Income Tax Payable Statement of Cash Flows by czg74384

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									                                       Problems

                   STATEMENT OF CASH FLOWS

                      MULTIPLE CHOICE—Conceptual
1.   It is an objective of the statement of cash flows to
     a. disclose changes during the period in all asset and all equity accounts.
     b. disclose the change in working capital during the period.
     c. provide information about the operating, investing, and financing activities of an entity
          during a period.
     d. none of these.

2.   The primary purpose of the statement of cash flows is to provide information
     a. about the operating, investing, and financing activities of an entity during a period.
     b. that is useful in assessing cash flow prospects.
     c. about the cash receipts and cash payments of an entity during a period.
     d. about the entity's ability to meet its obligations, its ability to pay dividends, and its
        needs for external financing.

3.   Cash equivalents are
     a. treasury bills, commercial paper, and money market funds purchased with excess cash.
     b. investments with original maturities of three months or less.
     c. readily convertible into known amounts of cash.
     d. all of these.

4.   An increase in inventory balance would be reported in a statement of cash flows using the
     indirect method (reconciliation method) as a(n)
     a. addition to net income in arriving at net cash flow from operating activities.
     b. deduction from net income in arriving at net cash flow from operating activities.
     c. cash outflow from investing activities.
     d. cash outflow from financing activities.

5.   A statement of cash flows typically would not disclose the effects of
     a. capital stock issued at an amount greater than par value.
     b. stock dividends declared.
     c. cash dividends paid.
     d. a purchase and immediate retirement of treasury stock.

6.   In a statement of cash flows, the cash flows from investing activities section should report
     a. the issuance of common stock in exchange for a factory building.
     b. stock dividends received.
     c. a major repair to machinery charged to accumulated depreciation.
     d. the assignment of accounts receivable.

7.   A company borrows $10,000 and signs a 90-day nontrade note payable. In preparing a
     statement of cash flows (indirect method), this event would be reflected as a(n)
     a. addition adjustment to net income in the cash flows from operating activities section.
     b. cash outflow from investing activities.
23 - 2    Test Bank for Intermediate Accounting, Eleventh Edition

         c. cash inflow from investing activities.
         d. cash inflow from financing activities.

  8.     When preparing a statement of cash flows (indirect method), which of the following is not
         an adjustment to reconcile net income to net cash provided by operating activities?
         a. A change in interest payable
         b. A change in dividends payable
         c. A change in income taxes payable
         d. All of these are adjustments.

  9.     Declaration of a cash dividend on common stock affects cash flows from operating
         activities under the direct method and indirect method as follows:
            Direct Method      Indirect Method
         a.    Outflow              Inflow
         b.     Inflow              Inflow
         c.    Outflow             Outflow
         d.    No effect          No effect

 10.     When preparing a statement of cash flows (indirect method), an increase in ending
         inventory over beginning inventory will result in an adjustment to reported net earnings
         because
         a. cash was increased while cost of goods sold was decreased.
         b. cost of goods sold on an accrual basis is lower than on a cash basis.
         c. acquisition of inventory is an investment activity.
         d. inventory purchased during the period was less than inventory sold resulting in a net
             cash increase.

 11.     When preparing a statement of cash flows, a decrease in accounts receivable during a
         period would cause which one of the following adjustments in determining cash flow from
         operating activities?
              Direct Method    Indirect Method
         a.      Increase         Decrease
         b.     Decrease           Increase
         c.      Increase          Increase
         d.     Decrease          Decrease

 12.     In determining net cash flow from operating activities, a decrease in accounts payable
         during a period
         a. means that income on an accrual basis is less than income on a cash basis.
         b. requires an addition adjustment to net income under the indirect method.
         c. requires an increase adjustment to cost of goods sold under the direct method.
         d. requires a decrease adjustment to cost of goods sold under the direct method.
 13.     Riley Company reports its income from investments under the equity method and
         recognized income of $25,000 from its investment in Wood Co. during the current year,
         even though no dividends were declared or paid by Wood during the year. On Riley's
         statement of cash flows (indirect method), the $25,000 should
         a. not be shown.
         b. be shown as cash inflow from investing activities.
         c. be shown as cash outflow from financing activities.
         d. be shown as a deduction from net income in the cash flows from operating activities
             section.
                                                              Statement of Cash Flows       23 - 3

