1. Define the term cash equivalents.
Cash equivalents are low risk investments that
can be converted into known amounts of cash within 90 days. [See text page
515.]
2. Why do companies have cash equivalents?
The primary reason companies have cash equivalents
is that such investments earn higher rates of interest than bank checking
accounts or savings accounts. [See text page 515.]
3. Give two examples of cash equivalents.
Certificates of deposit and treasury bills. [See
text page 515.]
4. What is reported in a statement of cash flows?
A statement of cash flows reports major cash receipts
and cash payments during a specific period of time. [See text page 516.]
5. List the three main sections of a statement of cash flows.
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities [See text
page 519.]
6. Define the term operating activities.
Operating activities are income-related activities.
They are concerned with management's day-to-day activities of using resources
to generate additional resources, primarily through providing produces
and services to customers. [See text page 519.]
7. Define the term investing activities.
Investing activities are those events that involve
the purchase and sale of noncash resources such as property, plant, and
equipment. [See text page 519.]
8. Define the term financing activities.
Financing activities are those events that involve
the obtaining of and payment for resources through borrowing and from owners.
Examples include issuing and paying for bonds payable, issuing preferred
and common stock, and paying cash dividends. [See text page 519.]
9. Under the indirect method, what is the first item reported in the operating activities section of the statement of cash flows?
Net income. [See text page 525.]
10. In which section of the statement of cash flows do changes in accounts receivable appear?
Cash flows from operating activities section.
[See text page 526.]
11. Indicate whether an increase in accounts receivable would increase or decrease cash flows.
An increase in accounts receivable would
appear as an adjustment to reduce net income, which means that it would
decrease cash flows. [See text page 526.]
12. In which section of the statement of cash flows do changes in merchandise inventory appear?
Cash flows from operating activities section.
[See text page 528.]
13. Indicate whether an increase in merchandise inventory would increase or decrease cash flows.
An increase in merchandise inventory would appear
as an adjustment to reduce net income, which means that it would reduce
cash flows. [See text page 528.]
14. In which section of the statement of cash flows does depreciation appear?
Cash flows from operating activities section.
[See text page 531.]
15. Indicate whether depreciation would increase or decrease cash flows.
Depreciation expense appears an adjustment to
increase net income, which means that it would increase cash flows.
[See text page 531.]
16. In which section of the statement of cash flows do changes in accounts payable appear?
Cash flows from operating activities section.
[See text page 531.]
17. Indicate whether an increase in accounts payable would increase or decrease cash flows.
An increase in accounts payable would appear as
an adjustment to increase net income, which means that it would increase
cash flows. [See text page 531.]
18. In which section of the statement of cash flows do purchases of equipment appear?
Cash flows from investing activities section.
[See text page 535.]
19. Indicate whether purchases of equipment would increase or decrease cash flows.
Purchases of equipment would decrease cash. [See
text page 535.]
20. In which section of the statement of cash flows do additions to long-term debt appear?
Cash flows from financing activities section.
[See text page 536.]
21. Indicate whether additions to long-term debt would increase or decrease cash flows.
Additions to long-term debt would increase cash.
[See text page 536.]
22. In which section of the statement of cash flows do sales of common stock appear?
Cash flows from financing activities section.
[See text page 537.]
23. Indicate whether sales of common stock would increase or decrease cash flows.
Sales of common stock would increase cash. [See
text page 537.]
24. In which section of the statement of cash flows do dividends appear?
Cash flows from financing activities section.
[See text page 538.]
25. Indicate whether dividends would increase or decrease cash flows.
Dividends decrease cash. [See text page 538.]
26. How could a statement of cash flows be used to help reduce pressure from owners for additional cash dividends?
If a company's cash flows from operating activities
are less than its net income, it suggests that management's activities
did not result in enough cash to pay out all the company's net income in
the form of cash dividends. Furthermore, if the cash flows from financing
activities report significant cash outflows for retirement of debt, it
might suggest the company needs to prepare to repay some of its other debt.
