Chapter 16 - Reporting the Statement of Cash Flows

Chapter 16
Reporting the Statement of Cash Flows

EXERCISES
Exercise 16-1 (25 minutes)

Statement of Cash Flows Noncash

Investing & Not Reported
Operating Investing Financing Financing on Statement
Activities Activities Activities Activities or in Notes

a. Declared and paid a

X
cash dividend

b. Recorded
X
depreciation expense

c. Paid cash to settle

X
long-term note payable

d. Prepaid expenses
X
increased in the year

e. Accounts receivable
X
decreased in the year

f. Purchased land by
X
issuing common stock

g. Inventory increased
X
in the year

h. Sold equipment for

X X
cash, yielding a loss

i. Accounts payable
X
decreased in the year

j. Income taxes payable

X
increased in the year
Chapter 16 - Reporting the Statement of Cash Flows

Exercise 16-2 (20 minutes)

Cash flows from operating activities—indirect method

Net income....................................................................................................
$ 24,000
Adjustments to reconcile net income to net cash provided by
operating activities
Income statement items not affecting cash
Depreciation expense..............................................................................12,000
Changes in current operating assets and liabilities
Accounts receivable increase ...............................................................(10,000)
Inventory decrease..................................................................................16,000
Salaries payable increase....................................................................... 1,000
Net cash provided by operating activities.................................................
$ 43,000
Chapter 16 - Reporting the Statement of Cash Flows

Exercise 16-3 (30 minutes)

1. Cash flows from operating activities—indirect method

Net income (loss).........................................................................................
$ (16,000)
Adjustments to reconcile net income to net cash provided by
operating activities
Income statement items not affecting cash
Depreciation expense..............................................................................
14,600
Changes in current operating assets and liabilities
Accounts receivable decrease ..............................................................24,000
Salaries payable increase.......................................................................
18,000
Accrued liabilities decrease...................................................................
(8,000)
Net cash provided by operating activities.................................................
$ 32,600

2. One reason for the net loss was depreciation expense. Depreciation
expense is added to net income to adjust for the effects of a noncash
expense that was deducted in determining net income. It does not involve
an inflow of cash. Depreciation expense, along with a decrease in accounts
receivable and an increase in salaries payable, turned the net loss into
positive operating cash flow.

3. Differences between cash flow from operations and net income can be
caused by various items. The most important causes for investors are
differences arising from: (1) changes in management of operating activities
and (2) changes in revenue and expense recognition.
Chapter 16 - Reporting the Statement of Cash Flows

Exercise 16-4 (30 minutes)

Cash flows from operating activities

Net income.............................................................................. $ 481,540
Adjustments to reconcile net income to net cash
provided by operating activities
Income statement items not affecting cash
Depreciation expense....................................................... 44,200
Amortization expense—Patents...................................... 4,200
Gain on sale of equipment............................................... (6,200)
Changes in current operating assets and liabilities
Increase in accounts receivable...................................... (30,500)
Increase in inventory....................................................... (25,000)
Decrease in accounts payable........................................ (12,500)
Decrease in salaries payable........................................... (3,500)
Net cash provided by operating activities............................. $ 452,240

Exercise 16-5 (20 minutes)

Cash flows from operating activities

Net income.............................................................................. $374,000
Adjustments to reconcile net income to net cash
provided by operating activities
Income statement items not affecting cash
Depreciation expense....................................................... 44,000
Amortization expense...................................................... 7,200
Gain on sale of plant assets............................................ (6,000)
Changes in current operating assets and liabilities
Decrease in accounts receivable.................................... 17,100
Decrease in inventory..................................................... 42,000
Increase in prepaid expenses.......................................... (4,700)
Decrease in accounts payable........................................ (8,200)
Increase in salaries payable............................................ 1,200
Net cash provided by operating activities............................. $466,600
Chapter 16 - Reporting the Statement of Cash Flows

Exercise 16-6 (10 minutes)

Cash flows from operating activities

Net income................................................................................ $400,000
Adjustments to reconcile net income to operating cash flow
Income statement items not affecting cash
Depreciation.........................................................................
$80,000
Gain on sale of machinery.................................................. (20,000)
Changes in current operating assets and liabilities
Accounts receivable increase............................................
(40,000)
Prepaid expense decrease.................................................
12,000
Accounts payable increase................................................6,000
Wages payable decrease....................................................
(2,000) 36,000
Net cash provided from operating activities............................ $436,000

Exercise 16-7 (10 minutes)

