Ventura Corporation purchased machinery on January 1, 2012 for $840,000. The company used the sum-of-the-years-digits method and no salvage value to depreciate the asset for the first two years of its estimated six-year life. In 2013, Ventura changed to the straight-line depreciation method for this asset. The following facts pertain: 2012 2013 Straight-line $140,000 $140,000 Sum-of-the-years-digits 240,000 200,000 1. Ventura is subject to a 40% tax rate. The cumulative effect of this accounting change on beginning retained earnings is a. $180,000. b. $160,000. c. $96,000. d. $0. 2. The amount that Ventura should report for depreciation expense on its 2014 income statement is a. $160,000. b. $140,000. c. $100,000. d. none of the above. 3. During 2013, a construction company changed from the completed-contract method to the percentage-of-completion method for accounting purposes but not for tax purposes. Gross profit figures under both methods for the past three years appear below: Completed-Contract Percentage-of-Completion 2011 $ 475,000 $ 700,000 2012 625,000 950,000 2013 700,000 1,050,000 $1,800,000 $2,700,000 Assuming an income tax rate of 40% for all years, the affect of this accounting change on prior periods should be reported by a credit of a. $540,000 on the 2013 income statement. b. $330,000 on the 2013 income statement. c. $540,000 on the 2013 retained earnings statement. d. $330,000 on the 2013 retained earnings statement. Use the following information for questions 4 through 8. 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 4 through 8 relate to a statement of cash flows (direct method) for the year ended December 31, 2013, for Harlan Mining Company. 4. The net cash provided by operating activities is a. $306,000. b. $216,000. c. $180,000. d. $150,000. 5. The net cash provided (used) by investing activities is a. $(264,000). b. $36,000. c. $180,000. d. $(216,000). 6. 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. 7. Under the direct method, the total taxes paid is a. $72,000. b. $30,000. c. $42,000. d. $102,000. 8. The net cash provided (used) by financing activities is a. $(180,000). b. $36,000. c. $(324,000). d. $144,000