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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy
Intermediate Accounting, Eleventh Canadian Edition...

Description

Kieso, Weygandt, Warfield, Young, Wiecek, McConomy

Intermediate Accounting, Eleventh Canadian Edition

CHAPTER 22 STATEMENT OF CASH FLOWS ASSIGNMENT CLASSIFICATION TABLE Brief Exercises Exercises

Problems

1. Cash flows from a business perspective and uses of the statement of cash flows.

1

1

1, 2

2. Cash and cash equivalents.

2, 3

7

1, 3, 5, 6, 11

3. Classifying operating, investing, and financing activities.

4, 5, 6, 7, 8

2, 3, 4, 5, 6, 7, 8, 9, 10, 11

6, 8, 9, 10

4. Direct and indirect methods of preparing operating activities.

9, 10, 14, 15

12, 13, 15, 16, 18, 19, 20, 21

2, 8, 11,

5. Statement of cash flowsdirect method.

8, 11, 12, 13

3, 4, 6, 9, 14, 15, 17

5, 12

6. Statement of cash flowsindirect method.

16

1, 3, 4, 5, 6, 7, 9, 14, 16, 17

13

7. More complex statement using both methods.

7, 8, 17

Topics

1, 3, 4, 7

Solutions Manual 22-1 Chapter 22 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

Kieso, Weygandt, Warfield, Young, Wiecek, McConomy

Intermediate Accounting, Eleventh Canadian Edition

8. Presentation and disclosure.

13

1, 3, 7, 8, 9, 10, 11, 14, 15, 16, 17

1, 2, 3, 4, 5, 6, 11, 13

9. Interpret a statement of cash flows.

2, 4

1, 12, 14, 15, 17, 20

1, 2, 4, 5, 7, 12, 13

ASSIGNMENT CLASSIFICATION TABLE (CONTINUED) Brief Exercises Exercises

Problems

10. Differences between IFRS and ASPE.

9, 10, 13

2, 4, 7, 11

6, 8, 9, 10, 11

11. Using a work sheet*

18

22, 23

Topics

Solutions Manual 22-2 Chapter 22 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

Kieso, Weygandt, Warfield, Young, Wiecek, McConomy

Intermediate Accounting, Eleventh Canadian Edition

ASSIGNMENT CHARACTERISTICS TABLE Item E22-1 E22-2 E22-3 E22-4 E22-5 E22-6 E22-7 E22-8 E22-9 E22-10 E22-11 E22-12 E22-13 E22-14 E22-15 E22-16 E22-17 E22-18 E22-19 E22-20 E22-21 *E22-22 *E22-23

Description Prepare statement from transactions, and explanation of changes in cash flow Classification of transactions and calculation of cash flows. Journal entries and classification Long-term equity investment: direct and indirect IFRS and ASPE Partial SCF, indirect method. Analysis of changes in capital asset accounts and related cash flows. Statement presentation—indirect method. Statement presentation – equity accounts Entries and partial comparative SCF for operating and finance lease Classification of transactions and events. Classification of transactions - indirect. Operating activities section—direct method. Bad debt write-offs and recoveries. SCF direct and indirect methods with comments. SCF, direct and indirect methods, then contrast results. SCF, direct and indirect methods Both methods of SCF and analysis. Operating activities section—indirect method. Operating activities section—direct method. Accounting cycle, financial statements, cash account, and SCF, direct and indirect Operating activities section—indirect method (5) Work sheet analysis of selected transactions. Work sheet preparation.