Cash flows from investing activities

Cash received from the sale of equipment*................................... $ 51,300
Cash paid for new truck................................................................... (89,000)
Cash received from the sale of land............................................... 198,000
Cash received from the sale of long-term investments................ 60,800
Net cash provided by investing activities...................................... $221,100
* Cash received from sale of equipment = Book value - loss = $65,300 - $14,000 = $51,300

Exercise 16-8 (10 minutes)

Cash flows from financing activities

Sale of common stock.................................................................................
$ 64,000
Paid cash dividend.......................................................................................
(14,600)
Repaid note payable....................................................................................
(50,000)
Purchased treasury stock...........................................................................(12,000)
Net cash used by financing activities........................................................ $(12,600)
Chapter 16 - Reporting the Statement of Cash Flows

Exercise 16-9 (20 minutes)

PEUGEOT S.A.
Statement of Cash Flows (Indirect Method)
For Year Ended December 31, 2011
Cash flows from operating activities
Net income........................................................................ € 784
Adjustments to reconcile net income to net cash
provided by operating activities
Income statement items not affecting cash
Depreciation and amortization..................................... € 3,037
Gains on disposals and other...................................... (883)
Changes in current operating assets and liabilities
Net change (decrease) in working capital................... (1,183)
Net cash from operating activities................................. € 1,755
Cash flows from investing activities
Cash from disposal of plant assets & intangibles........ 189
Cash paid for plant assets and intangibles................... (3,921)
Net cash used in investing activities............................. (3,732)
Cash flows from financing activities
Cash from purchases of treasury stock........................ (199)
Cash paid for dividends.................................................. (290)
Cash paid for other financing activities......................... (2,282)
Net cash used in financing activities............................. (2,771)
Net decrease in cash.......................................................... € (4,748)
Cash and cash equivalents, Dec 31, 2010........................ 10,442
Cash and cash equivalents, Dec 31, 2011........................ € 5,694

Exercise 16-10 (15 minutes)

2014: $102,920 / $1,240,000 = 8.3%

2015: $138,920 / $1,510,000 = 9.2%

Interpretation: Both years’ ratios are good in that they are positive and at
reasonable levels (that is, most businesses can survive with annual returns at
~10%). Further, the ratio improved from 8.3% to 9.2%, which is a good increase.
Chapter 16 - Reporting the Statement of Cash Flows

Exercise 16-11 (40 minutes)

Part 1
IKIBAN, INC.
Statement of Cash Flows (Indirect Method)
For Year Ended June 30, 2015
Cash flows from operating activities
Net income.........................................................................$ 99,510
Adjustments to reconcile net income to net cash
provided by operating activities
Income statement items not affecting cash
Depreciation expense..................................................... 58,600
Gain on sale of plant assets.......................................... (2,000)
Changes in current operating assets and liabilities
Increase in accounts receivable.................................... (14,000)
Decrease in inventory.................................................... 22,700
Decrease in prepaid expenses...................................... 1,000
Decrease in accounts payable....................................... (5,000)
Decrease in wages payable........................................... (9,000)
Decrease in income taxes payables.............................. (400)
Net cash provided by operating activities...................... $151,410
Cash flows from investing activities
Cash received from sale of equip. (Note 1).................... 10,000
Cash paid for equipment (Note 1—given)....................... (57,600)
Net cash used in investing activities.............................. (47,600)
Cash flows from financing activities
Cash received from stock issuance................................ 60,000
Cash paid to retire notes (Note 2—given)....................... (30,000)
Cash paid for dividends (Note 3)..................................... (90,310)
Net cash used in financing activities.............................. (60,310)
Net increase in cash............................................................. $ 43,500
Cash balance at prior year-end........................................... 44,000
Cash balance at current year-end....................................... $ 87,500

(Notes 1, 2, and 3 on next page.)

Chapter 16 - Reporting the Statement of Cash Flows

Exercise 16-11 (Part 1 continued)

(1) Cost of equipment sold (Given)...................................................................... $ 48,600

Accumulated depreciation of equipment sold*............................................. (40,600)
Book value of equipment sold........................................................................ 8,000
Gain on sale of equipment (Given)................................................................. 2,000
Cash receipt from sale of equipment............................................................. $ 10,000

Cost of equipment sold................................................................................... $ 48,600

Plus net increase in the equipment account balance................................... 9,000
Cash paid for new equipment (given)............................................................ $ 57,600