Both these conditions could suggest the company may have other important
uses for its cash and may not want to pay additional dividends to owners.
[See text page 539.]
27. How could a statement of cash flows suggest a company's performance might improve in the future?
If a company's cash flows from investing activities
show purchases of property, plant, and equipment, these additional resources
will be available for management to use in the future. If management
has more resources to use, performance may improve. [See text page
540.]
28. In which section of a statement of cash flows do disposals of equipment appear?
Cash flows from investing activities section.
[See text page 542.]
29. Indicate whether disposals of equipment would increase or decrease cash flows.
Most disposals of equipment increase cash. [See
text page 542.]
30. In which section of a statement of cash flows do purchases of treasury stock appear?
Cash flows from financing activities section.
[See text page 542.]
31. Indicate whether purchases of treasury stock would increase or decrease cash flows.
Purchases of treasury stock would decrease cash.
[See text page 542.]
Chapter Fourteen Exercises
Exercise 14.1: Changes in Cash
The following cash balances data were taken from the Abadi Corporation’s
balance sheets.
|
|
|
|
|
|
|
|
|
|
1. Calculate the dollar amount of the change in the Abadi Corporation’s
cash for the year ended Dec. 31, Year 3.
| Cash balance 12/31/Year 3 |
$138,000
|
| Cash balance 12/31/Year 2 |
$145,000
|
| Increase (decrease) in cash |
($7,000)
|
2. Calculate the dollar amount of the change in the Abadi Corporation’s
cash for the year ended Dec. 31, Year 4.
| Cash balance 12/31/Year 4 |
$164,000
|
| Cash balance 12/31/Year 3 |
$138,000
|
| Increase (decrease) in cash |
$26,000
|
3. Calculate the dollar amount of the change in the Abadi Corporation’s
cash for the year ended Dec. 31, Year 5.
| Cash balance 12/31/Year 5 |
$127,000
|
| Cash balance 12/31/Year 4 |
$164,000
|
| Increase (decrease) in cash |
($37,000)
|
Exercise 14.2: Changes in Cash
For its fiscal year ended July 31, the Bilotta Corporation reported the following changes.
Assets, other than cash, increased by $11,000.
Liabilities increased by $9,000.
Stockholders’ equity increased by $4,000.
Calculate the Bilotta Corporation’s changes in cash for the year ended July 31.
Assets = liabilities + stockholders’ equity
Cash + noncash assets = liabilities + stockholders’ equity
Cash = liabilities + stockholders’ equity - noncash assets
Changes in cash = changes in (liabilities + stockholders’ equity - noncash assets)
Changes in cash = $9,000 (change in liabilities)
+ $4,000 (change in stockholders’ equity) - $11,000 (change noncash assets
= + $2,000.
Exercise 14.3: Cash Flows from Operating Activities: Accounts Receivable
On December 31, Year 5, the Miranda Corporation's accounts receivable balance was $45,000. For the year ended December 31, Year 6, the Miranda Corporation reported cash sales of $65,000, credit sales of $256,000, and net income of $38,000. During Year 6, the company collected $262,000 from credit customers.
1. Calculate the Miranda Corporation's December 31, Year 6 accounts
receivable balance.
| Accounts receivable balance 12/31/Year 5 |
$45,000
|
| Plus: Year 6 credit sales |
$256,000
|
| Less: Year 6 collections from credit customers |
($262,000)
|
| Accounts receivable balance 12/31/Year 6 |
$39,000
|
2. Calculate the accounts receivable adjustment to net income to be
reported in the cash flows from operating activities section of the Miranda
Corporation’s Year 6 statement of cash flows.
| Accounts receivable balance 12/31/Year 6 |
$39,000
|
| Accounts receivable balance 12/31/Year 5 |
$45,000
|
| Increase (decrease) in accounts receivable |
($6,000)
|
Income would be increased by a $6,000 adjustment to reflect the decrease in accounts receivable during Year 6.
