CHAPTER 23

Statement of Cash Flows

OPTIONAL ASSIGNMENT CHARACTERISTICS TABLE
Item

Description

BE23-7

Computation of cash payments to suppliersdirect method.

E23-1
E23-8
E23-9
E23-10
E23-11
E23-12

Classification of transactions.
Schedule of net cash flow from operating activitiesindirect method.
SCFdirect method (note: correct ending balance of Allowance = $2,300).
Classification of transactions.
SCFindirect method.
SCFdirect method.

P23-1
P23-2
P23-6
P23-7

SCFindirect method.
SCFindirect method.
SCFindirect method, & net cash flow from operating activities, direct method.
(b & c) SCFdirect method with indirect method reconciliation for operating activities.

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BRIEF EXERCISE 23-7

Beg.
purch
End.

Inventory
95,000
518,000 COGS
113,000

Accounts Payable
Beg.
510,000 purch
End.

payments

500,000

61,000
518,000
69,000

EXERCISE 23-1
a)
b)
c)
d)
e)
f)
g)
h)
i)
j)
k)
l)

Operatingadd to net income (note: 455 level item; will not be tested in 356).
Financing activity ().
Investing activity (+).
Operatingadd to net income.
Noncash investing and financing activity.
Financing activity (+).
Operatingadd to net income.
Financing activity ().
Noncash investing and financing activity.
Financing activity ().
Operatingdeduct from net income.
Investing activity ().

EXERCISE 23-8
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense....................................................................
Gain on sale of investment [($200 $165) X 100]........................
Decrease in accounts receivable ..................................................
Undistributed earnings from equity method investment (a) ..........
Net cash provided by operating activities ..............................................

$ 145,000

39,000
(3,500)
12,000
(7,500)
$ 185,000

(a) [equity income ($27,000 x 30%) dividends ($2,000 x 30%)] = $7,500

EXERCISE 23-9 (correct ending balance of allowance: $1,100 + $5,000 $3,800 = $2,300)
(1)
Beg.
Sales
End.

Accounts Receivable
30,000 Write-offs
538,800 collections
33,000

(2)
Beg.
purch
End.

Inventory
47,000
234,000 COGS
31,000

(3)

OR
3,800
532,000

250,000

Interest Expense
Bond Discount ($5,000 $4,500)
Cash

Accounts Receivable (NET: A/R allowance)

Beg.*
28,900 Bad debt exp
5,000
532,000
Sales
538,800 collections
End.**
30,700
* $30,000 $1,100
** $33,000 $2,300
Accounts Payable (to suppliers for inventory)
Beg.
17,000
payments
226,000 purch
234,000
End.
25,000
4,300
500
3,800

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EXERCISE 23-9 continued

(4)
payments

(5)

Income Taxes Payable

Beg
27,800 Exp*
End

29,100
19,700
21,000

* current exp = $20,400 $700 incr in deferred inc taxes**

(**note: 455 level item; will not be tested in 356)

Selling expenses (141,500 1,000* 5,000)

Cash

135,500
135,500

* [($16,500 $13,500) X 1/3]

Note that there are no related prepaid/accrued balance sheet accounts

EXERCISE 23-10
(1)
Property, Plant & Equipment
Beg.
247,000
Purch (B/P)
25,000 sale
Purch (cash)
50,000
End.
277,000

(2)
45,000

sale

Accumulated Depreciation
Beg.
27,000 Depr exp
End.

167,000
38,000
178,000

(1) payments to purchase PP&E are classified as cash flows from investing activities (); note that the
purchase of PP&E by issuing bonds payable is classified as a noncash investing & financing activity
(2) proceeds from the sale of equipment are classified as cash flows from investing activities (+) and
equals:
Cash
$ 32,500
BV ($45,000 $27,000)
18,000
Gain
$ 14,500
(3)
Div decl

Retained Earnings
Beg
18,000 NI
End

91,000
31,000
104,000

payments

Dividends Payable
Beg
15,000 Div decl
End

5,000
18,000
8,000

(3) cash dividends paid are classified as cash flows from financing activities ()
(4)
payments

Bonds Payable
Beg
22,000 issue
End

Note: no amortization of bond discount/premium

46,000
25,000
49,000

(4) payments for redemption of bonds payable are classified as cash flows from financing activities ()

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EXERCISE 23-11
FAIRCHILD COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2012
Cash flows from operating activities
Net income ..................................................................................................................... $ 810
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense ....................................................................................
$ 30
Gain on sale of investments ...........................................................................
(80)
Increase in receivables ($1,750 $1,300) .....................................................
(450)
Decrease in inventory ($1,600 $1,900) .......................................................
300
Increase in accounts payable ($1,200 $800) ..............................................
400
Decrease in accrued liabilities ($200 $250) ................................................
(50)
Net cash provided by operating activities ...............................................................
Cash flows from investing activities
Purchase of plant assets .......................................................................................
(130)
Sale of held-to-maturity investments ($170 + $80) ................................................
250
Net cash provided by investing activities ...............................................................
Cash flows from financing activities
Payments on bonds payable ....................................................................................
(250)
Issuance of capital stock .........................................................................................
130
Payment of dividends ...............................................................................................
(260)
Net cash used by financing activities .......................................................................
Net increase in cash ..............................................................................................................
Cash at beginning of year .....................................................................................................
Cash at end of year ...............................................................................................................

(380)
700
1,100
$ 1,800

Noncash investing and financing activities

Issuance of common stock for plant assets .............................................................

T-accounts for I & F accounts:

Plant Assets
Beg
1,700
Purch (C/S)
70
Purch (cash)
130 Sale
End
1,900

Sale

Beg
purch
end

Accumulated depreciation
Beg
0 Depr Exp
End
L-T Investments (HTM)
1,470
Sale
1,300

Pymts
0

1,170
30
1,200

170

Bonds Payable
Beg
250
End
Capital Stock
Beg
Issue (p.a.)
Issue (cash)
end

Retained Earnings
Beg
Div decl*
260 NI
End
* = paid since no div pay acct

$ 960

120

70

1,650
1,400

1,700
70
130
1,900

1,900
810
2,450

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EXERCISE 23-12 (see E23-11 for T-accounts related to I & F activities)

FAIRCHILD COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2012
Cash flows from operating activities
Cash collections from customers (1) .................................................................
Cash payments:
To suppliers for inventory (2) .......................................................................
$ 4,000
To employees and other suppliers for selling & administrative expenses (3)
950
For income taxes (4) ....................................................................................
540
Net cash provided by operating activities ...............................................................
Cash flows from investing activities
Purchase of plant assets .......................................................................................
(130)
Sale of held-to-maturity investments ($170 + $80) ................................................
250
Net cash provided by investing activities ...............................................................
Cash flows from financing activities
Payments on bonds payable ....................................................................................
(250)
Issuance of capital stock .........................................................................................
130
Payment of dividends ...............................................................................................
(260)
Net cash used by financing activities .......................................................................
Net increase in cash ..............................................................................................................
Cash at beginning of year .....................................................................................................
Cash at end of year ...............................................................................................................
Noncash investing and financing activities
Issuance of common stock for plant assets .............................................................

(1)
Beg.
Sales
End.
(2)
Beg.
purch
End.
(3)

Receivables (gross)
1,300 Write-offs
6,900 collections
1,750
Inventory
1,900
4,400 COGS
1,600

0
6,450

4,700

(5,490)
$ 960

120

(380)
700
1,100
$ 1,800

70

(note: no information is given regarding write-offs,

bad debts expense, or an allowance account, so
all are assumed to be $0

Accounts Payable (assuming for inventory)

Beg.
800
payments
4,000 purch
4,400
End.
1,200

Selling & admin. Expenses (930 30*)

Accrued liabilities (decrease)
Cash

* (see E23-11 T-acct)

(4)