Equipment Accumulated Depreciation, Equipment

Bal., 115,000 Bal., 6/30/2014 9,000
6/30/2014
Purchase 57,600 Sale 48,600 Sale (plug) Depr. Expense 58,600
*40,600
Bal., 6/30/2015 124,000 Bal., 6/30/2015 27,000

(2) Carrying value of notes retired....................................................................... $ 30,000

Cash payment to retire notes.......................................................................... $ 30,000

(3)
Retained Earnings
Bal., 6/30/2014 24,100
Dividends 90,310 Net income 99,510
(plug)
Bal., 6/30/2015 33,300

Part 2

Cash flow on total assets ratio = Operating cash flows / Average total assets
= $151,410 / [($317,700 + $292,900)/2]
= $151,410 / $305,300
= 49.6%

Interpretation: A 49.6% result on the cash flow on total assets ratio is

indicative of very good performance. Also, this favorably compares to its
return on assets figure of 32.6% (high-quality earnings).
Chapter 16 - Reporting the Statement of Cash Flows

Exercise 16-12B (40 minutes)

Part 1

IKIBAN, INC.
Statement of Cash Flows (Direct Method)
For Year Ended June 30, 2015
Cash flows from operating activities
Cash received from customers (Note 1)........... $664,000
Cash paid for inventory (Note 2)........................ (393,300)
Cash paid for operating expenses (Note 3)...... (75,000)
Cash paid for income taxes (Note 4)................. (44,290)
Net cash provided by operating activities........ $151,410

Cash flows from investing activities

Cash received from sale of equip. (Note 5)...... 10,000
Cash paid for equipment (Note 5—given)......... (57,600)
Net cash used in investing activities................ (47,600)

Cash flows from financing activities

Cash received from stock issuance.................. 60,000
Cash paid to retire notes (Note 6)...................... (30,000)
Cash paid for dividends (Note 7)....................... (90,310)
Net cash used in financing activities................ (60,310)

Net increase in cash............................................... $ 43,500

Cash balance at prior year-end............................. 44,000
Cash balance at current year-end......................... $ 87,500
(See notes on next page)
Chapter 16 - Reporting the Statement of Cash Flows

Exercise 16-12B (continued)

Notes
(1) Sales.................................................................................................................. $678,000
Less increase in accounts receivable............................................................ (14,000)
Cash received from customers....................................................................... $664,000

(2) Cost of goods sold........................................................................................... $411,000

Less decrease in inventory (22,700)
Purchases......................................................................................................... 388,300
Plus decrease in accounts payable................................................................ 5,000
Cash paid for inventory................................................................................... $393,300

(3) Other operating expenses............................................................................... $ 67,000

Plus decrease in wages payable..................................................................... 9,000
Less decrease in prepaid expenses............................................................... (1,000)
Cash paid for other operating expenses........................................................ $ 75,000

(4) Income taxes expense..................................................................................... $ 43,890

Plus decrease in income taxes payable......................................................... 400
Cash paid for income taxes............................................................................. $ 44,290

(5) Cost of equipment sold (Given)...................................................................... $ 48,600

Accumulated depreciation of equipment sold*............................................. (40,600)
Book value of equipment sold........................................................................ 8,000
Gain on sale of equipment.............................................................................. 2,000
Cash receipt from sale of equipment............................................................. $ 10,000

Cost of equipment sold................................................................................... $ 48,600

Plus net increase in the equipment account balance................................... 9,000
Cash paid for new equipment (given)............................................................ $ 57,600

Equipment Accumulated Depreciation, Equipment

Bal., 115,000 Bal., 6/30/2014 9,000
6/30/2014
Purchase 57,600 Sale 48,600 Sale *40,600 Depr. Expense 58,600
Bal., 6/30/2015 124,000 Bal., 6/30/2015 27,000

(6) Carrying value of notes retired....................................................................... $ 30,000

Cash payment to retire notes.......................................................................... $ 30,000

(7)
Retained Earnings
Bal., 6/30/2014 24,100
Dividends 90,310 Net income 99,510
(plug)
Bal., 6/30/2015 33,300
Chapter 16 - Reporting the Statement of Cash Flows

Exercise 16-13A (30 minutes)

