.
b
103.
b
56.
a
64.
c
72.
b
80.
a
88.
a
96.
d
104.
c
57.
d
65.
b
73.
c
81.
a
89.
d
97.
a
105.
b
58.
a
66.
c
74.
d
82.
a
90.
c
98.
b
MULTIPLE CHOICE
—
CPA Adapted
Use the following information for questions 106 and 107.
A company acquired a building, paying a portion of the purchase price in cash and issuing a
mortgage note payable to the seller for the balance.
106.
In a statement of cash flows, what amount is included in investing activities for the above
transaction?
a. Cash payment
b. Acquisition price
c. Zero
d. Mortgage amount
107.
In a statement of cash flows, what amount is included in financing activities for the above
transaction?
a. Cash payment
b. Acquisition price
c. Zero
d. Mortgage amount
Use the following information for questions 108 and 109.
Smiley Corp.'s transactions for the year ended December 31, 2013 included the following:
Purchased real estate for $575,000 cash which was borrowed from a bank.
Sold available-for-sale securities for $500,000.
Paid dividends of $600,000.
Issued 500 shares of common stock for $250,000.
Purchased machinery and equipment for $125,000 cash.
Paid $450,000 toward a bank loan.
Reduced accounts receivable by $100,000.
Increased accounts payable $200,000.
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Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 30
108.
Smiley's net cash used in investing activities for 2013 was
a. $700,000.
b. $375,000.
c. $200,000.
d. $75,000.
109.
Smiley's net cash used in financing activities for 2013 was
a. $25,000.
b. $225,000.
c. $450,000.
d. $475,000.
Use the following information for questions 110 and 111.
Peavy Corp.'s transactions for the year ended December 31, 2013 included the following:
Acquired 50% of Gant Corp.'s common stock for $160,000 cash which was borrowed from a
bank.
Issued 5,000 shares of its preferred stock for land having a fair value of $320,000.
Issued 500 of its 11% debenture bonds, due 2018, for $392,000 cash.
Purchased a patent for $220,000 cash.
Paid $120,000 toward a bank loan.
Sold available-for-sale securities for $796,000.
Had a net increase in returnable customer deposits (long-term) of $88,000.
110.
Peavy
’s
net cash provided by investing activities for 2013 was
a. $316,000.
b. $416,000.
c. $476,000.
d. $636,000.
111.
Peavy
’s
net cash provided by financing activities for 2013 was
a. $432,000.
b. $520,000.
c. $552,000.
d. $640,000.
Use the following information for questions 112 through 114.
Jamison Corp.'s balance sheet accounts as of December 31, 2013 and 2012 and information
relating to 2013 activities are presented below.
December 31,
2013
2012
Assets
Cash
$
440,000
$
200,000
Short-term investments
600,000
—
Accounts receivable (net)
1,020,000
1,020,000
Inventory
1,380,000
1,200,000
Long-term investments
400,000
600,000
Plant assets
3,400,000
2,000,000
Accumulated depreciation
(900,000)
(900,000)
Patent
180,000
200,000
Total assets
$6,520,000
$4,320,000
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Statement of Cash Flows
23 - 31
Liabilities and Stockholders' Equity
Accounts payable and accrued liabilities
$1,660,000
$1,440,000
Notes payable (nontrade)
580,000
—
Common stock, $10 par
1,600,000
1,400,000
Additional paid-in capital
800,000
500,000
Retained earnings
1,880,000
980,000
Total liabilities and stockholders' equity
$6,520,000
$4,320,000
Information relating to 2013 activities:
Net income for 2013 was $1,500,000.
Cash dividends of $600,000 were declared and paid in 2013.
Equipment costing $1,000,000 and having a carrying amount of $320,000 was sold in 2013
for $360,000.
A long-term investment was sold in 2013 for $320,000. There were no other transactions
affecting long-term investments in 2013.
20,000 shares of common stock were issued in 2013 for $25 a share.
Short-term investments consist of treasury bills maturing on 6/30/14.
112.
Net cash provided by Jamison
’
s 2013 operating activities was
a. $1,500,000.
b. $2,120,000.
c. $2,080,000.
d. $2,160,000.
113.
Net cash used in Jamison
’s
2013 investing activities was
a. $2,320,000.
b. $1,820,000.
c. $1,680,000.
d. $1,720,000.
114.
Net cash provided by Jamison
’s
2013 financing activities was
a. $480,000.
b. $520,000.
c. $1,080,000.
d. $1,680,000.
115.
Foxx Corp.'s comparative balance sheet at December 31, 2013 and 2012 reported
accumulated depreciation balances of $850,000 and $600,000, respectively. Property with
a cost of $50,000 and a carrying amount of $38,000 was the only property sold in 2013.
Depreciation charged to operations in 2013 was
a. $238,000.
b. $250,000.
c. $262,000.
d. $212,000.
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Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 32
116.
Nagel Co.'s prepaid insurance was $90,000 at December 31, 2013 and $45,000 at
December 31, 2012. Insurance expense was $31,000 for 2013 and $27,000 for 2012.
What amount of cash disbursements for insurance would be reported in Nagel's 2013 net
cash provided by operating activities presented on a direct basis?
a. $94,000.
b. $76,000.
c. $59,000.
d. $31,000.
Multiple Choice Answers
—
CPA Adapted
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
106.
a
108.
c
110.
b
112.
c
114.
a
116.
b
107.
c
109.
b
111.
b
113.
a
115.
c
DERIVATIONS
—
Computational
No. Answer
Derivation
51.
b
$100,000
–
$700,000 = ($600,000).
52.
b
$1,000,000
–
$300,000
–
$200,000 + $800,000 = $1,300,000.
53.
c
$32,000 + $40,000 + $60,000 = $132,000 (NI)
($20,000
–
$4,000)
–
$8,000 = $8,000 (Loss)
$72,000 + $4,000
–
$32,000 = $44,000 (Depr. exp.)
$132,000
–
$60,000
–
$100,000 + $60,000 + $8,000 + $44,000 + $52,000
–
$24,000 = $112,000.
54.
d
$8,000
–
($360,000 + $20,000
–
$300,000) = ($72,000).