3. Calculate the Miranda Corporation's Year 6 total cash flows from
operating activities..
| Cash Flows from Operating Activities | |
| Net income |
$38,000
|
| Add (subtract) items that
affect net income
and cash differently |
|
| Decrease in accounts receivable |
$6,000
|
| Total Cash Flows from Operating Activities |
$44,000
|
Exercise 14.4: Cash Flows from Operating Activities: Merchandise Inventory
On October 31, Year 4, the Crocker Corporation's merchandise inventory balance was $36,000. For the year ended October 31, Year 5, the Crocker Corporation reported sales of $695,000, cost of goods sold of $396,000, and net income of $75,000. During Year 5, the company purchased $407,000 of merchandise inventory on credit.
1. Calculate the Crocker Corporation's October 31, Year 5 merchandise
inventory balance.
| Merchandise inventory balance 10/31/Year 4 |
$36,000
|
| Plus: Year 5 purchases |
$407,000
|
| Less: Year 5 cost of goods sold |
($396,000)
|
| Merchandise inventory balance 10/31/Year 5 |
$47,000
|
2. Calculate the merchandise inventory adjustment to net income to be
reported in the cash flows from operating activities section of the Crocker
Corporation’s Year 5 statement of cash flows.
| Merchandise inventory balance 10/31/Year 5 |
$47,000
|
| Merchandise inventory balance 10/31/Year 4 |
$36,000
|
| Increase (decrease) in merchandise inventory |
$11,000
|
Income would be decreased by an $11,000 adjustment to reflect the increase in merchandise inventory during Year 5.
3. Calculate the Crocker Corporation's Year 5 total cash flows from
operating activities..
| Cash Flows from Operating Activities | |
| Net income |
$75,000
|
| Add (subtract) items that
affect net income
and cash differently |
|
| Increase in merchandise inventory |
($11,000)
|
| Total Cash Flows from Operating Activities |
$64,000
|
Exercise 14.5: Cash Flows from Operating Activities: Insurance
For the year ended July 31, Year 4, the Diluzio Corporation reported insurance expense of $16,000 as part of its operating expenses. The company reported Year 4 net income of $44,000. During Year 4, the company’s purchased $13,000 of insurance. On July 31, Year 4, the company's prepaid insurance balance was $1,000..
1. Calculate the Diluzio Corporation's July 31, Year 3 prepaid insurance
balance.
| Prepaid insurance balance 7/31/Year 3 |
??????
|
| Plus: Year 4 insurance purchases |
$13,000
|
| Less: Year 4 insurance expense |
($16,000)
|
| Prepaid insurance balance 7/31/Year 4 |
$1,000
|
Prepaid insurance balance 7/31/Year 3 must have
been $4,000. This can be checked as follows.
| Prepaid insurance balance 7/31/Year 3 |
$4,000
|
| Plus: Year 4 insurance purchases |
$13,000
|
| Less: Year 4 insurance expense |
($16,000)
|
| Prepaid insurance balance 7/31/Year 4 |
$1,000
|
2. Calculate the prepaid insurance adjustment to net income to be reported
in the cash flows from operating activities section of the Diluzio Corporation’s
Year 4 statement of cash flows.
| Prepaid insurance balance 7/31/Year 4 |
$1,000
|
| Prepaid insurance balance 7/31/Year 3 |
$4,000
|
| Increase (decrease) in prepaid insurance |
($3,000)
|
Income would be increased by a $3,000 adjustment to reflect the decrease in prepaid insurance during Year 4.
3. Calculate the Diluzio Corporation's Year 4 total cash flows from
operating activities..
| Cash Flows from Operating Activities | |
| Net income |
$44,000
|
| Add (subtract) items that
affect net income
and cash differently |
|
| Decrease in prepaid insurance |
$3,000
|
| Total Cash Flows from Operating Activities |
$47,000
|
Exercise 14.6: Cash Flows from Operating Activities: Depreciation
For the year ended March 31, Year 3, the Chmielewski Corporation reported equipment depreciation expense of $66,000 as part of its operating expenses. The company reported Year 3 net income of $98,000. On March 31, Year 2, the company’s equipment accumulated depreciation balance was $145,000. The company did not purchase or sell any equipment during Year 3.
