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Chapter 15 How Well Am I Doing?

--Statement of Cash Flows


True/False Questions
1. An increase in inventory is classified as a use of cash for purposes of constructing
the statement of cash flows.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
2. In the statement of cash flows, dividend payments to the company's stockholders are
treated as a use rather than as a source of cash.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
3. Under the indirect method of determining the net cash flow from operating activities
on the statement of cash flows, a gain on the sale of equipment would be added to net
income.
Ans: False AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Hard
4. Under the indirect method of determining the net cash provided by operating activities
on the statement of cash flows, increases in current liabilities such as accounts payable
are added to net income.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Medium
5. Under the indirect method of determining the net cash provided by operating activities
on the statement of cash flows, dividends are added to net income.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Medium
6. Interest paid on borrowed funds would be included as part of a company's financing
activities on the statement of cash flows.
Ans: False AACSB: Analytic
AICPA FN: Reporting LO: 2

AICPA BB: Critical Thinking


Level: Hard

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-5

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


7. The net cash provided by operating activities on the statement of cash flows would
include interest paid to creditors and dividends paid to the company's own
shareholders.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
8. A change in deferred taxes is considered to be an operating activity on the statement of
cash flows.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
9. Lending money to another company would be classified as a financing activity on the
statement of cash flows.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
10. The direct method of preparing the statement of cash flows will usually show a greater
total increase in cash than the indirect method.
Ans: False AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3,4 Level: Easy
11. Under the direct method of determining the net cash provided by operations on the
statement of cash flows, the cost of goods sold is converted to a cash basis by
adjusting it for changes in inventories and changes in accounts payable during the
period.
Ans: True AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 15 LO: 4 Level: Medium
12. Under the direct method of determining the net cash provided by operating activities
on the statement of cash flows, an increase in inventory would be added to cost of
goods sold to convert cost of goods sold to a cash basis.
Ans: True AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 15 LO: 4 Level: Hard

15-6

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


13. Under the direct method of determining the net cash provided by operating activities
on the statement of cash flows, an increase in prepaid expenses would be added to
selling and administrative expenses to convert selling and administrative expenses to a
cash basis.
Ans: True AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 15 LO: 4 Level: Hard
14. Accounts receivable is not considered to be a cash equivalent for purposes of
preparing the statement of cash flows.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Medium
15. The Financial Accounting Standards Board (FASB) recommends that companies use
the direct method rather than the indirect method in preparing their statement of cash
flows.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Multiple Choice Questions
16. Which of the following would be considered a use of cash for purposes of
constructing a statement of cash flows?
A) a decrease in accounts receivable.
B) an increase in accounts payable.
C) an increase in common stock.
D) a decrease in bonds payable.
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium
17. Which of the following would be considered a source of cash for purposes of
constructing a statement of cash flows?
A) an increase in accounts payable.
B) dividends paid to the company's own shareholders.
C) a decrease in accrued liabilities.
D) an increase in accounts receivable.
Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-7

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


18. Evita Corporation prepares its statement of cash flows using the indirect method.
Evita's statement showed Net cash provided by operating activities to be $46,000.
Under the direct method, this number would have been:
A) $0.
B) $46,000.
C) greater than $46,000.
D) less than $46,000 but greater than $0.
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 15 LO: 2,3,4 Level: Easy
19. Under the indirect method, which item would be deducted from net income as part of
the process of arriving at cash provided by operating activities on the statement of
cash flows?
A) Patent amortization expense
B) Increase in accounts payable
C) Increase in prepaid expenses
D) Decrease in accounts receivable
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Medium
20. A decrease in the prepaid expenses account of $1,000 over the course of a year would
be shown on the company's statement of cash flows prepared under the indirect
method as:
A) an addition to net income of $1,000 in order to arrive at net cash provided by
operating activities.
B) a deduction from net income of $1,000 in order to arrive at net cash provided by
operating activities.
C) an addition of $1,000 under financing activities.
D) a deduction of $1,000 under financing activities.
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Medium

15-8

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


21. An increase in the taxes payable account of $1,000 over the course of a year would be
shown on the company's statement of cash flows prepared under the indirect method
as:
A) an addition to net income of $1,000 in order to arrive at net cash provided by
operating activities.
B) a deduction from net income of $1,000 in order to arrive at net cash provided by
operating activities.
C) an addition of $1,000 under financing activities.
D) a deduction of $1,000 under financing activities.
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Medium
22. Luella Corporation prepares its statement of cash flows using the indirect method.
Which of the following would be added to net income in the operating activities
section of the statement?

A)
B)
C)
D)

Depreciation Loss on Sale


Expense
of Equipment
Yes
Yes
Yes
No
No
Yes
No
No

Ans: A AACSB: Analytic AICPA BB: Critical Thinking


AICPA FN: Reporting LO: 2,3 Level: Medium
23. Gioja Corporation prepares its statement of cash flows using the indirect method.
Which of the following would be deducted from net income in the operating activities
section of the statement?
A)
B)
C)
D)

Increase in Taxes Payable Increase in Dividends Payable


Yes
Yes
Yes
No
No
Yes
No
No

Ans: D AACSB: Analytic AICPA BB: Critical Thinking


AICPA FN: Reporting LO: 2,3 Level: Hard

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-9

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


24. Olaf Corporation prepares its statement of cash flows using the direct method. The
following items were listed on Olaf's income statement. Which of these items would
also be listed in the operating activities section of Olaf's statement of cash flows?
A)
B)
C)
D)

Depreciation Expense Gain on Sale of Equipment


Yes
Yes
Yes
No
No
Yes
No
No

Ans: D AACSB: Analytic AICPA BB: Critical Thinking


AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Medium
25. During the year the balance in the prepaid expenses account increased by $6,000. In
order to adjust the company's net income to a cash basis using the direct method on the
statement of cash flows, it would be necessary to:
A) deduct the $6,000 from the operating expenses reported on the income
statement.
B) add the $6,000 to the operating expenses reported on the income statement.
C) deduct the $6,000 from the cost of goods sold reported on the income statement.
D) add the $6,000 to the cost of goods sold reported on the income statement.
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Hard
26. In a statement of cash flows, all of the following would be classified as operating
activities except:
A) interest paid to creditors.
B) dividends received on stock in another company held as an investment.
C) dividends paid to the company's own common stockholders.
D) interest received on a long-term note receivable.
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium

15-10

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


27. In a statement of cash flows, a change in accounts payable account would be classified
as:
A) an operating activity.
B) a financing activity.
C) an investing activity.
D) a noncash item that need not appear on the statement of cash flows.
Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
28. A decrease in the plant and equipment account of $100,000 over the course of a year
would be shown on the company's statement of cash flows prepared under the indirect
method as:
A) an addition to net income of $100,000 in order to arrive at net cash provided by
operating activities.
B) a deduction from net income of $100,000 in order to arrive at net cash provided
by operating activities.
C) an addition of $100,000 under investing activities.
D) a deduction of $100,000 under investing activities.
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
29. Which of the following should be classified as an investing activity on a statement of
cash flows?
A) cash received from the sale of office equipment that was sold at a loss.
B) cash used to purchase a long-term investment in bonds of another corporation.
C) cash received from the issuance of Iguato Corporation common stock.
D) both A and B above
E)
all of the above
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
30. Which of the following should be classified as an investing activity on a statement of
cash flows?
A) cash paid for income taxes.
B) cash paid for dividends to stockholders.
C) cash paid to employees for services rendered.
D) none of the above
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-11

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


31. A company declared and paid a cash dividend. The dividend would appear on the
company's statement of cash flows as:
A) an addition to net income in order to arrive at net cash provided by operating
activities under the indirect method.
B) a deduction from net income in order to arrive at net cash provided by operating
activities under the indirect method.
C) a deduction under investing activities.
D) a deduction under financing activities.
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
32. Dividends paid to a company's own stockholders of $80,000 would be shown on the
company's statement of cash flows prepared under the indirect method as:
A) an addition of $80,000 under investing activities.
B) a deduction of $80,000 under investing activities.
C) an addition of $80,000 under financing activities.
D) a deduction of $80,000 under financing activities.
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
33. Which of the following should be classified as a financing activity on a statement of
cash flows?
A) cash used to retire bonds payable.
B) an increase in deferred income taxes.
C) cash dividends received on an investment in stock.
D) both A and C above
E)
none of the above
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Hard
34. Which of the following sections of the statement of cash flows will be prepared
differently if the direct method is used instead of the indirect method?
A) operating activities section
B) investing activities section
C) financing activities section
D) all of the above
Ans: A AACSB: Reflective Thinking
AICPA FN: Reporting Appendix: 15

15-12

AICPA BB: Critical Thinking


LO: 3,4 Level: Easy

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


35. In the statement of cash flows, the sum total of the net cash provided by operating
activities, investing activities, and financing activities would be equal to:
A) zero.
B) the beginning balance of cash and cash equivalents.
C) the ending balance of cash and cash equivalents.
D) the increase or decrease in cash and cash equivalents.
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
36. Excerpts from Neuwirth Corporation's comparative balance sheet appear below:
Cash and cash equivalents.............
Accounts receivable.......................
Inventory........................................

Ending Balance Beginning Balance


$37,000
$27,000
$24,000
$28,000
$65,000
$68,000

Which of the following classifications of changes in balance sheet accounts as sources


and uses is correct?
A) The change in Accounts Receivable is a source; The change in Inventory is a
source.
B) The change in Accounts Receivable is a use; The change in Inventory is a use.
C) The change in Accounts Receivable is a source; The change in Inventory is a
use.
D) The change in Accounts Receivable is a use; The change in Inventory is a
source.
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-13

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


37. Excerpts from Deblois Corporation's comparative balance sheet appear below:
Cash and cash equivalents...................
Accounts payable.................................
Accrued wages and salaries payable....

Ending Balance Beginning Balance


$22,000
$28,000
$18,000
$17,000
$34,000
$37,000

Which of the following classifications of changes in balance sheet accounts as sources


and uses is correct?
A) The change in Accounts Payable is a source; The change in Accrued Wages and
Salaries payable is a source.
B) The change in Accounts Payable is a use; The change in Accrued Wages and
Salaries payable is a source.
C) The change in Accounts Payable is a source; The change in Accrued Wages and
Salaries payable is a use.
D) The change in Accounts Payable is a use; The change in Accrued Wages and
Salaries payable is a use.
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
38. Excerpts from Aultman Corporation's comparative balance sheet appear below:
Cash and cash equivalents...................
Property, plant, and equipment............
Long-term debt.....................................

Ending Balance Beginning Balance


$62,000
$29,000
$371,000
$345,000
$75,000
$73,000

Which of the following classifications of changes in balance sheet accounts as sources


and uses is correct?
A) The change in Property, Plant, and Equipment is a use; The change in LongTerm Debt is a source.
B) The change in Property, Plant, and Equipment is a source; The change in LongTerm Debt is a use.
C) The change in Property, Plant, and Equipment is a use; The change in LongTerm Debt is a use.
D) The change in Property, Plant, and Equipment is a source; The change in LongTerm Debt is a source.
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy

15-14

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


39. Swinger Corporation's comparative balance sheet appears below:
Ending
Balance
Assets:
Current assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Total current assets.......................................
Property, plant, and equipment.....................
Less accumulated depreciation..................
Net property, plant, and equipment..............
Total assets...................................................
Liabilities and Stockholders Equity
Current liabilities:
Accounts payable.......................................
Accrued wages and salaries payable.........
Accrued income taxes payable..................
Notes payable............................................
Total current liabilities..................................
Long-term debt.............................................
Deferred income taxes..................................
Total liabilities..............................................
Stockholders equity:
Common stock...........................................
Retained earnings......................................
Total stockholders equity............................
Total liabilities and stockholders equity......

Beginning
Balance

$ 47,000
23,000
66,000
136,000
356,000
184,000
172,000
$308,000

$ 31,000
22,000
64,000
117,000
338,000
161,000
177,000
$294,000

$ 17,000
32,000
25,000
11,000
85,000
83,000
38,000
206,000

$ 16,000
31,000
27,000
13,000
87,000
80,000
34,000
201,000

27,000
75,000
102,000
$308,000

24,000
69,000
93,000
$294,000

The company's net income (loss) for the year was $10,000 and its cash dividends were
$4,000. The total dollar amount of all of the items that would be classified as sources
when compiling a simplified statement of cash flows is:
A) $29,000
B) $16,000
C) $45,000
D) $25,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-15

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Solution:
Sources
Net income.............................................................
Increases in liabilities (and contra asset accounts):
Increase in accumulated depreciation.................
Increase in accounts payable...............................
Increase in accrued wages and salaries payable..
Increase in long-term debt...................................
Increase in deferred income taxes.......................
Increases in capital stock accounts:
Increase in common stock...................................
Total sources..........................................................