SCORETECK CORPORATION
Spreadsheet for Statement of Cash Flows
For Year Ended December 31, 2015
December Analysis of Changes December
31, 2014 Debit Credit 31, 2015
Balance sheet—debit bal. accounts
Cash.................................................. $ 80,000 $
60,000
Accounts receivable.......................... 120,000 (f) $ 70,000 190,000
Inventory........................................... 250,000 (g) $ 20,000 230,000
Plant assets....................................... 600,000 (d) 70,000 670,000
$1,050,000 $1,150,000
Balance sheet—credit bal. accounts
Accum. depreciation—Plant assets. . . $ 100,000 (c) 70,000 $ 170,000
Accounts payable.............................. 150,000 (h) 10,000 140,000
Notes payable.................................... 370,000 (e) 20,000 390,000
Common stock.................................. 200,000 200,000
Retained earnings.............................. 230,000 (b) 80,000 (a) 100,000 250,000
$1,050,000 $1,150,000

Statement of cash flows

Operating activities
Net income........................................ (a) 100,000
Increase in accounts receivable........ (f) 70,000
Decrease in merch. inventory............ (g) 20,000
Decrease in accounts payable........... (h) 10,000
Depreciation expense........................ (c) 70,000

Investing activities
Payment for plant assets................... (d) 70,000

Financing activities
Paid cash dividends........................... (b) 80,000
Issued note payable........................... (e) 20,000 _______
$440,000 $440,000
Chapter 16 - Reporting the Statement of Cash Flows

Exercise 16-14B (15 minutes)

Statement of Cash Flows Noncash

Investing & Not Reported
Operating Investing Financing Financing on Statement
Activities Activities Activities Activities or in Notes

a. Retired long-term notes X

payable by issuing stock

b. Paid cash toward accounts X

payable

c. Sold inventory for cash X

d. Paid cash dividend that

X
was declared in a prior
period

e. Accepted six-month note

receivable in exchange for X
plant assets

f. Recorded depreciation X
expense

g. Paid cash to acquire

X
treasury stock

h. Collected cash from sales X

i. Borrowed cash from bank

by signing a 9-month note X
payable

j. Paid cash to purchase a X

patent
Chapter 16 - Reporting the Statement of Cash Flows

Exercise 16-15B (15 minutes)

Case X: Sales revenue........................................................... $515,000

Accounts receivable, Dec. 31, 2015........................ $ 27,200
Accounts receivable, Dec. 31, 2016........................ (33,600)
Less increase in accounts receivable.................... (6,400)
Cash received from customers............................... $508,600

Case Y: Rent expense............................................................ $139,800

Rent payable, Dec. 31, 2015.................................... $ 7,800
Rent payable, Dec. 31, 2016.................................... (6,200)
Plus decrease in rent payable................................. 1,600
Cash paid for rent..................................................... $141,400

Case Z: Cost of goods sold................................................... $525,000

Inventory, Dec. 31, 2016...........................................
$130,400
Inventory, Dec. 31, 2015...........................................
(158,600)
Less decrease in merch. inventory........................ (28,200)
Cost of goods purchased........................................ 496,800
Accounts payable, Dec. 31, 2016............................ 82,000
Accounts payable, Dec. 31, 2015............................ (66,700)
Less increase in accounts payable........................ (15,300)
Cash paid for inventory........................................... $481,500

Exercise 16-16B (20 minutes)

Cash flows from operating activities

Receipts from customers (see note a)............................................ $1,797,500
Payments for inventory (see note b)............................................... (1,028,500)
Payments for salaries (see note c).................................................. (249,035)
Payments for rent............................................................................ (49,600)
Payments for utilities...................................................................... (18,125)
Net cash provided by operating activities....................................... $ 452,240

Note a: Sales – Increase in receivables

$1,828,000 - $30,500 = $1,797,500

Note b: Cost of goods sold + Increase in inventory + Decrease in accounts payable

$991,000 + $25,000 + $12,500 = $1,028,500

Note c: Salaries expense + Decrease in salaries payable

$245,535 + $3,500 = $249,035
Chapter 16 - Reporting the Statement of Cash Flows

Exercise 16-17B (20 minutes)

FERRON COMPANY
Statement of Cash Flows
For Year Ended December 31, 2015
Cash flows from operating activities
Receipts from customers........................................... $ 495,000
Receipts of interest..................................................... 3,500
Payments for inventory.............................................. (254,500)
Payments for salaries................................................. (76,500)
Payments for other expenses.................................... (20,000)
Net cash provided by operating activities................ $147,500

Cash flows from investing activities

Receipt from sale of equipment................................ 60,250
Payment for store equipment.................................... (24,750)
Net cash provided by investing activities................ 35,500

Cash flows from financing activities

Payment to retire long-term notes payable.............. (100,000)
Receipt from borrowing on six-month note............. 35,000
Payment of cash dividends........................................ (10,000)
Net cash used in financing activities........................ (75,000)

