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Connect Financial Accounting Chapter 12

Q1. The following income statement and information about changes in noncash current assets and current liabilities are reported.

SONAD COMPANY Income Statement For Year Ended December 31, 2017
Sales				$	2,323,000
Cost of goods sold					1,138,270
Gross profit					1,184,730
Operating expenses
Salaries expense	$	318,251
Depreciation expense		55,752
Rent expense		62,721
Amortization expenses–Patents		6,969
Utilities expense		25,553			469,246
					715,484
Gain on sale of equipment					9,292
Net income				$	724,776

Changes in current asset and current liability accounts for the year that relate to operations follow.

Accounts receivable	$	22,300		increase		Accounts payable	$	10,025		decrease
Inventory		34,575		increase		Salaries payable		1,250		decrease

Prepare only the cash flows from operating activities section of the statement of cash flows using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

Q2. Equipment with a book value of $79,000 and an original cost of $168,000 was sold at a loss of $32,000.

1. Paid $106,000 cash for a new truck.
2. Sold land costing $315,000 for $405,000 cash, yielding a gain of $90,000.
3. Long-term investments in stock were sold for $94,200 cash, yielding a gain of $16,250.

Use the above information to determine this company’s cash flows from investing activities. (Amounts to be deducted should be indicated with a minus sign.)

Q3.

1. Net income was $479,000.
2. Issued common stock for $72,000 cash.
3. Paid cash dividend of $13,000.
4. Paid $120,000 cash to settle a note payable at its $120,000 maturity value.
5. Paid $119,000 cash to acquire its treasury stock.
6. Purchased equipment for $85,000 cash.

Use the above information to determine this company’s cash flows from financing activities. (Amounts to be deducted should be indicated with a minus sign.)

Q4. The following financial statements and additional information are reported.

IKIBAN INC. Comparative Balance Sheets June 30, 2017 and 2016
	2017				2016
Assets
Cash	$	96,700			$	62,000
Accounts receivable, net		92,000				69,000
Inventory		81,800				113,500
Prepaid expenses		6,200				9,000
Total current assets		276,700				253,500
Equipment		142,000				133,000
Accum. depreciation—Equipment		(36,000	)			(18,000	)
Total assets	$	382,700			$	368,500
Liabilities and Equity
Accounts payable	$	43,000			$	57,000
Wages payable		7,800				18,600
Income taxes payable		5,200				7,400
Total current liabilities		56,000				83,000
Notes payable (long term)		48,000				78,000
Total liabilities		104,000				161,000
Equity
Common stock, $5 par value		256,000				178,000
Retained earnings		22,700				29,500
Total liabilities and equity	$	382,700			$	368,500

 

IKIBAN INC. Income Statement For Year Ended June 30, 2017
Sales				$	768,000
Cost of goods sold					429,000
Gross profit					339,000
Operating expenses
Depreciation expense	$	76,600
Other expenses		85,000
Total operating expenses					161,600
					177,400
Other gains (losses)
Gain on sale of equipment					3,800
Income before taxes					181,200
Income taxes expense					45,690
Net income				$	135,510

Additional Information

1. A $30,000 note payable is retired at its $30,000 carrying (book) value in exchange for cash.
2. The only changes affecting retained earnings are net income and cash dividends paid.
3. New equipment is acquired for $75,600 cash.
4. Received cash for the sale of equipment that had cost $66,600, yielding a $3,800 gain.
5. Prepaid Expenses and Wages Payable relate to Other Expenses on the income statement.
6. All purchases and sales of inventory are on credit.

(1) Prepare a statement of cash flows for the year ended June 30, 2017, using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

Connect Financial Accounting Chapter 12 Quiz

Q1. The purchase of long-term assets by issuing a note payable for the entire amount is reported on the statement of cash flows in the:

• Operating activities.
• Financing activities.
• Investing activities.
• Schedule of noncash financing and investing activities.
• Reconciliation of cash balance.

Q2. The appropriate section in the statement of cash flows for reporting the purchase of land in exchange for common stock is:

• Operating activities.
• Financing activities.
• Investing activities.
• Schedule of noncash investing or financing activity.
• Reconciliation of cash balance.

Q3. In preparing Marjorie Company’s statement of cash flows for the most recent year, the following information is available:

Purchase of equipment	$	260,000
Proceeds from the sale of equipment		87,000
Purchase of land		91,000

• $438,000 of net cash used.
• $438,000 of net cash provided.
• $264,000 of net cash used.
• $351,000 of net cash used.
• $264,000 of net cash provided.

Q4. Use the following information to calculate cash received from dividends:

Dividends revenue	$	29,800
Dividends receivable, January 1		2,600
Dividends receivable, December 31		3,400

• $26,400
• $29,000
• $29,800
• $30,600
• $32,400

Q5. The statement of cash flows helps analysts evaluate all but which of the following?

• Ability of the company to generate profit.
• Source of cash used for plant expansion.
• Differences between net income and net operating cash flow.
• Source of cash used to finance investing activities.
• Source of cash used for debt repayments.

Q6. The first line item in the operating activities section of a spreadsheet for a statement of cash flows prepared using the indirect method is:

• Cash
• Cash received from customers.
• Increase (decrease) in accounts receivable.
• Net income (loss).
• Adjustments to net income.

Q7. A machine with a cost of $130,000 and accumulated depreciation of $85,000 is sold for $50,000 cash. The amount that should be reported in the operating activities section reported under the direct method is:

• $50,000
• $5,000
• $45,000
• Zero. This is an investing activity.
• Zero. This is a financing activity

Q8. When using the indirect method to calculate and report the net cash provided or used by operating activities, net income is adjusted for all but which of the following?

• Gains and losses from nonoperating items.
• Revenues and expenses that did not provide or use cash.
• Changes in noncurrent assets and noncurrent liabilities.
• Changes in current liabilities related to operating activities.
• Depreciation and amortization expense.

Q9. A company had net cash flows from operations of $341,000, net income of $286,000 and average total assets of $1,850,000. The cash flow on total assets ratio equals:

• 83.9
• 542.5
• 15.5
• 18.4
• 646.9

Q10. In preparing a company’s statement of cash flows for the most recent year using the indirect method, the following information is available:

Net income for the year was	$	52,000
Accounts payable increased by		18,000
Accounts receivable decreased by		25,000
Inventories increased by		5,000
Depreciation expense was		30,000

Net cash provided by operating activities was:

• $120,000
• $60,000
• $70,000
• $80,000
• $130,000