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Where does cash that is collected from customers appear on a statement of cash flows?
Fritz Corporation began the year with $900,000 in accounts receivable. During the year, sales revenue totaled $7,000,000. Fritz ended the year with $750,000 in accounts receivable. How much cash did Fritz collect from its customers during the year?
The Willson Company pays off one of its bonds before it came due because interest rates have fallen rather significantly. Where does the cash paid to redeem a bond payable appear on a company’s statement of cash flows?
Which of the following is true about the reporting of cash flows from operating activities?
During the current year, Rafael Corporation distributed dividends of $23,000, received cash by signing a note payable of $105,000, purchased a piece of equipment for $29,000 in cash, and received dividend income of $12,000. What is reported as Rafael’s net cash inflow from financing activities for the year?
Happy Toy Company began Year Nine with $1,000 in inventory and $4,500 in accounts payable. During the year, Happy Toy incurred cost of goods sold of $25,000. Happy Toy ended Year Nine with $2,700 in inventory and $3,800 in accounts payable. How much cash did Happy Toy pay for its merchandise purchases during Year Nine?
Crystal Bell Company generated $48,900 in net income during the year. Included in this number are depreciation expense of $13,000 and a gain on the sale of equipment of $4,000. In addition, accounts receivable increased by $16,000, inventory decreased by $5,090, accounts payable decreased $4,330, and interest payable increased $1,200. Based on the above information, what is Crystal Bell’s net cash inflow from operating activities?
Transportation Inc. incurred rent expense of $98,000 during the year on a large warehouse. During that same period, prepaid rent increased by $34,000. How much cash did Transportation pay for rent during the year?
The Robious Company presents cash flows from operating activities by the direct method. On its income statement for the current year, Robious reports rent expense of $60,000. This figure relates to two different buildings in use by the company. For Building One, prepaid rent went up by $9,000 during the year. For Building Two, rent payable went down by $5,000. How much cash did the company pay this year for rent?
A building is bought on October 1, Year One, for $500,000 in cash. It is depreciated using the straight-line method over an expected life of twenty years. A residual value of $20,000 is anticipated. The half-year convention is applied. On April 1, Year Four, the building is sold for cash at a loss of $13,000. Which of the following appears on the company’s Year Four statement of cash flows?
The Hamster Company determines its cash flows from operating activities by the indirect method. Net income is reported for the current period as $400,000, which included depreciation expense of $70,000 and a gain on sale of land of $30,000. In addition, accounts receivable went down $2,000 during the year while accounts payable went up $7,000. What is the amount of cash generated by the Hamster Company’s operating activities this year?
In Year One, the Karsenti Company reported net income of $30,000. Among many other accounts, the income statement included sales revenue of $500,000, cost of goods sold of $300,000, depreciation expense−equipment of $50,000, and a gain on sale of equipment of $23,000. Included on the balance sheet were a number of accounts such as bonds payable (increased $23,000), accounts payable, (decreased $6,000), retained earnings (increased $11,000), equipment (decreased $70,000), accumulated depreciation−equipment (increased $29,000), accounts receivable (decreased $17,000), and inventory (increased $3,000). No capital stock was issued or reacquired during the year. How much cash did this company spend on inventory during the year?
Use the same information as presented in problem 12. Using the indirect method, how much cash did Karsenti generate this year from its operating activities?
Use the same information as presented in problem 12. One piece of equipment was sold by Karsenti this year for cash, and none was bought. Which of the following is true about this sale of equipment?
Use the same information as presented in problem 12. Karsenti paid a cash dividend to shareholders this year. How should this distribution be shown on a statement of cash flows?
Professor Joe Hoyle discusses the answers to these two problems at the links that are indicated. After formulating your answers, watch each video to see how Professor Hoyle answers these questions.
Your roommate is an English major. The roommate’s parents own a chain of ice cream shops located throughout Florida. One day, while the two of you are taking a study break, your roommate asks you the following question: “I was recently looking at the financial statements my parents prepare for their business. I happened to see the statement of cash flows. I studied it more carefully because I was interested in the amount of cash that the business has been making. One of the biggest positive numbers on the entire statement was depreciation expense. It was listed right there under operating activities with a big plus sign. I don’t understand. How are they able to get so much cash from depreciation? I understand how they get cash by selling ice cream, but how does a company get that cash from something called depreciation?” How would you respond?
Your uncle and two friends started a small office supply store several years ago. The company has grown and now has several large locations. Your uncle knows that you are taking a financial accounting class and asks you the following question: “We’ve been having cash flow problems recently. We are making roughly the same net income as in the past, but our cash reserves are shrinking. How can we possibly be selling so much merchandise and making a reasonable profit and still see our cash dwindling? This makes no sense to me. I’m mystified.” How would you respond?