15-16

$10,000
23,000
1,000
1,000
3,000
4,000
3,000
$45,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


40. Illies Corporation's comparative balance sheet appears below:
Ending
Balance
Assets:
Current assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Total current assets.......................................
Property, plant, and equipment.....................
Less accumulated depreciation..................
Net property, plant, and equipment..............
Total assets...................................................
Liabilities and Stockholders Equity
Current liabilities:
Accounts payable.......................................
Accrued wages and salaries payable.........
Accrued income taxes payable..................
Notes payable............................................
Total current liabilities..................................
Long-term debt.............................................
Deferred income taxes..................................
Total liabilities..............................................
Stockholders equity:
Common stock...........................................
Retained earnings......................................
Total stockholders equity............................
Total liabilities and stockholders equity......

Beginning
Balance

$ 40,000
19,000
67,000
126,000
358,000
156,000
202,000
$328,000

$ 33,000
21,000
69,000
123,000
339,000
132,000
207,000
$330,000

$ 18,000
35,000
23,000
19,000
95,000
82,000
25,000
202,000

$ 19,000
37,000
19,000
22,000
97,000
86,000
23,000
206,000

23,000
103,000
126,000
$328,000

22,000
102,000
124,000
$330,000

The company's net income (loss) for the year was $5,000 and its cash dividends were
$4,000. The total dollar amount of all of the items that would be classified as uses
when compiling a simplified statement of cash flows is:
A) $7,000
B) $40,000
C) $29,000
D) $33,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-17

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Solution:
Uses
Increases in noncash assets:
Increase in property, plant, and equipment..........
Decreases in liabilities:
Decrease in accounts payable...............................
Decrease in accrued wages and salaries payable..
Decrease in notes payable....................................
Decrease in long-term debt...................................
Dividends paid.........................................................
Total uses.................................................................

15-18

$19,000
1,000
2,000
3,000
4,000
4,000
$33,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


41. The following information relates to Penha, Inc. for last year:
Net income.............................................................
Net increase in all current assets except cash........
Net increase in current liabilities...........................
Dividends paid on common stock..........................
Depreciation expense.............................................
Gain on sale of investments...................................

$117,00
0
$31,000
$45,000
$20,000
$8,000
$3,000

What is Penha's net cash provided by operating activities for last year on the statement
of cash flows? (Assume that current liabilities do not contain any notes payable.)
A) $108,000
B) $116,000
C) $136,000
D) $139,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Net income............................................................................
Adjustments needed to convert net income to a cash basis:
Depreciation charges..........................................................
Add (deduct) changes in current asset accounts affecting
revenue or expense:
Increase in all current assets except cash...........................
Add (deduct) changes in current liability accounts affecting
revenue or expense:
Increase in current liabilities..............................................
Add (deduct) gains or losses on sale of assets:
Gain on sale of investments...............................................
Net cash provided by operating activities.............................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$117,000
8,000
(

31,000)
45,000

3,000)
$136,000

15-19

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


42. Morey Company's net income last year was $27,000 and cash dividends declared and
paid to the company's stockholders totaled $13,000. Changes in selected balance sheet
accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Accounts receivable.................
Inventory..................................
Prepaid expenses......................
Credit balances:
Accumulated depreciation.......
Accounts payable.....................
Taxes payable..........................
Bonds payable..........................

$8,000
$(3,000)
$4,000
$18,000
$6,000
$(4,000)
$10,000

Based solely on this information, the net cash provided by operations under the
indirect method on the statement of cash flows would be:
A) $16,000
B) $45,000
C) $38,000
D) $25,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Hard
Solution:
Net income.........................................................................
Adjustments needed to convert net income to cash basis:
Depreciation charges.......................................................
Add (deduct) changes in current asset accounts
affecting revenue or expense:
Increase in accounts receivable...................................
Decrease in inventory..................................................
Increase in prepaid expenses.......................................
Add (deduct) changes in current liability accounts
affecting revenue or expense:
Increase in accounts payable.......................................
Decrease in taxes payable............................................
Net cash provided by operating activities..........................

15-20

$27,000
18,000
(
(

8,000)
3,000
4,000)
6,000
4,000)
$38,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


43. Norlund Company's net income last year was $21,000. Changes in selected balance
sheet accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Accounts receivable.................
Inventory..................................
Prepaid expenses......................
Credit balances:
Accumulated depreciation.......
Accounts payable.....................
Accrued liabilities....................
Taxes payable..........................
Deferred taxes..........................

$8,000
$9,000
$(3,000)
$15,000
$(5,000)
$11,000
$7,000
$0

Based solely on this information, the net cash provided by operations under the
indirect method on the statement of cash flows would be:
A) $63,000
B) $36,000
C) $7,000
D) $35,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-21

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Solution:
Net income.........................................................................
Adjustments needed to convert net income to cash basis:
Depreciation charges.......................................................
Add (deduct) changes in current asset accounts
affecting revenue or expense:
Increase in accounts receivable...................................
Increase in inventory....................................................
Decrease in prepaid expenses......................................
Add (deduct) changes in current liability accounts
affecting revenue or expense:
Decrease in accounts payable......................................
Increase in accrued liabilities.......................................
Increase in taxes payable.............................................
Net cash provided by operating activities..........................

$21,000
15,000
(
(

8,000)
9,000)
3,000

5,000)
11,000
7,000
$35,000

44. Alaric Corporation recently sold equipment for $16,000. The equipment was
purchased five years ago for $100,000. The accumulated depreciation on the
equipment on the date of sale was $75,000. Alaric uses the indirect method to prepare
its statement of cash flows. What net effect will this sale have on the investing
activities section of Alaric's statement of cash flows for the current year?
A) no effect
B) $7,000 increase
C) $9,000 decrease
D) $16,000 increase
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Medium

15-22

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


45. Roble Corporation's balance sheet and income statement appear below:
Comparative Balance Sheet
Ending Beginning
Balance
Balance
Assets:
Cash and cash equivalents.........................
$ 28
$ 22
Accounts receivable...................................
65
61
Inventory....................................................
45
47
Plant and equipment...................................
658
520
Accumulated depreciation.........................
( 296)
( 288)
Total assets.................................................
$500
$362
Liabilities and stockholders equity:
Accounts payable.......................................
Wages payable...........................................
Taxes payable.............................................
Bonds payable............................................
Deferred taxes............................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 28
22
28
151
16
55
200
$500

$ 29
20
24
200
17
50
22
$362

Income Statement
Sales...........................................................
Cost of goods sold......................................
Gross margin..............................................
Selling and administrative expense............
Net operating income.................................
Gain on sale of plant and equipment..........
Income before taxes...................................
Income taxes..............................................
Net income.................................................

$1,48
5
989
496
172
324
19
343
103
$ 240

Cash dividends were $62. The company sold equipment for $19 that was originally
purchased for $5 and that had accumulated depreciation of $5. The net cash provided
by (used by) operations for the year was:
A) $255
B) $236
C) $324
D) $298
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-23

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Solution:
Net income..................................................................................
Adjustments needed to convert net income to cash basis:
Depreciation charges................................................................
Add (deduct) changes in current asset accounts affecting
revenue or expense:
Increase in accounts receivable............................................
Decrease in inventory...........................................................
Add (deduct) changes in current liability accounts affecting
revenue or expense:
Decrease in accounts payable...............................................
Increase in wages payable....................................................
Increase in taxes payable......................................................
Add (deduct) gains or losses on sales of assets:
Gain on sale of plant and equipment....................................
Add (deduct) changes in the Deferred Income Taxes account:
Decreases in deferred taxes liability.....................................
Net cash provided by operating activities...................................

15-24

$240
13
(

4)
2

1)
2
4

19)

1)
$236

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


46. Ivory Corporation's balance sheet and income statement appear below:
Comparative Balance Sheet
Ending Beginning
Balance
Balance
Assets:
Cash and cash equivalents.........................
$ 37
$ 40
Accounts receivable...................................
44
42
Inventory....................................................
63
53
Plant and equipment...................................
443
440
Accumulated depreciation.........................
( 268)
( 230)
Total assets.................................................
$319
$345
Liabilities and stockholders equity:
Accounts payable.......................................
Wages payable...........................................
Taxes payable.............................................
Bonds payable............................................
Deferred taxes............................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...
Income Statement
Sales...........................................................
Cost of goods sold......................................
Gross margin..............................................
Selling and administrative expense............
Net operating income.................................
Gain on sale of plant and equipment..........
Income before taxes...................................
Income taxes..............................................
Net income.................................................

$ 41
26
16
127
18
63
28
$319

$ 45
25
17
120
19
60
59
$345

$386
239
147
185
( 38)
8
(30)
0
($ 30)

Cash dividends were $1. The company sold equipment for $19 that was originally
purchased for $15 and that had accumulated depreciation of $4. The net cash provided
by (used by) investing activities for the year was:
A) ($18)
B) ($1)
C) $1
D) $19
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-25

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Solution:
Additions to plant and equipment..............
Proceeds from sale of equipment...............
Net cash provided by investing activities. .

($18) *
19
$ 1

*$443 + $15 $440 = $18


47. Daubenspeck Corporation's balance sheet and income statement appear below:
Comparative Balance Sheet
Ending
Balance
Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 42
65
65
666
( 258)
$580

$ 38
56
57
530
( 230)
$451

Liabilities and stockholders equity:


Accounts payable.......................................
Wages payable...........................................
Taxes payable.............................................
Bonds payable............................................
Deferred taxes............................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 33
16
14
167
25
64
261
$580

$ 40
17
12
200
24
60
98
$451

Income Statement
Sales...........................................................
Cost of goods sold......................................
Gross margin..............................................
Selling and administrative expense............
Net operating income.................................
Gain on sale of plant and equipment..........
Income before taxes...................................
Income taxes..............................................
Net income.................................................

15-26

Beginning
Balance

$1,093
671
422
145
277
20
297
89
$ 208

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Cash dividends were $45. The company sold equipment for $20 that was originally
purchased for $12 and that had accumulated depreciation of $12. The net cash
provided by (used by) financing activities for the year was:
A) ($74)
B) ($33)
C) ($45)
D) $4
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Financing Activities
Decrease in bonds payable.........................
Increase in common stock..........................
Cash dividends paid...................................
Net cash used in financing activities..........

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

($33)
4
( 45)
($74)

15-27

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


48. The most recent balance sheet and income statement of Helle Corporation appear
below:
Comparative Balance Sheet
Ending Beginning
Balance
Balance
Assets:
Cash and cash equivalents.........................
$ 21
$ 22
Accounts receivable...................................
56
54
Inventory....................................................
66
58
Plant and equipment...................................
459
420
Accumulated depreciation.........................
( 225)
( 202)
Total assets.................................................
$377
$352
Liabilities and stockholders equity:
Accounts payable.......................................
Wages payable...........................................
Taxes payable.............................................
Bonds payable............................................
Deferred taxes............................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 46
22
18
22
17
61
191
$377

Income Statement
Sales...........................................................
Cost of goods sold......................................
Gross margin..............................................
Selling and administrative expense............
Net operating income.................................
Income taxes..............................................
Net income.................................................

$532
324
208
137
71
21
$ 50

$ 55
20
21
30
16
60
150
$352

Cash dividends were $9. The net cash provided by (used by) operations for the year
was:
A) $46
B) $71
C) $54
D) $4
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Medium

15-28

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Solution:
Net income.............................................................
Adjustments to convert net income to cash basis:
Depreciation charges..........................................
Increase in accounts receivable..........................
Increase in inventory..........................................
Decrease in accounts payable.............................
Increase in wages payable..................................
Decrease in taxes payable...................................
Increase in deferred taxes liability......................
Net cash provided by operating activities..............

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$50
23
2)
8)
9)
2
( 3)
1
$54
(
(
(

15-29

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


49. Guzzi Corporation's most recent balance sheet appears below:
Comparative Balance Sheet
Ending
Balance

Beginning
Balance

Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 22
79
69
543
( 202)
$511

$ 20
74
65
420
( 175)
$404

Liabilities and stockholders equity:


Accounts payable.......................................
Wages payable...........................................
Taxes payable.............................................
Bonds payable............................................
Deferred taxes............................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 65
17
19
11
14
64
321
$511

$ 59
19
18
10
19
60
219
$404

Net income for the year was $129. Cash dividends were $27. The net cash provided by
(used by) operations for the year was:
A) $184
B) $147
C) $111
D) $18
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Easy

15-30

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Solution:
Net income.............................................................
Adjustments to convert net income to cash basis:
Depreciation charges..........................................
Increase in accounts receivable..........................
Increase in inventory..........................................
Increase in accounts payable..............................
Decrease in wages payable.................................
Increase in taxes payable....................................
Decrease in deferred taxes liability....................
Net cash provided by operating activities..............