1. Calculate the Chmielewski Corporation's March 31, Year 3 equipment
accumulated depreciation balance.
| Accumulated depreciation balance 3/31/Year 2 |
$145,000
|
| Plus: Year 3 depreciation expense |
$66,000
|
| Accumulated depreciation balance 3/31/Year 3 |
$211,000
|
2. Calculate the depreciation adjustment to net income to be reported
in the cash flows from operating activities section of the Chmielewski
Corporation’s Year 3 statement of cash flows.
| Accumulated depreciation balance 3/31/Year 3 |
$211,000
|
| Accumulated depreciation balance 3/31/Year 2 |
$145,000
|
| Increase (decrease) in accumulated depreciation |
$66,000
|
Income would be increased by a $66,000 adjustment to reflect the increase in accumulated depreciation during Year 3. Note: accumulated depreciation is a contra asset with a credit balance. As a result, the increase in accumulated depreciation reduced total assets. Note also that this calculation was not necessary because the $66,000 depreciation expense during Year 3 is the amount of the adjustment!
3. Calculate the Chmielewski Corporation's Year 3 total cash flows from
operating activities..
| Cash Flows from Operating Activities | |
| Net income |
$98,000
|
| Add (subtract) items that
affect net income
and cash differently |
|
| Depreciation |
$66,000
|
| Total Cash Flows from Operating Activities |
$164,000
|
Exercise 14.7: Cash flows from Operating Activities: Income Taxes
For the year ended May 31, Year 6, the Estella Corporation reported income taxes expense of $21,000 and net income of $39,000. The company’s income taxes payable balance was $8,100 on May 31, Year 5 and $6,800 on May 31, Year 6.
1. Calculate the dollar amount of cash the Estella Corporation paid
during Year 6 for income taxes.
| Income taxes payable balance 5/31/Year 5 |
$8,100
|
| Plus: Year 6 income taxes expense |
$21,000
|
| Less: Year 5 income taxes paid |
???????
|
| Income taxes payable balance 5/31/Year 6 |
$6,800
|
Taxes paid during Year 6 must have been $22,300.
This can be checked as follows.
| Income taxes payable balance 5/31/Year 5 |
$8,100
|
| Plus: Year 6 income taxes expense |
$21,000
|
| Less: Year 5 income taxes paid |
($22,300)
|
| Income taxes payable balance 5/31/Year 6 |
$6,800
|
2. Calculate the income taxes adjustment to net income to be reported
in the cash flows from operating activities section of the Estella Corporation’s
Year 6 statement of cash flows.
| Income taxes payable balance 5/31/Year 6 |
$6,800
|
| Income taxes payable balance 5/31/Year 5 |
$8,100
|
| Increase (decrease) in income taxes payable |
($1,300)
|
Income would be decreased by a $1,300 adjustment to reflect the decrease in income taxes payable during Year 6.
3. Calculate the Estella Corporation's Year 6 total cash flows from
operating activities..
| Cash Flows from Operating Activities | |
| Net income |
$39,000
|
| Add (subtract) items that
affect net income
and cash differently |
|
| Decrease in income taxes payable |
($1,300)
|
| Total Cash Flows from Operating Activities |
$37,700
|
Exercise 14.8: Cash flows from Operating Activities: Several Adjustments
Selected items from the Ford Corporation’s balance sheets are presented
below. For the year ended June 30, Year 16, the company reported net income
of $1,190. The company did not buy or sell any property, plant, and equipment
during the year ended June 30, Year 16.