55.
c
($160,000) + $120,000
–
$40,000 = ($80,000).
56.
a
$190,000
–
$144,000 = $46,000.
57.
d
$600,000 + $1,800,000
–
$240,000
–
$90,000
–
$180,000 + $150,000 =
$2,040,000.
58.
a
$216,000 + $36,000 + ($240,000 + $48,000
–
$228,000)
–
$108,000 + $72,000
+ $60,000
–
$30,000 = $306,000.
59.
c
$180,000.
60.
b
$162,000 + $6,300,000
–
$270,000 = $6,192,000.
61.
d
$294,000 + $72,000
–
$264,000 = $104,000.
62.
c
($144,000) + ($180,000) = ($324,000).
63.
c
$300,000
–
$186,000
–
$2,450,000 = $2,336,000.
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Statement of Cash Flows
23 - 33
DERIVATIONS
—
Computational
(cont.)
No. Answer
Derivation
64.
c
$85,000
–
($750,000
–
$700,000) = $55,000, $85,000 (proceeds).
65.
b
Conceptual.
66.
c
$121,000
–
($213,000
–
$114,000) = $22,000, $121,000 (proceeds).
67.
c
$1,470,000
–
$1,374,000 + ($504,000
–
$288,000) = $312,000.
68.
b
$660,000
–
$570,000 + ($350,000
–
$156,000) = $284,000.
69.
a
$2,160,000
–
$1,950,000 + $350,000 = $560,000.
70.
c
$96,000
–
$48,000 = $48,000 (BV); $48,000 + $112,000 = $160,000.
71.
a
($1,200,000
–
$400,000)
–
$48,000 + $384,000
–
$120,000 = $1,016,000.
72.
b
$152,000 + $64,000 = $216,000.
73.
c
$480,000 + $400,000
–
$120,000 = $760,000.
74.
d
$920,000 + $320,000 = $1,240,000.
75.
b
$720,000 + $500,000
–
($250,000 + $110,000)
–
X = $582,000
X = $278,000.
76.
d
Conceptual.
77.
c
$3,000,000
–
$500,000 + $500,000
–
$200,000 = $2,800,000.
78.
a
$2,000,000 + $1,200,000 + $240,000 - $420,000 + $540,000 = $3,560,000.
79.
a
X + $12,000
–
$24,000 = $450,000; X = $462,000.
80.
a
$434,000 + $78,000 + $45,000
–
$36,000 + $12,000
–
$24,000 + $33,000 =
$542,000.
81.
a
$390,000 + $60,000 + $32,000
–
$48,000 + $12,000 = $446,000.
82.
a
$370,000.
83.
c
426,000
–
$210,000 = $216,000.
84.
d
$39,000 + $8,400
–
$1,700
–
$2,200
–
$4,500
–
$6,800 + $5,000 = $37,200.
85.
c
[($40,000
–
$24,000) + $1,700]
–
$7,500
–
$1,000 = $9,200.
86.
a
$1,200,000 - $60,000 + $150,000 = $1,290,000.
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Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 34
DERIVATIONS
—
Computational
(cont.)
No. Answer
Derivation
87.
a
$172,000 + $39,000 + $22,500
–
$18,000 + $6,000 + $16,500
–
$12,000
= $226,000.
88.
a
$285,000 + $45,000 + $24,000
–
$9,000
–
$36,000 = $309,000.
89.
d
X + $20,000
–
$24,000 = $350,000
X
–
$4,000 = $350,000; X = $354,000.
90.
c
$365,000 + $9,000 - $45,000 = $329,000.
91.
a
$420,000 + ($120,000
–
$90,000)
–
($120,000
–
$75,000) = $405,000.
92.
c
$1,200,000 + $740,000 + $610,000 = $2,550,000.
93
a
$900,000
–
$72,000 + $48,000 = $876,000.
94.
c
$1,080,000 + $7,020,000
–
$1,560,000 = $6,540,000.
95.
b
$1,095,000 + ($3,915,000 + $1,950,000
–
$1,260,000)
–
$1,275,000 =
$4,425,000.
96.
d
$225,000 + ($2,190,000
–
$1,440,000) = $975,000.
97.
a
$825,000 + ($3,000,000
–
$2,400,000) = $1,425,000.
98.
b
($700,000) + $450,000 = ($250,000).
99.
d
($150,000) + $800,000 + $1,050,000 + ($600,000) = $1,100,000.
100.
b
$135,000
–
$45,000
–
$8,000 = $82,000.
101.
a
$30,000.
102.
c
Conceptual, $400,000 (proceeds), (extraordinary item).
103.
b
Conceptual, $520,000
–
$400,000 = $120,000.
104.
c
$4,000,000 + $45,000 + $1,650,000
–
$65,000 + $80,000 + $30,000 =
$5,740,000.
105.
b
$1,500,000 + $600,000 + $340,000 + $120,000 + $100,000 = $2,660,000.
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Statement of Cash Flows
23 - 35
DERIVATIONS
—
CPA Adapted
No. Answer
Derivation
106.
a
Conceptual.
107.
c
Conceptual.
108.
c
($575,000) + $500,000
–
$125,000 = ($200,000).
109.
b
$575,000
–
$600,000 + $250,000
–
$450,000 = ($225,000).
110.
b
($160,000)
–
$220,000 + $796,000 = $416,000.
111.
b
$160,000 + $392,000
–
$120,000 + $88,000 = $520,000.
112.
c
$1,500,000
–
$180,000 + ($900,000
–
$900,000 + $680,000) - ($360,000
–
$320,000) + $20,000 + $220,000
–
($320,000
–
$200,000) = $2,080,000.
113.
a
$320,000 + $360,000
–
($3,400,000 + $1,000,000
–
$2,000,000)
–
$600,000 =
$2,320,000.
114.
a
20,000 × $25 = $500,000
$500,000 + $580,000
–
$600,000 = $480,000.
115.
c
$850,000
–
$600,000 + ($50,000
–
$38,000) = $262,000.
116.
b
$90,000 + $31,000
–
$45,000 = $76,000.