$129
27
5)
4)
6
(
2)
1
(
5)
$147
(
(

50. Isenberg Corporation's most recent balance sheet appears below:


Comparative Balance Sheet
Ending
Balance

Beginning
Balance

Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 24
33
75
689
( 314)
$507

$ 22
35
66
530
( 268)
$385

Liabilities and stockholders equity:


Accounts payable.......................................
Wages payable...........................................
Taxes payable.............................................
Bonds payable............................................
Deferred taxes............................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 45
19
10
26
21
71
315
$507

$ 46
20
9
30
20
70
190
$385

The net income for the year was $159. Cash dividends were $34. The net cash
provided by (used by) investing activities for the year was:
A) ($159)
B) ($113)
C) $159
D) $113

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-31

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Easy
Solution:
Investing Activities
Additions to plant and equipment..............
Net cash used by investing activities.........

($159)
($159)

*$689 $530
51. Minshall Corporation's most recent balance sheet appears below:
Comparative Balance Sheet
Ending
Balance

Beginning
Balance

Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 22
32
50
573
( 297)
$380

$ 20
36
62
510
( 275)
$353

Liabilities and stockholders equity:


Accounts payable.......................................
Wages payable...........................................
Taxes payable.............................................
Bonds payable............................................
Deferred taxes............................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 46
12
9
132
19
42
120
$380

$ 45
15
8
120
25
40
100
$353

The net income for the year was $26. Cash dividends were $6. The net cash provided
by (used by) financing activities for the year was:
A) $2
B) $8
C) $12
D) ($6)
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Easy

15-32

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Solution:
Financing Activities
Increase in bonds payable..........................
Increase in common stock..........................
Cash dividends paid...................................
Net cash used in financing activities..........

$12
2
( 6)
$ 8

52. Chain Corporation's most recent balance sheet appears below:


Comparative Balance Sheet
Ending
Balance

Beginning
Balance

Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 37
27
45
602
( 262)
$449

$ 32
28
51
530
( 257)
$384

Liabilities and stockholders equity:


Accounts payable.......................................
Long-term debt...........................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 51
77
22
299
$449

$ 46
110
20
208
$384

The net income for the year was $121. Cash dividends were $30. The net cash
provided by (used by) operations for the year was:
A) $173
B) $138
C) $17
D) $104
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Easy

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-33

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Solution:
Net income.............................................................
Adjustments to convert net income to cash basis:
Depreciation charges..........................................
Decrease in accounts receivable.........................
Decrease in inventory.........................................
Increase in accounts payable..............................
Net cash provided by operating activities..............

$121
5
1
6
5
$138

53. La Corporation's most recent balance sheet appears below:


Comparative Balance Sheet
Ending
Balance

Beginning
Balance

Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 26
32
55
552
( 324)
$341

$ 22
27
56
490
( 288)
$307

Liabilities and stockholders equity:


Accounts payable.......................................
Long-term debt...........................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 48
214
32
47
$341

$ 47
250
30
( 20)
$307

The net income for the year was $91. Cash dividends were $24. The net cash provided
by (used by) investing activities for the year was:
A) $26
B) $62
C) ($26)
D) ($62)
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Easy

15-34

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Solution:
Investing Activities
Additions to plant and equipment..............
Net cash used by investing activities.........

($62)
($62)

*$552 $490
54. Hanna Corporation's most recent balance sheet appears below:
Comparative Balance Sheet
Ending
Balance

Beginning
Balance

Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 31
44
68
626
( 340)
$429

$ 32
45
69
510
( 303)
$353

Liabilities and stockholders equity:


Accounts payable.......................................
Long-term debt...........................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 39
311
61
18
$429

$ 38
300
60
( 45)
$353

The net income for the year was $84. Cash dividends were $21. The net cash provided
by (used by) financing activities for the year was:
A) ($9)
B) $1
C) ($21)
D) $11
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Easy

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-35

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Solution:
Financing Activities
Increase in long-term debt.........................
Increase in common stock..........................
Cash dividends paid...................................
Net cash used by financing activities.........

$11
1
( 21)
($ 9)

55. Last year Cummins Company reported a cost of goods sold of $50,000. Inventories
increased by $10,000 during the year, and accounts payable increased by $2,000. The
company uses the direct method to determine the net cash provided by operating
activities on the statement of cash flows. The cost of goods sold adjusted to a cash
basis would be:
A) $42,000
B) $58,000
C) $48,000
D) $60,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Medium
Solution:
Cost of goods sold (as reported)................ $50,000
Adjustments to a cash basis:
Increase in inventory...............................
10,000
Increase in accounts payable................... ( 2,000)
Cost of goods sold (adjusted)..................... $58,000

15-36

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


56. Last year Lawmond Company reported sales of $120,000 on its income statement.
During the year, accounts receivable increased by $20,000 and accounts payable
decreased by $10,000. The company uses the direct method to determine the net cash
provided by operating activities on the statement of cash flows. The sales revenue
adjusted to a cash basis for the year would be:
A) $100,000
B) $90,000
C) $130,000
D) $150,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Hard
Solution:
Sales revenue (as reported)......................
Adjustments to a cash basis:
Increase in accounts receivable.............
Sales revenue (adjusted)...........................

$120,000
( 20,000)
$100,000

57. Cridge Company's selling and administrative expenses for last year totaled $170,000.
During the year the company's prepaid expense account balance increased by $9,000
and accrued liabilities decreased by $13,000. Depreciation charges for the year were
$15,000. Based on this information, selling and administrative expenses adjusted to a
cash basis under the direct method on the statement of cash flows would be:
A) $177,000
B) $207,000
C) $133,000
D) $163,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-37

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Solution:
Selling and administrative expenses
(as reported).........................................
Adjustments to a cash basis:
Increase in prepaid expenses................
Decrease in accrued liabilities.............
Periods depreciation charges..............
Selling and administration expenses
(adjusted).............................................

15-38

$170,000

9,000
13,000
15,000)
$177,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


58. Pietras Corporation's balance sheet and income statement appear below:
Comparative Balance Sheet
Ending
Balance

Beginning
Balance

Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 23
51
55
720
( 297)
$552

$ 22
52
49
570
( 291)
$402

Liabilities and stockholders equity:


Accounts payable.......................................
Wages payable...........................................
Taxes payable.............................................
Bonds payable............................................
Deferred taxes............................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 36
14
11
66
19
35
371
$552

$ 34
15
12
70
21
30
220
$402

Income Statement
Sales...........................................................
Cost of goods sold......................................
Gross margin..............................................
Selling and administrative expense............
Net operating income.................................
Gain on sale of plant and equipment..........
Income before taxes...................................
Income taxes..............................................
Net income.................................................

$1,264
828
436
152
284
13
297
89
$ 208

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-39

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Cash dividends were $57. The company sold equipment for $18 that was originally
purchased for $11 and that had accumulated depreciation of $6. The net cash provided
by (used by) operations for the year was:
A) $213
B) $257
C) $284
D) $200
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Medium
Solution:
Sales revenue (as reported)....................................
Adjustments to a cash basis:
Decrease in accounts receivable......................
Total.......................................................................

$1,264

Cost of goods sold (as reported)............................


Adjustments to a cash basis:
Increase in inventory........................................
Increase in accounts payable...........................
Total.......................................................................

828

Selling and administrative expenses (as reported)


Adjustments to a cash basis:
Decrease in accrued wages payable.................
Periods depreciation charges..........................
Total.......................................................................
Income tax expense................................................
Adjustments to a cash basis:
Decrease in accrued taxes payable..................
Decrease in deferred income taxes..................
Total.......................................................................
Net cash provided by operating activities..............

15-40

1
$1,265

6
2)
832
152

1
12)
141
89
1
2
92
$ 200

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


59. The most recent balance sheet and income statement of Ganim Corporation appear
below:
Comparative Balance Sheet
Ending
Balance

Beginning
Balance

Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 35
73
54
438
( 212)
$388

$ 34
75
63
360
( 199)
$333

Liabilities and stockholders equity:


Accounts payable.......................................
Wages payable...........................................
Taxes payable.............................................
Bonds payable............................................
Deferred taxes............................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$61
20
14
80
11
24
178
$388

$63
21
16
110
15
20
88
$333

Income Statement
Sales...........................................................
Cost of goods sold......................................
Gross margin..............................................
Selling and administrative expense............
Net operating income.................................
Income taxes..............................................
Net income.................................................

$920
606
314
157
157
47
$110

Cash dividends were $20. The net cash provided by (used by) operations for the year
was:
A) $125
B) $95
C) $15
D) $157
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-41

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Solution:
Sales revenue (as reported)....................................
Adjustments to a cash basis:
Decrease in accounts receivable......................
Total.......................................................................

$920

Cost of goods sold (as reported)............................


Adjustments to a cash basis:
Decrease in inventory......................................
Decrease in accounts payable..........................
Total.......................................................................

606

Selling and administrative expenses (as reported)


Adjustments to a cash basis:
Decrease in accrued wages payable................
Periods depreciation charges..........................
Total.......................................................................
Income tax expense...............................................
Adjustments to a cash basis:
Decrease in accrued taxes payable..................
Decrease in deferred income taxes..................
Total.......................................................................
Net cash provided by operating activities..............

15-42

2
$922

9)
2
599
157

1
13)
145
47
2
4
53
$125

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


60. Ostiguy Corporation's most recent comparative balance sheet and income statement
appear below:
Comparative Balance Sheet
Ending
Balance

Beginning
Balance

Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 38
55
44
584
( 327)
$394

$ 32
59
46
480
( 278)
$339

Liabilities and stockholders equity:


Accounts payable.......................................
Long-term debt...........................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 28
293
55
18
$394

$ 27
320
50
( 58)
$339

Income Statement
Sales...........................................................
Cost of goods sold......................................
Gross margin..............................................
Selling and administrative expense............
Net operating income.................................
Income taxes..............................................
Net income.................................................

$883
580
303
164
139
42
$ 97

Cash dividends were $21. The net cash provided by (used by) operations for the year
was:
A) $139
B) $153
C) $41
D) $56
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Easy

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-43

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Solution:
Sales revenue (as reported).......................................
Adjustments to a cash basis:
Decrease in accounts receivable.........................
Total..........................................................................

$883

Cost of goods sold (as reported)...............................


Adjustments to a cash basis:
Decrease in inventory.........................................
Increase in accounts payable..............................
Total..........................................................................

580

Selling and administrative expenses (as reported)


Adjustments to a cash basis:
Depreciation charges..........................................
Total..........................................................................

4
$887

(
(

2)
1)
577
164

49)
115

Income tax expense (as reported).............................

42

Net cash provided by operating activities.................

$153

61. Last year Martson Company sold equipment with a net book value of $110,000 for
$130,000 in cash. This equipment was originally purchased for $200,000. What will
be the net effect of this transaction on the net cash provided by investing activities on
the statement of cash flows?
A) A net deduction of $70,000 from cash.
B) A net addition of $70,000 to cash.
C) A net deduction of $20,000 from cash.
D) A net addition of $20,000 to cash.
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Hard
Solution:
Investing Activities
Disposal of equipment..............................
Proceeds from sale of equipment.............
Net cash used in investing activities........

15-44

($200,000)
130,000
($ 70,000)

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


62. The following transactions occurred last year at Jobb Company:
Issuance of shares of the companys own common stock................
Dividends paid to the companys own shareholders.........................
Dividends received from investments in other companies shares...
Interest paid on the companys own bonds.......................................
Repayment of principal on the companys own bonds.....................
Proceeds from sale of the companys used equipment.....................
Purchase of land................................................................................

$100,00
0
$7,000
$2,000
$25,000
$90,000
$9,000
$120,00
0

Based solely on the above information, the net cash provided by financing activities
for the year on the statement of cash flows would be:
A) $3,000
B) $(131,000)
C) $(22,000)
D) $353,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Hard
Solution:
Financing Activities
Increase in common stock........................
Cash dividends paid.................................
Decrease in bonds payable.......................
Net cash provided by financing activities

$100,000
(
7,000)
( 90,000)
$ 3,000

63. Last year Burdic Company's cash account decreased by $4,000. Net cash provided by
investing activities was $31,000. Net cash used in financing activities was $38,000.
On the statement of cash flows, the net cash flow provided by (used in) operating
activities was:
A) $(4,000)
B) $(11,000)
C) $(7,000)
D) $3,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-45

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Solution:
Decrease in cash..................................................
Less: Net cash provided by investing activities. .
Add: Net cash used in financing activities..........
Net cash provided by operating activities...........

