E23-3B (Preparation of Operating Activities SectionIndirect Method, Periodic Inventory) The income

statement of Guesser Company is shown below.

GUESSER COMPANY

INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2012

Sales $755,000

Cost of goods sold 543,000

Gross profit 212,000

Operating expenses

Selling expenses $52,000

Administrative expenses 89,000 141,000

Net income $ 71,000

Additional information:

1. Accounts receivable decreased $63,000 during the year.

2. Inventory increased $38,000 during the year.

3. Prepaid expenses increased $12,000 during the year.

4. Accounts payable to increased $25,000 during the year.

5. Accrued expenses payable increased $6,000 during the year.

6. Administrative expenses include depreciation expense of $20,000.

E23-4B (Preparation of Operating Activities SectionDirect Method) Data for Guesser Company are presented in E23-3B.

Instructions Prepare the operating activities section of the statement of cash flows using the direct method.

JWCL543_ch23_01-08.qxd 6/4/11 8:38 AM Page 1 B EXERCISES 2 E23-1B (Classification of Transactions) Aqua Pools Inc. had the following activity in its most recent year of operations. (a) (b) (c) (d) (e) (f) Purchase of delivery truck. Issuance of bonds payable. Sale of investments for no gain or loss. Amortization of intangible assets. Conversion of bonds into stock. Exchange of building for land. (g) (h) (i) (j) (k) (l) Purchase of treasury stock. Gain on sale of equipment. Goodwill impairment. Payment of dividends. Sale of treasury stock. Decrease in interest payable on note payable. Instructions Classify the items as (1) operatingadd to net income; (2) operatingdeduct from net income; (3) investing; (4) financing; or (5) significant noncash investing and financing activities. Use the indirect method. 2 3 E23-2B (Statement Presentation of TransactionsIndirect Method) Each of the following items must be considered in preparing a statement of cash flows (indirect method) for Duke Enterprises. (a) During the year, 50,000 shares of preferred stock with a par value of $100 a share were issued for $101 a share. (b) During the year, treasury stock costing $123,000 was sold. (c) Equipment that had cost $70,000 2 years before and was being depreciated on a straight-line basis over 6 years with a $10,000 estimated scrap value was sold for $25,000. (d) Goodwill impairment was $500,000. (e) Warranty-related payments of $83,600 were charged against accrued warranty expenses. (f) 6-month U.S. Treasury bills were sold for $210,000. The company uses a cash and cash-equivalent basis for its cash flow statement. (g) The company issued $600,000 in bonds payable to acquire land. (h) The company reported net income for the year of $176,000. Depreciation amounted to $69,000, and a loss of $45,000 was reported on the sale of an equity investment. Instructions State where each item is to be shown in the statement of cash flows, if at all. 3 4 E23-3B (Preparation of Operating Activities SectionIndirect Method, Periodic Inventory) The income statement of Guesser Company is shown below. FOR THE GUESSER COMPANY INCOME STATEMENT YEAR ENDED DECEMBER 31, 2012 Sales Cost of goods sold Gross profit Operating expenses Selling expenses Administrative expenses Net income $755,000 543,000 212,000 $52,000 89,000 141,000 $ 71,000 Additional information: 1. 2. 3. 4. 5. 6. Accounts receivable decreased $63,000 during the year. Inventory increased $38,000 during the year. Prepaid expenses increased $12,000 during the year. Accounts payable to increased $25,000 during the year. Accrued expenses payable increased $6,000 during the year. Administrative expenses include depreciation expense of $20,000. Instructions Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2012, for Guesser Company, using the indirect method. 3 4 E23-4B (Preparation of Operating Activities SectionDirect Method) Data for Guesser Company are presented in E23-3B. 1 JWCL543_ch23_01-08.qxd 2 6/4/11 8:38 AM Page 2 Chapter 23 Statement of Cash Flows Instructions Prepare the operating activities section of the statement of cash flows using the direct method. 