Net increase in cash and cash equivalents................. $108,000

Cash and cash equivalents at prior year-end............. 40,000
Cash and cash equivalents at current year-end......... $148,000

Note No. ___

Noncash investing and financing activities
(1) Issued common stock to retire $185,500 of bonds payable.
(2) Purchased land financed with a $105,250 long-term note payable.
Chapter 16 - Reporting the Statement of Cash Flows

Exercise 16-18B (40 minutes)

1.
THOMAS CORPORATION
Statement of Cash Flows
For Year Ended December 31, 2015
Cash flows from operating activities
Cash received from customers........................................ $5,000,000
Cash received from dividends.......................................... 208,400
Cash paid for inventory.....................................................(2,590,000)
Cash paid for wages.......................................................... (550,000)
Cash paid for rent.............................................................. (320,000)
Cash paid for interest........................................................ (218,000)
Cash paid for taxes........................................................... (450,000)
Net cash provided by operating activities....................... $1,080,400
Cash flows from investing activities
Cash paid for purchases of machinery............................(2,236,000)
Cash paid for purchases of long-term investments.......(1,260,000)
Cash received from sale of land....................................... 220,000
Cash received from sale of machinery............................ 710,000
Net cash used in investing activities............................... (2,566,000)
Cash flows from financing activities
Cash received from issuing stock...................................1,540,000
Cash received from borrowing.........................................3,600,000
Cash paid for note payable............................................... (386,000)
Cash paid for dividends.................................................... (500,000)
Cash paid for treasury stock purchases......................... (218,000)
Net cash provided by financing activities....................... 4,036,000
Net increase in cash............................................................ $2,550,400
Beginning balance of cash................................................. 333,000
Ending balance of cash....................................................... $2,883,400

2.
a. (i) Financing section reported the largest cash inflow of $4,036,000.
(ii) Investing section reported the largest cash outflow of $2,566,000.
b. The largest individual item among the investing cash outflows is the purchase
of machinery at $2,236,000.
c. Proceeds for issuing notes are larger at $3,600,000 than for issuing stock
equity at $1,540,000 (see financing section).
d. The company has a net cash inflow from borrowing. This is computed from
the borrowing proceeds of $3,600,000 less the note payment of $386,000 (see
financing section).
Chapter 16 - Reporting the Statement of Cash Flows

PROBLEM SET A
Problem 16-1A (35 minutes)

LANSING COMPANY
Cash Flows from Operating Activities—Indirect Method
For Year Ended December 31, 2015

Cash flows from operating activities

Net income............................................................................... $ 6,000
Adjustments to reconcile net income to net cash
provided by operating activities
Income statement items not affecting cash
Depreciation expense.........................................................
$12,000
Changes in current operating assets and liabilities
Decrease in accounts receivable...................................... 200
Increase in inventory.......................................................... (440)
Decrease in accounts payable.......................................... (200)
Increase in salaries payable.............................................. 180
Increase in utilities payable............................................... 60
Increase in prepaid rent..................................................... (40)
Decrease in prepaid insurance......................................... 20 11,780
Net cash provided by operating activities............................ $17,780
Chapter 16 - Reporting the Statement of Cash Flows

Problem 16-2AB (35 minutes)

LANSING COMPANY
Cash Flows from Operating Activities—Direct Method
For Year Ended December 31, 2015

Cash flows from operating activities

Cash receipts from customers (1).........................................................
$ 97,400
Cash payments to suppliers (2).............................................................
(42,640) )
Cash payments for salaries (3)..............................................................
(17,820) )
Cash payments for rent (4).....................................................................(9,040) )
Cash payments for insurance (5)...........................................................(3,780) )
Cash payments for utilities (6)...............................................................(2,740) )
Cash payments for interest....................................................................(3,600) )
Net cash provided by operating activities................................................
$ 17,780

Supporting calculations
(1) Sales + Decrease in receivables = $97,200 + ($5,800 - $5,600) = $97,400

(2) Cost of + Increase in + Decrease in

goods sold inventory accts payable =
$42,000 + ($1,980 - $1,540) + ($4,600 - $4,400) = $42,640

(3) Salaries expense - Increase in salaries payable = $18,000 - ($880 - $700) = $17,820

(4) Rent expense + Increase in prepaid rent = $9,000 + ($220 - $180) = $9,040

(5) Insurance expense - Decrease in prepaid insurance = $3,800 - ($280 - $260) = $3,780

