Intermediate accounting ch 23 solutions

CHAPTER 23

Statement of Cash Flows

BRIEF EXERCISE 23-1

Cash flow from investing activities Sale of land...................................................................... $ 180,000 Purchase of equipment.................................................. (415,000) Purchase of available-for-sale securities..................... (59,000) Net cash used by investing activities........................... $(294,000)

BRIEF EXERCISE 23-2

Cash flow from financing activities Issuance of common stock............................................ $ 250,000 Issuance of bonds payable............................................ 510,000 Payment of dividends..................................................... (350,000) Purchase of treasury stock............................................ (46,000 ) Net cash provided by financing activities.................... $ 364,000

SOLUTIONS TO EXERCISES

EXERCISE 23-1 (10–15 minutes)

(a) Operating—add to net income. (b) Financing activity. (c) Investing activity. (d) Operating—add to net income. (e) Significant noncash investing and financing activity. (f) Financing activity. (g) Operating—add to net income. (h) Financing activity. (i) Significant noncash investing and financing activity. (j) Financing activity. (k) Operating—deduct 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 (15–25 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

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EXERCISE 23-5 (20–30 minutes)

NORMAN COMPANY Partial Statement of Cash Flows

For the Year Ended December 31, 2012

Cash flows from operating activities Cash receipts from customers........ $862,000 (a) Cash payments:

For operating expenses............ $609,000 (b) For income taxes....................... 44,500 (c) 653,500

Net cash provided by operating activities......................................... $208,500

(a) Computation of cash receipts from customers: Service revenue................................................ $840,000 Add: Decrease in accounts receivable Ad ($59,000 – $37,000)................................. 22,000 Cash receipts from customers........................ $862,000

(b) Computation of cash payments: Operating expenses per income statement. . $624,000 Deduct: Increase in accounts payable Deduct ($46,000 – $31,000)........................... 15,000 Cash payments for operating expenses........ $609,000

(c) Income tax expense per income statement. . $ 40,000 Add: Decrease in income taxes payable Add ($8,500 – $4,000)..................................... 4,500 Cash payments for income taxes................... $ 44,500

Copyright © 2011 John Wiley & Sons, Inc. Kieso,     Intermediate Accounting, 14/e, Solutions Manual (    For Instructor Use Only) 23-3

EXERCISE 23-6 (15–20 minutes)

NORMAN COMPANY Partial Statement of Cash Flows

For the Year Ended December 31, 2012

Cash flows from operating activities Net income.............................................................. $90,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense...................................... $60,000 Loss on sale of equipment............................. 26,000 Decrease in accounts receivable................... 22,000 Increase in accounts payable......................... 15,000 Decrease in income taxes payable................ (4,500) 118,500 Net cash provided by operating activities.......... $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.

Retained Earnings 91,000 12/31/11

Dividends declared ? 31,000 Net income 104,000 12/31/12

Dividends declared = $91,000 + $31,000 – $104,000 = $18,000

Dividends Payable 5,000 12/31/11 18,000 Dividends declared

Cash dividends paid ? 8,000 12/31/12

23-4 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 stock- holders’ 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.

Bonds Payable 46,000 12/31/11 25,000 Issuance of B/P for PP&E

Redemption of B/P ? 49,000 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 (30–35 minutes)

FAIRCHILD COMPANY Statement of Cash Flows

For the Year Ended December 31, 2012 (Indirect Method)

Cash flows from operating activities Net income....................................................................... $ 810 Adjustments to reconcile net income to net cash

provided by operating activities:  Depreciation expense ($1,200 – $1,170)............... $ 30 Gain on sale of investments.................................. (80) Decrease in inventory............................................ 300 Increase in accounts payable................................ 400 Increase in receivables.......................................... (450) Decrease in accrued liabilities.............................. (50) 150 Net cash provided by operating activities................... 960

Cash flows from investing activities Sale of held-to-maturity investments

Copyright © 2011 John Wiley & Sons, Inc. Kieso,     Intermediate Accounting, 14/e, Solutions Manual (    For Instructor Use Only) 23-5

