Statement of Cash Flows Accounting Brief Exercise

“Statement of Cash Flows”

  • According to the text, when considering an investment opportunity, some investors believe the organization’s statement of cash flows is the most important factor in evaluating the health of the organization. Others argue that the investors should not use statements of cash flows because they do not show true profitability. For example, depreciation is only considered on the income statement, not on the statement of cash flows. Take a position on whether or not you agree with investor use of statements of cash flows, and provide support for your position.
Brief Exercise 17-01

Each of the items below must be considered in preparing a statement of cash flows for Baskerville Co. for the year ended December 31, 2020. For each item, state how it should be shown in the statement of cash flows for 2020 if the indirect method is used.

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(a) Issued bonds for $200,000 cash.
(b) Purchased equipment for $150,000 cash.
(c) Sold land costing $20,000 for $20,000 cash.
(d) Declared and paid a $50,000 cash dividend.
Brief Exercise 17-07

The T-accounts for Equipment and the related Accumulated Depreciation—Equipment for Luo Company at the end of 2020 are shown here.

Equipment
Beg. bal. 76,000 Disposals 24,100
Acquisitions 40,400
End. bal. 92,300
Accumulated Depreciation—Equipment
Disposals 8,100 Beg. bal. 42,800
Depr. exp. 13,100
End. bal. 47,800

In addition, Luo’s income statement reported a loss on the disposal of plant assets of $6,400. What amount was reported on the statement of cash flows as “cash flow from sale of equipment”? (Show amount that decrease cash flow with either a – sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Cash flow from sale of equipment $
Brief Exercise 17-11 a1

The management of Morrow Inc. is trying to decide whether it can increase its dividend. During the current year, it reported net income of $878,400. It had net cash provided by operating activities of $649,300, paid cash dividends of $80,600, and had capital expenditures of $284,500.

(a1) Compute the company’s free cash flow. (Enter negative amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Free cash flow $
Exercise 17-01

Tabares Corporation had these transactions during 2020.

Indicate whether each transaction is an operating activity, investing activity, financing activity, or noncash investing and financing activity.

(a) Issued $50,000 par value common stock for cash.
(b) Purchased a machine for $30,000, giving a long-term note in exchange.
(c) Issued $200,000 par value common stock upon conversion of bonds having a face value of $200,000.
(d) Declared and paid a cash dividend of $18,000.
(e) Sold a long-term investment with a cost of $15,000 for $15,000 cash.
(f) Collected $16,000 from sale of goods.
(g) Paid $18,000 to suppliers.
Exercise 17-03 a

Cushenberry Corporation had the following transactions.

1. Sold land (cost $7,520) for $9,400.
2. Issued common stock at par for $20,200.
3. Recorded depreciation on buildings for $14,300.
4. Paid salaries of $6,900.
5. Issued 1,200 shares of $1 par value common stock for equipment worth $8,000.
6. Sold equipment (cost $14,400, accumulated depreciation $10,080) for $1,728.

(a) For each transaction above, prepare the journal entry. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

No. Account Titles and Explanation Debit Credit
1.
2.
3.
4.
5.
6.
Exercise 17-04

Gutierrez Company reported net income of $193,100 for 2020. Gutierrez also reported depreciation expense of $45,100 and a loss of $6,300 on the disposal of plant assets. The comparative balance sheet shows a decrease in accounts receivable of $19,600 for the year, a $21,600 increase in accounts payable, and a $3,400 decrease in prepaid expenses.

Prepare the operating activities section of the statement of cash flows for 2020. Use the indirect method. (Show amounts that decrease cash flow with either a – sign e.g. -15,000 or in parenthesis e.g. (15,000).)

GUTIERREZ COMPANY
Partial Statement of Cash Flows
$
Adjustments to reconcile net income to
$
$
Problem 17-08A (Part Level Submission)
The following are the financial statements of Nosker Company.

NOSKER COMPANY
Comparative Balance Sheets
December 31
Assets 2020 2019
Cash $36,400 $20,500
Accounts receivable 32,500 18,800
Inventory 30,700 20,100
Equipment 59,700 77,800
Accumulated depreciation—equipment (29,000 ) (23,600 )
Total $130,300 $113,600
Liabilities and Stockholders’ Equity
Accounts payable $28,900 $ 17,000
Income taxes payable 7,500 8,300
Bonds payable 26,900 34,000
Common stock 19,000 14,400
Retained earnings 48,000 39,900
Total $130,300 $113,600
NOSKER COMPANY
Income Statement
For the Year Ended December 31, 2020
Sales revenue $242,700
Cost of goods sold 176,300
Gross profit 66,400
Operating expenses 24,400
Income from operations 42,000
Interest expense 3,500
Income before income taxes 38,500
Income tax expense 8,100
Net income $30,400

Additional data:

1. Dividends declared and paid were $22,300.
2. During the year, equipment was sold for $9,500 cash. This equipment cost $18,100 originally and had a book value of $9,500 at the time of sale.
3. All depreciation expense, $14,000, is in the operating expenses.
4. All sales and purchases are on account.

Further analysis reveals the following.

1. Accounts payable pertain to merchandise suppliers.
2. All operating expenses except for depreciation were paid in cash.
(a)

Prepare a statement of cash flows for Nosker Company using the direct method. (Show amounts that decrease cash flow with either a – sign e.g. -15,000 or in parenthesis e.g. (15,000).)

NOSKER COMPANY
Statement of Cash Flows
$

cash payments:

$
$
(b)

Compute free cash flow. (Enter negative amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Free cash flow $

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