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13-2
State of the effect ( cash receipt or payment
and amount) of cash of each the following
transactions, considered individually on cash
flows;
sold a new issue of $200,000 of bonds at 99
purchased 4,000 shares of $35 per common
stock on treasury stock of 470 per share
sold 10,000shares of $20 par common stock
for $50 per share
purchased building by paying $60,000 cash
and issuing a $100,000mortgage note
payable
retired $250,000, on which there was $2,500
of unamortized discount,for $260,000
purchased land for $320,000 cash
paid dividends of $2.00 per share . there
were 25,000 shares issued and 4,000 shares
of treasury stock.
Sold equipment with a book value of
$50,000 for $72,000
a. Cash receipt, $198,000
b. Cash payment, $280,000
c. Cash receipt, $500,000
d. Cash payment, $60,000
e. Cash payment, $260,000
f. Cash payment, $320,000
g. Cash payment, $42,000
h. Cash receipt, $72,000
13-3
Identify the type of cash flow activity for each of the following events(
operating,investing or financing)
issued common stock
redeemed bonds
issued preferred stock
purchased patents
net income
paid cash dividends
purchased treasury stock
sold long term investment
sold equipment
purchased building
issued bonds
a. financing
b. financing
c. financing
d. investing
e. operating
f. financing
g. financing
h. investing
i. investing
j. investing
k. financing
13-4
indicate whether each of the following would be added or deducted from net income in
determining net cash flow from operating activities by the indirect method:
a decrease in account receivable
b. increase in note payable due in 90 days to vendors
c. decrease in salaries payable
d. decrease in prepaid expenses
e. gain on retirement of long term debt
f decrease in accounts payable
g. increase in notes receivable due in 90 days from customers.
h. depreciation of fixed assets
i. increase in merchandise inventory
j. amortization of patent
k. loss on disposal of fixed assets.
a) Added
b) Added
c) Deducted
d) Added
e) Deducted
f) Deducted
g) Deducted
h) Added
i) Deducted
j) Added
k) Added
13-14
On the basis of the details of the following bonds payable and related discount accounts,
indicate the items to be reported in the financing section of the statement of cash flows,
assuming the gain or loss on retiring the bonds.
Account Bonds payable
Account No
Balance
Date Item Debit Credit Debit Credit
2010
Jan 1 Balance 500,000
3 Retire bonds 100,000 400,000
July 30 Issue bonds 300,000 700,000
Account discount on pond payable
Account No
Balance
Date Item Debit Credit Debit Credit
2010
Jan 1 Balance 22,500
3 Retire bonds 8,000 14,500
July 30 Issue bonds 20,000 34,500
Dec 31 Amortize 1,750 32,750
discount
Cash proceeds from the issuance of bonds = $300,000 - $20,000
= $280,000
Cash Paid to redeem bonds = $100,000 - $8,000
= $92,000
Cash flows from financing activities:
Cash received from issuing bonds payable ........................... $280,000
Less: Cash paid to redeem bonds payable ............................ 92,000
Note: The discount amortization of $1,750 would be shown as an adjusting
item (increase) in the Cash Flows from Operating Activities section under the
indirect method.
13-11
on the basic of the details of the following fixed asset account, indicate the items to be
reported on the statement of cash flows:
account land
Account No
Balance
Date Item Debit Credit Debit Credit
2010
Jan 1 Balance 1,200,000
Feb 5 Purchased for 380,000 1,580,000
cash
Oct 30 Sold for 180,000 1,400,000
$210,000
Cash flows from investing activities:
Cash received from sale of land ............................................. $210,000
Less: Cash paid for purchase of land .................................... 380,000
(The gain on the sale of land, $30,000, would be deducted from net income in
determining the cash flows from operating activities if the indirect method of
reporting cash flows from operations is used.)
13-6the net income reported on the income statement for the current year was $120,000.
Depreciation recorded on equipment and a building amounted to$62,500 for the year
balance of the current asset and current liability accounts at the beginning and end of the
year are as follows:
End of year Beginning of year
Cash 56,000 59,500
Account receivable (net) 71,000 73,400
Inventories 140,000 126,500
Prepaid expenses 7,800 8,400
Account payable 62,600 66,400
(merchandise creditors)
Salaries payable 9,000 8,250
prepare the cash flows from operating activities section of the statement of cash flow,
using the indirect method
if the direct method had been used , would the net cash flow from operating activities
have been the same, explain?
a. Cash flows from operating activities:
Net income ................................................................................. $210,000
Adjustments to reconcile net income to net cash
flow from operating activities:
Depreciation.......................................................................... 62,500
Changes in current operating assets and liabilities:
Decrease in accounts receivable ..................................... 2,400
Increase in inventories .................................................... (13,500)
Decrease in prepaid expenses ......................................... 600
Decrease in accounts payable ......................................... (3,800)
Increase in salaries payable ............................................ 750
Net cash flow from operating activities .................................. $258,950
b. Yes. The amount of cash flows from operating activities reported on the
statement of cash flows is not affected by the method of reporting such flows.