Level of Time Difficulty (minutes) Moderate

40-45

Moderate

25-35

Moderate Moderate

15-20 15-20

Moderate Moderate

20-25 30-35

Moderate Moderate Moderate

20-30 15-20 20-25

Simple Simple Simple Simple Moderate

10-15 10-15 20-30 15-20 30-40

Moderate

30-40

Moderate Moderate Simple

20-30 35-40 15-20

Moderate Moderate

20-30 40-50

Moderate

20-30

Moderate

10-15

Moderate

45-55

Solutions Manual 22-3 Chapter 22 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

Kieso, Weygandt, Warfield, Young, Wiecek, McConomy

Intermediate Accounting, Eleventh Canadian Edition

ASSIGNMENT CHARACTERISTICS TABLE (CONTINUED) Item P22-1 P22-2 P22-3 P22-4 P22-5 P22-6 P22-7 P22-8 P22-9 P22-10 P22-11 P22-12 P22-13

Description SCF, direct method and reconciliation and comments SCF, indirect method. Both methods including cash and cash equivalents Operating activities section—direct method and SCF—indirect method, and draft overall comments SCF, direct method and reconciliation and comments Equity transactions reported on the SCF SCF, indirect method, and net cash flow from operating activities, direct method and comments. Operating activities section—indirect method SCF FV-OCI investment transactions, both formats All financial statements from account activities involving investments. SCF, both methods and analysis Prepare statement of financial position from cash flow and income statements. SCF, indirect method with summary on highlights concerning cash activities, and related questions.

Level of Time Difficulty (minutes) Complex

50-55

Moderate Complex

40-45 45-50

Moderate

40-50

Moderate

45-60

Moderate Moderate

30-35 30-40

Moderate

20-30

Moderate

20-25

Moderate

30-35

Moderate Complex

40-45 50-55

Moderate

50-60

Solutions Manual 22-4 Chapter 22 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

Kieso, Weygandt, Warfield, Young, Wiecek, McConomy

Intermediate Accounting, Eleventh Canadian Edition

SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 22-1 (a)

A business should have positive cash flows to finance expansion, pay dividends, and remain solvent during economic downturns. Alvarado may have a positive cash balance and a solid current ratio as of the date of the company’s most recent statement of financial position, as well as a history of profitability. However, Alvarado’s bank manager will also want to assess the business’s ability to generate positive cash flows from operations for the period, which will confirm its ability to finance the upcoming expansion and decrease the risk involved in lending to Alvarado.

(b)

The statement of cash flows provides information about the business’s sources and uses of cash during the period, and helps investors and creditors assess the business’s earnings quality. With the information on the statement of cash flows, Alvarado’s bank manager can assess the business’s ability to generate cash to pay its maturing debt, increase productive capacity, and distribute a return to its owners. The statement of cash flows also allows Alvarado’s bank manager to assess the quality of Alvarado’s reported profitability by comparing cash flow from operations to accrual basis net income. (For example, if accrual basis net income is much greater than cash flow from operations, the company’s reported net income may be judged to be of lower quality, or less reflective of economic reality).

Solutions Manual 22-5 Chapter 22 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

Kieso, Weygandt, Warfield, Young, Wiecek, McConomy

Intermediate Accounting, Eleventh Canadian Edition

BRIEF EXERCISE 22-2 (a)

$228,000 ($108,000 + $120,000) Under IFRS, preferred shares acquired close to their maturity date may be included in cash equivalents. Legally restricted cash balances are not included in Cash equivalents. They are reported separately in current assets or noncurrent assets, depending on the date of availability of the cash or of the expected disbursement.

(b)

$108,000 Under ASPE, cash equivalents exclude all equity investments. Legally restricted cash balances are not included in Cash equivalents. They are reported separately in current assets or noncurrent assets, depending on the date of availability of the cash or of the expected disbursement.

BRIEF EXERCISE 22-3

Cash in bank Petty cash Investment in Canada 60-day treasury bill Temporary bank overdraft, chequing account Cash and cash equivalents

June 30 2017 $12,100 700 22,000 (13,800) $21,000

June 30 2016 $9,460 525

Net Increase

(1,000) $ 8,985

$12,015

Solutions Manual 22-6 Chapter 22 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

Kieso, Weygandt, Warfield, Young, Wiecek, McConomy

Intermediate Accounting, Eleventh Canadian Edition

BRIEF EXERCISE 22-4 (a)

IFRS

Cash flow from investing activities Proceeds from sale of land Proceeds from sale of bonds Interest received Dividends received Purchase of FV-NI investments Purchase of investments in bonds, reported at amortized cost Net cash provided by investing activities