|
June 30, Year 16
|
June 30, Year 15
|
|
| Cash and cash equivalents |
$220
|
$170
|
| Accounts receivable |
$1,880
|
$1,580
|
| Merchandise inventory |
$760
|
$920
|
| Prepaid rent |
$490
|
$420
|
| Property, plant, and equipment |
$12,090
|
$12,090
|
| Accum. depr, Prop., plt., equip. |
$5,390
|
$4,650
|
| Accounts payable |
$1,390
|
$1,160
|
| Income taxes payable |
$620
|
$820
|
1. Calculate the dollar amount of the Ford Corporation’s changes in
cash for the year ended June 30, Year 16.
| Cash balance 6/30/Year 16 |
$220
|
| Cash balance 6/30/Year 15 |
$170
|
| Increase (decrease) in cash |
$50
|
2. Calculate the dollar amount of changes during Year 16 in the following
balance sheet accounts for the Ford Corporation.
|
Changes
|
|
| Accounts receivable |
$300
|
| Merchandise inventory |
($160)
|
| Prepaid rent |
$70
|
| Accum. depr, Prop., plt., equip. |
$740
|
| Accounts payable |
$230
|
| Income taxes payable |
($200)
|
3. Prepare the cash flows from operating activities section of the Ford
Corporation's statement of cash flows for the year ended June 30, Year
16.
| Cash Flows from Operating Activities | ||
| Net income |
$1,190
|
|
| Add (subtract) items that
affect net income
and cash differently |
||
| Increase in accounts receivable |
($300)
|
|
| Decrease in merchandise inventory |
$160
|
|
| Increase in prepaid rent |
($70)
|
|
| Depreciation |
$740
|
|
| Increase in accounts payable |
$230
|
|
| Decrease in income taxes payable |
($200)
|
$560
|
| Total Cash Flows from Operating Activities |
$1,750
|
Exercise 14.9: Cash Flows from Investing Activities: Purchase of Equipment
For the year ended November 30, Year 9, the Janvier Corporation reported equipment depreciation expense of $1,300 and net income of $106,000. The company’s equipment balance was $12,000 on November 30, Year 8 and $16,500 on November 30, Year 9. The company’s equipment accumulated depreciation balance was $5,300 on November 30, Year 8. The company did not dispose of any equipment during Year 9.
Calculate the Janvier Corporation’s cash flows from investing activities
resulting from equipment purchases in Year 9. Make sure you indicate
whether the company's cash increased or decreased as a result of the equipment
purchases.
| Equipment balance 11/30/Year 9 |
$16,500
|
| Equipment balance 11/30/Year 8 |
$12,000
|
| Increase (decrease) in equipment |
$4,500
|
The company’s cash flow from investing activities
would show a decrease of $4,500 for the purchase of equipment in Year 9.
Exercise 14.10: Cash flows from Investing Activities: Sale of Equipment: No Gain or Loss
For the year ended September 30, Year 13, the Vigneault Corporation reported equipment depreciation expense of $2,100 and net income of $169,000. The company’s equipment balance was $18,000 on September 30, Year 12 and $16,600 on September 30, Year 13. The company’s equipment accumulated depreciation balance was $6,200 on September 30, Year 12 and $7,400 on September 30, Year 13. The company did not purchase any equipment during Year 13. The company sold some of its equipment during Year 13 at a price that did not result in a gain or loss.
Calculate the Vigneault Corporation’s cash flows from investing activities resulting from equipment sales during Year 13. Make sure you indicate whether the company's cash increased or decreased as a result of the equipment sales.
To calculate the company's cash flows from sales
of equipment, the dollar amount of the assets sold must be determined.
