2 - SOLUTION
Operating Cash Flows: Indirect Method
Blaylock Company has provided the following partial comparative balance sheets and the income statement for 2014.
Blaylock Company
Comparative Balance Sheets
At December 31, 2013 and 2014
2013
Current assets:
Accounts receivable	$357,000
Inventories	125,000
Current liabilities:
Wages payable	$300,000
Blaylock Company
Income Statement
For the Year Ended December 31, 2014
Revenues	$1,200,000
Gain on sale of equipment	50,000
Less: Cost of goods sold	-650,000
Less: Depreciation expense	-125,000
Less: Interest expense	-25,000
Net income	$450,000
Required:
Compute operating cash flows using the indirect method. Use a minus sign to indicate any decreases in cash or cash outflows.
Blaylock Company
Cash Flows from Operating Activities
For the Year Ended December 31, 2014
Net Income	450000
Add (deduct) adjusting items:
A) Decrease in accounts payable
B) Decrease in accounts receivable	$75,750
C) Decrease in interest expense
D) Decrease in preferred stock
Or E) Increase in cost of goods sold
A Decrease in bonds payable
B) Decrease in interest expense
C) Decrease in wages payable	-62,500
D) Increase in cost of goods sold
Or E) Increase in revenues
A Decrease in bonds payable
B) Decrease in interest expense
C) Decrease in preferred stock
D) Increase in cost of goods sold
Or E) Increase in inventories	-25,000
A Decrease in inventories
B) Depreciation expense
C) Increase in accounts receivable
D) Increase in wages payable
Or E) Interest expense	-25000
A Gain on sale of equipment	-50000
B) Loss on sale of equipment
C) Net income
D) Net increase in cash
Or E) Retained earnings
Net cash from operating activities	$363,250
3 - SOLUTION
Cash Flows from Investing Activities
During the year, equipment with a book value of $125,000 was sold for $175,000 (original purchase cost of $225,000). New equipment was purchased.
Murray Company provided the following comparative balance sheets:
Murray Company
Comparative Balance Sheets
At December 31, 2013 and 2014
Long-Term Assets	2013
Plant and equipment	$1,000,000
Accumulated depreciation	-500,000
Land	500,000
Required:
Calculate the investing cash flows for the current year. Use a minus sign to indicate a cash outflow.
Purchase of Plant and Equipment	-250000
Sale of Plant and Equipment	175000
Purchase of Land	-182,750
Net cash flow from Investing Activities	-257750
4 - SOLUTION
Adjustments to Net Income
Consider the following independent events:
Required:
Indicate whether each event will be added to or deducted from net income in order to compute cash flow from operations.
a. Loss on sale of an asset	ADD
b. Decrease in accounts receivable	ADD
c. Increase in prepaid insurance	LESS
d. Depreciation expense	ADD

$357,000

125,000

$300,000

$1,200,000

50,000

-650,000

-125,000

-25,000

$450,000

450000

$75,750

A Decrease in bonds payable

B) Decrease in interest expense

C) Decrease in wages payable

-62,500

D) Increase in cost of goods sold

Or E) Increase in revenues

A Decrease in bonds payable

B) Decrease in interest expense

C) Decrease in preferred stock

D) Increase in cost of goods sold

Or E) Increase in inventories

-25,000

A Decrease in inventories

B) Depreciation expense

C) Increase in accounts receivable

D) Increase in wages payable

Or E) Interest expense

-25000

A Gain on sale of equipment

-50000

B) Loss on sale of equipment

C) Net income

D) Net increase in cash

Or E) Retained earnings

Net cash from operating activities

$363,250

3 - SOLUTION

Cash Flows from Investing Activities

During the year, equipment with a book value of $125,000 was sold for $175,000 (original purchase cost of $225,000). New equipment was purchased.

Murray Company provided the following comparative balance sheets:

Murray Company

Comparative Balance Sheets

At December 31, 2013 and 2014

Long-Term Assets

2013

Plant and equipment

$1,000,000

Accumulated depreciation

-500,000

Land

500,000

Required:

Calculate the investing cash flows for the current year. Use a minus sign to indicate a cash outflow.

