Question 1
The major classifications of activities reported in the statement of cash flows are operating, investing, and financing. Classify each of the transactions listed below as:
1 Operating activity-add to net income.
2 Operating activity-deduct from net income.
3 Investing activity.
4 Financing activity.
5 Reported as significant noncash activity
The transactions are as follows.
(a) Issuance of common stock.
(b) Purchase of land and building.
(c) Redemption of bonds
(d) Sale of equipment.
(e) Depreciation of machinery.
(f) Amortization of patent.
(g) Issuance of bonds for plant assets.
(h) Payment of cash dividends.
(i) Exchange of furniture for office equipment.
(j) Purchase of treasury stock.
(k) Loss on sale of equipment.
(l) Increase in accounts receivable during the year.
(m) Decrease in accounts payable during the year.
The major classifications of activities reported in the statement of cash flows are operating, investing, and financing. Classify each of the transactions listed below as:
Financing activity.
Investing activity.
Financing activity.
Investing activity.
Operating activity-add to net income.
Operating activity-add to net income.
Reported as significant noncash activity
Financing activity.
Reported as significant noncash activity
Financing activity.
Operating activity-add to net income.
Operating activity-deduct from net income.
Operating activity-deduct from net income.
Question 2
A comparative balance sheet for Shabbona Corporation is presented below.
Assets
Cash $ 73,000 $ 22,000
Accounts receivable $82,000 $66,000
Inventory $180,000 $189,000
Land $71,000 $110,000
Equipment $260,000 $200,000
Accumulated Depreciation-Equipment
(69,000
)
(42,000 )
Total $597,000 $545,000
Liabilities and Stockholders' Equity
Accounts payable $ 34,000 $ 47,000
Bonds payable $150,000 $200,000
Common stock ($1 par)
$214,000 $164,000
Retained earnings $199,000 $134,000
Total $597,000 $545,000
Additional information:
1 Net income for 2014 was $125,000.
2 Cash dividends of $60,000 were declared and paid.
3 Bonds payable amounting to $50,000 were retired through issuance of common stock.
Cash flows from operating activities
Net income
$125,000
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation expense
$27,000
Increase in accounts receivable
(16,000)
$
Decrease in inventory
9,000
$
Decrease in accounts payable
(13,000)
$
$7,000
Net cash provided by operating activities
$132,000
Cash flows from investing activities
Sale of land
39,000
$
For the Year Ended December 31, 2014
Prepare a statement of cash flows for 2014 for Shabbona Corporation.
(Show amounts that decrease cash flow with either a - sign e.g. -
15,000 or in parenthesis e.g. (15,000).)
31-D
2014 2013
Shabbona Corporation
Statement of Cash Flows
Purchase of equipment
(60,000)
$
Net cash used by investing activities
(21,000)
$
Cash flows from financing activities
Payment of cash dividends
(60,000)
$
Net increase in cash
$51,000
Cash at beginning of year
$22,000
Cash at end of year.
$73,000
Noncash investing and financing activities
50,000
$
of bonds outstanding
Issued common stock to retire
Current cash debt coverage ratio
Net cash provided by operating activities /Average current liabilities
132,000 / ((34,000 + 47,000) /2)
3.26
$
Cash debt coverage ratio
Net cash provided by operating activities /Average total liabilities
132,000 / ((184,000 + 247,000) /2)
0.61
$
Free cash flow
12,000
$
Net cash provided by operating activities
132,000
$
less: purchase of equipment
(60,000)
$
deividend
(60,000)
$
Free cash flow
12,000
$
Shabbona has Excellent liquidity
Its financial flexibility is good
Determine Shabbona Corporation’s current cash debt coverage ratio, cash debt coverage ratio, and free cash flow.
to 2 decimal places., e.g. 0.67.)
(Show amounts that decrease cash flow with either a - sign e.g. -
Net cash provided by operating activities /Average current liabilities
Net cash provided by operating activities /Average total liabilities
Determine Shabbona Corporation’s current cash debt coverage ratio, cash debt coverage ratio, and free cash flow.
(Round ratios
Question 3
(a)
(b)
(c)
(d)
(e)
(f) Patent amortization for the year was $20,000.
(g)
(h) During the year, treasury stock costing $47,000 was purchased.
A 3-month U.S. Treasury bill was purchased for $100,000. The company uses
a cash and cash-equivalent basis for its cash flow statement.
The company exchanged common stock for a 70% interest in Tabasco Co. for
$900,000.
Each of the following items must be considered in preparing a statement of cash flows (indirect method) for Turbulent Indigo Inc. for
the year ended December 31, 2014. State where each item is to be shown in the statement of cash flows, if at all.
Plant assets that had cost $20,000 6 years before and were being
depreciated on a straight-line basis over 10 years with no estimated scrap
value were sold for $5,300.
During the year, 10,000 shares of common stock with a stated value of $10 a
share were issued for $43 a share.
Uncollectible accounts receivable in the amount of $27,000 were written off
against Allowance for Doubtful Accounts.
The company sustained a net loss for the year of $50,000. Depreciation
amounted to $22,000, and a gain of $9,000 was realized on the sale of land
for $39,000 cash.