($ 4,000)
( 31,000)
38,000
$ 3,000

Use the following to answer questions 64-68:


Krech Corporation's comparative balance sheet appears below:
Ending Beginning
Balance
Balance
Assets:
Current assets:
Cash and cash equivalents........................
Accounts receivable.................................
Inventory..................................................
Total current assets......................................
Property, plant, and equipment....................
Less accumulated depreciation.................
Net property, plant, and equipment.............
Total assets..................................................
Liabilities and Stockholders Equity
Current liabilities:
Accounts payable.....................................
Accrued wages and salaries payable........
Accrued income taxes payable.................
Notes payable...........................................
Total current liabilities................................
Long-term debt............................................
Deferred income taxes.................................
Total liabilities.............................................
Stockholders equity:...................................
Common stock..........................................
Retained earnings.....................................
Total stockholders equity...........................
Total liabilities and stockholders equity....

15-46

$ 31,000
18,000
70,000
119,000
374,000
190,000
184,000
$303,00
0

$ 28,000
20,000
66,000
114,000
354,000
165,000
189,000
$303,000

$ 13,000
31,000
28,000
21,000
93,000
76,000
39,000
208,000

$ 9,000
33,000
29,000
20,000
91,000
73,000
40,000
204,000

28,000
67,000
95,00
0
$303,00
0

26,000
73,000
99,000
$303,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


The company's net income (loss) for the year was ($3,000) and its cash dividends were
$3,000.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-47

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


64. Which of the following classifications of changes in balance sheet accounts as sources
and uses is correct?
A) The change in Accounts Receivable is a source; The change in Inventory is a
source
B) The change in Accounts Receivable is a source; The change in Inventory is a
use
C) The change in Accounts Receivable is a use; The change in Inventory is a use
D) The change in Accounts Receivable is a use; The change in Inventory is a
source
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
65. Which of the following classifications of changes in balance sheet accounts as sources
and uses is correct?
A) The change in Accounts Payable is a use; The change in Accrued Wages and
Salaries payable is a source
B) The change in Accounts Payable is a source; The change in Accrued Wages and
Salaries payable is a use
C) The change in Accounts Payable is a source; The change in Accrued Wages and
Salaries payable is a source
D) The change in Accounts Payable is a use; The change in Accrued Wages and
Salaries payable is a use
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
66. Which of the following classifications of changes in balance sheet accounts as sources
and uses is correct?
A) The change in Property, Plant, and Equipment is a source; The change in LongTerm Debt is a source
B) The change in Property, Plant, and Equipment is a use; The change in LongTerm Debt is a use
C) The change in Property, Plant, and Equipment is a source; The change in LongTerm Debt is a use
D) The change in Property, Plant, and Equipment is a use; The change in LongTerm Debt is a source
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy

15-48

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


67. The total dollar amount of all of the items that would be classified as sources when
compiling a simplified statement of cash flows is:
A) $34,000
B) $3,000
C) $28,000
D) $37,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium
Solution:
Sources
Decreases in noncash assets:
Decrease in accounts receivable............................
Increases in liabilities (and contra asset accounts):
Increase in accumulated depreciation....................
Increase in accounts payable.................................
Increase in notes payable.......................................
Increase in long-term debt.....................................
Increases in capital stock accounts:
Increase in common stock.....................................
Total sources.............................................................

$ 2,000
25,000
4,000
1,000
3,000
2,000
$37,000

68. The total dollar amount of all of the items that would be classified as uses when
compiling a simplified statement of cash flows is:
A) $34,000
B) $3,000
C) $37,000
D) $28,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-49

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Solution:
Uses
Net loss
Increases in noncash assets:
Increase in inventory..............................................
Increase in property, plant, and equipment............
Decreases in liabilities:
Decrease in accrued wages and salaries payable...
Decrease in accrued income taxes payable............
Decrease in deferred income taxes........................
Dividends..................................................................
Total uses..................................................................

$ 3,000
4,000
20,000
2,000
1,000
1,000
3,000
$34,000

Use the following to answer questions 69-71:


The most recent comparative balance sheet of Giacomelli Corporation appears below:
Ending
Balance
Assets:
Current assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Total current assets.......................................
Property, plant, and equipment.....................
Less accumulated depreciation..................
Net property, plant, and equipment..............
Total assets...................................................

15-50

$ 37,000
20,000
70,000
127,000
424,000
231,000
193,000
$320,000

Beginning
Balance
$ 29,000
24,000
68,000
121,000
399,000
200,000
199,000
$320,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Liabilities and Stockholders Equity
Current liabilities:
Accounts payable.......................................
Accrued wages and salaries payable.........
Accrued income taxes payable..................
Notes payable............................................
Total current liabilities..................................
Long-term debt.............................................
Deferred income taxes..................................
Total liabilities..............................................
Stockholders equity:
Common stock...........................................
Retained earnings......................................
Total stockholders equity............................
Total liabilities and stockholders equity......

$ 19,000
36,000
21,000
22,000
98,000
77,000
26,000
201,000

$ 17,000
33,000
18,000
18,000
86,000
80,000
24,000
190,000

31,000
88,000
119,000
$320,000

30,000
100,000
130,000
$320,000

69. Which of the following classifications of changes in balance sheet accounts as sources
and uses is correct?
A) The change in Accounts Receivable is a source; The change in Inventory is a
source
B) The change in Accounts Receivable is a source; The change in Inventory is a
use
C) The change in Accounts Receivable is a use; The change in Inventory is a
source
D) The change in Accounts Receivable is a use; The change in Inventory is a use
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
70. Which of the following classifications of changes in balance sheet accounts as sources
and uses is correct?
A) The change in Accounts Payable is a source; The change in Accrued Wages and
Salaries payable is a use
B) The change in Accounts Payable is a use; The change in Accrued Wages and
Salaries payable is a use
C) The change in Accounts Payable is a source; The change in Accrued Wages and
Salaries payable is a source
D) The change in Accounts Payable is a use; The change in Accrued Wages and
Salaries payable is a source
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-51

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


71. Which of the following classifications of changes in balance sheet accounts as sources
and uses is correct?
A) The change in Property, Plant, and Equipment is a use; The change in LongTerm Debt is a source
B) The change in Property, Plant, and Equipment is a source; The change in LongTerm Debt is a source
C) The change in Property, Plant, and Equipment is a use; The change in LongTerm Debt is a use
D) The change in Property, Plant, and Equipment is a source; The change in LongTerm Debt is a use
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy

15-52

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Use the following to answer questions 72-73:
Hirshberg Corporation's comparative balance sheet appears below:
Ending
Balance
Assets:
Current assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Total current assets.......................................
Property, plant, and equipment.....................
Less accumulated depreciation..................
Net property, plant, and equipment..............
Total assets...................................................
Liabilities and Stockholders Equity
Current liabilities:
Accounts payable.......................................
Accrued wages and salaries payable.........
Accrued income taxes payable..................
Notes payable............................................
Total current liabilities..................................
Long-term debt.............................................
Deferred income taxes..................................
Total liabilities..............................................
Stockholders equity:
Common stock...........................................
Retained earnings......................................
Total stockholders equity............................
Total liabilities and stockholders equity......

Beginning
Balance

$ 42,000
22,000
66,000
130,000
401,000
207,000
194,000
$324,000

$ 31,000
18,000
70,000
119,000
377,000
177,000
200,000
$319,000

$ 15,000
33,000
24,000
12,000
84,000
83,000
29,000
196,000

$ 17,000
29,000
28,000
9,000
83,000
81,000
33,000
197,000

27,000
101,000
128,000
$324,000

28,000
94,000
122,000
$319,000

The company's net income (loss) for the year was $11,000 and its cash dividends were
$4,000.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-53

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


72. The total dollar amount of all of the items that would be classified as sources when
compiling a simplified statement of cash flows is:
A) $11,000
B) $39,000
C) $43,000
D) $54,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium
Solution:
Sources
Net income
Decreases in noncash assets:
Decrease in inventory............................................
Increases in liabilities (and contra asset accounts):
Increase in accumulated depreciation....................
Increase in wages and salaries payable..................
Increase in notes payable.......................................
Increase in long-term debt.....................................
Total sources................................................................

$11,000
4,000
30,000
4,000
3,000
2,000
$54,000

73. The total dollar amount of all of the items that would be classified as uses when
compiling a simplified statement of cash flows is:
A) $11,000
B) $39,000
C) $54,000
D) $43,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium

15-54

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Solution:
Uses
Increases in noncash assets:
Increase in accounts receivable.................................
Increase in property, plant, and equipment...............
Decreases in liabilities:
Decrease in accounts payable...................................
Decrease in accrued income taxes payable...............
Decrease in deferred income taxes...........................
Decrease in capital stock accounts:
Decrease in common stock.......................................
Dividends.....................................................................
Total uses.....................................................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$ 4,000
24,000
2,000
4,000
4,000
1,000
4,000
$43,000

15-55

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Use the following to answer questions 74-76:
Waite Company's comparative balance sheet and income statement for last year appear below:
Statement of Financial Position

Accumulated depreciation...................
Total assets...........................................

Beginning
Balance
$ 22,000
60,000
36,000
11,000
230,000
440,000
( 276,000
( 306,000)
)
$549,000 $523,000

Accounts payable.................................
Accrued liabilities................................
Taxes payable.......................................
Bonds payable......................................
Deferred taxes......................................
Common stock.....................................
Retained earnings.................................
Total liabilities and owners equity......

$ 43,000
20,000
6,000
130,000
22,000
120,000
208,000
$549,000

Cash......................................................
Accounts receivable.............................
Inventory..............................................
Prepaid expenses..................................
Long-term investments........................
Plant and equipment.............................

Ending
Balance
$ 27,000
56,000
48,000
14,000
270,000
440,000

$ 33,000
25,000
9,000
150,000
20,000
110,000
176,000
$523,000

Income Statement
Sales...........................................................
Cost of goods sold......................................
Gross margin..............................................
Selling and administrative expense............
Net operating income.................................
Income taxes..............................................
Net income.................................................

$510,00
0
280,000
230,000
150,000
80,000
24,000
$ 56,000

The company declared and paid $24,000 in cash dividends during the year. The following
questions pertain to the company's statement of cash flows.

15-56

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


74. The net cash provided by (used in) operating activities last year was:
A) $56,000
B) $79,000
C) $86,000
D) $33,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Operating Activities
Net income................................................................
Adjustments to convert net income to a cash basis:
Depreciation charges.............................................
Decrease in accounts receivable............................
Increase in inventory.............................................
Increase in prepaid expenses.................................
Increase in accounts payable.................................
Decrease in accrued liabilities...............................
Decrease in taxes payable......................................
Increase in deferred taxes......................................
Net cash provided by operating activities.................

$56,000
$30,000
4,000
( 12,000)
( 3,000)
10,000
( 5,000)
( 3,000)
2,000

23,000
$79,000

75. The net cash provided by (used in) investing activities last year was:
A) $(40,000)
B) $40,000
C) $(30,000)
D) $30,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Investing Activities
Increase in long-term investments.............
Net cash used in investing..........................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

($40,000
)
($40,000
)

15-57

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


76. The net cash provided by (used in) financing activities last year was:
A) $10,000
B) $(10,000)
C) $(34,000)
D) $34,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Financing Activities
Decrease in bonds payable.......................
Increase in common stock........................
Cash dividends paid.................................
Net cash used in financing activities........

15-58

($20,000)
10,000
( 24,000)
($34,000)

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Use the following to answer questions 77-79:
Meganas Company's net income last year was $183,000. Changes in the company's balance
sheet accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Cash............................................
Accounts receivable....................
Inventory.....................................
Prepaid expenses.........................
Long-term investments...............
Plant and equipment....................

$(4,000)
$(8,000)
$13,000
$(9,000)
$60,000
$45,000

Credit balances:
Accumulated depreciation..........
Accounts payable........................
Accrued liabilities.......................
Taxes payable.............................
Bonds payable.............................
Deferred taxes.............................
Common stock............................
Retained earnings........................

$56,000
$3,000
$8,000
$(2,000)
$(60,000)
$6,000
$20,000
$66,000

The company declared and paid cash dividends of $117,000 last year. The following
questions pertain to the company's statement of cash flows.
77. The net cash provided by (used in) operating activities last year was:
A) $258,000
B) $183,000
C) $239,000
D) $202,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-59

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Solution:
Operating Activities
Net income.............................................................
Adjustments to convert net income to a cash basis:
Depreciation charges...........................................
Decrease in accounts receivable.........................
Increase in inventory...........................................
Decrease in prepaid expenses.............................
Increase in accounts payable...............................
Increase in accrued liabilities..............................
Decrease in taxes payable...................................
Increase in deferred income taxes.......................
Net cash provided by operating activities..............

$183,000
$56,000
8,000
( 13,000)
9,000
3,000
8,000
( 2,000)
6,000

75,000
$258,000

78. The net cash provided by (used in) investing activities last year was:
A) $(105,000)
B) $105,000
C) $(85,000)
D) $85,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Investing Activities
Additions to plant and equipment............
Additions to long-term investments.........
Net cash used by investing activities.......

