CHA. 17 Solutions TO Exercises-Cash Flow ACC220 PDF

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SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 17-1 (a) (b) (c) (d) (e) (f) (g) (h) (i)

− + − − NE + + NE NE

BRIEF EXERCISE 17-2 (a) (b)

(c) (d) (e) (f) (g) (h)

(i)

(F) (I)

Financing activity Investing activity (Note: The sale of land is an investing activity. If using the indirect method, the loss is added back under operating activities to cancel its impact on profit.) (F) Financing activity (I) Investing activity (NC) Significant noncash activity (F) Financing activity (O) Operating activity None. Depreciation expense is reported in the operating activities section using the indirect method only to cancel it from profit. It is neither a source nor a use of cash in any way. None. The payment of cash dividends results in a financing activity. The declaration is not a use of cash.

BRIEF EXERCISE 17-3 (a) (b) (c) (d) (e) (f) (g) (h)

+ – + − + + + +

BRIEF EXERCISE 17-4 DIAMOND LTD. Cash Flow Statement (Partial) Year Ended November 30, 2017 Operating activities Profit.............................................................................. $ 850,000 Adjustments to reconcile profit to net cash provided by operating activities: Depreciation expense............................ $175,000 Increase in accounts receivable............. (80,000) Decrease in prepaid expenses................ 35,000 Increase in accounts payable ................. 170,000 300,000 Net cash provided by operating activities.......... $1,150,000

BRIEF EXERCISE 17-5 Mont al voCompany Cash Flow Statement (Partial)—Indirect Method Year Ended May 31, 2017 Operating activities Profit.................................................................... $300,000 Adjustments to reconcile profit to net cash provided (used) by operating activities Decrease in accounts receivable............ $80,000 Increase in inventory............................... (30,000) Increase in prepaid expenses................. (28,000) 22,000 Net cash provided by operating activities.......... $322,000

BRIEF EXERCISE 17-6 ChasCompany Cash Flow Statement (Partial)—Indirect Method Year Ended June 30, 2017 Operating activities Profit.................................................................... $300,000 Adjustments to reconcile profit to net cash provided (used) by operating activities Depreciation expense.............................. $32,000 Gain on sale of equipment...................... (25,000) Increase in accounts receivable............. (35,500) Decrease in inventory.............................. 22,500 Decrease in prepaid expenses................ 12,800 Increase in accounts payable................. 16,000 22,800 Net cash provided by operating activities.......... $322,800

BRIEF EXERCISE 17-7

MI RZAEILTD. Cash Flow Statement (Partial)—Indirect Method Year Ended March 31, 2017 Operating activities Profit.................................................................... $330,000 Adjustments to reconcile profit to net cash provided (used) by operating activities Depreciation expense.............................. $50,000 Gain on sale of equipment...................... (45,200) Increase in accounts receivable............. (20,000) Decrease in inventory.............................. 7,000 Increase in prepaid expenses................. (2,000) Decrease in accounts payable................ (5,000) Increase in income tax payable.............. 6,000 (9,200) Net cash provided by operating activities.......... $320,800

BRIEF EXERCISE 17-8 Indirect method: Operating activities: Loss on sale of equipment

$ 1,500

Investing activities: Sale of equipment

17,000*

The operating activities section would also show depreciation expense of $12,000 and the investing activities section would show purchase of equipment of $(41,600). * Cash............................................ 17,000 Loss on Sale of Equipment....... 1,500 Accumulated Depreciation....... 5,500 Equipment...............................................

24,000

BRIEF EXERCISE 17-9 In order to arrive at the ending balance of $63,200 for Retained Earnings, a debit of $7,700 is needed ($27,500 + $43,400 -

$63,200). Dividends of $7,700 were declared and paid during the year.

BRIEF EXERCISE 17-10 Investing activities: Proceeds from sale of land ...........................................$120,000 Equipment purchase.........................................................(89,000) Net cash provided by investing activities.....................$ 31,000 1.