14.   When preparing a statement of cash flows, an increase in accounts payable during a
      period would require which of the following adjustments in determining cash flows from
      operating activities?
           Indirect Method   Direct Method
      a.       Increase        Decrease
      b.      Decrease          Increase
      c.       Increase         Increase
      d.      Decrease         Decrease

15.   When preparing a statement of cash flows, a decrease in prepaid insurance during a
      period would require which of the following adjustments in determining cash flows from
      operating activities?
           Indirect Method   Direct Method
      a.       Increase        Decrease
      b.      Decrease          Increase
      c.       Increase         Increase
      d.      Decrease         Decrease

16.   When preparing a statement of cash flows, the following are used for which method in
      determining cash flows from operating activities?
            Gross Accounts Receivable        Net Accounts Receivable
      a.             Indirect                         Direct
      b.              Direct                         Indirect
      c.              Direct                          Direct
      d.             Neither                         Indirect

17.   Which of the following statements is correct?
      a. The indirect method starts with income before extraordinary items.
      b. The direct method is known as the reconciliation method.
      c. The direct method is more consistent with the primary purpose of the statement of
         cash flows.
      d. All of these.

18.   In reporting extraordinary transactions on a statement of cash flows (indirect method), the
      a. gross amount of an extraordinary gain should be deducted from net income.
      b. net of tax amount of an extraordinary gain should be added to net income.
      c. net of tax amount of an extraordinary gain should be deducted from net income.
      d. gross amount of an extraordinary gain should be added to net income.
23 - 4    Test Bank for Intermediate Accounting, Eleventh Edition

 19.     Which of the following is shown on a statement of cash flows?
         a. A stock dividend
         b. A stock split
         c. An appropriation of retained earnings
         d. None of these




                          MULTIPLE CHOICE—Computational
 20.     The net cash provided by operating activities in Moon Company's statement of cash flows
         for 2004 was $154,000. For 2004, depreciation on plant assets was $60,000, amortization
         of goodwill was $10,000, and cash dividends paid on common stock was $72,000. Based
         only on the information given above, Moon’s net income for 2004 was
         a. $154,000.
         b. $84,000.
         c. $12,000.
         d. $156,000.

 21.     During 2004, Garber Corporation, which uses the allowance method of accounting for
         doubtful accounts, recorded a provision for bad debt expense of $15,000 and in addition it
         wrote off, as uncollectible, accounts receivable of $6,000. As a result of these
         transactions, net cash flows from operating activities would be calculated (indirect
         method) by adjusting net income with a
         a. $15,000 increase.
         b. $6,000 increase.
         c. $9,000 increase.
         d. $9,000 decrease.

 22.     Stark Company sold some of its plant assets during 2004. The original cost of the plant
         assets was $450,000 and the accumulated depreciation at date of sale was $420,000.
         The proceeds from the sale of the plant assets were $63,000. The information concerning
         the sale of the plant assets should be shown on Stark's statement of cash flows (indirect
         method) for the year ended December 31, 2004, as a(n)
         a. subtraction from net income of $33,000 and a $30,000 increase in cash flows from
             financing activities.
         b. addition to net income of $33,000 and a $63,000 increase in cash flows from investing
             activities.
         c. subtraction from net income of $33,000 and a $63,000 increase in cash flows from
             investing activities.
         d. addition of $63,000 to net income.
                                                            Statement of Cash Flows      23 - 5

 23.   An analysis of the machinery accounts of Colyer Company for 2004 is as follows:
                                                                            Machinery, Net of
                                                             Accumulated       Accumulated
                                                 Machinery   Depreciation      Depreciation
       Balance at January 1, 2004                $600,000       $150,000          $450,000
       Purchases of new machinery in 2004
        for cash                                  240,000           —               240,000
       Depreciation in 2004                          —           120,000           (120,000)
       Balance at Dec. 31, 2004                  $840,000       $270,000          $570,000

       The information concerning Colyer's machinery accounts should be shown in Colyer's
       statement of cash flows (indirect method) for the year ended December 31, 2004, as a(n)
       a. subtraction from net income of $120,000 and a $240,000 decrease in cash flows from
           financing activities.
       b. addition to net income of $120,000 and a $240,000 decrease in cash flows from
           investing activities.
       c. $120,000 increase in cash flows from financing activities.
       d. $240,000 decrease in cash flows from investing activities.