This is due to the fact that the company sold equipment without any gain
or loss. So, the cash received would be equal to the dollar amount
of the assets in the accounting records. For assets like equipment, the
dollar amount in the accounting records equals the equipment's cost less
its accumulated depreciation, both of which are calculated below.
| Equipment balance 9/30/Year 13 |
$16,600
|
| Equipment balance 9/30/Year 12 |
$18,000
|
| Increase (decrease) in equipment |
($1,400)
|
| Accumulated depreciation balance 9/30/Year 12 |
$6,200
|
| Plus: Depreciation Expense in Year 13 |
$2,100
|
| Less: Accum. depr. on equipment sold in Year 13 |
?????
|
| Accumulated depreciation balance 9/30/Year 13 |
$7,400
|
The accumulated depreciation on the equipment
sold during Year 13 must have been $900. This can be checked as follows.
| Accumulated depreciation balance 9/30/Year 12 |
$6,200
|
| Plus: Depreciation Expense in Year 13 |
$2,100
|
| Less: Accum. depr. on equipment sold in Year 13 |
($900)
|
| Accumulated depreciation balance 9/30/Year 13 |
$7,400
|
The equipment that was sold in Year 13 was in
the company's accounting records as a net asset of $500, as calculated
as follows.
| Cost of equipment sold in Year 13 |
$1,400
|
| Less: Accum. depr. of equipment sold in Year 13 |
$900
|
| Net asset amount of equipment sold in Year 13 |
$500
|
Since the equipment was sold without a gain or
loss, it must have been sold for $500. As a result, the company’s
cash flow from investing activities would show an increase of $500 for
the sale of equipment in Year 13.
Exercise 14.11: Cash Flows from Investing Activities: Purchase of Equipment and Sale of Equipment: No Gain or Loss
For the year ended April 30, Year 10, the Jarek Corporation reported equipment depreciation expense of $4,100 and net income of $28,000. The company’s equipment balance was $52,000 on April 30, Year 9 and $60,800 on April 30, Year 10. The company’s equipment accumulated depreciation balance was $21,000 on April 30, Year 9 and $23,600 on April 30, Year 10. During Year 10, the company sold equipment that originally cost the company $2,200. The equipment sale did not result in a gain or loss. During Year 10, the company also purchased additional equipment.
1. Calculate the accumulated depreciation balance on the $2,000 equipment
immediately before it was sold during Year 10.
| Accumulated depreciation balance 4/30/Year 9 |
$21,000
|
| Plus: Depreciation Expense in Year 10 |
$4,100
|
| Less: Accum. depr. on equipment sold in Year 10 |
?????
|
| Accumulated depreciation balance 4/30/Year 10 |
$23,600
|
The accumulated depreciation on the equipment
sold during Year 10 must have been $1,500. This can be checked as
follows.
| Accumulated depreciation balance 4/30/Year 9 |
$21,000
|
| Plus: Depreciation Expense in Year 10 |
$4,100
|
| Less: Accum. depr. on equipment sold in Year 10 |
($1,500)
|
| Accumulated depreciation balance 4/30/Year 10 |
$23,600
|
2. Calculate the Jarek Corporation’s cash flows from investing activities resulting from equipment sales during Year 10. Make sure you indicate whether the company's cash increased or decreased as a result of the equipment sales.
To calculate the company's cash flows from sales
of equipment, the dollar amount of the assets sold must be determined.
This is due to the fact that the company sold equipment without any gain
or loss. So, the cash received would be equal to the dollar amount
of the assets in the accounting records. For assets like equipment, the
dollar amount in the accounting records equals the equipment's cost less
its accumulated depreciation.
| Cost of equipment sold in Year 10 |
$2,200
|
| Less: Accum. depr. of equipment sold in Year 10 |
($1,500)
|
| Net asset amount of equipment sold in Year 10 |
$700
|
Since the equipment was sold without a gain or loss, it must have been sold for $700. As a result, the company’s cash flow from investing activities would show an increase of $700 for the sale of equipment in Year 10.
3. Calculate the Jarek Corporation’s cash flows from investing activities resulting from equipment purchases during Year 10. Make sure you indicate whether the company's cash increased or decreased as a result of the equipment purchases.