For each of the following transactions, indicate whether the cash flows are reported in the operating activities section of the statement of cash flows, the investing activities section, or the financing activities section.
For each of the following transactions, indicate what is reported on the statement of cash flows and the section in which it is listed. Assume the indirect method is used to present the cash flows from operating activities.
The Starmer Corporation begins the current year with equipment costing $900,000. This figure rises to $1.2 million by the end of the period. Accumulated depreciation was $200,000 on the first of the year but $260,000 at the end. During the year, the following events took place:
In connection with this company’s equipment account, what will be the effects reported on the statement of cash flows?
Below are figures found in the beginning and ending trial balances for the DeFaul Company for Year Three.
|Equipment||$420,000 debit||$460,000 debit|
|Accumulated depreciation||$350,000 credit||$370,000 credit|
|Note payable||$320,000 credit||$350,000 credit|
|Loss on sale of equipment||—||$24,000 debit|
The Pasley Company prepares an income statement that reports cost of goods sold of $320,000, rent expense of $30,000, and salary expense of $90,000. During the year, prepaid rent went up $5,000, accounts payable went down $4,000, salary payable went up $3,000, and inventory went down $2,000.
Jamison Company’s income statement for 20X6 is below.
Figure 17.41 Jamison Company Income Statement as of 12/31/X6
Figure 17.42 Selected Balance Sheet Accounts from the Beginning and End of 20X6
Determine Jamison’s net cash inflow or outflow from operating activities for this year using both the direct and indirect methods.
The following information is found in the year-end financial statements reported by Barney Corporation.
Figure 17.43 Income Statement
Figure 17.44 Current Asset and Liability Accounts
Prepare the operating activities section of a statement of cash flows by means of the indirect method.
For each of the following transactions, indicate what is shown on a statement of cash flows as either an investing activity, a financing activity, or an operating activity. What kind of activity is it? Is it a cash inflow or outflow? How much cash is reported?
A company creates the following operating activities section of its statement of cash flows.
Figure 17.45 Company Prepared Operating Activities Cash Flows
What was the correct amount of cash that was received during this period from the company’s operating activities?
A company computed its cash payments for rent expense for the most recent period as $127,000, as shown next. What was the correct amount of cash the company paid for rent?
Figure 17.46 Company Computed Payments for Rent
Killian Corporation had several transactions during the year that impacted long-term assets, long-term liabilities, and stockholders’ equity. Determine if the cash amount in each of the following transactions is shown as an investing activity, as a financing activity, or as neither.
Figure 17.47 Determination of Cash Flow Balances
Ruthers Corporation began business on January 1, 20X5. The financial statements for Ruthers’s first year are given here. Because 20X5 is the first year in business, the balance sheet accounts have no beginning balances.
Figure 17.48 Ruthers Corporation Income Statement as of 12/31/X5
Figure 17.49 Ruthers Corporation Balance Sheet 12/31/X5
Prepare Ruthers’s statement of cash flows for 20X5 using the indirect method of calculating cash flows from operating activities.
Looney Company is in the process of preparing financial statements for the year ended 12/31/X9. The income statement as of 12/31/X9 and comparative balance sheets are presented here.
Figure 17.50 Looney Company Income Statement as of 12/31/X9
Figure 17.51 Looney Company Balance Sheet December 31, 20X9 and 20X8
The following additional information has been assembled by Looney’s accounting department:
Prepare Looney’s statement of cash flows as of 12/31/X9 using the direct method.
The following information relates to Henrich’s Hat Store Inc. for the year ended December 31, 20X8.
Figure 17.52 Henrich’s Hat Store Inc. Balance Sheet, December 31, 20X8
Figure 17.53 Henrich’s Hat Store Inc. Income Statement for the Year Ended December 31, 20X8
Prepare the statement of cash flows for Henrich’s Hat Store Inc. for the year ended December 31, 20X8 using the indirect method of calculating cash flows from operations.
This problem has carried through several chapters, building in difficulty. Hopefully, it has allowed students to continually practice skills and knowledge learned in previous chapters.
In Chapter 16 "In a Set of Financial Statements, What Information Is Conveyed about Shareholders’ Equity?", financial statements for April were prepared for Webworks. They are included here as a starting point for the required recording for May.
This will be your final month of preparing financial statements for Webworks. This month, the statement of cash flows will be added. To simplify the construction of that statement, fewer transactions than usual are included.
Figure 17.54 Webworks Financial Statements
The following events occur during May:
Webworks pays taxes of $740 in cash.
Record cost of goods sold.
Assume that you take a job as a summer employee for an investment advisory service. One of the partners for that firm is currently looking at the possibility of investing in Caribou Coffee Company Inc. The partner is interested in knowing how much money the company has available for growth. The partner also wants to know how much growth has taken place in recent years. The partner asks you to look at the 2010 financial statements for Caribou Coffee by following this path: