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CHAPTER 23

Statement of Cash Flows


BRIEF EXERCISE 23-1
Cash flow from investing activities
Sale of land......................................................................
Purchase of equipment..................................................
Purchase of available-for-sale securities.....................
Net cash used by investing activities...........................

$ 180,000
(415,000)
(59,000)
$(294,000)

BRIEF EXERCISE 23-2


Cash flow from financing activities
Issuance of common stock............................................
Issuance of bonds payable............................................
Payment of dividends.....................................................
Purchase of treasury stock............................................
Net cash provided by financing activities....................

$ 250,000
510,000
(350,000)
(46,000)
$ 364,000

SOLUTIONS TO EXERCISES
EXERCISE 23-1 (1015 minutes)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)

Operatingadd to net income.


Financing activity.
Investing activity.
Operatingadd to net income.
Significant noncash investing and financing activity.
Financing activity.
Operatingadd to net income.
Financing activity.
Significant noncash investing and financing activity.
Financing activity.
Operatingdeduct from net income.

Copyright 2011 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only)

23-1

(l)

Investing activity.

EXERCISE 23-3 (1525 minutes)


RODRIQUEZ COMPANY
Partial Statement of Cash Flows
For the Year Ended December 31, 2012
Cash flows from operating activities
Net income..............................................................
$1,050,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation expense.................................... $ 60,000
Decrease in accounts receivable.................
310,000
Decrease in inventory....................................
300,000
Increase in prepaid expenses....................... (170,000)
Decrease in accounts payable...................... (275,000)
Decrease in accrued expenses payable...... (120,000)
105,000
Net cash provided by operating activities...........
$1,155,000

23-2

Copyright 2011 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only)

EXERCISE 23-5 (2030 minutes)


NORMAN COMPANY
Partial Statement of Cash Flows
For the Year Ended December 31, 2012
Cash flows from operating activities
Cash receipts from customers........
Cash payments:
For operating expenses............
For income taxes.......................
Net cash provided by operating
activities.........................................
(a)

(b)

(c)

$862,000 (a)
$609,000 (b)
44,500 (c)

Computation of cash receipts from customers:


Service revenue................................................
Add: Decrease in accounts receivable
Ad ($59,000 $37,000).................................
Cash receipts from customers........................
Computation of cash payments:
Operating expenses per income statement. .
Deduct: Increase in accounts payable
Deduct ($46,000 $31,000)...........................
Cash payments for operating expenses........
Income tax expense per income statement. .
Add: Decrease in income taxes payable
Add ($8,500 $4,000).....................................
Cash payments for income taxes...................

653,500
$208,500

$840,000
22,000
$862,000

$624,000
15,000
$609,000
$ 40,000
4,500
$ 44,500

Copyright 2011 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only)

23-3

EXERCISE 23-6 (1520 minutes)


NORMAN COMPANY
Partial 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......................................
Loss on sale of equipment.............................
Decrease in accounts receivable...................
Increase in accounts payable.........................
Decrease in income taxes payable................
Net cash provided by operating activities..........

$90,000

$60,000
26,000
22,000
15,000
(4,500)

118,500
$208,500

EXERCISE 23-10 (Continued)


The proceeds from the sale of equipment of $32,500 are considered
an investing activity. Investing activities include the acquisition and
disposition of long-term productive assets.
(c)

The cash dividends paid can be determined by analyzing T-accounts


for Retained Earnings and Dividends Payable.

Dividends declared

Retained Earnings
91,000
?
31,000
104,000

12/31/11
Net income
12/31/12

Dividends declared = $91,000 + $31,000 $104,000


= $18,000

Cash dividends paid

23-4

Dividends Payable
5,000
18,000
?
8,000

12/31/11
Dividends declared
12/31/12

Copyright 2011 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only)

Cash dividends paid = $5,000 + $18,000 $8,000


=
$15,000
Financing activities include all cash flows involving liabilities and stockholders equity other than operating items. Payment of cash dividends
is thus a financing activity.
(d)

The redemption of bonds payable amount is determined by setting up


a T-account for Bonds Payable.

Redemption of B/P

Bonds Payable
46,000
25,000
?
49,000

12/31/11
Issuance of B/P for PP&E
12/31/12

The problem states that there was no amortization of bond premium


or discount; thus, the redemption of bonds payable is the only change
not accounted for.
EXERCISE 23-11 (3035 minutes)
FAIRCHILD COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2012
(Indirect Method)
Cash flows from operating activities
Net income.......................................................................
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense ($1,200 $1,170)...............
Gain on sale of investments..................................
Decrease in inventory............................................
Increase in accounts payable................................
Increase in receivables..........................................
Decrease in accrued liabilities..............................
Net cash provided by operating activities...................