$180,000 415,000 11,000 4,000 (15,000)

(61,000) $534,000

(b) ASPE Cash flow from investing activities Proceeds from sale of land Proceeds from sale of bonds Purchase of FV-NI investments Purchase of investments in bonds, reported at amortized cost Net cash provided by investing activities

$180,000 415,000 (15,000) (61,000) $519,000

BRIEF EXERCISE 22-5 Cash flow from financing activities Proceeds from issuance of common shares Proceeds from issuance of bonds payable Payment of bank loan principal Dividends paid Purchase of company’s own shares Net cash provided by financing activities

$200,000 410,000 (20,000) (170,000) (47,000) $373,000

Solutions Manual 22-7 Chapter 22 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

Kieso, Weygandt, Warfield, Young, Wiecek, McConomy

Intermediate Accounting, Eleventh Canadian Edition

BRIEF EXERCISE 22-6 (a) (b) (c) (d) (e) (f) (g) (h)

D A R-F A R-I R-I, D P-F P-I

(i) (j) (k) (l) (m) (n) (o)

P-I A D R-F N D R-F

(p) (q) (r) (s) (t) (u) (v)

P-F R-I, A P-F N N A P-I

BRIEF EXERCISE 22-7 (a)

Land ................................................................................... 149,000 Common Shares.......................................................... 149,000

(b)

No effect

(c)

In the notes to the financial statements: Non-cash Investing and Financing Activities: Purchase of land through issuance of common shares

$149,000

BRIEF EXERCISE 22-8 Financing activities: Cash paid on capital lease......................................... In the notes to the financial statements: Non-cash Investing and Financing Activities: Purchase of machinery under capital lease

$(2,330)

$85,000

Solutions Manual 22-8 Chapter 22 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

Kieso, Weygandt, Warfield, Young, Wiecek, McConomy

Intermediate Accounting, Eleventh Canadian Edition

BRIEF EXERCISE 22-9 (a) Cash flows from operating activities Cash received from customers ($205,000 – $17,000) $188,000 Cash paid To suppliers ($120,000 + $11,000 – $13,000) $118,000 For operating expenses ($50,000 – $21,000) 29,000 For income taxes ($15,000 – $2,000) 13,000 160,000 Net cash provided by operating activities $ 28,000 (b)

The amount of taxes paid need not be disclosed under ASPE.

BRIEF EXERCISE 22-10 (a) Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense $21,000 Increase in accounts receivable (17,000) Increase in inventory (11,000) Increase in accounts payable 13,000 Increase in taxes payable 2,000 Net cash provided by operating activities

$20,000

8,000 $28,000

(b) There would be no differences in the statement under ASPE.

Solutions Manual 22-9 Chapter 22 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

Kieso, Weygandt, Warfield, Young, Wiecek, McConomy

Intermediate Accounting, Eleventh Canadian Edition

BRIEF EXERCISE 22-11 Sales Less: Sales returns and allowances Less: Sales discounts Add: Decrease in accounts receivable Cash received from customers

$420,000 (10,000) (1,000) 13,000 $422,000

BRIEF EXERCISE 22-12 Cost of goods sold Add: Increase in inventory Purchases Deduct: Increase in accounts payable Cash paid to suppliers

$550,000 23,000 573,000 8,000 $565,000

BRIEF EXERCISE 22-13 (a)

Income tax expense 2017 Deferred tax benefit 2017 Changes in related SFP accounts: Income tax payable Deferred tax asset Deferred tax liability Income taxes paid

Dec. 31 2017

Dec. 31 2016

Effect on Cash $(2,500) 600

$ 1,200 300

$ 1,400 –

(200) (300)

1,950

1,600

350 $ (2,050)

Under IFRS, income taxes paid are required to be disclosed, and generally are shown as an operating activity. (b) Under ASPE, companies are encouraged to disclosure income taxes paid, but income taxes paid are not required to be disclosed separately. Solutions Manual 22-10 Chapter 22 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