EXERCISES
Ex. 23-117
—
Direct and indirect methods.
Compare the direct method and the indirect method by explaining each method.
Solution 23-117
The direct method adjusts revenues and expenses to a cash basis. The difference between cash
revenues and cash expenses is cash net income, which is equal to net cash flow from operating
activities.
The indirect method involves adjusting accrual net income to a cash basis. This is done by
starting with accrual net income and adding or subtracting noncash items included in net income.
Examples of adjustments include depreciation, amortization, other noncash expenses and
revenues, gains and losses, and changes in the balances of current assets and current liabilities
during the year.
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Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 36
Ex. 23-118
—
Classification of cash flows.
Note that X in the following statement of cash flows identifies a dollar amount and the letters (A)
through (F) identify specific items which appear in the major sections of the statement prepared
using the indirect method.
Statement of Cash Flows
Cash flows from operating activities
Net income
X
Adjustments to reconcile net income to net cash
provided by operating activities:
Add
+X
(A)
Deduct
–
X
(B)
Net cash provided by operating activities
X
Cash flows from investing activities
Inflows
+X
(C)
Outflows
–
X (D)
Net cash provided (used) by investing activities
X
Cash flows from financing activities
Inflows
+X (E)
Outflows
–
X
(F)
Net cash provided (used) by financing activities
X
Net increase (decrease) in cash
X
Instructions
For each of the following items, indicate by letter in the blank spaces below, the section or
sections where the effect would be reported. Use the code (A through F) from above. If the item is
not required to be reported on the statement of cash flows, write the word "none" in the blank.
Assume that generally accepted accounting principles have been followed in determining net
income and that there are no short-term securities which are considered cash equivalents.
___
1. After the retirement of an officer, the insurance policy was canceled, and a cash
settlement was received by the firm. These proceeds were in excess of the book
value of the policy.
___
2. Sales discounts lapsed and not taken by customers. (Sales recorded at net
originally.)
___
3.
Accrued estimated income taxes for the period. These taxes will be paid next year.
___
4.
Amortization of premium on bonds payable.
___
5.
Premium amortized on investment in bonds.
___
6.
The book value of trading securities was reduced to fair value.
___
7.
Purchase of available-for-sale securities.
___
8.
Declaration of stock dividends (not yet issued).
___
9.
Issued preferred stock in exchange for equipment.
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Statement of Cash Flows
23 - 37
Ex. 23-118
(cont.)
___ 10. Bad debts (under allowance method) estimated and recorded for the period
(receivables classified as current).
___ 11.
Gain on disposal of old machinery.
___ 12.
Payment of cash dividends (previously declared in a prior period).
___ 13.
Trading securities are sold at a loss.
___ 14.
Two-year notes issued at discount for a patent.
___ 15.
Amortization of Discount on Notes Receivable (long-term).
___ 16.
Decrease in Retained Earnings Appropriated for Self-insurance.
Solution 23-118
1. B and C
7. D
13. A and C
2. B
8. None
14. None
3. A
9. None
15. B
4. B
10. A
16. None
5. A
11. B
6. A
12. F
Ex. 23-119
—
Classification of cash flows and transactions.
Give:
(a)
Three distinct examples of investing activities.
(b)
Three distinct examples of financing activities.
(c)
Three distinct examples of significant noncash transactions.
(d)
Two examples of transactions not shown on a statement of cash flows.
Solution 23-119
(a) Investing activities:
Purchase or sale of noncurrent assets
Purchase or sale of securities of other entities
Loans or collection of principal of loans to other entities
(b) Financing activities:
Issuing or reacquiring stock
Issuing or redeeming debt
Paying cash dividends to stockholders
(c) Significant noncash transactions:
Acquiring assets by issuing stock or debt
Capital leases
Conversion or refinancing of debt
Exchanges of nonmonetary assets
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Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 38
Solution 23-119
(cont.)
(d) Not shown on statement of cash flows:
Stock dividends
Appropriations of retained earnings
Ex. 23-120
—
Effects of transactions on statement of cash flows.
Any given transaction may affect a statement of cash flows (using the indirect method) in
one or
more
of the following ways:
Cash flows from operating activities
a.
Net income will be increased or adjusted
upward
.
b.
Net income will be decreased or adjusted
downward
.
Cash flows from investing activities
c.
Increase as a result of cash inflows.
d.
Decrease as a result of cash outflows.
Cash flows from financing activities
e.
Increase as a result of cash inflows.
f.
Decrease as a result of cash outflows.
The statement of cash flows is not affected
g.
Not required to be reported in the body of the statement.
Instructions
For each transaction listed below, list the
letter or letters
from above that describe(s) the effect of
the transaction on a statement of cash flows for the year ending December 31, 2013.
(Ignore any
income tax effects.)
___
1. Preferred stock with a carrying value of $44,000 was redeemed for $50,000 on
January 1, 2013.
___
2.
Uncollectible accounts receivable in the amount of $3,000 were written off against the
allowance for doubtful accounts balance of $12,200 on December 31, 2013.
___
3.
Machinery which originally cost $3,000 and has a book value of $1,800 is sold for
$1,400 on December 31, 2013.
___
4.
Land is acquired through the issuance of bonds payable on July 1, 2013.
___
5.
1,000 shares of stock, stated value $10 per share, are issued for $25 per share in
2013.
___
6.
An appropriation of retained earnings for treasury stock in the amount of $35,000 is
established in 2013.
___
7.
A cash dividend of $8,000 is paid on December 31, 2013.
___
8.
The portfolio of long-term investments (available-for-sale) is at an aggregate market
value higher than aggregate cost at December 31, 2013.
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Statement of Cash Flows
23 - 39
Solution 23-120
1. f
3. a, c
5. e
7. f
2. g
4. g
6. g
8. g
Ex. 23-121
—
Effects of transactions on statement of cash flows.
Indicate for each of the following what should be disclosed on a statement of cash flows (indirect
method). If not disclosed, write "Not shown." There may be more than one answer for some
items. For an item that is added to net income, write "Add," and for an item that is deducted from
net income, write "Deduct." Show financing and investing outflows in parentheses. For example,
an answer might be: Deduct $4,700 or Investing ($31,000). If the item is a noncash transaction
that should be disclosed separately, write "Noncash."