(6) Utilities expense - Increase in utilities payable = $2,800 - ($220 - $160) = $2,740
Chapter 16 - Reporting the Statement of Cash Flows

Problem 16-3A (50 minutes)

Part 1
FORTEN COMPANY
Statement of Cash Flows
For Year Ended December 31, 2015
Cash flows from operating activities
Net income..............................................................................
$114,975
Adjustments to reconcile net income to net
cash provided by operating activities:
Income statement items not affecting cash
Depreciation expense..........................................................20,750
Loss on disposal of equipment............................................ 5,125
Changes in current assets and current liabilities
Increase in accounts receivable ($65,810 - $50,625)...............(15,185)
Increase in inventory ($275,656 - $251,800)...............................(23,856)
Decrease in prepaid expenses ($1,875 - $1,250)..................... 625
Decrease in accounts payable ($114,675 - $53,141)................(61,534)
Net cash provided by operating activities................................ $ 40,900

Cash flows from investing activities

Cash received from sale of equipment....................................11,625
Cash paid for equipment.........................................................(30,000)
Net cash used in investing activities........................................ (18,375)

Cash flows from financing activities

Cash borrowed on short-term note......................................... 4,000
Cash paid on long-term note...................................................(50,125)
Cash received from issuing stock (2,500 x $20)........................50,000
Cash paid for dividends...........................................................(50,100)
Net cash used in financing activities....................................... (46,225)
Net decrease in cash.................................................................. $(23,700)
Cash balance at December 31, 2014........................................... 73,500
Cash balance at December 31, 2015........................................... $ 49,800

Noncash investing and financing activities

Purchased equipment for $96,375 by signing a $66,375 long-term note payable
and paying $30,000 in cash.
Chapter 16 - Reporting the Statement of Cash Flows

Problem 16-3A (Concluded)

Part 2

Forten Company's operations provide a positive net cash inflow of $40,900—a

good result. At the same time, the cash balance decreased by $23,700 (32%)
during the year. Two major cash outflows are the retirement of debt ($50,125)
and the dividend payment ($50,100), which together represent 87% of net
income. Also, the $30,000 cash investment in equipment is presumably
necessary to replace the older equipment sold.

Helping fund these cash outflows is $50,000 cash from issuance of stock.
Moreover, the company took on additional debt (more than 30% increase in
indebtedness); namely, $66,375 in long-term notes. The company must
recognize that that the debt must eventually be repaid with interest.

In summary, perhaps the company should review the wisdom of paying cash
dividends that are considerably larger than cash provided from operations,
especially when the payment also results in a deteriorating cash position and
when the company is taking on additional debt.
Chapter 16 - Reporting the Statement of Cash Flows

Problem 16-4AA (60 minutes)

FORTEN COMPANY
Spreadsheet for Statement of Cash Flows
For Year Ended December 31, 2015
December Analysis of Changes December
31, 2014 Debit Credit 31, 2015
Balance sheet—debits
Cash..................................................$ 73,500 $ 49,800
Accounts receivable.......................... 50,625 (b) $15,185 65,810
Inventory........................................... 251,800 (c) 23,856 275,656
Prepaid expenses.............................. 1,875 (d) $ 625 1,250
Equipment......................................... 108,000 (h) 96,375 (g) 46,875 157,500
$485,800 $550,016
Balance sheet--credits
Accum. depreciation—Equip.............$ 46,000 (g) 30,125 (f) 20,750 $ 36,625
Accounts payable.............................. 114,675 (e) 61,534 53,141
Short-term notes payable.................. 6,000 (j) 4,000 10,000
Long-term notes payable................... 48,750 (k) 50,125 (i) 66,375 65,000
Common stock, $5 par value............. 150,250 (l) 12,500 162,750
Paid-in capital in excess of
par value, common stock................ 0 (l) 37,500 37,500
Retained earnings.............................. 120,125 (m) 50,100 (a) 114,975 185,000
$485,800 $550,016
Statement of cash flows
Operating activities
Net income........................................ (a) 114,975
Increase in accts. receivable.............. (b) 15,185
Increase in merch. inventory.............. (c) 23,856
Decrease in prepaid expenses........... (d) 625
Decrease in accounts payable........... (e) 61,534
Depreciation expense........................ (f) 20,750
Loss on sale of equipment................. (g) 5,125
Investing activities
Receipt from sale of equipment......... (g) 11,625
Payment to purchase equipment....... (h) 30,000
Financing activities
Borrowed on short-term note............. (j) 4,000
Payment on long-term note............... (k) 50,125
Issued common stock for cash.......... (l) 50,000
Payments of cash dividends.............. (m) 50,100
Noncash investing and
financing activities
Purchase of equip. financed
by long-term note payable.......... (i) 66,375 (h) 66,375
$600,775 $600,775
Chapter 16 - Reporting the Statement of Cash Flows