3 4 E23-5B (Preparation of Operating Activities SectionDirect Method) Krayon Company's income statement for the year ended December 31, 2012, contained the following condensed information. Revenue from fees Operating expenses (excluding depreciation) Depreciation expense Gain on sale of equipment $1,604,000 $1,280,000 111,000 (7,000) 1,384,000 Income before income taxes Income tax expense 220,000 90,000 Net income $ 130,000 Krayon's balance sheet contained the following comparative data at December 31. Accounts receivable Accounts payable Income taxes payable 2012 2011 $169,000 132,000 16,500 $119,000 82,000 25,000 (Accounts payable pertains to operating expenses.) Instructions Prepare the operating activities section of the statement of cash flows using the direct method. 3 4 E23-6B (Preparation of Operating Activities SectionIndirect Method) Data for Krayon Company are presented in E23-5B. Instructions Prepare the operating activities section of the statement of cash flows using the indirect method. 3 4 E23-7B (Computation of Operating ActivitiesDirect Method) Presented below are two independent situations. Situation A: Overtop Inc. reports revenues of $2,605,000 and operating expenses of $1,950,000 in its first year of operations, 2012. Accounts receivable and accounts payable at year-end were $140,000 and $321,000, respectively. Assume that the accounts payable related to operating expenses. Ignore income taxes. Instructions Using the direct method, compute net cash provided by operating activities. Situation B: The income statement for Prince Corp. shows cost of goods sold $940,000 and operating expenses (exclusive of depreciation) $523,000. The comparative balance sheet for the year shows that inventory decreased $96,900, prepaid expenses decreased $12,000, accounts payable (related to merchandise) increased $64,900, and accrued expenses payable increased $25,000. Instructions Compute (a) cash payments to suppliers and (b) cash payments for operating expenses. 3 4 E23-8B (Schedule of Net Cash Flow from Operating ActivitiesIndirect Method) Terra Land Company reported $540,000 of net income for 2012. The accountant, in preparing the statement of cash flows, noted several items occurring during 2012 that might affect cash flows from operating activities. 1. Terra declared a $1.50 cash dividend. Ten thousand shares of $1 par common stock were outstanding at the date of record. 2. Terra revised its estimate for warranty expense. Before 2012, Terra's warranty expense was 0.5% of its net sales. In 2012, this percentage was increased to 0.7%. Net sales for 2012 were $5,850,000, and the accrued warranty expense increased by $89,000 during 2012. 3. Terra sold 500 shares of treasury stock for $43 per share. The shares were originally purchased for $38 per share. 4. Depreciation expense is $156,000. 5. Terra issued 2,000 shares of its $1 par common stock for a building. The market value of the shares on the date of the transaction was $42 per share. JWCL543_ch23_01-08.qxd 6/4/11 8:38 AM Page 3 B Exercises 6. 7. Terra holds 30% of Windy Company's common stock as a long-term investment. Windy Company reported $96,000 of net income and paid dividends of $35,000 for 2012. Terra purchased 500 shares of Microsoft common at $110 per share and classified the investment as available-for-sale. The market price increased to $115 per share by the end of the year. Instructions Prepare a schedule that shows the net cash flow from operating activities using the indirect method. Assume no items other than those listed above affected the computation of 2012 net cash flow from operating activities. 6 E23-9B (SCFDirect Method) Zurg Corp. uses the direct method to prepare its statement of cash flows. Zurg's trial balances at December 31, 2012 and 2011, are as follows. December 31 2012 2011 Debits Cash Accounts receivable Inventory Property, plant, & equipment Cost of goods sold Selling expenses General and administrative expenses Interest expense Income tax expense $ 84,000 270,000 187,000 690,000 1,205,000 181,500 285,000 8,500 170,300 $ 5,000 298,000 171,000 592,100 1,080,000 106,000 189,500 10,200 161,800 $3,081,300 $2,613,600 $ $ $3,081,300 $2,613,600 Credits Allowance for doubtful accounts Accumulated depreciation Trade accounts payable Income taxes payable Deferred income taxes Unamortized bond premium 10% convertible bonds payable Common stock Additional paid-in capital Retained earnings Sales 9,600 80,500 95,000 21,000 54,200 4,500 100,000 110,000 75,000 425,700 2,105,800 8,100 65,000 118,500 8,600 45,600 5,000 100,000 100,000 56,000 318,300 1,788,500 Additional information: 1. Zurg purchased a major piece of equipment for $97,900 during 2012. 