 24.   Equipment which cost $138,000 and had accumulated depreciation of $74,000 was sold
       for $72,000. This transaction should be shown on the statement of cash flows (indirect
       method) as a(n)
       a. addition to net income of $8,000 and a $72,000 cash inflow from financing activities.
       b. deduction from net income of $8,000 and a $64,000 cash inflow from investing
           activities.
       c. deduction from net income of $8,000 and a $72,000 cash inflow from investing
           activities.
       d. addition to net income of $8,000 and a $64,000 cash inflow from financing activities.

 25.   During 2004, equipment was sold for $195,000. The equipment cost $315,000 and had a
       book value of $180,000. Accumulated Depreciation—Equipment was $860,000 at
       12/31/03 and $920,000 at 12/31/04. Depreciation expense for 2004 was
       a. $75,000.
       b. $120,000.
       c. $195,000.
       d. $240,000.


Use the following information for questions 26 and 27.
Equipment that cost $200,000 and had a book value of $104,000 was sold for $120,000. Data
from the comparative balance sheets are:
                                         12/31/04  12/31/03
       Equipment                       $1,440,000 $1,300,000
       Accumulated Depreciation           440,000    380,000

 26.   Depreciation expense for 2004 was
       a. $172,000.
       b. $156,000.
       c. $36,000.
       d. $24,000.
23 - 6    Test Bank for Intermediate Accounting, Eleventh Edition

 27.     Equipment purchased during 2004 was
         a. $340,000.
         b. $200,000.
         c. $140,000.
         d. $60,000.

Use the following information for questions 28 through 32.
Financial statements for Poore Company are given below:
                                            Poore Company
                                             Balance Sheet
                                            January 1, 2004
               Assets                                                  Equities
Cash                                 $ 240,000           Accounts payable         $ 114,000
Accounts receivable                    216,000
Buildings and equipment                900,000
Accumulated depreciation—
  buildings and equipment              (300,000)         Capital stock               690,000
Patents                                 108,000          Retained earnings           360,000
                                     $1,164,000                                   $1,164,000

                                         Poore Company
                                     Statement of Cash Flows
                             For the Year Ended December 31, 2004
                                   Increase (Decrease) in Cash
Cash flows from operating activities
     Net income                                                                    $300,000
     Adjustments to reconcile net income to net cash
        provided by operating activities:
             Increase in accounts receivable                        $ (96,000)
             Increase in accounts payable                              48,000
             Depreciation—buildings and equipment                      90,000
             Gain on sale of equipment                                (36,000)
             Amortization of patents                                   12,000        18,000
Net cash provided by operating activities                                           318,000
Cash flows from investing activities
     Sale of equipment                                                 72,000
     Purchase of land                                                (150,000)
     Purchase of buildings and equipment                             (288,000)
Net cash used by investing activities                                              (366,000)
Cash flows from financing activities
      Payment of cash dividend                                         (90,000)
      Sale of common stock                                            240,000
Net cash provided by financing activities                                           150,000
Net increase in cash                                                                102,000
Cash, January 1, 2004                                                               240,000
Cash, December 31, 2004                                                            $342,000
Total assets on the balance sheet at December 31, 2004 are $1,662,000. Accumulated deprecia-
tion on the equipment sold was $84,000.
                                                              Statement of Cash Flows     23 - 7

 28.   When the equipment was sold, the Buildings and Equipment account received a credit of
       a. $72,000.
       b. $156,000.
       c. $120,000.
       d. $84,000.

 29.   The book value of the buildings and equipment at December 31, 2004 was
       a. $762,000.
       b. $780,000.
       c. $1,068,000.
       d. $882,000.

 30.   The accounts payable at December 31, 2004 were
       a. $66,000.
       b. $162,000.
       c. $48,000.
       d. $222,000.

 31.   The balance in the Retained Earnings account at December 31, 2004 was
       a. $270,000.
       b. $660,000.
       c. $570,000.
       d. $750,000.