(a) The deferred tax liability increased $10,000.
(b)
The balance in Investment in Hoyt Co. Stock increased $12,000 as a result of using the
equity method.
(c)
Issuance of a stock dividend increased common stock $40,000 and paid-in capital $16,000.
(d)
Amortization of bond discount, $1,600.
(e)
Machinery that cost $100,000 and had accumulated depreciation of $48,000 was sold for
$53,000.
(f)
Issued 8,000 shares of common stock ($10 par) with a market value of $15 per share for
machinery. (Show the amount, too.)
(g)
Amortization of patents, $3,000.
(h)
Cash dividends paid, $60,000.
Solution 23-121
(a)
Add $10,000
(e)
Investing $53,000; Deduct $1,000 (gain)
(b)
Deduct $12,000
(f)
Noncash $120,000
(c)
Not shown
(g)
Add $3,000
(d)
Add $1,600
(h)
Financing ($60,000)
Ex. 23-122
—
Effects of transactions on statement of cash flows.
Indicate for each of the following what should be disclosed on a statement of cash flows (SCF)
(indirect method). If not disclosed, write "Not shown." If an item is a noncash transaction that
should be shown separately, write "noncash." If an item is added to net income, write "Add," and
if an item is deducted from net income, write "Deduct." Show financing and investing outflows in
parentheses. For example, an answer might be: Deduct $4,700 or Investing ($31,000). There is
more than one answer for some items.
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Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 40
Ex. 23-122
(cont.)
(a)
For 2013, income before an extraordinary loss was $460,000. A tornado damaged a building
and its contents. The proceeds from insurance companies totaled $120,000, which was
$40,000 less than the book values. The tax rate was 30%. (Show the calculation of the net
income shown on the SCF, and indicate how other items should be shown on the SCF.)
(b)
Amortization of bond premium, $1,100.
(c)
The balance in Retained Earnings was $875,000 on December 31, 2012 and $1,310,000 on
December 31, 2013. Net income was $1,170,000. A stock dividend was declared and
distributed which increased common stock $325,000 and paid-in capital $150,000. (Show
calculation of the cash dividend and indicate how it and the stock dividend would be shown
on the SCF.)
(d)
Equipment, which cost $115,000 and had accumulated depreciation of $53,000, was sold
for $65,000.
(e)
The deferred tax liability increased $18,000.
(f)
Issued 3,000 shares of preferred stock, $50 par, with a market value of $110 per share for
land. (Show the amount, too.)
Solution 23-122
(a) Income before extraordinary item
$460,000
Extraordinary loss
$
40,000
Tax savings
(12,000)
28,000
Net income on SCF
$432,000
Other items on SCF: Investing activity
$120,000
Add to net income
$40,000
(b) Deduct $1,100.
(c) Retained earnings 12/31/13 $1,310,000 (or)
Net income
$1,170,000
Retained earnings 12/31/12
875,000
Increase in retained earnings
435,000
Increase
435,000
Total dividends
735,000
Stock dividend
475,000
Stock dividends
475,000
910,000
Cash dividend
$
260,000
Net income
1,170,000
Cash dividend
$
260,000
Stock dividend
—
Not shown.
Cash dividend
—
Financing activity ($260,000).
(d) Investing activity $65,000.
Deduct $3,000 (gain on sale).
(e) Add $18,000.
(f)
Noncash $330,000.
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Statement of Cash Flows
23 - 41
Ex. 23-123
—
Calculations for statement of cash flows.
During 2013 equipment was sold for $73,000. This equipment cost $120,000 and had a book
value of $70,000. Accumulated depreciation for equipment was $325,000 at 12/31/12 and
$310,000 at 12/31/13.
Instructions
What three items should be shown on a statement of cash flows (indirect method) from this
information? Show your calculations.
Solution 23-123
(1)
Cash inflow from investing activities
$73,000
(2) Sales price
$73,000
Book value
70,000
Gain on sale
$
3,000 Deduct from net income
(3) Cost
$120,000
Book value
70,000
Accumulated depreciation
50,000
Deduct decrease in accumulated depreciation
(15,000)
Depreciation expense
$
35,000 Add to net income
Ex. 23-124
—
Calculations for statement of cash flows.
Milner Co. sold a machine that cost $74,000 and had a book value of $44,000 for $48,000. Data
from Milner's comparative balance sheets are:
12/31/13
12/31/12
Machinery
$800,000
$670,000
Accumulated depreciation
190,000
136,000
Instructions
What four items should be shown on a statement of cash flows (indirect method) from this
information?
Show your calculations.
Solution 23-124
(1)
Cash inflow from investing activities
$48,000
(2) Sales price
$48,000
Book value
44,000
Gain on sale
$
4,000 Deduct from net income
(3) Cost
$74,000
Book value
44,000
Accumulated depreciation
30,000
Add increase in accumulated depreciation
54,000
Depreciation expense
$84,000 Add to net income
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Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 42
Solution 23-124
(cont.)
(4) Cost of machine sold
$
74,000
Add increase in machinery
130,000
Purchase of machinery
$204,000 Cash outflow from
investing activities
Ex. 23-125
—
Cash flows from operating activities (indirect and direct methods).
Presented below is the income statement of Cowan, Inc.:
Sales
$380,000
Cost of goods sold
225,000
Gross profit
$155,000
Operating expenses
85,000
Income before income taxes
70,000
Income taxes
28,000
Net income
$
42,000
In addition, the following information related to net
changes
in working capital is presented:
Debit
Credit
Cash
$12,000
Accounts receivable
25,000
Inventories
$19,400
Salaries payable (operating expenses)
8,000
Accounts payable
12,000
Income taxes payable
3,000
The company also indicates that depreciation expense for the year was $16,700 and that the
deferred tax liability account increased $2,600.
Instructions
Prepare a schedule computing the net cash flow from operating activities that would be shown on
a statement of cash flows:
(a) using the indirect method.
(b) using the direct method.
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Statement of Cash Flows
23 - 43
Solution 23-125
(a)
Cowan, Inc.
Statement of Cash Flows (Partial)
(Indirect Method)
Cash flows from operating activities
Net income
$42,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in trade accounts receivable
$(25,000)
Decrease in inventories
19,400
Decrease in salaries payable (operating expenses)
(8,000)
Increase in trade accounts payable
17,000
Decrease in income taxes payable
(3,000)
Depreciation expense
16,700
Increase in deferred tax liability
2,600
19,700
Net cash provided by operating activities
$61,700
(b)
Cowan, Inc.
Statement of Cash Flows (Partial)
(Direct Method)
Cash flows from operating activities
Cash received from customers ($380,000
–
$25,000)
$355,000
Cash paid to suppliers ($225,000
–
$19,400
–
$17,000)
$188,600
Operating expenses paid ($85,000 + $8,000
–
$16,700)
76,300
Taxes paid ($28,000 + $3,000
–
$2,600)
28,400
293,300
Net cash provided by operating activities
$
61,700
Ex. 23-126
—
Statement of cash flows (indirect method).
The following information is taken from French Corporation's financial statements:
December 31
2013
2012
Cash
$70,000
$
27,000
Accounts receivable
102,000
80,000
Allowance for doubtful accounts
(4,500)
(3,100)
Inventory
155,000
175,000
Prepaid expenses
7,500
6,800
Land
100,000
60,000
Buildings
287,000
244,000
Accumulated depreciation
(32,000)
(13,000)
Patents
20,000
35,000
$705,000
$611,700
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Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 44
Ex. 23-126
(cont.)
Accounts payable
$
90,000
$
84,000
Accrued liabilities
54,000
63,000
Bonds payable
125,000
60,000
Common stock
100,000
100,000
Retained earnings
—
appropriated
80,000
10,000
Retained earnings
—
unappropriated
271,000
302,700
Treasury stock, at cost
(15,000)
(8,000)
$705,000
$611,700
For 2013 Year
Net income
$63,300
Depreciation expense
19,000
Amortization of patents
5,000
Cash dividends declared and paid
25,000
Gain or loss on sale of patents
none
Instructions
Prepare a statement of cash flows for French Corporation for the year 2013. (Use the indirect
method.)
Solution 23-126
French Corporation
Statement of Cash Flows
For the Year Ended December 31, 2013
Increase (Decrease) in Cash
Cash flows from operating activities
Net income
$63,300
Adjust. to reconcile net income to net cash provided
by operating activities:
Depreciation expense
$19,000
Patent amortization
5,000
Increase in accounts receivable
(20,600)
Decrease in inventory
20,000
Increase in prepaid expenses
(700)
Increase in accounts payable
6,000
Decrease in accrued liabilities
(9,000)
19,700
Net cash provided by operating activities
83,000
Cash flows from investing activities
Purchase of land
(40,000)
Purchase of buildings
(43,000)
Sale of patents
10,000
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Statement of Cash Flows
23 - 45
Solution 23-126
(cont.)
Net cash used by investing activities
(73,000)
Cash flows from financing activities
Sale of bonds
65,000
Purchase of treasury stock
(7,000)
Payment of cash dividends
(25,000)
Net cash provided by financing activities
33,000
Net increase in cash
$43,000
Cash, January 1, 2013
27,000
Cash, December 31, 2013
$70,000
Ex. 23-127
—
Preparation of statement of cash flows (format provided).
The balance sheets for Kinder Company showed the following information. Additional information
concerning transactions and events during 2013 are presented below.
Kinder Company
Balance Sheet
December 31
2013
2012
Cash
$
40,900
$
10,200
Accounts receivable (net)
38,300
20,300
Inventory
35,000
42,000
Long-term investments
0
15,000
Property, plant & equipment
231,500
150,000
Accumulated depreciation
(37,700)
(25,000)
$308,000
$212,500
Accounts payable
$
17,000
$
26,500
Accrued liabilities
21,000
17,000
Long-term notes payable
70,000
50,000
Common stock
130,000
90,000
Retained earnings
70,000
29,000
$308,000
$212,500
Additional data:
1.
Net income for the year 2013, $66,000.
2.
Depreciation on plant assets for the year, $12,700.
3.
Sold the long-term investments for $28,000 (assume gain or loss is ordinary).
4. Paid dividends of $25,000.
5.
Purchased machinery costing $21,500, paid cash.
6.
Purchased machinery and gave a $60,000 long-term note payable.
7.
Paid a $40,000 long-term note payable by issuing common stock.
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Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 46
Instructions
Using the format provided on the next page, prepare a statement of cash flows (using the indirect
method) for 2013 for Kinder Company.
Kinder Company
Statement of Cash Flows
For the Year Ended December 31, 2013
Increase (Decrease) in Cash
Cash flows from operating activities
Net income
$__________
Adjustments to reconcile net income to net cash
provided by operating activities:
__________________________________
$__________
__________________________________
__________
__________________________________
__________
__________________________________
__________
__________________________________
__________
__________________________________
__________
__________________________________
__________
__________
Net cash provided (used) by operating activities
__________
Cash flows from investing activities
___________________________________
__________
___________________________________
__________
___________________________________
__________
Net cash provided (used) by investing activities
__________
Cash flows from financing activities
___________________________________
__________
___________________________________
__________
___________________________________
__________
Net cash provided (used) by financing activities
__________
Net increase (decrease) in cash
$
Cash, January 1, 2013
Cash, December 31, 2013
$
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Statement of Cash Flows
23 - 47
Solution 23-127
Kinder Company
Statement of Cash Flows
For the Year Ended December 31, 2013
Increase (Decrease) in Cash
Cash flows from operating activities
Net income
$ 66,000
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation expense
$
12,700
Gain on sale of investments
(13,000)
Increase in accounts receivable
(18,000)
Decrease in inventory
7,000
Decrease in accounts payable
(9,500)
Increase in accrued liabilities
4,000
(16,800)
Net cash provided by operating activities
49,200
Cash flows from investing activities
Sale of long-term investments
28,000
Purchase of machinery
(21,500)
Net cash provided by investing activities
6,500
Cash flows from financing activities
Paid dividends
(25,000)
Net cash used by financing activities
(25,000)
Net increase (decrease) in cash
$ 30,700
Cash, January 1, 2013
10,200
Cash, December 31, 2013
$ 40,900
Noncash investing and financing activities
Purchase of machinery by issuing a long-term note payable
$ 60,000
Paid a long-term note payable by issuing common stock
$ 40,000
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Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 48
PROBLEMS
Pr. 23-128
—
Statement of cash flows (indirect method).