2. Zurg allocated one-half of its depreciation expense to cost of goods sold and the remainder to general and administrative expenses. 3. Bad debt expense for 2012 was $10,000 and is included in general and administrative expenses. Instructions Determine what amounts Zurg should report in its statement of cash flows for the year ended December 31, 2012, for the following items. (a) Cash collected from customers. (b) Cash paid to suppliers. (c) Cash paid for interest. 2 8 (d) Cash paid for income taxes. (e) Cash paid for general and administrative expenses. E23-10B (Classification of Transactions) Following are selected balance sheet accounts of BioLazer Corp. at December 31, 2012 and 2011, and the increases or decreases in each account from 2011 to 2012. Also presented is selected income statement information for the year ended December 31, 2012, and additional information. Selected balance sheet accounts 2012 2011 Increase (Decrease) Assets Accounts receivable Property, plant, and equipment Accumulated depreciation $154,000 631,000 (141,000) $120,000 581,000 (106,000) $34,000 50,000 (35,000) 3 JWCL543_ch23_01-08.qxd 4 6/4/11 8:38 AM Page 4 Chapter 23 Statement of Cash Flows Selected balance sheet accounts 2012 2011 Increase (Decrease) Liabilities and stockholders' equity Bonds payable Dividends payable Common stock, $1 par Additional paid-in capital Retained earnings $ 95,000 -0- 60,000 25,000 340,000 $100,000 10,000 50,000 20,000 261,000 $ (5,000) (10,000) 10,000 5,000 79,000 Selected income statement information for the year ended December 31, 2012 Sales revenue Depreciation Loss on sale of equipment Net income $932,000 54,000 8,000 90,000 Additional information: 1. During 2012, equipment costing $30,000 was sold for cash. 2. Accounts receivable relate to sales of merchandise. 3. During 2012, $15,000 of bonds payable were converted to common stock. There was no amortization of bond discount or premium. Instructions Determine the category (operating, investing, or financing) and the amount that should be reported in the statement of cash flows for the following items. (a) (b) (c) (d) 6 Payments for purchase of property, plant, and equipment. Proceeds from the sale of equipment. Cash dividends paid. Proceeds from bonds payable. E23-11B (SCFIndirect Method) Condensed financial data of Fulton Corp. for 2012 and 2011 are presented below. FULTON CORP. COMPARATIVE BALANCE SHEET AS OF DECEMBER 31 2012 2011 Cash Investments Receivables Inventory Plant assets Accumulated depreciation $ 800 -0- 2,250 1,600 1,600 (600) $ 600 200 2,100 1,200 1,200 (455) $5,650 $4,845 Accounts payable Accrued liabilities Bonds payable Capital stock Retained earnings $ 750 330 800 1,500 2,270 $1,200 520 1,000 1,400 725 $5,650 $4,845 FOR THE FULTON CORP. INCOME STATEMENT YEAR ENDED DECEMBER 31, 2012 Sales Cost of goods sold $15,200 10,400 Gross margin Selling and administrative expense 4,800 1,205 Income from operations Other revenues and gains Loss on sale of investments 3,595 Income before income tax Income tax expense 3,545 1,400 Net income Cash dividends 2,145 600 Income retained in business 50 $ 1,545 JWCL543_ch23_01-08.qxd 6/4/11 8:38 AM Page 5 B Exercises Additional information: During the year, $100 of common stock was issued in exchange for land. No plant assets were sold in 2012. Instructions Prepare a statement of cash flows using the indirect method. 6 E23-12B (SCFDirect Method) Data for Fulton Corp. are presented in E23-11B. Instructions Prepare a statement of cash flows using the direct method. (Do not prepare a reconciliation schedule.) 