Problem 16-4AA (Concluded)

FORTEN COMPANY
Statement of Cash Flows
For Year Ended December 31, 2015
Cash flows from operating activities
Net income..............................................................................
$114,975
Adjustments to reconcile net income to net
cash provided by operating activities:
Income statement items not affecting cash
Depreciation expense..........................................................20,750
Loss on disposal of equipment............................................ 5,125
Changes in current assets and current liabilities
Increase in accounts receivable ($65,810 - $50,625)...............(15,185)
Increase in inventory ($275,656 - $251,800)...............................(23,856)
Decrease in prepaid expenses ($1,875 - $1,250 ).................... 625
Decrease in accounts payable ($114,675 - $53,141)................(61,534)
Net cash provided by operating activities................................ $ 40,900
Cash flows from investing activities
Cash received from sale of equipment....................................11,625
Cash paid for equipment.........................................................(30,000)
Net cash used in investing activities........................................ (18,375)
Cash flows from financing activities
Cash borrowed on short-term note......................................... 4,000
Cash paid on long-term note...................................................(50,125)
Cash received from issuing stock (2,500 x $20)........................50,000
Cash paid for dividends...........................................................(50,100)
Net cash used in financing activities....................................... (46,225)
Net decrease in cash.................................................................. $(23,700)
Cash balance at beginning of 2015............................................ 73,500
Cash balance at end of 2015...................................................... $ 49,800

Noncash investing and financing activities

Purchased equipment for $96,375 by signing a $66,375 long-term note payable
and paying $30,000 in cash.
Chapter 16 - Reporting the Statement of Cash Flows

Problem 16-5AB (40 minutes)

FORTEN COMPANY
Statement of Cash Flows
For Year Ended December 31, 2015
Cash flows from operating activities
Cash received from customers (Note 1).................... $567,315
Cash paid for inventory (Note 2)................................. (370,390)
Cash paid for other expenses (Note 3)...................... (131,775)
Cash paid for income taxes........................................ (24,250)
Net cash provided by operating activities................ $ 40,900
Cash flows from investing activities
Cash received from sale of equipment..................... 11,625
Cash paid for equipment............................................ (30,000)
Net cash used in investing activities........................ (18,375)
Cash flows from financing activities
Cash borrowed on short-term note........................... 4,000
Cash paid on long-term note...................................... (50,125)
Cash received from issuing stock (2,500 x $20)........ 50,000
Cash paid for dividends.............................................. (50,100)
Net cash used in financing activities........................ (46,225)
Net decrease in cash...................................................... $(23,700)
Cash balance at December 31, 2014............................ 73,500
Cash balance at December 31, 2015............................ $ 49,800

Noncash investing and financing activities

Purchased equipment for $96,375 by signing a $66,375 long-term note payable
and paying $30,000 in cash.

Supporting calculations
(1) Sales - Increase in receivables = $582,500 - ($65,810 - $50,625) = $567,315

(2) Cost of Increase in Decrease in

+ + payables
goods sold inventory =
$285,000 + ($275,656 - $251,800) + ($114,675 - $53,141) = $370,390

(3) Other expenses - Decrease in prepaid expenses = $132,400 - ($1,875 - $1,250)

= $131,775
Chapter 16 - Reporting the Statement of Cash Flows

Problem 16-6A (35 minutes)

GOLDEN CORPORATION
Statement of Cash Flows
For Year Ended December 31, 2015
Cash flows from operating activities
Net income........................................................................$136,000
Adjustments to reconcile net income to net
cash provided by operating activities
Income statement items not affecting cash
Depreciation expense................................................... 54,000
Changes in current assets and current liabilities
Increase in accounts receivable ($83,000 - $71,000)....... (12,000)
Increase in inventory ($601,000 - $526,000)..................... (75,000)
Increase in accounts payable ($87,000 - $71,000)........... 16,000
Increase in taxes payable ($28,000 - $25,000)................. 3,000
Net cash provided by operating activities......................... $122,000

Cash flows from investing activities

Cash paid for equipment................................................... (36,000)

Cash flows from financing activities

Cash received from issuing stock (12,000 x $5).................. 60,000
Cash paid for cash dividends............................................ (89,000)
Net cash used in financing activities.................................. (29,000)