Purchase of Plant and Equipment

-250000

Sale of Plant and Equipment

175000

Purchase of Land

-182,750

Net cash flow from Investing Activities

-257750

4 - SOLUTION

Adjustments to Net Income

Consider the following independent events:

Required:

Indicate whether each event will be added to or deducted from net income in order to compute cash flow from operations.

a. Loss on sale of an asset

ADD

b. Decrease in accounts receivable

ADD

c. Increase in prepaid insurance

LESS

d. Depreciation expense

ADD

1 - SOLUTION Activity Classification During the last 2 years of operations, Barnes Company had the following transactions: Required: Classify each of these transactions as an operating activity, an investing activity, or a financing activity. Also, indicate whether the activity is a source of cash or a use a. Purchased a new plant for $5,260,000. b. Issued bonds with a six-year maturity date for $2,104,000. c. Reported profits of $7,364,000 for the most recent year. d. Sold equipment for $526,000. e. Paid cash dividends of $2,104,000. f. Sold a 30% interest in a company. g. Retired a long-term note payable. h. Reported a loss for the year ($526,000). i. Issued common stock for $1,052,000. INVESTING, Use of Cash FINANCING, Source of Cash OPERATING, Source of Cash INVESTING, Source of Cash FINANCING, Use of Cash FINANCING, Source of Cash FINANCING, Use of Cash OPERATING, Use of Cash FINANCING, Source of Cash 2 - SOLUTION Operating Cash Flows: Indirect Method Blaylock Company has provided the following partial comparative balance sheets and the income statement for 2014. Blaylock Company Comparative Balance Sheets At December 31, 2013 and 2014 2013 Current assets: Accounts receivable $357,000 Inventories 125,000 Current liabilities: Wages payable $300,000 Blaylock Company Income Statement For the Year Ended December 31, 2014 Revenues Gain on sale of equipment Less: Cost of goods sold Less: Depreciation expense Less: Interest expense Net income Required: $1,200,000 50,000 -650,000 -125,000 -25,000 $450,000 Compute operating cash flows using the indirect method. Use a minus sign to indicate any decreases in cash or cash outflows. Blaylock Company Cash Flows from Operating Activities For the Year Ended December 31, 2014 Net Income Add (deduct) adjusting items: A) Decrease in accounts payable B) Decrease in accounts receivable C) Decrease in interest expense D) Decrease in preferred stock Or E) Increase in cost of goods sold A Decrease in bonds payable B) Decrease in interest expense C) Decrease in wages payable D) Increase in cost of goods sold Or E) Increase in revenues 450000 $75,750 -62,500 A Decrease in bonds payable B) Decrease in interest expense C) Decrease in preferred stock D) Increase in cost of goods sold Or E) Increase in inventories -25,000 A Decrease in inventories B) Depreciation expense C) Increase in accounts receivable D) Increase in wages payable Or E) Interest expense -25000 2014 $281,250 150,000 $237,500 A Gain on sale of equipment B) Loss on sale of equipment C) Net income D) Net increase in cash Or E) Retained earnings -50000 Net cash from operating activities $363,250 3 - SOLUTION Cash Flows from Investing Activities During the year, equipment with a book value of $125,000 was sold for $175,000 (original purchase cost of $225,000). New equipment was purchased. Murray Company provided the following comparative balance sheets: Murray Company Comparative Balance Sheets At December 31, 2013 and 2014 Long-Term Assets 2013 2014 Plant and equipment $1,000,000 $1,025,000 Accumulated depreciation -500,000 -525,000 Land 500,000 682,750 Required: Calculate the investing cash flows for the current year. Use a minus sign to indicate a cash outflow. Purchase of Plant and Equipment Sale of Plant and Equipment Purchase of Land -250000 175000 -182,750 Net cash flow from Investing Activities -257750 4 - SOLUTION Adjustments to Net Income Consider the following independent events: Required: Indicate whether each event will be added to or deducted from net income in order to compute cash flow from operations. a. Loss on sale of an asset ADD b. Decrease in accounts receivable ADD c. Increase in prepaid insurance LESS d. Depreciation expense ADD e. Decrease in accounts payable LESS f. Uncollectible accounts expense ADD g. Increase in wages payable ADD h. Decrease in inventory ADD i. Amortization of an intangible asset ADD . a use of cash. 5 - SOLUTION 5) Cash Flow from Financing Activities Tidwell Company experienced the following during 2013: Sold preferred stock for $408,000. Declared dividends of $127,500 payable on March 1, 2014. Borrowed $488,750 from bank on a 2-year note. Purchased $68,000 of its own common stock to hold as treasury stock. Repaid 5-year bonds issued in 2008 for $340,000 due in December. Tidwell Company Statement of Cash Flows Cash flows from financing activities: A) repaid bank loan,B) sold perferred stock, or C) sold treasury stock borrowed from bank purchased treasury stock retired bonds Net cash from financing activities 408000 488750 -68000 -340000 488750 6 - SOLUTION 6)Statement of Cash Flows, Indirect Method Booth Manufacturing has provided the following financial statements. 