Oprerating and investing activities
Financing Activities
Not reprted on cashflows
Oprerating and investing activities
Not reprted on cashflows
Operating Activity
Noncash investing and financing activity
Financing activity
(loss on plant as operating and sale
proceeds as investing)
Each of the following items must be considered in preparing a statement of cash flows (indirect method) for Turbulent Indigo Inc. for
the year ended December 31, 2014. State where each item is to be shown in the statement of cash flows, if at all.
Question 4
Condensed financial data of Pat Metheny Company for 2014 and 2013 are presented below.
Cash $1,800 $1,150
Receivables 1,750 1,300
Inventory 1,600 1,900
Plant assets 1,900 1,700
Accumulated depreciation
(1,200 ) (1,170 )
Long-term investments (held-to-maturity)
1,300 1,420
$7,150 $6,300
Accounts payable $1,200 $900
Accrued liabilities 200 250
Bonds payable 1,400 1,550
Capital stock 1,900 1,700
Retained earnings 2,450 1,900
$7,150 $6,300
Sales revenue $6,900
Cost of goods sold 4,700
Gross margin 2,200
Selling and administrative expenses
930
Income from operations
1,270
Other revenues and gains
Gain on sale of investments
80
Income before tax 1,350
Income tax expense 540
Net income $810
Cash dividends 260
Income retained in business
$550
Additional information:
During the year, $70 of common stock was issued in exchange for plant assets. No plant assets were sold in 2014.
Prepare a statement of cash flows using the indirect method.
(Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)
PAT METHENY COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2014
PAT METHENY COMPANY
COMPARATIVE BALANCE SHEET
AS OF DECEMBER 31, 2014 AND 2013
2014 2013
PAT METHENY COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2014
(Indirect Method)
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
(450)
$
Decrease in inventory
300
$
Increase in accounts payable
300
$
Decrease in accrued liabilities
(50)
$
50
$
Net cash provided by operating activities
860
$
Cash flows from investing activities
Sale of held-to-maturity investments
200
$
Purchase of plant assets
(130)
$
Net cash provided by investing activities
70
$
Cash flows from financing activities
Issuance of capital stock
130
$
Redemption of bonds payable
(150)
$
Payment of cash dividend
(260)
$
Net cash used by financing activities
(280)
$
Net increase in cash
650
$
Cash at the beginning of the period
$1,150
Cash at the end of the period
1,800
$
Noncash investing and financing activities
Issuance of common stock for plant assets
70
$
During the year, $70 of common stock was issued in exchange for plant assets. No plant assets were sold in 2014.
(Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)
Question 5
Condensed financial data of Pat Metheny Company for 2014 and 2013 are presented below.
Cash $1,800 $ 1,150
Receivabl
es
1,750 $ 1,300
Inventory 1,600 $ 1,900
Plant
assets
1,900 $ 1,700
Accumula
ted
depreciati
on
(1,200 ) (1,170 )
Long-
term
investme
nts (held-
to-
maturity)
1,300 $ 1,420
$7,150 $ 6,300
Accounts
payable
$1,200 $ 900
Accrued
liabilities
200 $ 250
Bonds
payable
1,400 $ 1,550
Capital
stock
1,900 $ 1,700
Retained
earnings 2,450 $ 1,900
$7,150 $ 6,300
Sales
revenue
$6,900
Cost of
goods
sold
4,700
Gross
margin
2,200
Selling
and
administr
ative
expenses
930
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2014
PAT METHENY COMPANY
COMPARATIVE BALANCE SHEET
AS OF DECEMBER 31, 2014 AND 2013
2014 2013
PAT METHENY COMPANY
Income
from
operation
s
1,270
Other
revenues
and gains
Gain
on sale
of
investme
nts
80
Income
before tax 1,350
Income
tax
expense
540
Net
income
$810
Cash
dividends 260
Income
retained
in
business
$550
Additional information:
During the year, $70 of common stock was issued in exchange for plant assets. No plant assets were sold in 2014.
Prepare a statement of cash flows using the direct method.
(Show amounts that decrease cash flow with either a - sign e.g. -25,000 or in parenthesis e.g. (25,000).)
PAT METHENY COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2014
(Direct Method)
Cash flows from operating activities
Cash receipts from customers
6,450
$
Cash paid for merchandise
(4,100)
$
Cash paid for selling/administrative expenses
(950)
$
Cash paid for income taxes
(540)
$
(5,590)
$
Net cash provided by operating activities
860
$
Cash flows from investing activities
Sale of held-to-maturity investments
200
$
Purchase of plant assets
(130)
$
Net cash provided by investing activities
70
$
Cash flows from financing activities
Issuance of capital stock
130
$
Redemption of bonds payable
(150)
$
Payment of cash dividend
(260)
$
Net cash used by financing activities
(280)
$
Net increase in cash
650
$
Cash at the beginning of the period
1,150
$
Cash at the end of the period
1,800
$
Noncash investing and financing activities
Issuance of common stock for plant assets
70
$
During the year, $70 of common stock was issued in exchange for plant assets. No plant assets were sold in 2014.
(Show amounts that decrease cash flow with either a - sign e.g. -25,000 or in parenthesis e.g. (25,000).)