6 E23-13B (SCFDirect Method) Jackson Ski Haus had the following statements prepared as of December 31, 2012. JACKSON SKI HAUS COMPARATIVE BALANCE SHEET AS OF DECEMBER 31 2012 Cash Accounts receivable Short-term investments (Available-for-sale) Inventories Prepaid insurance Ski equipment Accumulated depr.equipment Trademarks Total assets Accounts payable Income taxes payable Wages payable Short-term loans payable to bank Long-term loans payable Common stock, $1 par Additional paid-in capital Retained earnings Total liabilities & equity FOR THE $ 2011 2,500 103,000 96,000 91,000 4,000 89,000 (23,500) 79,000 $ 4,000 97,000 121,000 54,000 6,000 43,000 (18,000) 83,000 $441,000 $390,000 $ 92,200 21,800 4,000 23,500 75,000 100,000 20,000 104,500 $ 75,000 15,700 9,000 -0- 125,000 100,000 20,000 45,300 $441,000 $390,000 JACKSON SKI HAUS INCOME STATEMENT YEAR ENDING DECEMBER 31, 2012 Sales Cost of goods sold $540,200 302,000 Gross margin Operating expenses 238,200 94,000 Operating income Interest expense Loss on sale of equipment Income before income tax Income tax expense Net income 144,200 $20,500 4,000 24,500 119,700 40,500 $ 79,200 Additional information: 1. Dividends in the amount of $20,000 were declared and paid during 2012. 2. Depreciation expense and amortization expense are included in operating expenses. 3. Equipment that had a cost of $25,000 and was 20% depreciated was sold during 2012. Instructions Prepare a statement of cash flows using the direct method. (Do not prepare a reconciliation schedule.) 5 JWCL543_ch23_01-08.qxd 6 6/4/11 8:38 AM Page 6 Chapter 23 Statement of Cash Flows 6 E23-14B (SCFIndirect Method) Data for Jackson Ski Haus are presented in E23-13B. Instructions Prepare a statement of cash flows using the indirect method. 6 E23-15B (SCFIndirect Method) Presented below are data taken from the records of Natural Homes Company. December 31, 2012 December 31, 2011 $ 15,000 105,000 60,000 330,000 $ 5,000 129,000 50,000 351,000 $510,000 $535,000 $ 88,000 65,000 50,000 173,000 134,000 $102,000 73,000 100,000 153,000 107,000 $510,000 $535,000 Cash Current assets other than cash Long-term investments Plant assets Accumulated depreciation Current liabilities Bonds payable Capital stock Retained earnings Additional information: 1. Held-to-maturity securities carried at a cost of $25,000 on December 31, 2011, were sold in 2012 for $30,000. The gain (not extraordinary) was incorrectly charged directly to Retained Earnings. 2. Fully depreciated plant assets that cost $57,000 were sold during 2012 for $2,000. The gain (not extraordinary) was incorrectly charged directly to Retained Earnings. 3. Net income as reported on the income statement for the year was $40,000. 4. Dividends paid amounted to $20,000. 5. Depreciation charged for the year was $43,000. Instructions Prepare a statement of cash flows for the year 2012 using the indirect method. 2 3 5 E23-16B (Cash Provided by Operating, Investing, and Financing Activities) The balance sheet data of Wheels 'n Tires, Inc. at the end of 2012 and 2011 follow. 2012 Cash Accounts receivable (net) Merchandise inventory Prepaid expenses Equipment Accumulated depreciationequipment Land Total assets Accounts payable Accrued expenses Notes payablebank, short-term Bonds payable Common stock, $1 par Retained earnings Total liabilities and shareholders' equity $ 2011 7,500 82,000 86,000 9,000 170,000 (45,000) 30,000 $ 10,000 87,500 81,000 12,000 145,000 (36,000) 50,000 $339,500 $349,500 $ 44,500 11,000 -0- 20,000 181,000 83,000 $ 58,000 9,000 50,000 -0- 160,000 72,500 $339,500 $349,500 Equipment was purchased for $21,000 in exchange for common stock, par $21,000, during the year; all other equipment purchased was for cash. Land was sold for $31,500. Cash dividends of $7,000 were declared and paid during the year. Instructions Compute net cash provided (used) by: (a) operating activities. (b) investing activities. (c) financing activities. JWCL543_ch23_01-08.qxd 6/4/11 8:38 AM Page 7 B Exercises 6 E23-17B (SCFIndirect Method and Balance Sheet) Ryan Inc. had the following condensed balance sheet at the end of operations for 2011. RYAN INC. BALANCE SHEET DECEMBER 31, 2011 Cash Current assets other than cash Investments Plant assets (net) Land $ 23,700 143,900 50,000 119,500 25,000 Current liabilities Notes payable Preferred stock Capital stock Retained earnings $ 87,600 45,500 60,000 120,000 49,000 $362,100 $362,100 During 2012 the following occurred. 