The net
changes
in the balance sheet accounts of Keating Corporation for the year 2013 are
shown below.
Account
Debit
Credit
Cash
$
82,000
Short-term investments
$121,000
Accounts receivable
83,200
Allowance for doubtful accounts
13,300
Inventory
74,200
Prepaid expenses
22,800
Investment in subsidiary (equity method)
25,000
Plant and equipment
210,000
Accumulated depreciation
130,000
Accounts payable
80,700
Accrued liabilities
21,500
Deferred tax liability
15,500
8% serial bonds
70,000
Common stock, $10 par
90,000
Additional paid-in capital
150,000
Retained earnings
—
Appropriation for bonded indebtedness
60,000
Retained earnings
—
Unappropriated
38,000
$643,600
$643,600
An analysis of the Retained Earnings
—
Unappropriated account follows:
Retained earnings unappropriated, December 31, 2012
$1,300,000
Add: Net income
327,000
Transfer from appropriation for bonded indebtedness
60,000
Total
$1,687,000
Deduct: Cash dividends
$185,000
Stock dividend
240,000
425,000
Retained earnings unappropriated, December 31, 2013
$1,262,000
1.
On January 2, 2013 short-term investments (classified as available-for-sale) costing $121,000
were sold for $145,000.
2.
The company paid a cash dividend on February 1, 2013.
3. Accounts receivable of $16,200 and $19,400 were considered uncollectible and written off in
2013 and 2012, respectively.
4. Major repairs of $33,000 to the equipment were debited to the Accumulated Depreciation
account during the year. No assets were retired during 2013.
5. The wholly owned subsidiary reported a net loss for the year of $20,000. The loss was
recorded by the parent.
6.
At January 1, 2013, the cash balance was $166,000.
Instructions
Prepare a statement of cash flows (indirect method) for the year ended December 31, 2013.
Keating Corporation has no securities which are classified as cash equivalents.
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Statement of Cash Flows
23 - 49
Solution 23-128
Keating Corporation
Statement of Cash Flows
For the Year Ended December 31, 2013
Increase (Decrease) in Cash
Cash flows from operating activities
Net income
$327,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in subsidiary loss
$
25,000
Depreciation expense
163,000
Gain on sale of short-term investments
(34,000)
Decrease in deferred tax liability
(15,500)
Increase in accounts receivable (net)
(69,900)
Increase in inventory
(74,200)
Decrease in prepaid expenses
22,800
Decrease in accounts payable
(80,700)
Increase in accrued liabilities
21,500
(42,000)
Net cash provided by operating activities
285,000
Cash flows from investing activities
Sale of short-term investments
145,000
Purchase of plant and equipment
(210,000)
Major repairs to equipment
(33,000)
Net cash provided by investing activities
(98,000)
Cash flows from financing activities
Payment of cash dividend
(185,000)
Sale of serial bonds
70,000
Net cash used by financing activities
(115,000)
Net increase in cash
72,000
Cash, January 1, 2013
166,000
Cash, December 31, 2013
$238,000
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Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 50
Pr. 23-129
—
Statement of cash flows (direct and indirect methods).
Hartman, Inc. has prepared the following comparative balance sheets for 2012 and 2013:
2013
2012
Cash
$
287,000
$
153,000
Accounts receivable
149,000
117,000
Inventory
150,000
180,000
Prepaid expenses
18,000
27,000
Plant assets
1,280,000
1,050,000
Accumulated depreciation
(450,000)
(375,000)
Patent
153,000
174,000
$1,587,000
$1,326,000
Accounts payable
$
153,000
$
168,000
Accrued liabilities
60,000
42,000
Mortgage payable
—
450,000
Preferred stock
525,000
—
Additional paid-in capital
—
preferred
120,000
—
Common stock
600,000
600,000
Retained earnings
129,000
66,000
$1,587,000
$1,326,000
1. The Accumulated Depreciation account has been credited only for the depreciation expense
for the period.
2.
The Retained Earnings account has been charged for dividends of $158,000 and credited for
the net income for the year.
The income statement for 2013 is as follows:
Sales
$1,980,000
Cost of sales
1,089,000
Gross profit
891,000
Operating expenses
670,000
Net income
$
221,000
Instructions
(a)
From the information above, prepare a statement of cash flows (indirect method) for
Hartman, Inc. for the year ended December 31, 2013.
(b)
From the information above, prepare a schedule of cash provided by operating activities
using the direct method.
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Statement of Cash Flows
23 - 51
Solution 23-129
(a)
Hartman, Inc.
Statement of Cash Flows
For the Year Ended December 31, 2013
Increase (Decrease) in Cash
Cash flows from operating activities
Net income
$221,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense
$
75,000
Patent amortization
21,000
Increase in receivables
(32,000)
Decrease in inventory
30,000
Decrease in prepaid expenses
9,000
Decrease in accounts payable
(15,000)
Increase in accrued liabilities
18,000
106,000
Net cash provided by operating activities
327,000
Cash used in investing activities
Purchase of plant assets
(230,000)
Cash flows from financing activities
Payment of cash dividend
(158,000)
Retirement of mortgage payable
(450,000)
Sale of preferred stock
645,000
Net cash provided by financing activities
37,000
Net increase in cash
134,000
Cash, January 1, 2013
153,000
Cash, December 31, 2013
$287,000
(b)
Hartman, Inc.