 32.   Capital stock (plus any additional paid-in capital) at December 31, 2004 was
       a. $600,000.
       b. $690,000.
       c. $390,000.
       d. $930,000.

Use the following information for questions 33 and 34.
The balance in retained earnings at December 31, 2003 was $810,000 and at December 31,
2004 was $654,000. Net income for 2004 was $563,000. A stock dividend was declared and
distributed which increased common stock $225,000 and paid-in capital $125,000. A cash
dividend was declared and paid.

 33.   The amount of the cash dividend was
       a. $279,000.
       b. $369,000.
       c. $494,000.
       d. $719,000.

 34.   The stock dividend should be reported on the statement of cash flows (indirect method) as
       a. an outflow from financing activities of $225,000.
       b. an outflow from financing activities of $350,000.
       c. an outflow from investing activities of $350,000.
       d. Stock dividends are not shown on a statement of cash flows.
23 - 8    Test Bank for Intermediate Accounting, Eleventh Edition

Use the following information for questions 35 and 36.
A flood damaged a building and contents. Floods are unusual and infrequent in this area. The
receipts from insurance companies totaled $500,000, which was $150,000 less than the book
values. The tax rate is 30%.

 35.     On the statement of cash flows (indirect method), the receipts from insurance companies
         should
         a. be shown as an addition to net income of $350,000.
         b. be shown as an inflow from investing activities of $350,000.
         c. be shown as an inflow from investing activities of $500,000.
         d. not be shown.

 36.     On the statement of cash flows (indirect method), the flood loss should
         a. be shown as an addition to net income of $105,000.
         b. be shown as an addition to net income of $150,000.
         c. be shown as an inflow from investing activities of $105,000.
         d. not be shown.

Use the following information for questions 37 and 38.
Lange Co. provided the following information on selected transactions during 2004:
         Purchase of land by issuing bonds                                $150,000
         Proceeds from issuing bonds                                       300,000
         Purchases of inventory                                            570,000
         Purchases of treasury stock                                        90,000
         Loans made to affiliated corporations                             210,000
         Dividends paid to preferred stockholders                           60,000
         Proceeds from issuing preferred stock                             240,000
         Proceeds from sale of equipment                                    30,000

 37.     The net cash provided (used) by investing activities during 2004 is
         a. $30,000.
         b. $(180,000).
         c. $(330,000).
         d. $(750,000).

 38.     The net cash provided by financing activities during 2004 is
         a. $330,000.
         b. $390,000.
         c. $480,000.
         d. $540,000.
                                                              Statement of Cash Flows    23 - 9

Use the following information for questions 39 through 41.
The balance sheet data of Paxon Company at the end of 2004 and 2003 follow:
                                                                  2004            2003
Cash                                                            $ 125,000       $ 175,000
Accounts receivable (net)                                          300,000         225,000
Merchandise inventory                                              350,000         225,000
Prepaid expenses                                                     50,000        125,000
Buildings and equipment                                            450,000         375,000
Accumulated depreciation—buildings and equipment                    (90,000)        (40,000)
Land                                                               450,000         200,000
       Totals                                                   $1,635,000      $1,285,000
Accounts payable                                                   $ 340,000    $ 275,000
Accrued expenses                                                      60,000       90,000
Notes payable—bank, long-term                                                     200,000
Mortgage payable                                                      150,000
Common stock, $10 par                                               1,045,000      795,000
Retained earnings (deficit)                                            40,000       (75,000)
                                                                   $1,635,000   $1,285,000
Land was acquired for $250,000 in exchange for common stock, par $250,000, during the year;
all equipment purchased was for cash. Equipment costing $25,000 was sold for $10,000; book
value of the equipment was $20,000 and the loss was reported as an ordinary item in net income.
Cash dividends of $50,000 were charged to retained earnings and paid during the year; the
transfer of net income to retained earnings was the only other entry in the Retained Earnings
account. In the statement of cash flows for the year ended December 31, 2004, for Paxon
Company:
 39.   The net cash provided by operating activities was
       a. $130,000.
       b. $165,000.
       c. $140,000.
       d. $120,000.
 40.   The net cash provided (used) by investing activities was
       a. $65,000.
       b. $(100,000).
       c. $(340,000).
       d. $(90,000).
 41.   The net cash provided (used) by financing activities was
       a. $ -0-.
       b. $(50,000).
       c. $(100,000).
       d. $150,000.
 42.   The following information on selected cash transactions for 2004 has been provided by
       Raymond Company:
          Proceeds from sale of land                                         $ 400,000
          Proceeds from long-term borrowings                                  1,000,000
          Purchases of plant assets                                             360,000
          Purchases of inventories                                            1,700,000
          Proceeds from sale of Raymond common stock                            600,000
23 - 10 Test Bank for Intermediate Accounting, Eleventh Edition

 42.   (cont.)
       What is the cash provided (used) by investing activities for the year ended December 31,
       2004, as a result of the above information?
       a. $40,000
       b. $640,000.
       c. $400,000.
       d. $2,000,000.
 43.   Selected information from Benton Company's 2004 accounting records is as follows:
           Proceeds from issuance of common stock                              $ 500,000
           Proceeds from issuance of bonds                                      1,500,000
           Cash dividends on common stock paid                                    200,000
           Cash dividends on preferred stock paid                                  75,000
           Purchases of treasury stock                                            150,000
           Sale of stock to officers and employees not included above             125,000
       Benton's statement of cash flows for the year ended December 31, 2004, would show net
       cash provided (used) by financing activities of
        a. $75,000.
        b. $(275,000).
        c. $200,000.
        d. $1,700,000.
 44.   Snow Incorporated, had net income for 2004 of $7,000,000. Additional information is as
       follows:
           Amortization of patents                                             $ 60,000
           Depreciation on plant assets                                         2,200,000
           Long-term debt:
              Bond premium amortization                                             90,000
              Interest paid                                                      1,200,000
           Provision for doubtful accounts:
              Current receivables                                                 110,000
              Long-term nontrade receivables                                       40,000
       What should be the net cash provided by operating activities in the statement of cash
       flows for the year ended December 31, 2004, based solely on the above information?
       a. $9,430,000.
       b. $9,500,000.
       c. $9,320,000.
       d. $9,460,000.
 45.   The net income for the year ended December 31, 2004, for Unger Company was
       $900,000. Additional information is as follows:
           Depreciation on plant assets                                          $450,000
           Amortization of leasehold improvements                                 255,000
           Provision for doubtful accounts on short-term receivables               90,000
           Provision for doubtful accounts on long-term receivables                75,000
           Interest paid on short-term borrowings                                  60,000
           Interest paid on long-term borrowings                                   45,000
       Based solely on the information given above, what should be the net cash provided by
       operating activities in the statement of cash flows for the year ended December 31, 2004?
                                                                Statement of Cash Flows     23 - 11

 45.   (cont.)
       a.   $1,695,000.
       b.   $1,770,000.
       c.   $1,755,000.
       d.   $1,875,000.

Use the following information for questions 46 through 50.
Renfro 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 Renfro Mining Co. for 2004 and 2003 are provided below.

                                       BALANCE SHEETS
                                                             12/31/04                 12/31/03
Cash                                                         $153,000                 $ 72,000
Accounts receivable                                           135,000                   81,000
Merchandise inventory                                         144,000                  180,000
Property, plant and equipment                 $228,000                  $360,000
Less accumulated depreciation                  (120,000)      108,000    (114,000)     246,000
                                                             $540,000                 $579,000

Accounts payable                                             $ 66,000                 $ 36,000
Income taxes payable                                          132,000                  147,000
Bonds payable                                                 135,000                  225,000
Common stock                                                   81,000                   81,000
Retained earnings                                             126,000                   90,000
                                                             $540,000                 $579,000

                                     INCOME STATEMENT
                             For the Year Ended December 31, 2004
Sales                                                                          $3,150,000
Cost of sales                                                                    2,682,000
Gross profit                                                                       468,000
Selling expenses                                                    $225,000
Administrative expenses                                                72,000      297,000
Income from operations                                                             171,000
Interest expense                                                                    27,000
Income before taxes                                                                144,000
Income taxes                                                                        36,000
Net income                                                                      $ 108,000
The following additional data were provided:
   1. Dividends for the year 2004 were $72,000.
   2. During the year, equipment was sold for $90,000. This equipment cost $132,000 originally
       and had a book value of $108,000 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.