[($1,470 – $1,300) + $80]............................................. 250  Purchase of plant assets [($1,900 – $1,700) – $70]..... (130) Net cash provided by investing activities.................... 120

Cash flows from financing activities Issuance of capital stock [($1,900 – $1,700) – $70]...... 130 Retirement of bonds payable.......................................... (250) Payment of cash dividends............................................. (260) Net cash used by financing activities............................ (380)

EXERCISE 23-11 (Continued)

Net increase in cash.............................................................. 700 Cash, January 1, 2012........................................................... 1,100 Cash, December 31, 2012...................................................... $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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EXERCISE 23-14 (30–40 minutes)

ANDREWS INC. Statement of Cash Flows

For the Year Ended December 31, 2012

Cash flows from operating activities Net income.............................................................. $27,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense.................................... $31,000* Amortization of copyright.............................. 4,000 Gain on sale of equipment............................ (2,000) Decrease in inventories................................. 20,000 Increase in salaries and wages payable...... 4,000 Increase in accounts payable....................... 4,000 Increase in prepaid rent................................. (1,000) Increase in accounts receivable................... (13,000) Decrease in income taxes payable............... (2,000) 45,000 Net cash provided by operating activities........... 72,000

Cash flows from investing activities Sale of equipment [($30,000 X 30%) + $2,000]..... 11,000 Purchase of equipment [$154,000 – ($130,000 – $30,000)]...................... (54,000) Purchase of available-for-sale investments........ (17,000) Net cash used by investing activities................... (60,000)

Cash flows from financing activities Principal payment on short-term loan.................. (2,000) Principal payment on long-term loan................... (7,000) Dividend payments................................................. (6,000) Net cash used by financing activities.................. (15,000)

Net decrease in cash....................................................... (3,000) Cash, January 1, 2012..................................................... 9,000 Cash, December 31, 2012................................................ $ 6,000

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

Interest $11,400 Income taxes $ 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) 23-7

EXERCISE 23-15 (25–35 minutes)

MORGANSTERN COMPANY Statement of Cash Flows

For the Year Ended December 31, 2012

Cash flows from operating activities Net income............................................................ $ 46,000* Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense.................................... $ 28,000 Loss on sale of investments......................... 9,000 Loss on sale of plant assets [($60,000 X .20) – $8,000]........................... 4,000 Increase in current assets other than cash........................................... (27,000) Increase in current liabilities........................ 18,000 32,000 Net cash provided by operating activities......... 78,000

Cash flows from investing activities Sale of plant assets............................................. 8,000 Sale of held-to-maturity investments................. 34,000 Purchase of plant assets..................................... (180,000)** Net cash used by investing activities................ (138,000)

Cash flows from financing activities Issuance of bonds payable................................. 75,000 Payment of dividends.......................................... (10,000) Net cash provided by financing activities......... 65,000

Net increase in cash...................................................... 5,000 Cash balance, January 1, 2012.................................... 10,000 Cash balance, December 31, 2012............................... $ 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

23-8 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..................................................... $370,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... $147,000 (a) Gain on sale of equipment................... (2,000) (b) Equity in earnings of Myers Co........... (35,000) (c) Decrease in accounts receivable......... 40,000 Increase in inventories......................... (135,000) Increase in accounts payable.............. 60,000 Decrease in income taxes payable...... (20,000) 55,000 Net cash provided by operating activities..................................................... 425,000

Cash flows from investing activities: Proceeds from sale of equipment............... 40,000 Loan to TLC Co.............................................. (300,000) Principal payment of loan receivable.......... 50,000 Net cash used by investing activities..................................... (210,000)

Cash flows from financing activities: Dividends paid............................................... (100,000) Net cash used by financing activities..................................... (100,000)

Net increase in cash............................................... 115,000 Cash, January 1, 2012............................................ 700,000 Cash, December 31, 2012...................................... $815,000

Copyright © 2011 John Wiley & Sons, Inc. Kieso,     Intermediate Accounting, 14/e, Solutions Manual (    For Instructor Use Only) 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.................................. $125,000

Accumulated depreciation on equipment sold: Cost................................................................ $60,000 Carrying value............................................... 38,000 22,000 Depreciation for 2012............................................ $147,000