Decrease in land ($180,000 − $95,000)............ $ 85,000 Plus gain............................................................ 35,000 Cash proceeds from sale of land.................... $120,000

2.

Balance in equipment account, Dec. 31, 2017 $237,000 Balance, Jan. 1, 2017.................... Cost of equipment purchased.........................

(148,000) $89,000

BRIEF EXERCISE 17-11 Dividends paid $46,000 Proof: Retained earnings December 31, 2017............... $(261,000) Profit...................................................................... 197,000 Retained earnings, December 31, 2016.............. 114,000 Dividends declared during 2017......................... 50,000 Increase in dividends payable............................ (4,000) Cash payment for dividends............................... $ 46,000

BRIEF EXERCISE 17-12 Financing activities Sale of common shares 1.............................. $ 10,000 Repayment of mortgage payable................. (25,000) 2 Payment of cash dividends ........................ ( 65,000) Net cash used by financing activities...................... $(80,000) 1. 2.

$10,000 = $55,000 − $45,000 Payment of cash dividends: Retained earnings, beginning of year....................... $85,000 Add: Profit.................................................................... 145,000 230,000 Less: Cash dividends paid (calculated).................... (65,000) Retained earnings, end of year..................................$165,000

Note X: During the year, the company acquired a building with a cost of $500,000 by paying $200,000 cash and incurring a mortgage payable of $300,000.

BRIEF EXERCISE 17-13 Sales revenue.............................................. Add: Decrease in accounts receivable..... Cash receipts from customers..................

$640,000 13,650 $653,650

BRIEF EXERCISE 17-14 (a) Increase in inventory.................................. Add: Cost of goods sold............................ Cost of goods purchased...........................

$ 5,600 89,500 $95,100

(b) Cost of goods sold..................................... Add: Increase in inventory......................... Less: Increase in accounts payable.......... Cash payments to suppliers......................

$89,500 5,600 (7,200) $87,900

BRIEF EXERCISE 17-15 Operating expenses........................................... Plus: Increase in prepaid expenses................. Less: Increase in accrued expenses payable. Cash payments for operating expenses..........

$100,000 10,900 (6,400) $104,500

BRIEF EXERCISE 17-16 Salaries expense................................................ Add: Decrease in salaries payable................... Cash payments to employees..........................

$188,000 1,500 $189,500

BRIEF EXERCISE 17-17 Income tax expense........................................... Less increase in income tax payable............... Cash payments for income tax.........................

$90,000 (9,000) $81,000

BRIEF EXERCISE 17-18 ANGUS MEAT CORPORATION Cash Flow Statement (Partial) Year Ended December 31, 2017 Operating activities Cash receipts from customers1................................. Cash payments: To suppliers2....................................... $(164,000) For operating expenses3.................... (71,000) For income taxes4............................... (45,000) Net cash provided by operating activities...........

$350,000

(280,000) $ 70,000

1.

Sales revenue.............................................. Less: Increase in accounts receivable..... Cash receipts from customers..................

$375,000 (25,000) $350,000

2.

Cost of goods sold..................................... Add: Increase in inventory........................ Add: Decrease in accounts payable........ Cash payments to suppliers......................

$150,000 7,000 7,000 $164,000

3.

Operating expenses.................................... Less: Decrease in prepaid expenses........ Cash payments for operating expenses...

$75,000 (4 ,000) $71,000

4.

Income tax expense.................................... Less: Increase in income tax payable....... Cash payments for income tax..................

$50,000 (5,000) $45,000

BRIEF EXERCISE 17-19 Free cash flow

= Cash provided (used) by operating activities – Cash outlays for capital expenditures = $360,000 – $200,000 = $160,000

BRIEF EXERCISE 17-20 (a) Free cash flow = Cash provided (used) by operating activities − Cash used (provided) by investing activities Company A Company B = $(10,000) − $70,000 = $50,000 − $(30,000) = $(80,000) = $80,000 (b) Company A is more likely to be in the early stages of its development. It has negative cash flow from operating and investing activities and positive cash flow from financing. This indicates the company issued debt and/or equity and used some of the money to buy assets and fund its operations.