15-60

($ 45,000)
( 60,000)
($105,000)

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


79. The net cash provided by (used in) financing activities last year was:
A) $40,000
B) $(40,000)
C) $157,000
D) $(157,000)
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Financing Activities
Decrease in bonds payable.......................
Increase in common stock........................
Cash dividends paid.................................
Net cash used in financing activities........

($ 60,000)
20,000
( 117,000)
($157,000)

Use the following to answer questions 80-81:


Sparks Company recorded the following events last year:
Issuance of shares of the companys own common stock.............
Purchase of bonds issued by other companies...............................
Dividends paid to the companys own shareholders.....................
Dividends received from investments in other companies shares
Repayment of principal on the companys own bonds..................
Interest paid on the companys own bonds...................................
Collection of the principal amount of a loan made to another
company.....................................................................................
Purchase of equipment...................................................................

$170,00
0
$90,000
$33,000
$13,000
$370,00
0
$5,000
$210,00
0
$430,00
0

On the statement of cash flows, some of these events are classified as operating activities,
some are classified as investing activities, and some are classified as financing activities.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-61

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


80. Based solely on the information above, the net cash provided by (used in) financing
activities on the statement of cash flows would be:
A) $(39,000)
B) $1,321,000
C) $(233,000)
D) $(238,000)
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Hard
Solution:
Financing Activities
Issuance of common stock.......................
Cash dividends paid.................................
Repayment of bonds.................................
Net cash used by financing activities.......

$170,000
( 33,000)
( 370,000)
($233,000)

81. Based solely on the information above, the net cash provided by (used in) investing
activities on the statement of cash flows would be:
A) $(310,000)
B) $(1,321,000)
C) $(520,000)
D) $(890,000)
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Hard
Solution:
Investing Activities
Purchase of bonds....................................
Collection of loan.....................................
Purchase of equipment.............................
Net cash used by investing activities.......

15-62

($ 90,000)
210,000
( 430,000)
($310,000)

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Use the following to answer questions 82-84:
Bebout Corporation's balance sheet and income statement appear below:
Comparative Balance Sheet
Ending Beginning
Balance Balance
Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 36
82
40
619
( 321)
$456

$ 31
74
49
540
( 303)
$391

Liabilities and stockholders equity:


Accounts payable.......................................
Wages payable...........................................
Taxes payable.............................................
Bonds payable............................................
Deferred taxes............................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 35
20
13
150
18
31
189
$456

$ 32
24
15
200
24
30
66
$391

Income Statement
Sales...........................................................
Cost of goods sold......................................
Gross margin..............................................
Selling and administrative expense............
Net operating income.................................
Gain on sale of plant and equipment..........
Income before taxes...................................
Income taxes..............................................
Net income.................................................

$1,19
6
786
410
189
221
12
233
70
$ 163

Cash dividends were $40. The company sold equipment for $14 that was originally purchased
for $9 and that had accumulated depreciation of $7.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-63

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


82. The net cash provided by (used by) operations for the year was:
A) $180
B) $168
C) $208
D) $221
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Operating Activities
Net income.............................................................
Adjustments to convert net income to a cash basis:
Depreciation charges..........................................
Increase in accounts receivable..........................
Decrease in inventory.........................................
Increase in accounts payable..............................
Decrease in wages payable.................................
Decrease in taxes payable...................................
Decrease in deferred income taxes.....................
Gain on sale of plant and equipment..................
Net cash provided by operating activities..............

$163
$25
( 8)
9
3
( 4)
( 2)
( 6)
( 12)

5
$168

83. The net cash provided by (used by) investing activities for the year was:
A) ($88)
B) $14
C) ($74)
D) $74
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Investing Activities
Proceeds from sale of equipment...............
Purchase of plant and equipment...............
Net cash used by investing activities.........

$14
( 88) *
($74)

*$619 ($540 $9) = $619 $531 = $88

15-64

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


84. The net cash provided by (used by) financing activities for the year was:
A) $1
B) ($40)
C) ($50)
D) ($89)
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Financing Activities
Decrease in bonds payable........................
Increase in common stock.........................
Cash dividends paid...................................
Net cash used by financing activities........

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

($50)
1
( 40)
($89)

15-65

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Use the following to answer questions 85-87:
The most recent balance sheet and income statement of Cowger Corporation appear below:
Comparative Balance Sheet
Ending Beginning
Balance Balance
Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 28
22
60
528
( 366)
$272

$ 27
25
54
500
( 346)
$260

Liabilities and stockholders equity:


Accounts payable.......................................
Wages payable...........................................
Taxes payable.............................................
Bonds payable............................................
Deferred taxes............................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 29
18
10
98
27
35
55
$272

$ 36
16
9
130
25
30
14
$260

Income Statement
Sales...........................................................
Cost of goods sold......................................
Gross margin..............................................
Selling and administrative expense............
Net operating income.................................
Income taxes..............................................
Net income.................................................

$677
431
246
175
71
21
$ 50

Cash dividends were $9.


85. The net cash provided by (used by) operations for the year was:
A) $71
B) $65
C) $35
D) $15
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Medium

15-66

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Solution:
Operating Activities
Net income...............................................................
Adjustments to convert net income to a cash basis:
Depreciation charges............................................
Decrease in accounts receivable..........................
Increase in inventory............................................
Decrease in accounts payable..............................
Increase in wages payable....................................
Increase in income taxes payable.........................
Increase in deferred income taxes payable..........
Net cash provided by operating activities...............

$50
$20
3
( 6)
( 7)
2
1
2

15
$65

86. The net cash provided by (used by) investing activities for the year was:
A) ($8)
B) $8
C) $28
D) ($28)
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Investing Activities
Additions to plant and equipment..............
Net cash used by investing activities.........

($28
)
($28
)

87. The net cash provided by (used by) financing activities for the year was:
A) ($36)
B) ($32)
C) $5
D) ($9)
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-67

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Solution:
Financing Activities
Decrease in bonds payable.........................
Increase in common stock..........................
Cash dividends paid...................................
Net cash used by financing activities.........

($32)
5
( 9)
($36)

Use the following to answer questions 88-90:


Karner Corporation's most recent balance sheet appears below:
Comparative Balance Sheet
Ending Beginning
Balance Balance
Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 33
74
63
439
( 199)
$410

$ 28
64
56
380
( 167)
$361

Liabilities and stockholders equity:


Accounts payable.......................................
Wages payable...........................................
Taxes payable.............................................
Bonds payable............................................
Deferred taxes............................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 41
24
8
64
18
61
194
$410

$ 48
25
9
60
22
60
137
$361

Net income for the year was $76. Cash dividends were $19.

15-68

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


88. The net cash provided by (used by) operations for the year was:
A) $78
B) $109
C) $2
D) $74
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Easy
Solution:
Operating Activities
Net income................................................................
Adjustments to convert net income to a cash basis:
Depreciation charges.............................................
Increase in accounts receivable.............................
Increase in inventory.............................................
Decrease in accounts payable...............................
Decrease in wages payable...................................
Decrease in income taxes payable........................
Decrease in deferred income taxes payable..........
Net cash provided by operating activities.................

$76
$32
( 10)
( 7)
( 7)
( 1)
( 1)
( 4)

2
$78

89. The net cash provided by (used by) investing activities for the year was:
A) ($27)
B) $27
C) $59
D) ($59)
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Easy
Solution:
Investing Activities
Additions to plant and equipment..............
Net cash used by investing activities.........

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

($59
)
($59
)

15-69

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


90. The net cash provided by (used by) financing activities for the year was:
A) ($14)
B) $4
C) ($19)
D) $1
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Easy
Solution:
Financing Activities
Increase in bonds payable........................
Increase in common stock........................
Cash dividends paid.................................
Net cash used by financing activities.......

15-70

$ 4
1
( 19)
($14)

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Use the following to answer questions 91-93:
Financial statements of Casagrande Corporation follow:
Comparative Balance Sheet
Ending Beginning
Balance Balance
Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 40
73
33
529
( 296)
$379

$ 38
66
35
460
( 267)
$332

Liabilities and stockholders equity:


Accounts payable.......................................
Long-term debt...........................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 31
112
82
154
$379

$ 26
150
80
76
$332

Income Statement
Sales...........................................................
Cost of goods sold......................................
Gross margin..............................................
Selling and administrative expense............
Net operating income.................................
Income taxes..............................................
Net income.................................................

$941
598
343
193
150
45
$105

Cash dividends were $27.


91. The net cash provided by (used by) operations for the year was:
A) $134
B) $29
C) $76
D) $150
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Easy

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-71

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Solution:
Operating Activities
Net income................................................................
Adjustments to convert net income to a cash basis:
Depreciation charges.............................................
Increase in accounts receivable.............................
Decrease in inventory............................................
Increase in accounts payable.................................
Net cash provided by operating activities.................

$105
$29
( 7)
2
5

29
$134

92. The net cash provided by (used by) investing activities for the year was:
A) $40
B) ($40)
C) ($69)
D) $69
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Easy
Solution:
Investing Activities
Additions to plant and equipment..............
Net cash used by investing activities.........

($69
)
($69
)

93. The net cash provided by (used by) financing activities for the year was:
A) ($63)
B) ($27)
C) ($38)
D) $2
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Easy
Solution:
Financing Activities
Decrease in long-term debt......................
Increase in common stock........................
Cash dividends paid.................................

15-72

($38)
2
( 27)

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Net cash used by financing activities.......

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

($63)

15-73

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Use the following to answer questions 94-96:
Kozusko Corporation's most recent comparative balance sheet appears below:
Comparative Balance Sheet
Ending Beginning
Balance Balance
Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 33
74
51
639
( 418)
$379

$ 28
66
52
550
( 349)
$347

Liabilities and stockholders equity:


Accounts payable.......................................
Long-term debt...........................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 48
48
51
232
$379

$ 40
50
50
207
$347

Net income for the year was $31. Cash dividends were $6.
94. The net cash provided by (used by) operations for the year was:
A) $44
B) ($39)
C) $101
D) $70
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Easy

15-74

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Solution:
Operating Activities
Net income.............................................................
Adjustments to convert net income to a cash basis:
Depreciation charges..........................................
Increase in accounts receivable..........................
Decrease in inventory.........................................
Increase in accounts payable..............................
Net cash provided by operating activities..............

$31
$69
( 8)
1
8

70
$101

95. The net cash provided by (used by) investing activities for the year was:
A) $89
B) ($89)
C) $20
D) ($20)
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Easy
Solution:
Investing Activities
Additions to plant and equipment..............
Net cash used by investing activities.........

($89
)
($89
)

96. The net cash provided by (used by) financing activities for the year was:
A) ($2)
B) $1
C) ($6)
D) ($7)
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Easy
Solution:
Financing Activities
Decrease in long-term debt......................
Increase in common stock........................
Cash dividends paid.................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

($2)
1
( 6)

15-75

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Net cash used by financing activities.......

15-76

($7)

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Use the following to answer questions 97-100:
(Appendix) Van Wyck Company's comparative balance sheet and income statement for last
year appear below:
Statement of Financial Position
Ending
Beginning
Balance
Balance
Cash............................................................
$ 63,000
$ 30,000
Accounts receivable...................................
91,000
68,000
Inventory....................................................
26,000
44,000
Prepaid expenses........................................
13,000
19,000
Long-term investments..............................
260,000
190,000
Plant and equipment...................................
460,000
460,000
Accumulated depreciation......................... ( 298,000) ( 260,000)
Total assets.................................................
$615,000
$551,000
Accounts payable.......................................
Accrued liabilities......................................
Taxes payable.............................................
Bonds payable............................................
Deferred taxes............................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and owners equity............

$ 35,000
25,000
12,000
110,000
36,000
100,000
297,000
$615,000

$ 57,000
17,000
19,000
150,000
19,000
70,000
219,000
$551,000

Income Statement
Sales...........................................................
Cost of goods sold......................................
Gross margin..............................................
Selling and administrative expense............
Net operating income.................................
Income taxes..............................................
Net income.................................................

$900,00
0
490,000
410,000
270,000
140,000
42,000
$ 98,000

The company declared and paid $20,000 in cash dividends during the year. The company uses
the direct method to determine the net cash provided by operating activities.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-77

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


97. On the statement of cash flows, the sales revenue adjusted to a cash basis would be:
A) $900,000
B) $877,000
C) $923,000
D) $859,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,4 Level: Hard
Solution:
Sales revenue (as reported)........................
Adjustments to a cash basis:
Increase in accounts receivable..............
Sales revenue (adjusted)............................

$900,000
( 23,000)
$877,000

98. On the statement of cash flows, the cost of goods sold adjusted to a cash basis would
be:
A) $494,000
B) $490,000
C) $486,000
D) $512,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,4 Level: Hard
Solution:
Cost of goods sold (as reported)...............
Adjustments to a cash basis:
Decrease in inventory............................
Decrease in accounts payable................
Cost of goods sold (adjusted)....................