(b) Gain on sale of equipment Proceeds........................................................ $ 40,000 Carrying value............................................... (38,000 )

Gain........................................................... $ 2,000

(c) Equity in earnings of Myers Co. Myers’s net income for 2012........................ $140,000 Sullivan’s ownership.................................... X 25%

Undistributed earnings of Myers Co... $ 35,000

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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....................................................... $14,750 (a) Adjustments to reconcile net income to net cash provided by operating activities: Loss on sale of equipment..................... $ 4,100 (b) Gain from flood damage......................... (8,250)* Depreciation expense............................. 1,900 (c)

Patent amortization................................. 1,250 Gain on sale of investments................... (1,700) Increase in accounts receivable (net)... (3,750)** Increase in inventory.............................. (3,000) Increase in accounts payable................ 2,000 (7,450) Net cash provided by operating activities.... 7,300

Cash flows from investing activities Sale of investments......................................... 4,700 Sale of equipment............................................ 2,500 Purchase of equipment................................... (20,000)(d) Proceeds from flood damage to building..... 32,000 Net cash provided by investing activities..... 19,200

Cash flows from financing activities Payment of dividends..................................... (5,000) Payment of short-term note payable............. (1,000) Net cash used by financing activities........... (6,000)

Increase in cash....................................................... 20,500 Cash, January 1, 2012............................................. 13,000 Cash, December 31, 2012....................................... $33,500

*($30,000 + $2,000) – ($29,750 – $6,000) **($12,250 – $3,000) – ($10,000 – $4,500) Copyright © 2011 John Wiley & Sons, Inc. Kieso,     Intermediate Accounting, 14/e, Solutions Manual (    For Instructor Use Only) 23-11

PROBLEM 23-2 (Continued)

Supplemental disclosures of cash flow information:

Cash paid during the year for: Interest $2,000 Income taxes: $6,500

Noncash investing and financing activities Retired notes payable by issuing common stock $10,000 Purchased equipment by issuing notes payable 16,000

$26,000 Supporting Computations:

(a) Ending retained earnings...................................... $20,750 Beginning retained earnings................................. (6,000 ) Net income.............................................................. $14,750

(b) Cost.......................................................................... $11,000

Accumulated depreciation (40% X $11,000)........ (4,400 ) Book value.............................................................. $ 6,600 Proceeds from sale................................................ (2,500 ) Loss on sale............................................................ $ 4,100

(c) Accumulated depreciation on equipment sold... $ 4,400 Decrease in accumulated depreciation................ (2,500 ) Depreciation expense............................................ $ 1,900

(d) Beginning equipment balance.............................. $20,000 Cost of equipment sold......................................... (11,000) Remaining balance................................................. 9,000 Purchase of equipment with note......................... 16,000 Adjusted balance.................................................... 25,000 Ending equipment balance.................................... (45,000) Purchased with cash.............................................. $20,000

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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....................... $3,520 (a) 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) 2,937

Net cash provided by operating activities..... 583

Cash flows from investing activities Sale of available-for-sale investments........... 40 Purchase of buildings and equipment........... (310) Purchase of land.............................................. (80) Net cash used by investing activities............ (350)

Increase in cash........................................................ 233 Cash, January 1, 2012.............................................. 100 Cash, December 31, 2012......................................... $ 333

(a) Sales.................................................................. $3,800 Deduct ending accounts receivable.............. (780)

3,020 Add beginning accounts receivable.............. 500 Cash receipts (collections from customers)............................................ $3,520

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PROBLEM 23-3 (Continued)

(b) Cost of goods sold...................................... $1,200 Add ending inventory.................................. 720 Goods available for sale..................... 1,920 Deduct beginning inventory....................... (560) Purchases............................................. 1,360 Deduct ending accounts payable............... (420)

940 Add beginning accounts payable.............. 330 Cash purchases (payments for merchandise).................................... $1,270

(c) Income taxes................................................ $818 Deduct ending income taxes payable....... (40)

778

Add beginning income taxes payable....... 30 Income taxes paid.............................. $ 808

in the income statement.

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