The following question(s) relate(s) to a statement of cash flows (direct method) for the year ended
December 31, 2004, for Renfro Mining Company.
23 - 12 Test Bank for Intermediate Accounting, Eleventh Edition

 46.   The net cash provided by operating activities is
       a. $153,000.
       b. $108,000.
       c. $90,000.
       d. $75,000.

 47.   The net cash provided (used) by investing activities is
       a. $(132,000).
       b. $18,000.
       c. $90,000.
       d. $(108,000).

 48.   Under the direct method, the cash received from customers is
       a. $3,204,000.
       b. $3,096,000.
       c. $3,150,000.
       d. $3,165,000.

 49.   Under the direct method, the total taxes paid is
       a. $36,000.
       b. $15,000.
       c. $21,000.
       d. $51,000.

 50.   The net cash provided (used) by financing activities is
       a. $(90,000).
       b. $18,000.
       c. $(162,000).
       d. $72,000.




                       MULTIPLE CHOICE—CPA Adapted
 51.   Bell Corp.'s comparative balance sheet at December 31, 2004 and 2003 reported
       accumulated depreciation balances of $1,280,000 and $960,000, respectively. Property
       with a cost of $80,000 and a carrying amount of $60,000 was the only property sold in
       2004. Depreciation charged to operations in 2004 was
       a. $304,000.
       b. $320,000.
       c. $336,000.
       d. $352,000.

 52.   Vance Co.'s prepaid insurance was $30,000 at December 31, 2004 and $15,000 at
       December 31, 2003. Insurance expense was $12,000 for 2004 and $9,000 for 2003. What
       amount of cash disbursements for insurance would be reported in Vance's 2004 net cash
       provided by operating activities presented on a direct basis?
       a. $33,000.
       b. $27,000.
       c. $18,000.
       d. $12,000.
                                                                 Statement of Cash Flows      23 - 13


Use the following information for questions 53 and 54.
A company acquired a building, paying a portion of the purchase price in cash and issuing a
mortgage note payable to the seller for the balance.

    53.   In a statement of cash flows, what amount is included in investing activities for the above
          transaction?
          a. Cash payment
          b. Acquisition price
          c. Zero
          d. Mortgage amount

    54.   In a statement of cash flows, what amount is included in financing activities for the above
          transaction?
          a. Cash payment
          b. Acquisition price
          c. Zero
          d. Mortgage amount

Use the following information for questions 55 and 56.
Marcum Corp.'s transactions for the year ended December 31, 2004 included the following:

     Purchased real estate for $220,000 cash which was borrowed from a bank.
     Sold available-for-sale securities for $200,000.
     Paid dividends of $240,000.
     Issued 500 shares of common stock for $100,000.
     Purchased machinery and equipment for $50,000 cash.
     Paid $180,000 toward a bank loan.
     Reduced accounts receivable by $40,000.
     Increased accounts payable $80,000.

    55.   Marcum's net cash used in investing activities for 2004 was
          a. $270,000.
          b. $150,000.
          c. $70,000.
          d. $20,000.

    56.Marcum's net cash used in financing activities for 2004 was
       a. $20,000.
       b. $100,000.
       c. $180,000.
       d. $200,000.
Use the following information for questions 57 and 58.
Silas Corp.'s transactions for the year ended December 31, 2004 included the following:
     Acquired 50% of Gant Corp.'s common stock for $225,000 cash which was borrowed from a
      bank.
     Issued 5,000 shares of its preferred stock for land having a fair value of $400,000.
     Issued 500 of its 11% debenture bonds, due 2009, for $490,000 cash.
23 - 14 Test Bank for Intermediate Accounting, Eleventh Edition

     Purchased a patent for $275,000 cash.
     Paid $150,000 toward a bank loan.
     Sold available-for-sale securities for $995,000.
     Had a net increase in returnable customer deposits (long-term) of $110,000.

    57.     Silas' net cash provided by investing activities for 2004 was
            a. $370,000.
            b. $495,000.
            c. $595,000.
            d. $770,000.

    58.     Silas' net cash provided by financing activities for 2004 was
            a. $565,000.
            b. $675,000.
            c. $715,000.
            d. $825,000.