Schedule of Cash Provided by Operating Activities
For Year Ended December 31, 2013
Cash flows from operating activities
Cash received from customers (1)
$1,948,000
Cash paid to suppliers (2)
$1,074,000
Operating expenses paid (3)
547,000
1,621,000
Net cash provided by operating activities
$
327,000
(1)
$1,980,000
–
$32,000
(2)
$1,089,000
–
$30,000 + $15,000
(3)
$670,000
–
$75,000
–
$21,000
–
$9,000
–
$18,000
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Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 52
Pr. 23-130
—
A complex statement of cash flows (indirect method).
The net
changes
in the balance sheet accounts of Eusey, Inc. for the year 2013 are shown below:
Account
Debit
Credit
Cash
$
95,600
Accounts receivable
$
64,000
Allowance for doubtful accounts
10,000
Inventory
197,200
Prepaid expenses
20,000
Long-term investments
144,000
Land
400,000
Buildings
650,000
Machinery
100,000
Office equipment
28,000
Accumulated depreciation:
Buildings
24,000
Machinery
20,000
Equipment
12,000
Accounts payable
183,200
Accrued liabilities
72,000
Dividends payable
128,000
Premium on bonds
36,000
Bonds payable
900,000
Preferred stock ($50 par)
60,000
Common stock ($10 par)
156,000
Additional paid-in capital
—
common
223,200
Retained earnings
87,200
$1,805,200
$1,805,200
Additional information:
1.
Income Statement Data for Year Ended December 31, 2013
Income before extraordinary item
$272,000
Extraordinary loss:
Condemnation of land
132,000
Net income
$140,000
2. Cash dividends of $128,000 were declared December 15, 2013, payable January 15, 2014.
A 5% stock dividend was issued March 31, 2013, when the market value was $22.00 per
share.
3. The long-term investments were sold for $140,000.
4. A building and land which cost $480,000 and had a book value of $350,000 were sold for
$400,000. The cost of the land, included in the cost and book value above, was $20,000.
5. The following entry was made to record an exchange of an old machine for a new one:
Machinery
................................................................................
160,000
Accumulated Depreciation
—
Machinery
...................................
40,000
Machinery
....................................................................
60,000
Cash
............................................................................
140,000
6. A fully depreciated copier machine which cost $28,000 was written off.
7. Preferred stock of $60,000 par value was redeemed for $80,000.
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Statement of Cash Flows
23 - 53
Pr. 23-130
(cont.)
8. The company sold 12,000 shares of its common stock ($10 par) on June 15, 2013 for $25 a
share. There were 87,600 shares outstanding on December 31, 2013.
9. Bonds were sold at 104 on December 31, 2013.
10. Land that was condemned had a book value of $240,000.
Instructions
Prepare a statement of cash flows (indirect method). Ignore tax effects.
Solution 23-130
Eusey, Inc.
Statement of Cash Flows
For the Year Ended December 31, 2013
Increase (Decrease) in Cash
Cash flows from operating activities
Net income
$
140,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense
—
buildings
$154,000
(1)
Depreciation expense
—
machinery
60,000
(2)
Depreciation expense--office equipment
16,000
(3)
Gain on sale of building and land
(50,000)
(4)
Loss on sale of long-term investments
4,000
(5)
Decrease in accounts receivable (net)
74,000
Increase in inventory
(197,200)
Increase in prepaid expenses
(20,000)
Decrease in accounts payable
(183,200)
Increase in accrued liabilities
72,000
Loss on condemnation of land
132,000
61,600
Net cash provided by operating activities
201,600
Cash flows from investing activities
Sale of long-term investments
140,000
(6)
Proceeds from condemnation of land
108,000
(7)
Purchase of land
(660,000)
(8)
Sale of building and land
400,000
(9)
Purchase of building
(1,110,000) (10)
Purchase of machinery
(140,000) (11)
Net cash used by investing activities
(1,262,000)
Cash flows from financing activities
Sale of bonds
936,000
(12)
Retirement of preferred stock
(80,000) (13)
Sale of common stock
300,000
(14)
Net cash provided by financing activities
1,156,000
Net increase in cash
$
95,600
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Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 54
Solution 23-130
(cont.)
(1)
Net change
$
24,000
Debit to accumulated depreciation
130,000
Depreciation expense
$154,000
(2)
Net change
$20,000
Debit to accumulated depreciation
40,000
Depreciation expense
$60,000
(3)
Net change
$(12,000)
Write-off
28,000
Depreciation expense
$ 16,000
(4)
Sale price of building and land
$400,000
Book value of building and land
350,000
Gain on sale
$50,000
(5)
Carrying value of long-term investments
$144,000
Sale price of long-term investments
140,000
Loss on sale
$
4,000
(6)
Given.
(7)
Condemned land (at cost)
$240,000
Extraordinary loss
132,000
$108,000
(8)
Net change
$400,000
Condemned land and land sold (at cost)
260,000
$660,000
(9)
Given.
(10)
Net change
$
650,000
Building sold (at cost)
460,000
$1,110,000
(11)
Given (exchange).
(12)
Bonds Payable
$900,000
Add Premium
36,000
$936,000
(13)
Given.
(14)
12,000 × $25 = $300,000
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Statement of Cash Flows
23 - 55
Solution 23-130
(cont.)
Other important reconciliations:
Shares outstanding at various times
87,600
December 31, 2013
12,000
Issued June 15, 2013
75,600
Outstanding after stock dividend March 31, 2013
75,600 ÷ 1.05 = 72,000 shares
Common Stock
Issuance
12,000 × $10
= $120,000
Stock dividend
3,600 × $10
=
36,000
$156,000
Additional Paid-in Capital
Issuance
12,000 × $15
= $180,000
Stock dividend
3,600 × $12
=
43,200
$223,200
Retained Earnings
Net income
$140,000
Dividends (cash)
(128,000)
12,000
Dividends (stock)
(79,200)
(67,200)
Preferred stock redemption
(20,000)
$(87,200)
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Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 56
IFRS QUESTIONS
True/False
1.
Under IFRS, companies are not required to prepare a statement of cash flows if the
transactions are reported elsewhere in the financial statements.
2.
A statement of cash flows prepared according to IFRS requirements must be prepared using
the direct method for operating activities.
3.
IFRS encourages companies to disclose the aggregate amount of cash flows attributable to
the increase in operating capacity separately from cash flows required to maintain operating
capacity.