15-78

$490,000
(

18,000)
22,000
$494,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


99. On the statement of cash flows, the operating expenses adjusted to a cash basis would
be:
A) $270,000
B) $218,000
C) $256,000
D) $322,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,4 Level: Hard
Solution:
Operating expenses (as reported)..............
Adjustments to a cash basis:
Decrease in prepaid expenses................
Increase in accrued liabilities................
Periods depreciation charges...............
Total..........................................................

$270,000
(
6,000)
(
8,000)
( 38,000)
$218,000

100. On the statement of cash flows, the income tax expense adjusted to a cash basis would
be:
A) $42,000
B) $36,000
C) $49,000
D) $32,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,4 Level: Hard
Solution:
Income tax expense (as reported).............
Adjustments to a cash basis:
Decrease in accrued taxes payable........
Decrease in deferred income taxes........
Income tax expense (adjusted)..................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$42,000
7,000
( 17,000)
$32,000

15-79

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Use the following to answer questions 101-104:
(Appendix) The changes in Tencate Company's balance sheet account balances for last year
appear below:
Increases
(Decreases)
Debit balances:
Cash............................................
$8,000
Accounts receivable....................
$(6,000)
Inventory.....................................
$2,000
Prepaid expenses.........................
$(13,000)
Long-term investments...............
$70,000
Plant and equipment....................
$55,000
Credit balances:
Accumulated depreciation..........
Accounts payable........................
Accrued liabilities.......................
Taxes payable.............................
Bonds payable.............................
Deferred taxes.............................
Common stock............................
Retained earnings........................

$67,000
$(14,000)
$2,000
$7,000
$(60,000)
$(7,000)
$20,000
$101,000

The companys income statement for the year appears below:


Sales.....................................................
Cost of goods sold................................
Gross margin........................................
Selling and administrative expense......
Net operating income...........................
Income taxes........................................
Net income...........................................

$970,00
0
530,000
440,000
290,000
150,000
45,00
0
$105,00
0

The company declared and paid $4,000 in cash dividends during the year. The company uses
the direct method to determine the net cash provided by operating activities.

15-80

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


101. On the statement of cash flows, the sales revenue adjusted to a cash basis would be:
A) $978,000
B) $976,000
C) $970,000
D) $964,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,4 Level: Hard
Solution:
Sales revenue (as reported)........................
Adjustments to a cash basis:
Decrease in accounts receivable.............
Sales revenue (adjusted)............................

$970,000
6,000
$976,000

102. On the statement of cash flows, the cost of goods sold adjusted to a cash basis would
be:
A) $514,000
B) $544,000
C) $546,000
D) $530,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,4 Level: Hard
Solution:
Cost of goods sold (as reported)...............
Adjustments to a cash basis:
Increase in inventory.............................
Decrease in accounts payable................
Cost of goods sold (adjusted)....................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$530,000
2,000
14,000
$546,000

15-81

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


103. On the statement of cash flows, the operating expenses adjusted to a cash basis would
be:
A) $290,000
B) $372,000
C) $275,000
D) $208,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,4 Level: Hard
Solution:
Operating expenses (as reported)..............
Adjustments to a cash basis:
Decrease in prepaid expenses................
Increase in accrued liabilities................
Periods depreciation charges...............
Total..........................................................

$290,000
( 13,000)
(
2,000)
( 67,000)
$208,000

104. On the statement of cash flows, the income tax expense adjusted to a cash basis would
be:
A) $40,000
B) $42,000
C) $45,000
D) $46,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,4 Level: Hard
Solution:
Income tax expense (as reported).............
Adjustments to a cash basis:
Increase in accrued taxes payable.........
Decrease in deferred income taxes........
Income tax expense (adjusted)..................

15-82

$45,000
(

7,000)
7,000
$45,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Use the following to answer questions 105-107:
(Appendix) Cliburn Corporation's balance sheet and income statement appear below:
Comparative Balance Sheet
Ending
Balance

Beginning
Balance

Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 27
30
64
564
( 217)
$468

$ 27
28
59
500
( 208)
$406

Liabilities and stockholders equity:


Accounts payable.......................................
Wages payable...........................................
Taxes payable.............................................
Bonds payable............................................
Deferred taxes............................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 50
27
20
184
21
83
83
$468

$ 43
24
22
180
24
80
33
$406

Income Statement
Sales...........................................................
Cost of goods sold......................................
Gross margin..............................................
Selling and administrative expense............
Net operating income.................................
Gain on sale of plant and equipment..........
Income before taxes...................................
Income taxes..............................................
Net income.................................................

$69
0
456
234
150
84
9
93
28
$ 65

Cash dividends were $15. The company sold equipment for $11 that was originally purchased
for $3 and that had accumulated depreciation of $1.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-83

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


105. The net cash provided by (used by) operations for the year was:
A) $73
B) $84
C) $64
D) $79
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,4 Level: Medium
Solution:
Sales revenue (as reported)....................................
Adjustments to a cash basis:
Increase in accounts receivable..........................
Total.......................................................................
Cost of goods sold (as reported)............................
Adjustments to a cash basis:
Increase in inventory..........................................
Increase in accounts payable..............................
Total.......................................................................
Selling and administrative expenses (as reported)
Adjustments to a cash basis:
Increase in wages payable..................................
Periods depreciation charges.............................
Total.......................................................................
Income tax expense................................................
Adjustments to a cash basis:
Decrease in accrued taxes payable.....................
Decrease in deferred income taxes.....................
Total.......................................................................
Net cash provided by operating activities..............

15-84

$690
(

2)
$688
456

5
7)
454
150

(
(

3)
10)
137
28
2
3
33
$ 64

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


106. The net cash provided by (used by) investing activities for the year was:
A) ($56)
B) $11
C) ($67)
D) $56
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,4 Level: Medium
Solution:
Investing Activities
Additions to plant and equipment............
Proceeds from sale of equipment.............
Net cash used by investing activities.......

($67)
11
($56)

*($564 + $3) $500


107. The net cash provided by (used by) financing activities for the year was:
A) $3
B) $4
C) ($15)
D) ($8)
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,4 Level: Medium
Solution:
Financing Activities
Increase in bonds payable..........................
Increase in common stock..........................
Cash dividends paid...................................
Net cash used by financing activities.........

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$ 4
3
( 15)
($ 8)

15-85

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Use the following to answer questions 108-110:
(Appendix) The most recent balance sheet and income statement of Spadafino Corporation
appear below:
Comparative Balance Sheet
Ending
Balance

Beginning
Balance

Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 48
61
59
398
( 160)
$406

$ 40
60
70
350
( 146)
$374

Liabilities and stockholders equity:


Accounts payable.......................................
Wages payable...........................................
Taxes payable.............................................
Bonds payable............................................
Deferred taxes............................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 64
22
16
176
16
45
67
$406

$ 65
19
15
210
15
40
10
$374

Income Statement
Sales...........................................................
Cost of goods sold......................................
Gross margin..............................................
Selling and administrative expense............
Net operating income.................................
Income taxes..............................................
Net income.................................................

$72
2
465
257
146
111
33
$ 78

Cash dividends were $21.

15-86

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


108. The net cash provided by (used by) operations for the year was:
A) $28
B) $111
C) $106
D) $50
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,4 Level: Medium
Solution:
Sales revenue (as reported)...................................
Adjustments to a cash basis:
Increase in accounts receivable.........................
Total......................................................................
Cost of goods sold (as reported)...........................
Adjustments to a cash basis:
Decrease in inventory.......................................
Decrease in accounts payable...........................
Total......................................................................
Selling and administrative expenses (as reported)
Adjustments to a cash basis:
Increase in wages payable.................................
Periods depreciation charges...........................
Total......................................................................
Income tax expense..............................................
Adjustments to a cash basis:
Increase in accrued taxes payable.....................
Increase in deferred income taxes.....................
Total......................................................................
Net cash provided by operating activities............

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$722
(

1)
$721
465

11)
1
455
146

(
(

3)
14)
129
33

(
(

1)
1)
31
$106

15-87

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


109. The net cash provided by (used by) investing activities for the year was:
A) ($34)
B) $48
C) ($48)
D) $34
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,4 Level: Medium
Solution:
Investing Activities
Additions to plant and equipment..............
Net cash used by investing activities.........

($48
)
($48
)

110. The net cash provided by (used by) financing activities for the year was:
A) ($50)
B) ($34)
C) $5
D) ($21)
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,4 Level: Medium
Solution:
Financing Activities
Decrease in bonds payable.......................
Increase in common stock........................
Cash dividends paid.................................
Net cash used by financing activities.......

15-88

($34)
5
( 21)
($50)

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Use the following to answer questions 111-113:
(Appendix) Karpinski Corporation's most recent comparative balance sheet and income
statement appear below:
Comparative Balance Sheet
Ending
Balance

Beginning
Balance

Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 32
55
57
574
( 293)
$425

$ 25
46
59
450
( 251)
$329

Liabilities and stockholders equity:


Accounts payable.......................................
Long-term debt...........................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 55
15
74
281
$425

$ 56
20
70
183
$329

Income Statement
Sales...........................................................
Cost of goods sold......................................
Gross margin..............................................
Selling and administrative expense............
Net operating income.................................
Income taxes..............................................
Net income.................................................

$1,087
724
363
179
184
55
$ 129

Cash dividends were $31.


111. The net cash provided by (used by) operations for the year was:
A) $34
B) $184
C) $95
D) $163
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,4 Level: Easy

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-89

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Solution:
Sales revenue (as reported)...................................
Adjustments to a cash basis:
Increase in accounts receivable.........................
Total......................................................................
Cost of goods sold (as reported)...........................
Adjustments to a cash basis:
Decrease in inventory.......................................
Decrease in accounts payable...........................
Total......................................................................
Selling and administrative expenses (as reported)
Adjustments to a cash basis:
Periods depreciation charges...........................
Total......................................................................

$1,087
(

9)
$1,078
724

2)
1
723
179

42)
137

Income tax expense..............................................

55

Net cash provided by operating activities............

$ 163

112. The net cash provided by (used by) investing activities for the year was:
A) $82
B) ($124)
C) ($82)
D) $124
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,4 Level: Easy
Solution:
Investing Activities
Additions to plant and equipment..............
Net cash used by investing activities.........

15-90

($124
)
($124
)

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


113. The net cash provided by (used by) financing activities for the year was:
A) ($32)
B) ($31)
C) $4
D) ($5)
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,4 Level: Easy
Solution:
Financing Activities
Decrease in bonds payable.......................
Increase in common stock........................
Cash dividends paid.................................
Net cash used by financing activities.......

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

($ 5)
4
( 31)
($32)

15-91

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Essay Questions
114. Manila Corporation's comparative balance sheet appears below:
Ending
Balance
Assets:
Current assets:
Cash and cash equivalents......................
Accounts receivable................................
Inventory.................................................
Total current assets....................................
Property, plant, and equipment..................
Less accumulated depreciation...............
Net property, plant, and equipment............
Total assets.................................................
Liabilities and Stockholders Equity
Current liabilities:
Accounts payable....................................
Wages and salaries payable....................
Income taxes payable..............................
Notes payable..........................................
Total current liabilities...............................
Long-term debt...........................................
Deferred income taxes...............................
Total liabilities...........................................
Stockholders equity:
Common stock........................................
Retained earnings....................................
Total stockholders equity..........................
Total liabilities and stockholders equity...

Beginning
Balance

$ 42,000
22,000
77,000
141,000
340,000
218,000
122,000
$263,000

$ 26,000
26,000
75,000
127,000
315,000
187,000
128,000
$255,000

$ 13,000
32,000
28,000
16,000
89,000
77,000
28,000
194,000

$ 14,000
33,000
30,000
15,000
92,000
78,000
25,000
195,000

28,000
41,000
69,000
$263,000

24,000
36,000
60,000
$255,000

The company's net income (loss) for the year was $7,000 and its cash dividends were
$2,000.
Required:
Classify the change for the year in each balance sheet account as a source, use, or
neither a source nor a use. (Do this only for the individual accounts-not for totals or
subtotals.)

15-92

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Ans:
Cash and cash equivalents...........
Accounts receivable.....................
Inventory......................................
Property, plant, and equipment....
Less accumulated depreciation....
Accounts payable.........................
Wages and salaries payable.........
Income taxes payable...................
Notes payable...............................
Long-term debt.............................
Deferred income taxes.................
Common stock.............................
Retained earnings.........................