Use the following information for questions 59 through 61.
Wheeler Corp.'s balance sheet accounts as of December 31, 2004 and 2003 and information
relating to 2004 activities are presented below.
                                                                December 31,
                                                          2004            2003
       Assets
       Cash                                             $ 132,000       $ 60,000
       Short-term investments                              180,000            —
       Accounts receivable (net)                           306,000         306,000
       Inventory                                           414,000         360,000
       Long-term investments                               120,000         180,000
       Plant assets                                      1,020,000         600,000
       Accumulated depreciation                           (270,000)       (270,000)
       Patent                                               54,000           60,000
             Total assets                               $1,956,000      $1,296,000

          Liabilities and Stockholders' Equity
          Accounts payable and accrued liabilities                  $ 498,000        $ 432,000
          Notes payable (nontrade)                                     174,000           —
          Common stock, $10 par                                        480,000         420,000
          Additional paid-in capital                                   240,000         150,000
          Retained earnings                                            564,000         294,000
                 Total liabilities and stockholders' equity         $1,956,000      $1,296,000
                                                             Statement of Cash Flows   23 - 15

Information relating to 2004 activities:
 Net income for 2004 was $450,000.
 Cash dividends of $180,000 were declared and paid in 2004.
 Equipment costing $300,000 and having a carrying amount of $96,000 was sold in 2004 for
    $108,000.
 A long-term investment was sold in 2004 for $96,000. There were no other transactions
    affecting long-term investments in 2004.
 6,000 shares of common stock were issued in 2004 for $25 a share.
 Short-term investments consist of treasury bills maturing on 6/30/05.

 59.   Net cash provided by Wheeler's 2004 operating activities was
       a. $450,000.
       b. $636,000.
       c. $624,000.
       d. $648,000.

 60.   Net cash used in Wheeler's 2004 investing activities was
       a. $696,000.
       b. $546,000.
       c. $504,000.
       d. $516,000.

 61.   Net cash provided by Wheeler's 2004 financing activities was
       a. $144,000.
       b. $156,000.
       c. $324,000.
       d. $504,000.
23 - 16 Test Bank for Intermediate Accounting, Eleventh Edition

                                      PROBLEMS
Pr. 23-73—Statement of cash flows (indirect method).
The net changes in the balance sheet accounts of Vincent Corporation for the year 2004 are
shown below.
             Account                                               Debit            Credit
Cash                                                              $ 35,000
Short-term investments                                                            $ 80,500
Accounts receivable                                                 83,200
Allowance for doubtful accounts                                                      13,300
Inventory                                                           64,200
Prepaid expenses                                                                     18,300
Investment in subsidiary (equity method)                                             60,000
Plant and equipment                                                210,000
Accumulated depreciation                                                           130,000
Accounts payable                                                    90,700
Accrued liabilities                                                                  21,500
Deferred tax liability                                              15,500
8% serial bonds                                                                     80,000
Common stock, $10 par                                                               90,000
Additional paid-in capital                                                         150,000
Retained earnings—Appropriation for bonded indebtedness             60,000
Retained earnings—Unappropriated                                    85,000
                                                                  $643,600        $643,600

An analysis of the Retained Earnings—Unappropriated account follows:
Retained earnings unappropriated, December 31, 2003                             $1,300,000
Add: Net income                                                                    218,000
      Transfer from appropriation for bonded indebtedness                           60,000
             Total                                                              $1,578,000
Deduct: Cash dividends                                            $123,000
        Stock dividend                                             240,000         363,000
Retained earnings unappropriated, December 31, 2004                             $1,215,000

1. On January 2, 2004 short-term investments (classified as available-for-sale) costing $80,500
   were sold for $103,000.
2. The company paid a cash dividend on February 1, 2004.
3. Accounts receivable of $16,200 and $19,400 were considered uncollectible and written off in
   2004 and 2003, respectively.
4. Major repairs of $22,000 to the equipment were debited to the Accumulated Depreciation
   account during the year. No assets were retired during 2004.
5. The wholly owned subsidiary reported a net loss for the year of $60,000. The loss was
   recorded by the parent.
6. At January 1, 2004, the cash balance was $111,000.