112500 350000 125000 1000000 -500000 500000 350000 281250 150000 1025000 -525000 718750 237500 -68750 25000 25000 -25000 218750 300000 0 75000 300000 912500 237500 250000 75000 300000 1137500 -62500 250000 0 0 225000 1. Calculate the cash flows from operations using the indirect method. 2. Prepare a statement of cash flows. Use a minus sign to indicate any decreases in cash or cash outflows. Booth Manufacturing Statement of Cash Flows For the Year Ended December 31, 2014 Cash flows from operating activities: Net Income, sale of equipment, mortgage received, increased in accounts payable, or gain on sale of equipment Add (deduct) adjusting items: decrease in accounts receivable, mortgage received, net income, purchase of equipment, purchase of land decrease in accounts receivable, dividens, increase in accounts receivable, purchase of equipment, sale of equip increase in accounts receivable, increase inventories, mortgage received, purchase equipment, purchase land dividens, deprecation expense, net income, purchase equipment, sale equipment decrease inventories, gain of sale equipment, mortage received, purchase equipment, purchase land Net cash from operating activities Cash flows from investing activities: dividens, decrease accounts payable, decrease accounts recievable, increase in inventories, sale equipment deprecation expense, gain sale of equipment, increase in accounts receivable, mortgage received, purchase equip decrease in accounts payable, decreae in accounts receivable, dividens, increase in inventories, purchase of land Net cash from investing activities Cash flows from financing activities: decrease in accounts receivable, mortgage received, net income, gain sale of equipment, purchase of land decrease in accounts payable, depreaction expense, dividens paid, purchase of equip, purchase of land 450000 68750 -62500 -25000 125000 -50000 506250 50000 -25000 -218750 -193750 250000 -225000 Net cash from financing activities Net increase in cash 250000 562500 1 - SOLUTION Activity Classification During the last 2 years of operations, Barnes Company had the following transactions: Required: Classify each of these transactions as an operating activity, an investing activity, or a financing activity. Also, indicate whether the activity is a source of cash or a use a. Purchased a new plant for $5,260,000. b. Issued bonds with a six-year maturity date for $2,104,000. c. Reported profits of $7,364,000 for the most recent year. d. Sold equipment for $526,000. e. Paid cash dividends of $2,104,000. f. Sold a 30% interest in a company. g. Retired a long-term note payable. h. Reported a loss for the year ($526,000). i. Issued common stock for $1,052,000. INVESTING, Use of Cash FINANCING, Source of Cash OPERATING, Source of Cash INVESTING, Source of Cash FINANCING, Use of Cash FINANCING, Source of Cash FINANCING, Use of Cash OPERATING, Use of Cash FINANCING, Source of Cash 2 - SOLUTION Operating Cash Flows: Indirect Method Blaylock Company has provided the following partial comparative balance sheets and the income statement for 2014. Blaylock Company Comparative Balance Sheets At December 31, 2013 and 2014 2013 Current assets: Accounts receivable $357,000 Inventories 125,000 Current liabilities: Wages payable $300,000 Blaylock Company Income Statement For the Year Ended December 31, 2014 Revenues Gain on sale of equipment Less: Cost of goods sold Less: Depreciation expense Less: Interest expense Net income Required: $1,200,000 50,000 -650,000 -125,000 -25,000 $450,000 Compute operating cash flows using the indirect method. Use a minus sign to indicate any decreases in cash or cash outflows. Blaylock Company Cash Flows from Operating Activities For the Year Ended December 31, 2014 Net Income Add (deduct) adjusting items: A) Decrease in accounts payable B) Decrease in accounts receivable C) Decrease in interest expense D) Decrease in preferred stock Or E) Increase in cost of goods sold A Decrease in bonds payable B) Decrease in interest expense C) Decrease in wages payable D) Increase in cost of goods sold Or E) Increase in revenues A Decrease in bonds payable B) Decrease in interest expense C) Decrease in preferred stock D) Increase in cost of goods sold Or E) Increase in inventories A Decrease in inventories B) Depreciation expense C) Increase in accounts receivable D) Increase in wages payable Or E) Interest