Net increase in cash............................................................. $ 57,000

Cash balance at December 31, 2014.................................... 107,000

Cash balance at December 31, 2015.................................... $164,000
Chapter 16 - Reporting the Statement of Cash Flows

Problem 16-7AA (50 minutes)

GOLDEN CORPORATION
Spreadsheet for Statement of Cash Flows
For Year Ended December 31, 2015
December Analysis of Changes December
31, 2014 Debit Credit 31, 2015
Balance sheet--debits
Cash..................................................$ 107,000 $ 164,000
Accounts receivable.......................... 71,000 (b) $ 12,000 83,000
Inventory........................................... 526,000 (c) 75,000 601,000
Equipment......................................... 299,000 (g) 36,000 335,000
$1,003,000 $1,183,000
Balance sheet--credits
Accum. depreciation—Equip.............$ 104,000 (f) $ 54,000 $ 158,000
Accounts payable.............................. 71,000 (d) 16,000 87,000
Income taxes payable........................ 25,000 (e) 3,000 28,000
Common stock, $2 par value............. 568,000 (h) 24,000 592,000
Paid-in capital in excess of
par value, common stock................ 160,000 (h) 36,000 196,000
Retained earnings.............................. 75,000 (i) 89,000 (a) 136,000 122,000
$1,003,000 $1,183,000

Statement of cash flows

Operating activities
Net income........................................ (a) 136,000
Increase in accounts receivable........ (b) 12,000
Increase in merch. inventory.............. (c) 75,000
Increase in accounts payable............. (d) 16,000
Increase in income tax payable.......... (e) 3,000
Depreciation expense........................ (f) 54,000

Investing activities
Payment for equipment..................... (g) 36,000

Financing activities
Issued common stock for cash.......... (h) 60,000
Paid cash dividends.......................... ________ (i) 89,000
$481,000 $481,000
Chapter 16 - Reporting the Statement of Cash Flows

Problem 16-7AA (Concluded)

GOLDEN CORPORATION
Statement of Cash Flows
For Year Ended December 31, 2015
Cash flows from operating activities
Net income........................................................................$136,000
Adjustments to reconcile net income to net
cash provided by operating activities
Income statement items not affecting cash
Depreciation expense................................................... 54,000
Changes in current assets and current liabilities
Increase in accounts receivable ($83,000 - $71,000)....... (12,000)
Increase in inventory ($601,000 - $526,000)..................... (75,000)
Increase in accounts payable ($87,000 - $71,000)........... 16,000
Increase in taxes payable ($28,000 - $25,000)................. 3,000
Net cash provided by operating activities......................... $122,000

Cash flows from investing activities

Cash paid for equipment................................................... (36,000)

Cash flows from financing activities

Cash received from issuing stock (12,000 x $5).................. 60,000
Cash paid for cash dividends............................................ (89,000)
Net cash used in financing activities.................................. (29,000)

Net increase in cash............................................................. $ 57,000

Cash balance at beginning of 2015...................................... 107,000

Cash balance at end of 2015................................................ $164,000
Chapter 16 - Reporting the Statement of Cash Flows

Problem 16-8AB (35 minutes)

GOLDEN CORPORATION
Statement of Cash Flows
For Year Ended December 31, 2015
Cash flows from operating activities
Cash received from customers (Note 1)..................$1,780,000
Cash paid for inventory (Note 2) .............................(1,145,000)
Cash paid for other operating expenses ............... (494,000)
Cash paid for income taxes (Note 3) ...................... (19,000)
Net cash provided by operating activities ............ $122,000

Cash flows from investing activities

Cash paid for equipment......................................... (36,000)

Cash flows from financing activities

Cash from issuing stock (12,000 x $5)..................... 60,000
Cash paid for cash dividends ................................. (89,000)
Net cash used in financing activities ..................... (29,000)
Net increase in cash.................................................... $ 57,000
Cash balance at December 31, 2014.......................... 107,000
Cash balance at December 31, 2015.......................... $164,000

Supporting calculations

(1) Sales - Increase in receivables = $1,792,000 - ($83,000 - $71,000) = $1,780,000

(2) Cost of Increase in Increase in

+ -
goods sold inventory accounts payable =
$1,086,000 + ($601,000 - $526,000) - ($87,000 - $71,000) = $1,145,000

(3) Income taxes expense - Increase in income taxes payable

= $22,000 - ($28,000 - $25,000) = $19,000