To calculate the dollar amount of equipment purchased
in Year 10, the company's equipment account must be analyzed, as follows.
| Equipment balance 4/30/Year 9 |
$52,000
|
| Plus: Equipment purchased in Year 10 |
?????
|
| Less: Equipment sold in Year 10 |
($2,200)
|
| Equipment balance 4/30/Year 10 |
$60,800
|
The equipment purchased during Year 10 must have
been $11,000. This can be checked as follows.
| Equipment balance 4/30/Year 9 |
$52,000
|
| Plus: Equipment purchased in Year 10 |
$11,000
|
| Less: Equipment sold in Year 10 |
($2,200)
|
| Equipment balance 4/30/Year 10 |
$60,800
|
Since the company purchased $11,000 of equipment,
the company’s cash flow from investing activities would show a decrease
of $11,000 for the purchase of equipment in Year 10.
Exercise 14.12: Cash Flows from Investing Activities: Sale of Equipment: Loss
For the year ended June 30, Year 11, the Kenney Corporation reported equipment depreciation expense of $11,000 and net income of $550,000. The company’s equipment balance was $90,000 on June 30, Year 10 and $84,000 on June 30, Year 11. The company’s equipment accumulated depreciation balance was $38,000 on June 30, Year 10 and $43,800 on June 30, Year 11. The company did not purchase any equipment during Year 11. The company sold some of its equipment during Year 11 at a price that resulted in a $250 loss.
1. Calculate the cost of the equipment sold by the Kenney Corporation during Year 11.
To calculate the dollar amount of equipment sold
in Year 11, the company's equipment account must be analyzed, as follows.
| Equipment balance 6/30/Year 10 |
$90,000
|
| Plus: Equipment purchased in Year 11 |
$0
|
| Less: Equipment sold in Year 11 |
???????
|
| Equipment balance 6/30/Year 11 |
$84,000
|
The equipment sold during Year 11 must have been
$6,000. This can be checked as follows.
| Equipment balance 6/30/Year 10 |
$90,000
|
| Plus: Equipment purchased in Year 11 |
$0
|
| Less: Equipment sold in Year 11 |
($6,000)
|
| Equipment balance 6/30/Year 11 |
$84,000
|
2. Calculate the accumulated depreciation balance on the equipment immediately
before it was sold during Year 11.
| Accumulated depreciation balance 6/30/Year 10 |
$38,000
|
| Plus: Depreciation Expense in Year 11 |
$11,000
|
| Less: Accum. depr. on equipment sold in Year 11 |
?????
|
| Accumulated depreciation balance 6/30/Year 11 |
$43,800
|
The accumulated depreciation on the equipment
sold during Year 11 must have been $5,200. This can be checked as
follows.
| Accumulated depreciation balance 6/30/Year 10 |
$38,000
|
| Plus: Depreciation Expense in Year 11 |
$11,000
|
| Less: Accum. depr. on equipment sold in Year 11 |
($5,200)
|
| Accumulated depreciation balance 6/30/Year 11 |
$43,800
|
3. Calculate the Kenney Corporation’s cash flows from investing activities resulting from the sale of equipment in during Year 11. Make sure you indicate whether the company's cash increased or decreased as a result of the equipment sale.
To calculate the company's cash flows from sales
of equipment, the dollar amount of cash received must be determined.
The company sold the equipment at a $250 loss. This means the company
received $250 less than the dollar amount of the equipment assets in the
accounting records. For assets like equipment, the dollar amount in the
accounting records equals the equipment's cost less its accumulated depreciation.
| Cost of equipment sold in Year 11 |
$6,000
|
| Less: Accum. depr. of equipment sold in Year 11 |
($5,200)
|
| Net asset amount of equipment sold in Year 11 |
$800
|
Since the equipment was sold at a loss of $250, it must have been sold for $550 ($800 - $250). As a result, the company’s cash flow from investing activities would show an increase of $550 for the sale of equipment in Year 11.
4. In which section of the Kenney Corporation's statement of cash flows would the $250 loss on sale of equipment be reported?
The $250 loss on sale of equipment would be reported
as an adjustment to net income in the cash flows from operating activities
section. The adjustment for the loss would increase cash flows.