SOLUTI ONSTO EXERCI SES EXERCISE 17-1 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

Payment of interest on notes payable operating Exchange of land for patent noncash investing Sale of building at book value investing Payment of dividends financing Depreciation operating Receipt of dividends on investment operating Receipt of interest on notes receivable operating Issuance of common shares financing Amortization of patent operating Issuance of bonds at par for land noncash investing financing Purchase of land investing Conversion of bonds into noncash common shares financing Sale of land at a loss: Proceeds from sale of land investing Loss on sale of land operating Sale of Wellman bonds financing

EXERCISE 17-2 Transaction 1. Sold inventory for $1,000 cash. 2. Purchased a machine for $30,000. Made a $5,000 down payment and issued a long-term note for the remainder. 3. Issued common shares for $50,000. 4. Collected $16,000 of accounts receivable. 5. Paid a $25,000 cash dividend. 6. Sold a long-term equity investment with a carrying value of $15,000 for $10,000. 7. Sold bonds at par for $200,000. 8. Paid $18,000 on accounts payable. 9. Purchased inventory for $28,000 on account. 10. Purchased a long-term investment in bonds for $100,000. 11. Sold equipment with a carrying amount of $16,000 for $13,000. 12. Paid $12,000 interest expense on long-term notes payable.

(a) Classification O

(b) Cash Inflow or Outflow +$1,000

I

−$5,000

NC F

NE +$50,000

O

+$16,000

F I

−$25,000 +$10,000

F O NC

+$200,000 −$18,000 NE

I

−$100,000

I

+$13,000

O

−$12,000

EXERCISE 17-3 1. (a)

(b)

2. (a) (b) 3. (a) (b) 4. (a) (b)

5. (a) (b)

Cash........................................................ Land................................................. Gain on Disposal.............................

15,000 12,000 3,000

Operating activities: deduct Gain from profit; Investing activities: show Proceeds of $15,000 from sale of land Cash........................................................ Common Shares.............................

20,000 20,000

Financing activities: add Issuance of common shares $20,000 Depreciation Expense............................ Accumulated Depreciation - Building

17,000 17,000

Operating activities: add Depreciation Expense to profit. Salaries Expense.................................... Cash.................................................

9,000 9,000

Operating activities: No entry as amount of salaries expense already included in profit. Equipment............................................... Common Shares.............................

8,000 8,000

This is a noncash financing investing activity that is not reported on the statement of cash flows but in a note to the financial statements.

EXERCISE 17-3 (Continued)

6. (a)

(b)

Cash........................................................ Accumulated Depreciation - Equipment Loss on Disposal.................................... Equipment.......................................

1,200 7,000 1,800 10,000

Operating activities: add Loss of $1,800 to profit. Investing activities: show Proceeds of $1,200 from sale of equipment

EXERCISE 17-4 PESCI LTD. Cash Flow Statement (Partial) Year Ended November 30, 2017 Operating activities Profit................................................................................ $ 78,000 Adjustments to reconcile profit to net cash provided (used) by operating activities: Depreciation expense................................ $50,000 Gain on sale of equipment........................ (10,000) Decrease in accounts receivable............. 36,000 Increase in inventory................................. (19,000) Increase in prepaid expenses................... (2,000) Decrease in accounts payable................. (12,000) Decrease in income taxes payable.......... (4,000) 39,000 Net cash provided by operating activities.................. $117,000

EXERCISE 17-5 SCOOTERS RENTALS Cash Flow Statement (Partial) Year Ended December 31, 2017

Operating activities Profit............................................................................... $153,000 Adjustments to reconcile profit to net cash provided (used) by operating activities: Depreciation expense................................ $24,000 Increase in accounts receivable............... (21,000) Decrease in inventory............................... 14,000 Increase in prepaid expenses................... (5,000) Decrease in accounts payable................. (7,000) Increase in accrued expenses payable. . . 10,000 15,000 Net cash provided by operating activities.................. $168,000