4.
In certain circumstances under IFRS, bank overdrafts are considered part of cash and cash
equivalents.
5.
IFRS requires that noncash investing and financing activities be excluded from the statement
of cash flows.
Answers to True/False:
1. False
2. False
3. True
4. True
5. True
Multiple Choice Questions
1.
Which of the following is false with regard to IFRS and the statement of cash flows?
a.
The IASB is strongly in favor of requiring use of the direct method for operating activities.
b. In certain circumstances under IFRS, bank overdrafts are considered part of cash and
cash equivalents.
c. IFRS requires that noncash investing and financing activities be excluded from the
statement of cash flows.
d.
All of the above statements are false with regard to IFRS and the statement of cash flows.
2.
Ocean Company follows IFRS for its external financial reporting. Which of the following
methods of reporting are acceptable under IFRS for the items shown?
Interest paid
Dividends paid
a.
Operating
Investing
b.
Investing
Financing
c.
Financing
Investing
d.
Operating
Financing
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Statement of Cash Flows
23 - 57
3.
Ocean Company follows IFRS for its external financial reporting. Which of the following
methods of reporting are acceptable under IFRS for the items shown?
Interest received
Dividends received
a.
Operating
Investing
b.
Investing
Financing
c.
Financing
Investing
d.
Operating
Financing
4.
Wave, Inc. follows IFRS for its external financial reporting. The statement of cash flows
reports changes in cash and cash equivalents, which of the following is not considered cash
or a cash equivalent under IFRS?
a. Coin.
b. Bank overdrafts.
c. Commercial paper.
d. Accounts receivable.
5.
Surf Company follows IFRS for its external financial reporting. The following amounts were
available at December 31, 2013:
Interest paid
$22,000
Dividends paid
16,000
Taxes paid
37,000
Under IFRS, what is the maximum amount that could be reported for cash used by operating
activities for Surf Company for the year ended December 31, 2013?
a. $59,000
b. $38,000
c. $53,000
d. $75,000
6.
Surf Company follows IFRS for its external financial reporting. The following amounts were
available at December 31, 2013:
Interest received
$22,000
Dividends received
16,000
Under IFRS, what is the maximum amount that could be reported for cash provided by
operating activities for Surf Company for the year ended December 31, 2013?
a.
$-0-
b.
$22,000
c.
$16,000
d.
$38,000
7.
Surf Company follows IFRS for its external financial reporting. The following amounts were
available at December 31, 2013:
Interest paid
$22,000
Dividends paid
16,000
Taxes paid on operations
37,000
Under IFRS, what is the maximum amount that could be reported for cash used by financing
activities for Surf Company for the year ended December 31, 2013?
a. $59,000
b. $38,000
c. $53,000
d. $75,000
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Test Bank for Intermediate Accounting, Fourteenth Edition
23 - 58
8. In the
“On the Horizon” feature in the
text, which of the following is discussed regarding
convergence of U.S. GAAP with IFRS?
a.
Noncash investing and financing activities will be disclosed only in the notes.
b.
Bank overdrafts will be classified as part of financing activities.
c.
The statement of cash flows will present only changes in cash and will exclude changes in
cash equivalents.
d.
All of the above are in
“On the Horizon” regarding converging U.S. GAAP and
IFRS.
9.
Which of the following is true regarding the statement of cash flows and IFRS?
a.
Cash and cash equivalents are defined differently under IFRS than under U.S. GAAP.
b.
Companies preparing a complete set of financial statements under IFRS may exclude the
statement of cash flows if the cash flow activity is reported in the notes to the financial
statements.
c.
Under IFRS most companies choose to use the direct method of reporting cash flows from
operating activities.
d. Under IFRS noncash investing and financing activities are excluded from the statement of
cash flows and instead are presented in the notes to the financial statements.
Answers to Multiple Choice:
1. a
2. d
3. a
4. d
5. d
6. d
7. b
8. c
9. d
Short Answer
1. Briefly describe some of the similarities and differences between U.S. GAAP and IFRS with
respect to cash flow reporting.
1.
As in U.S. GAAP, the statement of cash flows is a required statement for IFRS. In
addition, the content and presentation of an IFRS balance sheet is similar to one used for
U.S. GAAP. However, the disclosure requirements related to the statement of cash flows
are more extensive under U.S. GAAP.
Other similarities include:
(1) Companies preparing financial statements under IFRS
must prepare a statement of cash flows as an integral part; (2) Both IFRS and U.S. GAAP
require that the statement of cash flows should have three major sections
–
operating,
investing, and financing
–
along with changes in cash and cash equivalents; (3) Similar to
U.S. GAAP, the cash flow statement can be prepared using either the indirect or direct
method under IFRS. In both U.S. and international settings, companies choose for the
most part to use the indirect method of reporting net cash flows from operating activities.
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Statement of Cash Flows
23 - 59
Notable differences are:
(1) IFRS encourages companies to disclose the aggregate
amount of cash flows that are attributable to the increase in operating capacity separately
from those cash flows that are required to maintain operating capacity; (2) The definition
of cash equivalents used in IFRS is similar to that used in U.S. GAAP. A major difference
is that in certain situations bank overdrafts are considered part of cash and cash
equivalents under IFRS (which is not the case in U.S. GAAP). Under U.S. GAAP, bank
overdrafts are classified as financing activities; (3) IFRS requires that noncash investing
and financing activities be excluded from the statement of cash flows. Instead, these
noncash activities should be reported elsewhere. This requirement is interpreted to mean
that noncash investing and financing activities should be disclosed in the notes to the
financial statements instead of in the financial statements. Under U.S. GAAP, companies
may present this information in the cash flow statement.
2. What are some of the key obstacles for the FASB and IASB in their convergence project for
the statement of cash flows?
2.
Presently, the FASB and the IASB are involved in a joint project on the presentation and
organization of information in the financial statements. The FASB favors presentation of
operating cash flows using the direct method only. However, the majority of IASB
members express a preference for not requiring use of the direct method of reporting
operating cash flows. So the two Boards will have to resolve their differences in this area
in order to issue a converged standard for the statement of cash flows.
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