STATEMENT OF CASH FLOWS

Multiple Choice Answers

Item Ans. Item Ans. Item Ans.

1 c 6 B 11 a
2 c 7 c 12 c
3 d 8 a 13 B
4 A 9 d 14 C
5 a 10 b 15 c

EXERCISES
Solution 1
1. B and C 7. D 13. A
2. B 8. None 14. None
3. A 9. None 15. B
4. B 10. A 16. None
5. A 11. B
6. A 12. F

Solution 2
(a) Investing activities:
Purchase or sale of noncurrent assets
Purchase or sale of securities of other entities
Loans or collection of principal of loans to other entities

(b) Financing activities:

Issuing or reacquiring stock
Issuing or redeeming debt
Paying cash dividends to stockholders

(c) Significant noncash transactions:

Acquiring assets by issuing stock or debt
Capital leases
Conversion or refinancing of debt
Exchanges of nonmonetary assets

(d) Not shown on statement of cash flows:

Stock dividends
Appropriations of retained earnings

Solution 3
(a) Add $10,000 (e) Investing $53,000; Deduct $1,000 (gain)

(b) Deduct $12,000 (f) Noncash $60,000

(c) Not shown (g) Add $3,000

(d) Add $1,600 (h) Financing ($60,000)

Solution 4
(1) Cash inflow from investing activities $30,000
(2) Sales price $30,000
Book value 28,000
Gain on sale $ 2,000 Deduct from net income
(3) Cost $48,000
Book value 28,000
Accumulated depreciation 20,000
Deduct decrease in accumulated depreciation (6,000)
Depreciation expense $14,000 Add to net income

Solution 5
Prince Corporation
Statement of Cash Flows
For the Year Ended December 31, 2004
Increase (Decrease) in Cash

Cash flows from operating activities

Net income $ 63,300
Adjust. to reconcile net income to net cash provided
by operating activities:
Depreciation expense $22,000
Patent amortization 5,000
Increase in accounts receivable (13,600)
Decrease in inventory 30,000
Increase in prepaid expenses (700)
Increase in accounts payable 6,000
Decrease in accrued liabilities (9,000) 39,700

Net cash provided by operating activities 103,000

Cash flows from investing activities

Purchase of land (40,000)
Purchase of buildings (43,000)
Sale of patents 10,000

Net cash used by investing activities (73,000)

Cash flows from financing activities

Sale of bonds 75,000
Purchase of treasury stock (7,000)
Payment of cash dividends (25,000)

Net cash provided by financing activities 43,000

Net increase in cash $ 73,000

Cash, January 1, 2004 27,000
Cash, December 31, 2004 $100,000
Solution 6
Vincent Corporation
Statement of Cash Flows
For the Year Ended December 31, 2004
Increase (Decrease) in Cash

Cash flows from operating activities

Net income $218,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in subsidiary loss $ 60,000
Depreciation expense 152,000
Gain on sale of short-term investments (22,500)
Decrease in deferred tax liability (15,500)
Increase in accounts receivable (69,900)
Increase in inventory (64,200)
Decrease in prepaid expenses 18,300
Decrease in accounts payable (90,700)
Increase in accrued liabilities 21,500 (11,000)

Net cash provided by operating activities 207,000

Cash flows from investing activities

Sale of short-term investments 103,000
Purchase of plant and equipment (210,000)
Major repairs to equipment (22,000)

Net cash provided by investing activities (129,000)

Cash flows from financing activities

Payment of cash dividend (123,000)
Sale of serial bonds 80,000

Net cash used by financing activities (43,000)

Net increase in cash 35,000

Cash, January 1, 2004 111,000
Cash, December 31, 2004 $146,000