Chapter 21

The Statement of Cash Flows Revisited

EXERCISE S
Exercise 21-1
1 1. Summary Entry 600 0

Accounts Situation Inventory suppliers

increase (decrease)

Cost of Cash paid to goods sold payable

increase (decrease)

0 600

600

Cost of goods sold Cash (paid to suppliers of goods) 600 18 0

600 618 600 18 618 558 600 42 558 576

2 2. Summary Entry

Cost of goods sold Inventory Cash (paid to suppliers of goods) 600 0 558

3 3. Summary Entry

Cost of goods sold Accounts payable Cash (paid to suppliers of goods) 600 18 42

Alternate Exercise and Problem Solutions

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4. Summary Entry

Cost of goods sold Inventory Accounts payable Cash (paid to suppliers of goods) 600 (18) (42)

600 18 42 576 624 600 42 18 624

5 5. Summary Entry

Cost of goods sold Accounts payable Inventory Cash (paid to suppliers of goods)

Exercise 21-2

RECONCILIATION OF NET INCOME TO NET CASH FLOWS FROM OPERATING ACTIVITIES ($ in millions)

Net income Adjustments for noncash effects: Increase in accounts receivable Increase (decrease) in inventory Increase in accounts payable Increase in salaries payable Decrease in prepaid insurance Depreciation expense Depletion expense Decrease in bond discount Gain on sale of equipment
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$ 78

(162) 0 29 12 18 33 15 3 (75)

Intermediate Accounting, 6e

Loss on sale of land Increase in income tax payable Net cash flows from operating activities

24 36 $ 21

Exercise 21-3 Requirement 1:

a. Summary Entry Cash (received from customers) Accounts receivable Sales revenue 933 18 915

b. Summary Entry

Cost of goods sold Inventory Accounts payable Cash (paid to suppliers of goods)

555 39 24 618

c. Summary Entry

Salaries expense Salaries payable Cash (paid to employees)

123 15 108

d. Summary Entry

Insurance expense Prepaid insurance Cash (paid for insurance)

57 27 30

e. Summary Entry

Income tax expense Income tax payable Cash (paid for income taxes)

66 60 6

Depreciation expense and the loss on sale of land are not cash outflows.

Alternate Exercise and Problem Solutions

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Requirement 2: Cash Flows from Operating Activities: Cash received from customers $933 Cash paid to suppliers (618) Cash paid to employees (108) Cash paid for insurance (30) Cash paid for income taxes (6) Net cash flows from operating activities $171

Exercise 21-4

RECONCILIATION OF NET INCOME TO NET CASH FLOWS FROM OPERATING ACTIVITIES $ (25,000) 30,000 2,500 10,000 (11,500) 1,500 1,000 $8,500

Net loss Adjustments for noncash effects: Depreciation expense Increase in salaries payable Decrease in accounts receivable Increase in inventory Amortization of patent Reduction in discount on bonds Net cash flows from operating activities

PROBLEM S
inflow)
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Problem 21-1
Classifications + I Investing activity (cash

Intermediate Accounting, 6e

I Investing activity (cash outflow +F Financing activity (cash inflow) F Financing activity (cash outflow) N Noncash investing and financing activity X Not reported as an investing and/or a financing activity Transactions Example + I 1. Sale of a building +F 2. Issuance of preferred stock for cash - F 3. Retirement of preferred stock N 4. Conversion of bonds to common stock N 5. Lease of a machine by capital lease + I 6. Sale of a trademark - I 7. Purchase of land for cash N 8. Issuance of common stock for a building + I 9. Collection of a note receivable (principal amount) +F 10. Sale of bonds payable X 11. Distribution of a stock dividend N 12. Payment of property dividend - F 13. Payment of cash dividends +F 14. Issuance of a short-term note payable for cash +F 15. Issuance of a long-term note payable for cash - I 16. Purchase of investment securities (available-for-sale) - F 17. Repayment of a note payable X 18. Cash payment for 3-year insurance policy + I 19. Sale of land N 20. Issuance of note payable for land - I 21. Purchase of common stock issued by another corporation N 22. Repayment of long-term debt by issuing common stock X 23. Payment of semiannual interest on notes payable - F 24. Purchase of treasury stock - I 25. Loan to a subsidiary X 26. Sale of merchandise to customers X 27. Purchase of treasury bills (cash equivalents)
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Problem 21-2

A2Z Industries Spreadsheet for the Statement of Cash Flows

Dec.31 2010 Changes Debits Credits Dec. 31 2011

Balance Sheet Assets: Cash Accounts receivable Inventory Land Building Less: Acc. depreciation Equipment Less: Acc. depreciation Patent Liabilities: Accounts payable Accrued expenses Lease liability land Shareholders' Equity: Common stock Paid-in capital-ex. of par Retained earnings

1,125 1,350 1,575 1,800 2,700 (810) 6,750 (1,440) 4,500 17,550 1,350 675 0

(14) 675 (1) 450 (4) 1,125 (2) 450 X (3) 225

(11) 2,700 (7) 810

90 (7) 900 (6) 945 (8) 900

(5)

1,800 1,800 2,700 2,025 2,700 (900) 8,550 (1,575) 3,600 20,700 2,250 900 450

(4) 900 (9) 225

X

(2) 450

9,000 2,025 4,500 17,550

(12) 450 (12) 225 (12) 675 (13) 1,350 (10) 2,925

9,450 2,250 5,400 20,700

Income Statement Revenues: Sales revenue Gain on sale of land Expenses:

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(1)7,935 (3) 270

7,935 270

Intermediate Accounting, 6e

Cost of goods sold Depreciation expense-build. Depreciation expense-equip. Loss on sale of equipment Amortization of patent Operating expenses Net income Problem 21-2 (continued)

(4) 1,800

90 (6) 945 (7) 45 (8) 900 (9) 1,500 (10) 2,925

(5)

1,800 90 945 45 900 1,500 2,925

Spreadsheet for the Statement of Cash Flows (continued)

Dec.31 2010 Changes Debits Credits Dec. 31 2011

Statement of Cash Flows Operating activities: Cash inflows: From customers Cash outflows: To suppliers of goods For operating expenses Net cash flows Investing activities: Purchase of equipment Sale of land Sale of equipment Net cash flows Financing activities:

(1) 7,485 (4) 2,025 (9) 1,275

4,185

(11) 2,700 (3) 495 (7)

45 (2,160)

Alternate Exercise and Problem Solutions

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Payment of cash dividends Net cash flows Net increase in cash

Totals 24,465

(13) 1,350 (14) 675 24,465

(1,350) 675

X Noncash investing and financing activity

Problem 21-2 (concluded)

A2Z Industries Statement of Cash Flows For year ended December 31, 2011 ($ in 000)

Cash flows from operating activities: Cash inflows: From customers Cash outflows: To suppliers of goods For operating expenses Net cash flows from operating activities Cash flows from investing activities: Purchase of equipment

$7,485 (2,025) (1,275) $4,185

$ (2,700)

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Intermediate Accounting, 6e

Sale of land Sale of equipment Net cash flows from investing activities Cash flows from financing activities: Payment of cash dividends Net cash flows from financing activities Net increase in cash Cash balance, January 1 Cash balance, December 31 Noncash investing and financing activities: Land acquired by capital lease

495 45 (2,160)

$ (1,350) (1,350) $ 675 1,125 $1,800

$450

Alternate Exercise and Problem Solutions

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Problem 21-3

A2Z Industries Spreadsheet for the Statement of Cash Flows

Dec.31 2010 Changes Debits Credits Dec. 31 2011

Balance Sheet Assets: Cash Accounts receivable Inventory Land Building Less: Acc. depreciation Equipment Less: Acc. depreciation Patent Liabilities: Accounts payable Accrued expenses Lease liabilityland Shareholders' Equity: Common stock Paid-in capital-ex. of par Retained earnings

1,125 1,350 1,575 1,800 2,700 (810) 6,750 (1,440) 4,500 17,550 1,350 675 0

(15) 675 (7) 450 (8) 1,125 (11) 450 X (2) 225

(12) 2,700 (5) 810

90 (5) 900 (4) 945 (6) 900

(3)

1,800 1,800 2,700 2,025 2,700 (900) 8,550 (1,575) 3,600 20,700 2,250 900 450

(9) 900 (10) 225

X (11)

450

9,000 2,025 4,500 17,550

(13) 450 (13) 225 (13) 675 (14) 1,350 (1) 2,925

9,450 2,250 5,400 20,700

X Noncash investing and financing activity

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Intermediate Accounting, 6e

Problem 21-3 (continued)

Spreadsheet for the Statement of Cash Flows (continued)

Dec.31 2010 Changes Debits Credits Dec. 31 2011

Statement of Cash Flows Operating activities: Net income Adjustments for noncash effects: Gain on sale of land Depreciation expense-build Depreciation expense-equip Loss on sale of equipment Amortization of patent Increase in accounts receivable Increase in inventory Increase in accounts payable Increase in accrued expenses

(1) 2,925 (2) 270

90 (4) 945 (5) 45 (6) 900

(3) (7) 450 (8) 1,125 (9) 900 (10) 225

Alternate Exercise and Problem Solutions

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Net cash flows Investing activities: Purchase of equipment Sale of land Sale of equipment Net cash flows Financing activities: Payment of cash dividends Net cash flows Net increase in cash
Totals

4,185
(12) 2,700 (2) 495 (5)

45 (2,160)

(14) 1,350 (15) 675 14,805 14,805

(1,350) 675

Problem 21-3 (concluded)

A2Z Industries Statement of Cash Flows For year ended December 31, 2011 ($ in 000)

Cash flows from operating activities: Net income Adjustments for noncash effects: Gain on sale of land

$ 2,925 (270)

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Intermediate Accounting, 6e

Depreciation expense building Depreciation expense equipment Loss on sale of equipment Amortization of patent Increase in accounts receivable Increase in inventory Increase in accounts payable Increase in accrued expenses Net cash flows from operating activities Cash flows from investing activities: Purchase of equipment Sale of land Sale of equipment Net cash flows from investing activities Cash flows from financing activities: Payment of cash dividends Net cash flows from financing activities Net increase in cash Cash balance, January 1 Cash balance, December 31 Noncash investing and financing activities: Land acquired by capital lease

90 945 45 900 (450) (1,125) 900 225 $4,185

$(2,700) 495 45 (2,160)

$(1,350) (1,350) $ 675 1,125 $1,800

$450

Alternate Exercise and Problem Solutions

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