Instructions
Prepare a statement of cash flows (indirect method) for the year ended December 31, 2004.
Vincent Corporation has no securities which are classified as cash equivalents.
                                                              Statement of Cash Flows    23 - 17

Pr. 23-74—Statement of cash flows (direct and indirect methods).
Edwards, Inc. has prepared the following comparative balance sheets for 2003 and 2004:
                                                                2004               2003
       Cash                                                   $ 198,000         $102,000
       Receivables                                               106,000           78,000
       Inventory                                                 100,000          120,000
       Prepaid expenses                                           12,000           18,000
       Plant assets                                              840,000          700,000
       Accumulated depreciation                                 (300,000)        (250,000)
       Patent                                                    102,000          116,000
                                                              $1,058,000        $884,000

       Accounts payable                                       $ 102,000         $112,000
       Accrued liabilities                                        40,000          28,000
       Mortgage payable                                            —             300,000
       Preferred stock                                           350,000           —
       Additional paid-in capital—preferred                       80,000           —
       Common stock                                              400,000         400,000
       Retained earnings                                          86,000          44,000
                                                              $1,058,000        $884,000


1. The Accumulated Depreciation account has been credited only for the depreciation expense
   for the period.
2. The Retained Earnings account has been charged for dividends of $92,000 and credited for
   the net income for the year.

      The income statement for 2004 is as follows:

             Sales                               $1,320,000
             Cost of sales                          726,000
             Gross profit                           594,000
             Operating expenses                     460,000
             Net income                          $ 134,000

Instructions
(a) From the information above, prepare a statement of cash flows (indirect method) for
     Edwards, Inc. for the year ended December 31, 2004.
(b)    From the information above, prepare a schedule of cash provided by operating activities
       using the direct method.
23 - 18 Test Bank for Intermediate Accounting, Eleventh Edition




Pr. 23-75—A complex statement of cash flows (indirect method).
The net changes in the balance sheet accounts of Knapp, Inc. for the year 2004 are shown
below:
            Account                                       Debit               Credit
Cash                                                    $ 94,200
Accounts receivable                                                         $ 48,000
Allowance for doubtful accounts                                                 10,500
Inventory                                                  162,900
Prepaid expenses                                             15,000
Long-term investments                                                          108,000
Land                                                       225,000
Buildings                                                  450,000
Machinery                                                    75,000
Office equipment                                                                21,000
Accumulated depreciation:
      Buildings                                                                 18,000
      Machinery                                                                 15,000
      Office equipment                                        9,000
Accounts payable                                           137,400
Accrued liabilities                                                             54,000
Dividends payable                                                               96,000
Premium on bonds                                                                24,000
Bonds payable                                                                  600,000
Preferred stock ($50 par)                                    45,000
Common stock ($10 par)                                                         117,000
Additional paid-in capital—common                                              167,400
Retained earnings                                            65,400
                                                        $1,278,900          $1,278,900

Additional information:
  1.                   Income Statement Data for Year Ended December 31, 2004
      Income before extraordinary item                                                             $204,000
      Extraordinary loss: Condemnation of land                                                       99,000
      Net income                                                                                   $105,000
  2. Cash dividends of $96,000 were declared December 15, 2004, payable January 15, 2005.
     A 5% stock dividend was issued March 31, 2004, when the market value was $22.00 per
     share.
  3. The long-term investments were sold for $105,000.
  4. A building and land which cost $360,000 and had a book value of $225,000 were sold for
     $300,000. The cost of the land, included in the cost and book value above, was $15,000.
  5. The following entry was made to record an exchange of an old machine for a new one:
        Machinery ............................................................................. 120,000
        Accumulated Depreciation—Machinery .................................                     30,000
                Machinery ..................................................................             45,000
                Cash ..........................................................................         105,000
  6. A fully depreciated copier machine which cost $21,000 was written off.
                                                              Statement of Cash Flows   23 - 19

  7. Preferred stock of $45,000 par value was redeemed for $60,000.

  8. The company sold 9,000 shares of its common stock ($10 par) on June 15, 2004 for $25 a
     share. There were 65,700 shares outstanding on December 31, 2004.
  9. Bonds were sold at 104 on December 31, 2004.
 10. Land that was condemned had a book value of $180,000.

Instructions
Prepare a statement of cash flows (indirect method). Ignore tax effects.

								
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