1. 2. 3. 4. 5. 6. 7. Land was purchased for $29,000. Notes payable in the amount of $45,500 were paid. An additional $10,000 in capital stock was issued for $23,500. Dividends totaling $12,500 were paid to stockholders. Net income was $49,600 after allowing depreciation of $21,800. Plant assets were purchased through the issuance of $50,000 in bonds. Both current assets (other than cash) and current liabilities remained at the same amount. Instructions (a) Prepare a statement of cash flows for 2012 using the indirect method. (b) Prepare the condensed balance sheet for Ryan Inc. as it would appear at December 31, 2012. 6 8 E23-18B (Partial SCFIndirect Method) The accounts below appear in the ledger of Harvey Company. Retained Earnings Jan. Dec. Dec. 1, 2012 1 31 Credit Balance Declare and pay dividends Net Income for 2012 Machinery Jan. 1, 2012 Mar. 31 Sept. 25 Debit Balance Purchase of Machinery Machinery Sold Accumulated Depreciation Machinery Jan. 1, 2012 June 18 Sept. 25 Dec. 31 Credit Balance Extraordinary Repairs Accum. Depreciation on Machinery Sold Depreciation for 2012 Dr. Cr. Bal. $82,600 $140,000 100,000 182,600 Cr. Bal. $202,000 $740,000 896,000 694,000 Cr. Bal. $40,000 Dr. $156,000 Dr. $264,000 208,000 $56,000 60,000 $82,500 148,000 230,500 Instructions From the postings in the accounts above, indicate how the information is reported on a statement of cash flows by preparing a partial statement of cash flows using the indirect method. The gain on sale of equipment (September 25) was $36,600. 9 E23-19B (Worksheet Analysis of Selected Accounts) Data for Harvey Company are presented in E23-18B. Instructions Prepare entries in journal form for all adjustments that should be made on a worksheet for a statement of cash flows. 7 JWCL543_ch23_01-08.qxd 8 6/4/11 8:38 AM Page 8 Chapter 23 Statement of Cash Flows 9 E23-20B (Worksheet Analysis of Selected Transactions) The transactions below took place during the year 2012. 1. Convertible bonds payable with a carrying and par value of $500,000 were exchanged for unissued common stock with a par value of $100,000. 2. The net income for the year was $1,250,000. 3. Depreciation charged on the building and equipment was $491,000. 4. Five delivery vehicles were traded in on the purchase of a fork lift and the following entry was made. Equipment Accum. DepreciationDelivery Vehicles Delivery Vehicles Cash Gain on Disposal of Plant Assets 63,000 45,000 50,000 40,000 18,000 The Gain on Disposal of Plant Assets was credited to current operations as ordinary income. 5. Dividends in the amount of $200,000 declared in 2011 were paid during the current year. In addition, dividends of $100,000 were declared and paid during the current year. Instructions Show by journal entries the adjustments that would be made on a worksheet for a statement of cash flows. 9 E23-21B (Worksheet Preparation) Below is the comparative balance sheet for Unoboc Industries. Cash Short-term investments Accounts receivable Allowance for doubtful accounts Inventories Prepaid insurance Land Buildings Accumulated depreciationbuildings Equipment Accumulated depreciationequipment Trademarks Accounts payable Short-term notes payable Accrued payables Mortgage payable Capital stock Additional paid-in capital Retained earnings Dec. 31, 2012 Dec. 31, 2011 $ 9,500 35,000 71,000 (4,000) 61,800 -0- 40,000 140,000 (20,000) 63,000 (23,000) 25,000 $ 11,000 50,000 80,000 (5,000) 41,000 2,000 20,000 140,000 (15,000) 35,000 (11,100) -0- $398,300 $347,900 Dec. 31, 2012 Dec. 31, 2011 $ 46,500 15,000 5,000 65,000 63,000 156,000 47,800 $ 36,000 10,000 10,000 70,000 58,000 134,000 29,900 $398,300 $347,900 Dividends in the amount of $30,000 were declared and paid in 2012. Instructions From this information, prepare a worksheet for a statement of cash flows. Make reasonable assumptions as appropriate. The short-term investments are considered available-for-sale, and no unrealized gains or losses have occurred on these securities