expense 450000 $75,750 -62,500 -25,000 125,000 2014 $281,250 150,000 $237,500 A Gain on sale of equipment B) Loss on sale of equipment C) Net income D) Net increase in cash Or E) Retained earnings -50000 Net cash from operating activities $513,250 3 - SOLUTION Cash Flows from Investing Activities During the year, equipment with a book value of $125,000 was sold for $175,000 (original purchase cost of $225,000). New equipment was purchased. Murray Company provided the following comparative balance sheets: Murray Company Comparative Balance Sheets At December 31, 2013 and 2014 Long-Term Assets 2013 2014 Plant and equipment $1,000,000 $1,025,000 Accumulated depreciation -500,000 -525,000 Land 500,000 682,750 Required: Calculate the investing cash flows for the current year. Use a minus sign to indicate a cash outflow. Purchase of Plant and Equipment Sale of Plant and Equipment Purchase of Land -250000 175000 -182,750 Net cash flow from Investing Activities -257750 4 - SOLUTION Adjustments to Net Income Consider the following independent events: Required: Indicate whether each event will be added to or deducted from net income in order to compute cash flow from operations. a. Loss on sale of an asset ADD b. Decrease in accounts receivable ADD c. Increase in prepaid insurance LESS d. Depreciation expense ADD e. Decrease in accounts payable LESS f. Uncollectible accounts expense ADD g. Increase in wages payable ADD h. Decrease in inventory ADD i. Amortization of an intangible asset ADD . a use of cash. 5 - SOLUTION 5) Cash Flow from Financing Activities Tidwell Company experienced the following during 2013: Sold preferred stock for $408,000. Declared dividends of $127,500 payable on March 1, 2014. Borrowed $488,750 from bank on a 2-year note. Purchased $68,000 of its own common stock to hold as treasury stock. Repaid 5-year bonds issued in 2008 for $340,000 due in December. Tidwell Company Statement of Cash Flows Cash flows from financing activities: A) repaid bank loan,B) sold perferred stock, or C) sold treasury stock borrowed from bank purchased treasury stock retired bonds Net cash from financing activities 408000 488750 -68000 -340000 488750 6 - SOLUTION 6)Statement of Cash Flows, Indirect Method Booth Manufacturing has provided the following financial statements. 112500 350000 125000 1000000 -500000 500000 350000 281250 150000 1025000 -525000 718750 237500 -68750 25000 25000 -25000 218750 300000 0 75000 300000 912500 237500 250000 75000 300000 1137500 -62500 250000 0 0 225000 1. Calculate the cash flows from operations using the indirect method. 2. Prepare a statement of cash flows. Use a minus sign to indicate any decreases in cash or cash outflows. Booth Manufacturing Statement of Cash Flows For the Year Ended December 31, 2014 Cash flows from operating activities: Net Income, sale of equipment, mortgage received, increased in accounts payable, or gain on sale of equipment Add (deduct) adjusting items: decrease in accounts receivable, mortgage received, net income, purchase of equipment, purchase of land decrease in accounts receivable, dividens, increase in accounts receivable, purchase of equipment, sale of equip increase in accounts receivable, increase inventories, mortgage received, purchase equipment, purchase land dividens, deprecation expense, net income, purchase equipment, sale equipment decrease inventories, gain of sale equipment, mortage received, purchase equipment, purchase land Net cash from operating activities Cash flows from investing activities: dividens, decrease accounts payable, decrease accounts recievable, increase in inventories, sale equipment deprecation expense, gain sale of equipment, increase in accounts receivable, mortgage received, purchase equip decrease in accounts payable, decreae in accounts receivable, dividens, increase in inventories, purchase of land Net cash from investing activities Cash flows from financing activities: decrease in accounts receivable, mortgage received, net income, gain sale of equipment, purchase of land decrease in accounts payable, depreaction expense, dividens paid, purchase of equip, purchase of land Net cash from financing activities 450000 68750 -62500 -25000 125000 -50000 506250 100,000 -175,000 -218750 -293750 250000 -225000 25000 Net increase in cash 237,500 Statement of Cash Flows, Indirect Method Booth Manufacturing has provided the following financial statements. Other information includes: (a) Equipment with a book value of $125,000 was sold for $175,000 (original cost was $225,000); and (b) Dividends of $225,000 were declared and paid. Required: Hide 1. Calculate the cash flows from operations using the indirect method. 2. Prepare a statement of cash flows. Use a minus sign to indicate any decreases in cash or cash outflows