$ 810

$ 30
(80)
300
400
(450)
(50)

150
960

Cash flows from investing activities


Sale of held-to-maturity investments
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23-5

[($1,470 $1,300) + $80].............................................


Purchase of plant assets [($1,900 $1,700) $70].....
Net cash provided by investing activities....................
Cash flows from financing activities
Issuance of capital stock [($1,900 $1,700) $70]......
Retirement of bonds payable..........................................
Payment of cash dividends.............................................
Net cash used by financing activities............................

250
(130)
120

130
(250)
(260)
(380)

EXERCISE 23-11 (Continued)


Net increase in cash..............................................................
Cash, January 1, 2012...........................................................
Cash, December 31, 2012......................................................

700
1,100
$1,800

Noncash investing and financing activities


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

70

EXERCISE 23-12 (Continued)


Noncash investing and financing activities
Issuance of common stock for plant assets............

70

*$6,900 ($1,750 $1,300)


**$4,700 ($1,900 $1,600) ($1,200 $800)
***($930 $30) + ($250 $200)

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Copyright 2011 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only)

EXERCISE 23-14 (3040 minutes)


ANDREWS 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....................................
Amortization of copyright..............................
Gain on sale of equipment............................
Decrease in inventories.................................
Increase in salaries and wages payable......
Increase in accounts payable.......................
Increase in prepaid rent.................................
Increase in accounts receivable...................
Decrease in income taxes payable...............
Net cash provided by operating activities...........
Cash flows from investing activities
Sale of equipment [($30,000 X 30%) + $2,000].....
Purchase of equipment
[$154,000 ($130,000 $30,000)]......................
Purchase of available-for-sale investments........
Net cash used by investing activities...................
Cash flows from financing activities
Principal payment on short-term loan..................
Principal payment on long-term loan...................
Dividend payments.................................................
Net cash used by financing activities..................

$27,000

$31,000*
4,000
(2,000)
20,000
4,000
4,000
(1,000)
(13,000)
(2,000)

11,000
(54,000)
(17,000)
(60,000)
(2,000)
(7,000)
(6,000)
(15,000)

Net decrease in cash.......................................................


Cash, January 1, 2012.....................................................
Cash, December 31, 2012................................................
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest
Income taxes

45,000
72,000

(3,000)
9,000
$ 6,000

$11,400
$ 8,750**

*$35,000 [$25,000 ($30,000 X 70%)]


**$6,750 + ($6,000 $4,000)
Copyright 2011 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only)

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EXERCISE 23-15 (2535 minutes)


MORGANSTERN COMPANY
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....................................
Loss on sale of investments.........................
Loss on sale of plant assets
[($60,000 X .20) $8,000]...........................
Increase in current assets
other than cash...........................................
Increase in current liabilities........................
Net cash provided by operating activities.........
Cash flows from investing activities
Sale of plant assets.............................................
Sale of held-to-maturity investments.................
Purchase of plant assets.....................................
Net cash used by investing activities................
Cash flows from financing activities
Issuance of bonds payable.................................
Payment of dividends..........................................
Net cash provided by financing activities.........
Net increase in cash......................................................
Cash balance, January 1, 2012....................................
Cash balance, December 31, 2012...............................

$ 46,000*

$ 28,000
9,000
4,000
(27,000)
18,000

32,000
78,000

8,000
34,000
(180,000)**
(138,000)

75,000
(10,000)
65,000
5,000
10,000
$ 15,000

*Net income $59,000 $9,000 $4,000 = $46,000


**Supporting computation
(purchase of plant assets)
Plant assets, December 31, 2011....................... $215,000
Less: Plant assets sold......................................
(60,000)
155,000
Plant assets, December 31, 2012.......................
335,000
Plant assets purchased during 2012................. $180,000

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Copyright 2011 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only)

SOLUTIONS TO PROBLEMS
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...........................................
Gain on sale of equipment...................
Equity in earnings of Myers Co...........
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:
Proceeds from sale of equipment...............
Loan to TLC Co..............................................
Principal payment of loan receivable..........
Net cash used by investing
activities.....................................
Cash flows from financing activities:
Dividends paid...............................................
Net cash used by financing
activities.....................................
Net increase in cash...............................................
Cash, January 1, 2012............................................
Cash, December 31, 2012......................................

$370,000

$147,000 (a)
(2,000) (b)
(35,000) (c)
40,000
(135,000)
60,000
(20,000)

55,000
425,000

40,000
(300,000)
50,000
(210,000)

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

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23-9

PROBLEM 23-1 (Continued)


Schedule at bottom of statement of cash flows:
Noncash investing and financing activities:
Issuance of lease obligation for capital lease....