Ending
Beginning
Balance
Balance
Change
42,000
26,000 +16,000 Neither
22,000
26,000
-4,000 Source
77,000
75,000 +2,000
Use
340,000
315,000 +25,000
Use
218,000
187,000 +31,000 Source
13,000
32,000
28,000
16,000
77,000
28,000
28,000
41,000

14,000
33,000
30,000
15,000
78,000
25,000
24,000
36,000

-1,000
-1,000
-2,000
+1,000
-1,000
+3,000
+4,000
+5,000

Use
Use
Use
Source
Use
Source
Source
*

*The change in retained earnings consists of two elements: net income (loss) and
dividends. The net income of $7,000 is classified as a source and the dividends of
$2,000 are classified as a use.
AACSB: Analytic AICPA BB: Critical Thinking
LO: 1 Level: Easy

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

AICPA FN: Reporting

15-93

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


115. The ending and beginning balances of Diogo Corporation's balance sheet accounts for
the most recent year are listed below:
Ending
Beginning
Balance
Balance
Assets & Contra-Assets:
Cash and cash equivalents.........................
$40,000
$28,000
Accounts receivable...................................
$17,000
$14,000
Inventory....................................................
$60,000
$62,000
Property and buildings............................... $406,000
$383,000
Accumulated depreciation......................... $234,000
$205,000
Liabilities and Stockholders Equity
Accounts payable.......................................
Wages and salaries payable.......................
Income taxes payable.................................
Notes payable.............................................
Long-term debt...........................................
Deferred income taxes...............................
Common stock...........................................
Retained earnings.......................................

$15,000
$35,000
$22,000
$28,000
$81,000
$27,000
$39,000
$42,000

$12,000
$38,000
$18,000
$24,000
$85,000
$24,000
$36,000
$45,000

The company's net income (loss) for the year was $1,000 and its cash dividends were
$4,000.
Required:
Classify the change for the year in each balance sheet account as a source, use, or
neither a source nor a use.

15-94

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Ans:
Cash and cash equivalents.....
Accounts receivable...............
Inventory................................
Property and buildings...........
Accumulated depreciation.....
Accounts payable...................
Wages and salaries payable. . .
Income taxes payable.............
Notes payable.........................
Long-term debt.......................
Deferred income taxes...........
Common stock.......................
Retained earnings...................

Ending
Beginning
Balance
Balance
Change
40,000
28,000 +12,000 Neither
17,000
14,000 +3,000
Use
60,000
62,000
-2,000 Source
406,000
383,000 +23,000
Use
234,000
205,000 +29,000 Source
15,000
35,000
22,000
28,000
81,000
27,000
39,000
42,000

12,000
38,000
18,000
24,000
85,000
24,000
36,000
45,000

+3,000
-3,000
+4,000
+4,000
-4,000
+3,000
+3,000
-3,000

Source
Use
Source
Source
Use
Source
Source
*

*The change in retained earnings consists of two elements: net income (loss) and
dividends. The net income of $1,000 is classified as a source and the dividends of
$4,000 are classified as a use.
AACSB: Analytic AICPA BB: Critical Thinking
LO: 1 Level: Easy

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

AICPA FN: Reporting

15-95

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


116. Burch Company's net income last year was $119,000. Changes in the company's
balance sheet accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Cash......................................
Accounts receivable..............
Inventory...............................
Prepaid expenses...................
Long-term investments.........
Plant and equipment..............

$29,000
$(21,000)
$12,000
$(8,000)
$80,000
$10,000

Credit balances:
Accumulated depreciation....
Accounts payable..................
Accrued liabilities.................
Taxes payable.......................
Bonds payable.......................
Deferred taxes.......................
Common stock......................
Retained earnings..................

$26,000
$23,000
$14,000
$(9,000)
$(50,000)
$4,000
$20,000
$74,000

The company declared and paid cash dividends of $45,000 last year.
Required:
a. Construct in good form the operating activities section of the company's statement
of cash flows for the year. (Use the indirect method.)
b. Construct in good form the investing activities section of the company's statement
of cash flows for the year.
c. Construct in good form the financing activities section of the company's statement
of cash flows for the year.

15-96

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Ans:
a. Operating activities
Net income....................................................
Adjustments:
Depreciation charges..................................
Decrease in accounts receivable................
Increase in inventory..................................
Decrease in prepaid expenses....................
Increase in accounts payable......................
Increase in accrued liabilities.....................
Decrease in taxes payable..........................
Increase in deferred taxes..........................
Net cash provided by operating activities.....

$119,000
$26,000
21,000
(12,000)
8,000
23,000
14,000
(9,000)
4,000

75,000
$194,000

b. Investing activities:
Increase in long-term investments................
Increase in plant & equipment......................
Net cash used for investing activities............

$(80,000
)
(10,000)
$(90,000
)

c. Financing activities:
Decrease in bonds payable............................
Increase in common stock.............................
Cash dividends..............................................
Net cash used in financing activities.............
AACSB: Analytic AICPA BB: Critical Thinking
LO: 2,3 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$(50,000
)
20,000
(45,000)
$(75,000
)
AICPA FN: Measurement

15-97

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


117. Biven Corporation's balance sheet and income statement appear below:
Comparative Balance Sheet
Ending
Balance

Beginning
Balance

Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 35
54
67
580
( 316)
$420

$ 30
49
58
530
( 313)
$354

Liabilities and stockholders equity:


Accounts payable.......................................
Wages payable...........................................
Taxes payable.............................................
Bonds payable............................................
Deferred taxes............................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 51
26
11
77
25
33
197
$420

$ 57
24
10
90
24
30
119
$354

Income Statement
Sales...........................................................
Cost of goods sold......................................
Gross margin..............................................
Selling and administrative expense............
Net operating income.................................
Gain on sale of plant and equipment..........
Income before taxes...................................
Income taxes..............................................
Net income.................................................

$620
381
239
103
136
20
156
47
$109

Cash dividends were $31. The company sold equipment for $20 that was originally
purchased for $14 and that had accumulated depreciation of $14.
Required:
Prepare a statement of cash flows for the year using the indirect method.

15-98

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Ans:
Net income......................................................................
Adjustments to convert net income to a cash basis:
Depreciation charges....................................................
Increase in accounts receivable....................................
Increase in inventory....................................................
Decrease in accounts payable......................................
Increase in wages payable............................................
Increase in taxes payable.............................................
Increase in deferred taxes............................................
Gain on sale of plant and equipment...........................
Net cash provided by operations.....................................
Investing activities:
Proceeds from sale of plant and equipment.................
Increase in plant and equipment..................................
Net cash used for investing activities..............................
Financing activities:
Decrease in bonds payable...........................................
Increase in common stock............................................
Cash dividends.............................................................
Net cash used by financing activities..............................
Net increase (decrease) in cash and cash equivalents.....
Cash balance, beginning.................................................
Cash balance, end............................................................
AACSB: Analytic AICPA BB: Critical Thinking
LO: 2,3 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$109
17
(5)
(9)
(6)
2
1
1
(20)
90
20
(64)
(44)
(13)
3
(31)
(41)
5
30
$35

AICPA FN: Measurement

15-99

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


118. Danford Corporation's balance sheet and income statement appear below:
Comparative Balance Sheet
Ending
Balance

Beginning
Balance

Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 27
43
40
467
( 264)
$313

$ 25
48
49
410
( 221)
$311

Liabilities and stockholders equity:


Accounts payable.......................................
Wages payable...........................................
Taxes payable.............................................
Bonds payable............................................
Deferred taxes............................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 49
14
25
100
16
74
35
$313

$ 61
16
22
120
19
70
3
$311

Income Statement
Sales...........................................................
Cost of goods sold......................................
Gross margin..............................................
Selling and administrative expense............
Net operating income.................................
Gain on sale of plant and equipment..........
Income before taxes...................................
Income taxes..............................................
Net income.................................................

$546
363
183
134
49
8
57
17
$ 40

Cash dividends were $8. The company sold equipment for $12 that was originally
purchased for $9 and that had accumulated depreciation of $5.
Required:
Determine the net cash provided by (used by) operating activities for the year using
the indirect method.

15-100

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Ans:
Net income.......................................................................
Adjustments to convert net income to a cash basis:
Depreciation charges....................................................
Decrease in accounts receivable...................................
Decrease in inventory...................................................
Decrease in accounts payable.......................................
Decrease in wages payable...........................................
Increase in taxes payable..............................................
Decrease in deferred taxes............................................
Gain on sale of plant and equipment............................
Net cash provided by operations.....................................
AACSB: Analytic AICPA BB: Critical Thinking
LO: 2,3 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$40
48
5
9
(12)
(2)
3
(3)
( 8)
$80

AICPA FN: Reporting

15-101

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


119. NOTES TO THE INSTRUCTOR:
* The problem requirement does not indicate whether the indirect or direct method
must be used to determine the net cash provided by operating activities. You can, if
you choose, specify that either (or even both) methods be used. The solution contains
solutions for both methods.
* Due to the length of the problem, you may want to eliminate one or more of the
requirements.
--------------------------------------------------------------------Dano Company's comparative balance sheet and income statement for last year appear
below:
Statement of Financial Position
Ending
Beginning
Balance
Balance
Cash............................................................
$ 41,000
$ 20,000
Accounts receivable...................................
43,000
57,000
Inventory....................................................
66,000
53,000
Prepaid expenses........................................
14,000
11,000
Long-term investments..............................
310,000
240,000
Plant and equipment...................................
580,000
580,000
Accumulated depreciation......................... ( 369,000) ( 340,000)
Total assets.................................................
$685,000
$621,000
Accounts payable.......................................
Accrued liabilities......................................
Taxes payable.............................................
Bonds payable............................................
Deferred taxes............................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and owners equity............

$ 45,000
14,000
32,000
70,000
29,000
90,000
405,000
$685,000

$ 27,000
19,000
15,000
110,000
25,000
70,000
355,000
$621,000

Income Statement
Sales...........................................................
Cost of goods sold......................................
Gross margin..............................................
Selling and administrative expense............
Net operating income.................................
Income taxes..............................................
Net income.................................................

15-102

$540,00
0
220,000
320,000
200,000
120,000
36,000
$ 84,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


The company declared and paid $34,000 in cash dividends during the year.
Required:
a. Construct in good form the operating activities section of the company's statement
of cash flows for the year.
b. Construct in good form the investing activities section of the company's statement
of cash flows for the year.
c. Construct in good form the financing activities section of the company's statement
of cash flows for the year.
Ans:
a. Operating activities
INDIRECT METHOD
Net income.....................................................
Adjustments:
Depreciation charges...................................
Decrease in accounts receivable.................
Increase in inventory...................................
Increase in prepaid expenses.......................
Increase in accounts payable.......................
Decrease in accrued liabilities....................
Increase in taxes payable............................

$29,000
14,000
(13,000)
(3,000)
18,000
(5,000)
17,000

Increase in deferred taxes...........................

4,000

Net cash provided by operating activities......

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$84,000

61,00
0
$145,00
0

15-103

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


DIRECT METHOD
Sales...............................................................
Adjustments to a cash basis:

$540,00
0

Decrease in accounts receivable.................

+14,000

Cost of goods sold..........................................


Adjustments to a cash basis:
Increase in inventory...................................
Increase in accounts payable.......................

220,000
+13,000
-18,000

Selling and administrative expense................


Adjustments to a cash basis:
Increase in prepaid expenses.......................
Decrease in accrued liabilities....................
Depreciation charges...................................

200,000

Income tax expense........................................


Adjustments to a cash basis:
Increase in taxes payable............................
Increase in deferred taxes...........................

36,000

+3,000
+5,000
-29,000

-17,000
-4,000

$554,00
0

215,000

179,000

15,000
$145,00
0

Net cash provided by operating activities......


b. Investing activities:
$(70,000
)

Increase in long-term investments.............

$(70,000
)

Net cash used for investing activities.........


c. Financing activities:
Decrease in bonds payable.........................
Increase in common stock..........................
Cash dividends...........................................

$(40,000
)
20,000
( 34,000)

Net cash used in financing activities..........


AACSB: Analytic AICPA BB: Critical Thinking
LO: 2,3 Level: Hard

15-104

$(54,000
)
AICPA FN: Measurement

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


120. Sary Corporation's balance sheet and income statement appear below:
Comparative Balance Sheet
Ending Beginning
Balance Balance
Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 27
57
62
685
( 404)
$427

$ 26
53
55
580
( 355)
$359

Liabilities and stockholders equity:


Accounts payable.......................................
Wages payable...........................................
Taxes payable.............................................
Bonds payable............................................
Deferred taxes............................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 37
21
15
171
18
32
133
$427

$ 46
25
18
170
22
30
48
$359

Income Statement
Sales...........................................................
Cost of goods sold......................................
Gross margin..............................................
Selling and administrative expense............
Net operating income.................................
Income taxes..............................................
Net income.................................................

$89
5
557
338
177
161
4
8
$11
3

Cash dividends were $28.