$ 6,450

expense = paid since no income taxes payable account

900
50
950

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PROBLEM 23-1
SULLIVAN CORP.
Statement of Cash Flows
For the Year Ended December 31, 2012
Cash flows from operating activities
Net income .....................................................................................
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense ............................................................
Gain on sale of equipment ($40,000 $38,000) ...................
Undistributed earnings from equity method investment. .......
Decrease in accounts receivable ...........................................
Increase in inventories ...........................................................
Increase in accounts payable ................................................
Decrease in income taxes payable ........................................
Net cash provided by operating activities ........................
Cash flows from investing activities:
Sale of equipment ..........................................................................
Loan to TLC Co. (loan receivable) .................................................
Collection of loan receivable ..........................................................
Net cash used by investing activities ..............................

$370,000

147,000
(2,000)
(35,000)
40,000
(135,000)
60,000
(20,000)
$ 425,000
40,000
(300,000)
50,000
(210,000)

Cash flows from financing activities:

Payment of dividends .....................................................................
Net cash used by financing activities ...............................
Net increase in cash .................................................................................
Cash at beginning of year ........................................................................
Cash at end of year ..................................................................................

(100,000)
(100,000)
115,000
700,000
$ 815,000

Noncash investing and financing activities:

Issuance of capital lease obligation for office building* ............................
*

$ 400,000

note: capital leases are 455-level items which will not be tested in 356

T-accounts for I & F activities (omitted capital stock & APIC since no change):
Property, plant & equipment
Dividends Payable
Beg.
2,967,000
Beg.
Purch (lease)
400,000 sale
60,000
payments
100,000 decl
End.
3,307,000
End.
Accumulated Depreciation
Beg
1,040,000
Sale*
22,000 Depr exp
147,000
End
1,165,000
* $60,000 $38,000
Investment in Myers
Beg.
275,000
Share of NI*
35,000 div
0
End.
310,000
* $140,000 x 25%; $35,000 $0 = undistributed earnings

Beg.
loan
End.

Loan Receivable
0
300,000 collect
250,000

50,000

Capital lease obligation

Beg
Payments*
0 issue
End
* not paid until 2013!

Div decl

Retained Earnings
Beg.
80,000 NI
End.

100,000
80,000
80,000

0
400,000
400,000

2,680,000
370,000
2,970,000

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PROBLEM 23-2
HINCKLEY CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2012
Cash flows from operating activities
Net income ......................................................................................
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense (equipment) .........................................
Amortization expense (patent) ................................................
Loss on sale of equipment [$2,500 ($11,000 $4,400)] .....
Gain from flood damage [$32,000 ($29,750 $6,000)] .....
Gain on sale of investments ...................................................
Increase in net accounts receivable (1) ($9,250 $5,500) ....
Increase in inventory ($12,000 $9,000) ...............................
Increase in accounts payable ($5,000 $3,000)....................
Net cash provided by operating activities .......................................
Cash flows from investing activities
Sale of investments ($3,000 + $1,700) ...........................................
Proceeds from flood damage to building ($30,000 + $2,000) ........
Sale of equipment ...........................................................................
Purchase of equipment ...................................................................
Net cash provided by investing activities ........................................
Cash flows from financing activities
Payment of short-term note payable ...............................................
Payment of dividends ......................................................................
Net cash used by financing activities ..............................................
Increase in cash .......................................................................................
Cash at beginning of year ........................................................................
Cash at end of year ..................................................................................

$ 14,750

1,900
1,250
4,100
(8,250)
(1,700)
(3,750)
(3,000)
2,000
$ 7,300
4,700
32,000
2,500
(20,000)
19,200
(1,000)
(5,000)
(6,000)
20,500
13,000
$ 33,500

Noncash investing and financing activities:

Retired note payable by issuing common stock
Purchased equipment by issuing note payable
Supplemental disclosures of cash flow information (2):
Cash payments for interest
Cash payments for income taxes

$ 10,000
$ 16,000
$ 2,000
$ 6,500

(1) Beg NET A/R = $10,000 $4,500 = $5,500; end NET A/R = $12,250 $3,000 = $9,250
(2) For the 356 exam, know this concept but may omit actual disclosure on the SCF
T-accounts for I & F activities:
Investments
Beg.
3,000
Purch
sale
End.
0

Beg
End

destroyed

Building
29,750
destroyed
0
Accum depr, building
Beg
6,000 exp
End

3,000

29,750

Beg
Purch (N/P)
Purch (cash)
end

Equipment
20,000
16,000 sale
20,000
45,000

Accum depr, equip

($11,000 x 40%)
Beg
Sale
4,400 exp
End

6,000

Beg

end

Patent
6,250
amort
5,000

11,000

4,500
1,900
2,000

1,250

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PROBLEM 23-2 continued

payment

Dividends payable
Beg
5,000 decl
End

Common Stock
Beg.
Issue (N/P)
End.

5,000
0

S-T notes payable (nontrade = borrowing!)

Beg
4,000
Payment
1,000
End
3,000

Pymt (C/S)

L-T notes payable

Beg
10,000 Issue (equip)
end

Div decl*

Retained Earnings
Beg
0 NI
End

33,000
10,000
43,000

6,000
14,750
20,750

* $0 since no end bal in div pay acct

25,000
16,000
31,000

PROBLEM 23-6
(a)

(1)
Beg.
Sales
End.

Net Cash Flows from Operating Activities

Cash receipts from customers (1) .............................................................
Cash payments:
to suppliers for inventory (2) .................................................................
To employees and other suppliers for operating expenses (3)............
Net cash provided by operating activities ..................................................
Accounts Receivable
60,000 Write-offs*
540,000 collections
70,500

OR
4,650
524,850

Beg*
Sales
End**

$524,850
$375,750
105,675

(481,425)
$ 43,425

Accounts Receivable (NET)

58,500 Bad debt exp
5,400
524,850
540,000 collections
68,250

* $1,500 + $5,400 $2,250 = $4,650

* $60,000 $1,500

(2)
Beg.
purch
End.

Accounts Payable (assuming for inventory)

Beg.
24,750
payments
375,750 purch
386,000
End.
35,000

(3)

Inventory
24,000
386,000 COGS
30,000

380,000

Operating expenses (120,450 8,625 5,400)

Accrued payables (increase: $3,375 $2,625)
Cash

** $70,500 $2,250

106,425
750
105,675

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PROBLEM 23-6 continued

(b)

MARCUS INC.
Statement of Cash Flows
For the Year Ended December 31, 2012
Cash flows from operating activities
Net income ........................................................................................
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense (proof: $4,125 + $4,500)......................
Gain on sale of investments ....................................................
Loss on sale of machinery ......................................................
Increase in accounts receivable (net) ($68,250 $58,500)....
Increase in inventory ($30,000 $24,000) .............................
Increase in accounts payable ($35,000 $24,750) ................
Increase in accrued payables ($3,375 $2,625) ....................
Net cash provided by operating activities ..........................................
Cash flows from investing activities
Sale of investments ......................................................................
Purchase of investments .............................................................
Sale of machinery .........................................................................
Purchase of machinery ................................................................
Purchase of buildings ...................................................................
Net cash used by investing activities ............................................
Cash flows from financing activities
Payment of long-term note payable .............................................
Payment of cash dividends ...........................................................
Net cash used by financing activities ...........................................
Net increase in cash ...............................................................................
Cash at beginning of year .......................................................................
Cash at end of year .................................................................................

T-accounts for I & F activities:

Investments (AFS)
Beg.
38,500
Purch
8,750 sale
End.
22,250

Beg
purch
End

sale

Beg
purch
End

Machinery
18,750
15,000 sale
30,000
Accum depr, Machinery
Beg
750 exp
End

25,000

3,750

pymt

2,250
4,125
5,625

Buildings
56,250
11,250
67,500
Accum depr, bldgs
Beg
exp
End

Beg
No
End

Stk div*
Cash div**

9,000
4,500
13,500

$ 42,500

8,625
(3,750)
800
(9,750)
(6,000)
10,250
750
$ 43,425
28,750
(8,750)
2,200
(15,000)
(11,250)
(4,050)
(10,000)
(21,125)
(31,125)
8,250
33,750
$ 42,000

Land
7,500
7,500
L-T note payable
Beg
10,000
End

31,000
21,000

Common stock, no par

Beg
Stk div
end

125,000
25,000
150,000

Retained Earnings
25,000 Beg.
21,125 NI
End.

42,625
42,500
39,000

* given (proof: $125,000 x 20%)

** given, but must = paid since no div pay acct

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PROBLEM 23-7
(a)

CHAPMAN COMPANY
Statement of Cash Flows
For the Year Ended May 31, 2012

Cash flows from operating activities

Cash receipts from customers (1) ......................................................
Cash payments:
To suppliers for inventory (1) ........................................................
To employees and other suppliers (1) ($276,850 + $10,150) ......
For interest paid (1) .......................................................................
For income taxes (2) .....................................................................
Net cash provided by operating activities ..........................................

$ 1,238,250
$ 684,000
287,000
73,000
43,000

(1,087,000)
151,250

Cash flows from investing activities

Purchase of plant assets (3) ..............................................................
Cash flows from financing activities
Payment on bonds payable ...............................................................
Issuance of common stock ................................................................
Payment of dividends .........................................................................
Net cash used by financing activities .................................................

(28,000)

(30,000)
20,000
(105,000)
(115,000)

Net increase in cash .......................................................................................

Cash at beginning of fiscal year .....................................................................
Cash at end of fiscal year ...............................................................................

Noncash investing and financing activities

Issuance of common stock for plant assets (3) ....................................
(1)
(2)
(3)

(c)

8,250
20,000
28,250

$ 70,000

see related T-account

all income tax expense paid (given info) but also since no income taxes payable account
purchase of plant assets from $28,000 cash & $70,000 from common stock (noncash)

CHAPMAN COMPANY
Statement of Cash Flows
For the Year Ended May 31, 2012

Cash flows from operating activities

Net income .........................................................................................
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation expense ................................................................
Increase in accounts receivable ($75,000 $58,000) ...............
Decrease in merchandise inventory ($220,000 $250,000) .....
Increase in prepaid expenses ($9,000 $7,000) ......................
Increase in accounts payable ($123,000 $115,000)...............
Decrease in salaries payable ($47,250 $72,000) ....................
Increase in interest payable ($27,000 $25,000) .....................
Net cash provided by operating activities ................................................

$130,000

$25,000
(17,000)
30,000
(2,000)
8,000
(24,750)
2,000
$151,250

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PROBLEM 23-7 continued

Beg
Incr
End

Beg
Sales
End

Beg
purch
End

pymts

pymts

pymts

Cash
20,000
8,250
28,250
Accounts Receivable (no allow)
58,000 w/o
0
1,255,250 Collect
1,238,250
75,000
Merchandise Inventory
250,000
692,000 COGS
220,000

Beg
Pymt
End

Prepaid Expenses
7,000
10,150 exp
9,000

Beg
Purch
End

Plant Assets
502,000
98,000
600,000
Accumulated depreciation
Beg
exp
end

722,000

Accounts Payable (for inventory)

Beg
115,000
684,000 purch
692,000
end
123,000
Salaries Payable
Beg
276,850 exp
end

72,000
252,100
47,250

Interest Payable
Beg
73,000 exp
end

25,000
75,000
27,000

pymts

Bonds Payable
Beg
30,000
end
Common Stock
Beg
Issue (p.a.)
Issue (cash)
End

Div*

Retained earnings
Beg
105,000 NI
End

* declared = paid since no dividend pay acct

8,150

125,000
25,000
150,000

100,000
70,000

280,000
70,000
20,000
370,000

120,000
130,000
145,000