Kieso, Weygandt, Warfield, Young, Wiecek, McConomy

Intermediate Accounting, Eleventh Canadian Edition

BRIEF EXERCISE 22-14 (a) Cash flows from operating activities Cash received from customers Cash paid for expenses ($60,000 – $1,540) Net cash provided by operating activities (b) Cash flows from operating activities Net income Increase in net accounts receivable 29,000 – 1,740 = 27,260 20000-1,200 = 18,800 ($27,260 – $18,800) Net cash provided by operating activities

$90,000 58,460 $31,540

$40,000 (8,460) $31,540

BRIEF EXERCISE 22-15 Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities Depreciation expense Unrealized losses on FV-NI investments Increase in accounts payable Increase in accounts receivable Decrease in deferred tax asset Increase in inventory Net cash provided by operating activities

$46,000 $17,000 3,000 9,300 (11,000) 2,000 (7,400)

12,900 $58,900

Solutions Manual 22-11 Chapter 22 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

Kieso, Weygandt, Warfield, Young, Wiecek, McConomy

Intermediate Accounting, Eleventh Canadian Edition

BRIEF EXERCISE 22-16 Cash flows from operating activities Net loss Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation expense Increase in accounts receivable Net cash provided by operating activities

($56,000)

$67,000 (8,100)

58,900 $ 2,900

BRIEF EXERCISE 22-17 Cash flow from investing activities Loan advanced for note receivable Interest collected on note receivable* Net cash used by investing activities * ($900 - $300) = $600

($30,000) 600 ($ 29,400)

*BRIEF EXERCISE 22-18 (a)

Net Income (Operating).................................................... 207,000 Retained Earnings....................................................... 207,000

(b)

Retained Earnings (Dividends)........................................ 60,000 Dividends Paid (Financing)........................................60,000

(c)

Equipment......................................................................... 114,000 Purchase of Equipment (Investing)........................... 114,000

(d)

Sale of Equipment (Investing)......................................... 13,000 Accumulated Depreciation—Equipment........................ 32,000 Equipment...................................................................40,000 Gain–Disposal of Equipment (Operating)............................................................. 5,000

Solutions Manual 22-12 Chapter 22 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

Kieso, Weygandt, Warfield, Young, Wiecek, McConomy

Intermediate Accounting, Eleventh Canadian Edition

SOLUTIONS TO EXERCISES EXERCISE 22-1 (40-45 minutes) (a)

STRONG HOUSE, INC. Statement of Cash Flows (Indirect Method) For the Year Ended December 31, 2017

Cash flows from operating activities Net income $42,000 Adjustments to reconcile net income to net cash provided by operating activities Depreciation expense (a) $13,550 Gain on sale of investment in bonds (b) (500) 13,050 Net cash provided by operating activities $55,050 Cash flows from investing activities Purchase of land (c) (5,500) Proceeds on sale of investment in bonds (d) 15,500 Net cash provided by investing activities 10,000 Cash flows from financing activities Dividends paid (e) Payments to retire bonds payable (f) Proceeds from issuance of common shares (g) Net cash used by financing activities

(19,000) (10,000) 20,000 (9,000)

Net increase in cash Cash balance, January 1, 2017 Cash balance, December 31, 2017

56,050 10,000 $66,050

Non-cash investing and financing activities Issuance of bonds for equipment

$32,000

Supplemental disclosures of cash flow information: Cash paid during the year for: Interest Income taxes

$4,150 $19,500

Solutions Manual 22-13 Chapter 22 Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

Kieso, Weygandt, Warfield, Young, Wiecek, McConomy

Intermediate Accounting, Eleventh Canadian Edition

EXERCISE 22-1 (CONTINUED) (b) Dear Mr. Brauer: Enclosed is your statement of cash flows for the year ending December 31, 2017. I would like to take this opportunity to explain the changes which occurred in your business as a result of cash activities during 2017. (Please refer to the attached statement of cash flows.) The first category shows the net cash flow which resulted from all of your operating activities. Operating activities are those engaged in for the routine conduct of business, involving most of the transactions used to determine net income. The cash inflow from operations which affects this category is net income. However, this figure must be adjusted, first for depreciation (item a)—because this expense ...