Required:
Prepare a statement of cash flows in good form using the indirect method.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-105

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Ans:
Net income....................................................................
Adjustments to convert net income to a cash basis:
Depreciation charges..................................................
Increase in accounts receivable..................................
Increase in inventory..................................................
Decrease in accounts payable....................................
Decrease in wages payable........................................
Decrease in taxes payable..........................................
Decrease in deferred taxes.........................................
Net cash provided by operations...................................
Investing activities:
Increase in plant and equipment................................
Net cash used for investing activities............................
Financing activities:
Increase in bonds payable..........................................
Increase in common stock..........................................
Cash dividends...........................................................
Net cash used by financing activities............................
Net change in cash and cash equivalents......................
Cash balance, beginning...............................................
Cash balance, end..........................................................
AACSB: Analytic AICPA BB: Critical Thinking
LO: 2,3 Level: Medium

15-106

$113
49
(4)
(7)
(9)
(4)
(3)
( 4)
131
( 105)
( 105)
1
2
( 28)
( 25)
1
26
$ 27
AICPA FN: Measurement

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


121. Boscia Corporation's balance sheet appears below:
Comparative Balance Sheet
Ending Beginning
Balance Balance
Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 44
82
71
537
( 240)
$494

$ 38
69
69
500
( 201)
$475

Liabilities and stockholders equity:


Accounts payable.......................................
Wages payable...........................................
Taxes payable.............................................
Bonds payable............................................
Deferred taxes............................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 70
24
19
226
19
22
114
$494

$ 60
21
22
300
18
20
34
$475

The net income for the year was $108. Cash dividends were $28.
Required:
Prepare a statement of cash flows in good form using the indirect method.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-107

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Ans:
Net income...................................................................
Adjustments to convert net income to a cash basis:
Depreciation charges................................................
Increase in accounts receivable................................
Increase in inventory................................................
Increase in accounts payable....................................
Increase in wages payable........................................
Decrease in taxes payable.........................................
Increase in deferred taxes.........................................
Net cash provided by operations..................................
Investing activities:
Increase in plant and equipment...............................
Net cash used for investing activities..........................
Financing activities:
Decrease in bonds payable.......................................
Increase in common stock........................................
Cash dividends..........................................................
Net cash used by financing activities...........................
Net change in cash and cash equivalents.....................
Cash balance, beginning..............................................
Cash balance, end........................................................
AACSB: Analytic AICPA BB: Critical Thinking
LO: 2,3 Level: Easy

15-108

$108
39
(13)
(2)
10
3
(3)
1
143
( 37)
( 37)
(74)
2
( 28)
( 100)
6
38
$ 44
AICPA FN: Measurement

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


122. Fryberger Corporation's balance sheet and income statement appear below:
Comparative Balance Sheet
Ending
Balance

Beginning
Balance

Assets:
Cash and cash equivalents.............................
Accounts receivable.......................................
Inventory........................................................
Plant and equipment.......................................
Accumulated depreciation.............................
Total assets.....................................................

$ 36
46
53
472
( 218)
$389

$ 33
41
59
460
( 214)
$379

Liabilities and stockholders equity:


Accounts payable...........................................
Long-term debt...............................................
Common stock...............................................
Retained earnings...........................................
Total liabilities and stockholders equity.......

$ 52
289
84
( 36)
$389

$ 62
330
80
( 93)
$379

Income Statement
Sales...............................................................
Cost of goods sold..........................................
Gross margin..................................................
Selling and administrative expense................
Net operating income.....................................
Income taxes..................................................
Net income.....................................................

$73
7
454
283
173
110
33
$ 77

Cash dividends were $20.


Required:
Prepare a statement of cash flows in good form using the indirect method.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-109

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Ans:
Net income................................................................
Adjustments to convert net income to a cash basis:
Depreciation charges..............................................
Increase in accounts receivable..............................
Decrease in inventory............................................
Decrease in accounts payable................................
Net cash provided by operations...............................
Investing activities:
Increase in plant and equipment............................
Net cash used for investing activities........................
Financing activities:
Decrease in long-term debt....................................
Increase in common stock......................................
Cash dividends.......................................................
Net cash used by financing activities........................
Net cash flow............................................................
Cash balance, beginning...........................................
Cash balance, end......................................................
AACSB: Analytic AICPA BB: Critical Thinking
LO: 2,3 Level: Medium

15-110

$77
4
(5)
6
( 10)
72
( 12)
( 12)
( 41)
4
( 20)
( 57)
3
33
$36
AICPA FN: Measurement

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


123. Solmonson Corporation's balance sheet appears below:
Comparative Balance Sheet
Ending
Balance

Beginning
Balance

Assets:
Cash and cash equivalents.............................
Accounts receivable.......................................
Inventory........................................................
Plant and equipment.......................................
Accumulated depreciation.............................
Total assets.....................................................

$ 29
21
49
524
( 283)
$340

$ 27
25
56
420
( 251)
$277

Liabilities and stockholders equity:


Accounts payable...........................................
Long-term debt...............................................
Common stock...............................................
Retained earnings...........................................
Total liabilities and stockholders equity.......

$ 28
84
51
177
$340

$ 34
100
50
93
$277

Net income for the year was $105. Cash dividends were $21.
Required:
Prepare a statement of cash flows in good form using the indirect method.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-111

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Ans:
Net income.....................................................................
Adjustments to convert net income to a cash basis:
Depreciation charges..................................................
Decrease in accounts receivable.................................
Decrease in inventory.................................................
Decrease in accounts payable.....................................
Net cash provided by operations...................................
Investing activities:
Increase in plant and equipment.................................
Net cash used for investing activities............................
Financing activities:
Decrease in long-term debt.........................................
Increase in common stock..........................................
Cash dividends...........................................................
Net cash used by financing activities............................
Net cash flow.................................................................
Cash balance, beginning................................................
Cash balance, end..........................................................
AACSB: Analytic AICPA BB: Critical Thinking
LO: 2,3 Level: Easy

15-112

$105
32
4
7
( 6)
142
( 104)
( 104)
(16)
1
( 21)
( 36)
2
27
$ 29

AICPA FN: Measurement

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


124. Carman Company's comparative balance sheet and income statement for last year
appear below:
Statement of Financial Position
Ending
Beginning
Balance
Balance
Cash............................................................
$ 70,000
$ 38,000
Accounts receivable...................................
76,000
52,000
Inventory....................................................
24,000
42,000
Prepaid expenses........................................
8,000
16,000
Long-term investments..............................
260,000
210,000
Plant and equipment...................................
530,000
510,000
Accumulated depreciation......................... ( 398,000) ( 350,000)
Total assets.................................................
$570,000
$518,000
Accounts payable.......................................
Accrued liabilities......................................
Taxes payable.............................................
Bonds payable............................................
Deferred taxes............................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and owners equity............

$ 32,000
34,000
4,000
160,000
38,000
150,000
152,000
$570,000

$ 54,000
25,000
11,000
200,000
25,000
120,000
83,000
$518,000

Income Statement
Sales...........................................................
Cost of goods sold......................................
Gross margin..............................................
Selling and administrative expense............
Net operating income.................................
Income taxes..............................................
Net income.................................................

$610,00
0
310,000
300,000
190,000
110,000
33,000
$ 77,000

The company declared and paid $8,000 in cash dividends during the year.
Required:
Construct in good form the operating activities section of the company's statement of
cash flows for the year using the direct method.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-113

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Ans:
Sales.................................................................
Adjustments to a cash basis:

$610,00
0

Increase in accounts receivable........................

-24,000

Cost of goods sold


Adjustments to a cash basis:
Decrease in inventory
Decrease in accounts payable

310,000

Selling and administrative expense


Adjustments to a cash basis:
Decrease in prepaid expenses
Increase in accrued liabilities
Depreciation charges
Income tax expense
Adjustments to a cash basis:
Decrease in taxes payable
Increase in deferred taxes

-18,000
+22,000

314,000

190,000
-8,000
-9,000
-48,000

125,000

33,000
+7,000
-13,000

Net cash provided by operating activities


AACSB: Analytic AICPA BB: Critical Thinking
Appendix: 15 LO: 2,4 Level: Hard

15-114

$586,00
0

27,000
$120,00
0

AICPA FN: Measurement

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


125. Boehning Corporation's balance sheet and income statement appear below:
Comparative Balance Sheet
Ending Beginning
Balance Balance
Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 25
53
50
532
( 285)
$375

$ 22
48
56
430
( 261)
$295

Liabilities and stockholders equity:


Accounts payable.......................................
Wages payable...........................................
Taxes payable.............................................
Bonds payable............................................
Deferred taxes............................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 39
20
10
71
15
82
138
$375

$ 38
24
9
100
19
80
25
$295

Income Statement
Sales...........................................................
Cost of goods sold......................................
Gross margin..............................................
Selling and administrative expense............
Net operating income.................................
Gain on sale of plant and equipment..........
Income before taxes...................................
Income taxes..............................................
Net income.................................................

$954
606
348
162
186
10
196
59
$137

Cash dividends were $24. The company sold equipment for $10 that was originally
purchased for $4 and that had accumulated depreciation of $4.
Required:
Using the direct method, determine the net cash provided by (used by) operating
activities.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-115

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Ans:
Sales..............................................................
Increase in accounts receivable.....................

$954
( 5)

$949

Cost of sales..................................................
Decrease in inventory...................................
Increase in accounts payable.........................

606
(6)
( 1)

599

Selling and administrative expense...............


Decrease in wages payable...........................
Depreciation charges.....................................

162
4
( 28)

138

Income taxes.................................................
Increase in taxes payable..............................
Decrease in deferred taxes............................

59
(1)
4

62

Net cash provided by operating activities.....


AACSB: Analytic AICPA BB: Critical Thinking
Appendix: 15 LO: 2,4 Level: Medium

15-116

$150
AICPA FN: Measurement

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


126. May Corporation's balance sheet and income statement appear below:
Comparative Balance Sheet
Ending Beginning
Balance Balance
Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 24
24
32
598
( 390)
$288

$ 22
25
37
580
( 366)
$298

Liabilities and stockholders equity:


Accounts payable.......................................
Wages payable...........................................
Taxes payable.............................................
Bonds payable............................................
Deferred taxes............................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 38
23
12
87
16
63
49
$288

$ 45
25
10
110
17
60
31
$298

Income Statement
Sales...........................................................
Cost of goods sold......................................
Gross margin..............................................
Selling and administrative expense............
Net operating income.................................
Income taxes..............................................
Net income.................................................

$606
396
210
174
36
11
$ 25

Cash dividends were $7.


Required:
Prepare the operating activities section of the statement of cash flows using the direct
method. In other words, determine the net cash provided by or used by operating
activities using the direct method.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-117

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Ans:
Sales.................................................................
Decrease in accounts receivable......................

$606
1

$607

Cost of goods sold............................................


Decrease in inventory......................................
Decrease in accounts payable..........................

396
(5)
7

398

Selling and administrative expense..................


Decrease in wages payable..............................
Depreciation charges........................................

174
2
( 24)

152

Income taxes....................................................
Increase in taxes payable.................................
Decrease in deferred taxes...............................

11
(2)
1

10

Net cash provided by operating activities........


AACSB: Analytic AICPA BB: Critical Thinking
LO: 2,4 Level: Medium

15-118

$ 47
AICPA FN: Measurement

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


127. Heckler Corporation's balance sheet and income statement appear below:
Comparative Balance Sheet
Ending Beginning
Balance Balance
Assets:
Cash and cash equivalents.........................
Accounts receivable...................................
Inventory....................................................
Plant and equipment...................................
Accumulated depreciation.........................
Total assets.................................................

$ 43
25
67
392
( 237)
$290

$ 35
28
66
360
( 198)
$291

Liabilities and stockholders equity:


Accounts payable.......................................
Long-term debt...........................................
Common stock...........................................
Retained earnings.......................................
Total liabilities and stockholders equity...

$ 31
198
74
( 13)
$290

$ 29
240
70
( 48)
$291

Income Statement
Sales...........................................................
Cost of goods sold......................................
Gross margin..............................................
Selling and administrative expense............
Net operating income.................................
Income taxes..............................................
Net income.................................................

$618
398
220
156
64
19
$ 45

Cash dividends were $10.


Required:
Prepare the operating activities section of the statement of cash flows in good form
using the direct method.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-119

Chapter 15 How Well Am I Doing?--Statement of Cash Flows


Ans:
Sales..............................................................

$61
8

Decrease in accounts receivable...................

$62
1

Cost of goods sold.........................................


Increase in inventory.....................................
Increase in accounts payable.........................

398
1
( 2)

397

Selling and administrative expense...............


Depreciation charges.....................................

156
( 39)

117

Income taxes.................................................

19

Net cash provided by operating activities.....

$ 88

AACSB: Analytic AICPA BB: Critical Thinking


LO: 2,4 Level: Easy

15-120

AICPA FN: Measurement

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 15 How Well Am I Doing?--Statement of Cash Flows

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15-121