$400,000

Explanation of Amounts
(a) Depreciation
Net increase in accumulated
depreciation for the year ended
December 31, 2012..................................
Accumulated depreciation on equipment sold:
Cost................................................................
Carrying value...............................................
Depreciation for 2012............................................

$125,000
$60,000
38,000

22,000
$147,000

(b) Gain on sale of equipment


Proceeds........................................................
Carrying value...............................................
Gain...........................................................

$ 40,000
(38,000)
$ 2,000

(c) Equity in earnings of Myers Co.


Myerss net income for 2012........................
Sullivans ownership....................................

$140,000
X 25%

Undistributed earnings of Myers Co...

$ 35,000

23-10

Copyright 2011 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only)

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:
Loss on sale of equipment.....................
Gain from flood damage.........................
Depreciation expense.............................
Patent amortization.................................
Gain on sale of investments...................
Increase in accounts receivable (net)...
Increase in inventory..............................
Increase in accounts payable................
Net cash provided by operating activities....
Cash flows from investing activities
Sale of investments.........................................
Sale of equipment............................................
Purchase of equipment...................................
Proceeds from flood damage to building.....
Net cash provided by investing activities.....
Cash flows from financing activities
Payment of dividends.....................................
Payment of short-term note payable.............
Net cash used by financing activities...........
Increase in cash.......................................................
Cash, January 1, 2012.............................................
Cash, December 31, 2012.......................................

$14,750 (a)

$ 4,100 (b)
(8,250)*
1,900 (c)
1,250
(1,700)
(3,750)**
(3,000)
2,000

(7,450)
7,300

4,700
2,500
(20,000)(d)
32,000
19,200

(5,000)
(1,000)
(6,000)
20,500
13,000
$33,500

*($30,000 + $2,000) ($29,750 $6,000)


**($12,250 $3,000) ($10,000 $4,500)
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23-11

PROBLEM 23-2 (Continued)


Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest
Income taxes:

$2,000
$6,500

Noncash investing and financing activities


Retired notes payable by issuing common stock
Purchased equipment by issuing notes payable

$10,000
16,000
$26,000

Supporting Computations:
(a) Ending retained earnings......................................
Beginning retained earnings.................................
Net income..............................................................

$20,750
(6,000)
$14,750

(b) Cost..........................................................................

$11,000

Accumulated depreciation (40% X $11,000)........


Book value..............................................................
Proceeds from sale................................................
Loss on sale............................................................

(4,400)
$ 6,600
(2,500)
$ 4,100

(c) Accumulated depreciation on equipment sold...


Decrease in accumulated depreciation................
Depreciation expense............................................

$ 4,400
(2,500)
$ 1,900

(d) Beginning equipment balance..............................


Cost of equipment sold.........................................
Remaining balance.................................................
Purchase of equipment with note.........................
Adjusted balance....................................................
Ending equipment balance....................................
Purchased with cash..............................................

$20,000
(11,000)
9,000
16,000
25,000
(45,000)
$20,000

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Copyright 2011 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only)

PROBLEM 23-3

MORTONSON COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2012
($000 Omitted)
Cash flows from operating activities
Cash receipts from customers.......................
Cash payments:
Payments for merchandise........................ $1,270 (b)
Salaries and benefits..................................
725
Heat, light, and power.................................
75
Property taxes.............................................
19
Interest..........................................................
30
Miscellaneous..............................................
10
Income taxes................................................
808 (c)
Net cash provided by operating activities.....
Cash flows from investing activities
Sale of available-for-sale investments...........
Purchase of buildings and equipment...........
Purchase of land..............................................
Net cash used by investing activities............

Sales..................................................................
Deduct ending accounts receivable..............
Add beginning accounts receivable..............
Cash receipts (collections from
customers)............................................

2,937
583

40
(310)
(80)
(350)

Increase in cash........................................................
Cash, January 1, 2012..............................................
Cash, December 31, 2012.........................................
(a)

$3,520 (a)

233
100
$ 333
$3,800
(780)
3,020
500
$3,520

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23-13

PROBLEM 23-3 (Continued)


(b) Cost of goods sold......................................
Add ending inventory..................................
Goods available for sale.....................
Deduct beginning inventory.......................
Purchases.............................................
Deduct ending accounts payable...............
Add beginning accounts payable..............
Cash purchases (payments for
merchandise)....................................
(c) Income taxes................................................
Deduct ending income taxes payable.......
Add beginning income taxes payable.......
Income taxes paid..............................

$1,200
720
1,920
(560)
1,360
(420)
940
330
$1,270
$818
(40)
778
30
$ 808

in the income statement.

23-14

Copyright 2011 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only)