Effect of Transactions on Cash Flows

State the effect (cash receipt or payment and amount) of each of the following transactions, considered individually, on cash flows:

a. Retired $240,000 of bonds, on which there was $2,400 of unamortized discount, for $250,000. b. Sold 12,000 shares of $30 par common stock for $69 per share. c. Sold equipment with a book value of $44,100 for $63,500. d. Purchased land for $406,000 cash. e. Purchased a building by paying $49,000 cash and issuing a $120,000 mortgage note payable. f. Sold a new issue of $180,000 of bonds at 97. g. Purchased 6,800 shares of $45 par common stock as treasury stock at $86 per share. h. Paid dividends of $2.20 per share. There were 22,000 shares issued and 4,000 shares of treasury stock.

Cash Flows from (Used for) Operating Activities

The income statement disclosed the following items for the year:

Depreciation expense	$39,000
Gain on disposal of equipment	22,770
Net income	286,200

The changes in the current asset and liability accounts for the year are as follows:

	Increase (Decrease)
Accounts receivable	$6,080
Inventory	(3,460)
Prepaid insurance	(1,300)
Accounts payable	(4,120)
Income taxes payable	1,300
Dividends payable	910

Question Content Area

a. Prepare the Cash Flows from (used for) Operating Activities section of the statement of cash flows, using the indirect method. Use the minus sign to indicate cash outflows, cash payments, decreases in cash, or any negative adjustments.

Cash flows from (used for) operating activities:
Depreciation expenseGain on disposal of equipmentIncrease in income taxes payableIncrease in inventoriesNet income	$- Select -
Adjustments to reconcile net income to net cash flows from (used for) operating activities:
Decrease in accounts receivableDepreciation expenseIncrease in accounts receivableIncrease in income taxes payableLoss on disposal of equipment	- Select -
Decrease in prepaid insuranceGain on disposal of equipmentIncrease in accounts receivableIncrease in income taxes payableLoss on disposal of equipment	- Select -
Changes in current operating assets and liabilities:
Decrease in income taxes payableDepreciation expenseGain on disposal of equipmentIncrease in accounts receivableIncrease in inventory	- Select -
Decrease in accounts receivableDecrease in inventoryGain on disposal of equipmentIncrease in inventoryIncrease in prepaid insurance	- Select -
Decrease in accounts receivableDecrease in prepaid insuranceGain on disposal of equipmentIncrease in prepaid insuranceLoss on disposal of equipment	- Select -
Decrease in accounts payableDecrease in income taxes payableDepreciation expenseGain on disposal of equipmentIncrease in accounts payable	- Select -
Decrease in accounts receivableDecrease in income taxes payableGain on disposal of equipmentIncrease in income taxes payableIncrease in prepaid insurance	- Select -
Net cash flows from operating activities		$fill in the blank ded9b9041fbefdb_17

Question Content Area

b. Why is net cash flows from operating activities different than net income?

Cash flows from operating activities is based on

accrual basis cash basistax basis

of accounting, whereas net income is computed using

accrual basis cash basistax basis

of accounting.

	Effect	Amount
a.	Cash paymentCash receipt	$fill in the blank 2
b.	Cash paymentCash receipt	$fill in the blank 4
c.	Cash paymentCash receipt	$fill in the blank 6
d.	Cash paymentCash receipt	$fill in the blank 8
e.	Cash paymentCash receipt	$fill in the blank 10
f.	Cash paymentCash receipt	$fill in the blank 12
g.	Cash paymentCash receipt	$fill in the blank 14
h.	Cash paymentCash receipt	$fill in the blank 16

Statement of Cash Flows

The comparative balance sheet of Hirayama Industries Inc. for December 31, 20Y2 and 20Y1, is as follows:

		Dec. 31, 20Y2		Dec. 31, 20Y1
Assets
Cash		$178		$58
Accounts receivable (net)		101		73
Inventories		63		40
Land		144		164
Equipment		81		63
Accumulated depreciation-equipment		(22)		(11)
	Total Assets	$545		$387
Liabilities and Stockholders' Equity
Accounts payable (merchandise creditors)		$69		$58
Dividends payable		11		-
Common stock, $1 par		36		18
Excess of paid-in capital over par		82		45
Retained earnings		347		266
	Total liabilities and stockholders' equity	$545		$387