Exercise 14.13: Cash Flows from Financing Activities: Additions to Long-term Debt
For the year ended November 30, Year 13, the Roberts Corporation reported income of $211,000. The company’s long-term bonds payable balance was $22,000 on November 30, Year 12 and $29,000 on November 30,Year 13. The company did not retire any long-term bonds during Year 13.
Calculate the Roberts Corporation’s cash flows from financing activities
resulting from issuing long-term bonds during Year 13. Make sure you indicate
whether the company's cash increased or decreased as a result of issuing
long-term bonds.
| Long-term bonds payable balance 11/30/Year 13 |
$29,000
|
| Long-term bonds payable balance 11/30/Year 12 |
$22,000
|
| Increase (decrease) in long-term bonds payable |
$7,000
|
The company’s cash flow from financing activities
would show an increase of $7,000 from issuing long-term bonds in Year 13.
Exercise 14.14: Cash Flows from Financing Activities: Reductions of Long-term Debt: No Gain or Loss
For the year ended January 31, Year 14, the Rotosky Corporation reported income of $151,000. The company’s long-term bonds payable balance was $61,000 on January 31, Year 13 and $43,000 on January 31, Year 14. The company did not issue any additional long-term bonds during Year 14, but did retire some long-term bonds at their principal amount.
1. Calculate the Rotosky Corporation’s cash flows from financing activities
resulting from retiring long-term bonds during Year 14. Make sure you indicate
whether the company's cash increased or decreased as a result of retiring
long-term bonds.
| Long-term bonds payable balance 1/31/Year 14 |
$43,000
|
| Long-term bonds payable balance 1/31/Year 13 |
$61,000
|
| Increase (decrease) in long-term bonds payable |
($18,000)
|
The company’s cash flow from financing activities
would show a decrease of $18,000 from retiring long-term bonds in Year
14.
Exercise 14.15: Cash Flows from Financing Activities: Issuing Common Stock
For the year ended March 31, Year 15, the Scanlon Corporation reported income of $41,000. The company’s common stock balance was $43,000 on March 31, Year 14 and $54,000 on March 31, Year 15. The company’s paid-in capital in excess of par on common stock balance was $12,000 on March 31, Year 14 and $36,000 on March 31, Year 15. The company did not purchase any of its own common stock during Year 15.
Calculate the Scanlon Corporation’s cash flows from financing activities
resulting from issuing common stock during Year 15. Make sure you indicate
whether the company's cash increased or decreased as a result of issuing
common stock.
| Common stock + paid-in captial balances 3/31/Year 15 |
$90,000
|
| Common stock + paid-in captial balances 3/31/Year 14 |
$55,000
|
| Increase in common stock and paid-in capital |
$35,000
|
The company’s cash flow from financing activities
would show an increase of $35,000 from issuing common stock during Year
15.
Exercise 14.16: Cash Flows from Financing Activities: Dividends
For the year ended May 31, Year 16, the Solomon Corporation reported net income of $28,000. The company’s retained earnings balance was $57,000 on May 31, Year 15 and $78,000 on May 31, Year 16.
Calculate the Solomon Corporation’s cash flow from investing activities resulting from dividends during Year 16. Make sure you indicate whether the company's cash increased or decreased as a result of the dividends.
Retained earnings increases through net income
and decreases through dividends. So, we can calculate the company's
dividends as follows.
| Retained earnings balance 5/31/Year 15 |
$57,000
|
| Plus: Net income for Year 16 |
$28,000
|
| Less: Dividends for Year 16 |
?????
|
| Retained earnings balance 5/31/Year 16 |
$78,000
|
The dividends during Year 16 must have been $7,000.
This can be checked as follows.
| Retained earnings balance 5/31/Year 15 |
$57,000
|
| Plus: Net income for Year 16 |
$28,000
|
| Less: Dividends for Year 16 |
($7,000)
|
| Retained earnings balance 5/31/Year 16 |
$78,000
|
The company’s cash flows from investing activities
would
show a decrease of $7,000 for dividends in Year 16.
|
|
|