EXERCISE 17-6 CHARRON INC. Cash Flow Statement (Partial) Year Ended October 31, 2017 Operating activities Profit............................................................................... $87,000 Adjustments to reconcile profit to net cash provided (used) by operating activities: Depreciation expense................................ $23,000 Loss on sale of equipment....................... 8,000 Increase in accounts receivable............... (23,000) Decrease in inventory............................... 13,500 Increase in prepaid expenses................... (1,700) Increase in accounts payable................... 7,000 Decrease in accrued expenses payable. . (3,000) Decrease in income taxes payable.......... (5,000) 18,800 Net cash provided by operating activities.................. $105,800

EXERCISE 17-7 Operating activities Profit............................................................................... $77,000 Adjustments to reconcile profit to net cash

provided (used) by operating activities: Depreciation expense............................. $28,000 Loss on disposal of equipment.............. 7,000

35,000

Investing activities Sale of equipment*....................................... Purchase of equipment...............................

12,000 (70,000)

Financing activities Payment of cash dividends.........................

(14,000)

*Cost of equipment sold.................................... $49,000 Accumulated depreciation................................ 30,000 Net carrying amount.......................................... 19,000 Loss on disposal of equipment........................ 0 7,000 Cash proceeds from sale............................... $12,000 Cash.................................................................... 12,000 Accumulated Depreciation................................ 30,000 Loss on Disposal............................................... 7,000 Equipment.......................................................................

EXERCISE 17-8 DUPRÉ CORP. Cash Flow Statement (Partial) Year Ended December 31, 2017

49,000

Investing activities Sale of equipment*....................................... $ 5,000 Purchase of equipment............................... (65,000) Net cash used by investing activities..................... $(60,000) Financing activities Payment of cash dividends......................... Net cash used by financing activities....

(8,000) (8,000)

*Cost of equipment sold.................................... $46,000 Accumulated depreciation................................ 38,000 Net carrying amount.......................................... 8,000 Loss on sale of equipment................................ 0 3,000 Cash proceeds from sale.................................. $ 5,000 Cash.................................................................... 5,000 Accumulated Depreciation - Equipment.......... 38,000 Loss on Disposal............................................... 3,000 Equipment.......................................................................

46,000

EXERCISE 17-9 LU CORPORATION Cash Flow Statement—Indirect method Year Ended December 31, 2017 Operating activities Profit................................................................................ $22,630 Adjustments to reconcile profit to net cash provided by operating activities: Depreciation expense.............................. $5,000 Loss on sale of land ($6,000 - $4,900)..... 1,100 Decrease in accounts receivable............ 2,200 Decrease in accounts payable................ (18,730) (10,430) Net cash provided by operating activities.......... 12,200 Investing activities Sale of land.................................................... Net cash provided by investing activities

4,900 4,900

Financing activities Payment of cash dividends......................... (19,500) Issue of common shares.............................. 6,000 Net cash used by financing activities...................... (13,500) Net increase in cash........................................................... 3,600 Cash, January 1................................................................... 10,700 Cash, December 31............................................................. $ 14,300

EXERCISE 17-10 PREFERRED HOMES LTD. Cash Flow Statement (Partial) Year Ended September 30, 2017 Investing activities Sale of equipment (3)................................... $ 3,000 Purchase of land (Note X)........................... (35,000) Purchase of equipment............................... (20,000) Net cash used by investing activities..................... $(52,000) Financing activities Payment of cash dividends (4)................... (80,000) Issuance of common shares (2)................. 85,000 Repayment of mortgage note payable (1).. (5,000) Net cash from financing activities.......................... $ 0 Note X: Land costing $100,000 was acquired by paying $35,000 cash and issuing a mortgage note payable for $65,000. (1) Transactions involving Mortgage Note Payable

Repayments