CashFlow With Solutions

Acct 592 – Spring 2005

The Statement of Cash Flows

Purpose of a statement of cash flows:

To provide information about the cash inflows and outflows of an entity during a period.

To summarize the operating, investing, and financing activities of the business.

The cash flow statement helps users to assess a company’s liquidity, financial flexibility, operating capabilities, and risk.

The statement of cash flows is useful because it provides answers to the following important questions:

Where did cash come from?

What was cash used for?

What was the change in the cash balance?

Specifically, the information in a statement of cash flows, if used with information in the other financial statements, helps external users to assess:

1. A company’s ability to generate positive future net cash flows,

2. A company’s ability to meet its obligations and pay dividends,

3. A company’s need for external financing,

4. The reasons for differences between a company’s net income and associated cash receipts and payments, and

5. Both the cash and noncash aspects of a company’s financing and investing transactions.

document.doc created by T. Gordon 4/17/2023


What can we learn from SCF that is not already available in the other financial statements?

It provides answers to important questions like:Where did cash come from?What was cash used for?What was the change in the cash balance?

Couldn’t we just look the balance sheet?

The change in cash could be determined, but the statement of cash flows provides detailed information about a company’s cash receipts and cash payments during the period.

Many things you want to know about a company is summarized in this one statement

Operating, financing and investing cash flows

Net income does not always tell the whole story about operating performance.

A statement of cash flows is an excellent forecasting tool.

Review of terms

Cash and cash equivalents

It is a short-term, highly liquid investment.

It must be readily convertible to cash and it must be so near to maturity that there is insignificant risks of changes in value due to changes in interest rate.



Noncash revenues and expensesNet income includes items that were neither cash inflow nor cash outflows:

Depreciation expenseAccretion expense on asset retirement obligationAmortization of intangiblesImpairment loss on goodwill and intangiblesEarnings of affiliated companies accounted for using the equity methodImpairment losses on other noncurrent assetsCompensation expense related to stock options

Net income also includes gains and losses from investing and financing activitiesGain ≠ cash received (unless carrying value was zero)Even when there is a loss, cash might have been received

Net income must be adjusted for these items to get the cash provided by operations – part of the reconciling schedule or “indirect method”

For other items, there are revenues/expenses as well as cash flows but the amounts are different:

Bond interest expense ≠ bond interest paid (if bonds were sold at premium or discount)Sales were not all collected in cash (bad debts, other changes in Accounts Receivable)Purchases were not necessarily paid for during period (change in Accounts Payable)Income tax expense ≠ income taxes paid due to deferred tax assets/liabilities as well as income taxes

refunds receivable or unpaid taxes owed


Acct 592 – Spring 2005Company, Inc.

Statement of Cash FlowsFor the year ended December 31, 199X

Cash Flows from Operating ActivitiesCash received from customersCash received as interest income *Cash received as dividend income Cash paid for cost of goods sold *Cash paid for selling expensesCash paid for general & administrative expensesCash paid for interest (including interest on capital leases)Cash paid for income taxesCash that would have been paid for taxes except for “excess tax deduction” related to stock based

compensation Net cash provided by (or used by) operating activities

Cash Flows from Investing ActivitiesCash received from sale of property, plant, & equipmentCash received from sale of investmentsCash received from repayment of note receivablesCash paid to acquire property, plant, and equipmentCash paid to acquire investmentsCash paid out as a loan

Net cash provided by (or used by) investing activities

Cash Flows from Financing ActivitiesCash received as proceeds from issuance of debtCash received as proceeds from issuance of stockCash received as proceeds from reissuance of treasury stockCash paid to repay debt (principal payment)Cash paid on principal related to capital leasesCash paid to reacquire stock (purchase treasury stock)Cash paid as dividendsCash retained due to “excess tax deduction” related to stock options

Net cash provided by (or used by) financing activities

Net increase (decrease) in cashBeginning cash and cash equivalents balance=Ending cash and cash equivalents balance

Schedule of Noncash Investing and Financing ActivitiesAssets for Liabilities &/or EquityLiabilities &/or Equity for AssetsLiabilities for Equity and Equity for LiabilitiesCapital lease (acquisition of asset and obligation for lessee)

A reconciliation of net income to cash provided by operations

*Brackets indicate items that are normally combined



Operating Activities

(Usually associated with working capital accounts like Accounts receivable, inventory, salaries payable, etc.)

Inflows:

From sale of goods and services

From receiving dividends investments

From receiving interest from investments or loans

From sale of trading securities

From reduced income taxes due to “excess tax deduction” related to stock options

Outflows:

To suppliers for inventory and other materials

To employees for services

To other entities for services (insurance, etc.)

To government for taxes

To lenders for interest

To purchase trading securities

Interest expense is an operating item! Investment earnings (dividends & interest) is an operating item! Buying and selling trading securities are operating activities! These things may not make sense to you – so “memorize.”



Investing Activities

(Usually associated with long-term assets)

Inflows:

From sale of property, plant and equipment

From sale of debt or equity investments of other entities*

From collections of principal on loans to other entities

Outflows:

To purchase property, plant and equipment

To purchase debt or equity securities of other entities

To make loans to other entities

*except investments classified as trading securities which are included in operating activities



Financing Activities

(Usually associated with long-term liability and equity items)

Inflows:

From issuance of debt (bonds and notes)

From issuance of equity securities

Common stockPreferred stockRe-issuance of treasury stock

Outflows:

To stockholders as dividends

To repay or retire long-term debt, including capital leases for lessee (interest on leases is classified as operating)

To reacquire capital stock (treasury stock)

An “anomaly” on SCF

Dividends are paid to stockholders and interest is paid to bondholders.

Dividends paid are shown as outflows under financing activities

However, FASB defined interest expense to be an operating activity

Interest & dividend revenue are defined to be operating activities, too.



Direct versus Indirect Presentations

FASB Statement No. 95 allows two ways to calculate and report a company’s net cash flow from operating activities on its statement of cash flows.

The Direct Method

Under the direct method, operating cash outflows are deducted from operating cash inflows to determine the net cash flow from operating activities.

If you choose the direct method, a reconciliation of cash provided by operations to net income is a required disclosure.

This is the same schedule that appears in a statement prepared using the indirect method

The required information items on a direct method statement of cash flow (per FASB)

Operating Inflows

Cash collected from customers (including lessees, tenants, licensees, and the like)

Interest and dividends received

Other operating cash receipts, if any

Operating outflows

Cash paid to employees and other suppliers of goods or services (including insurance, advertising and the like)

Interest paid

Income taxes paid

Other operating cash payments, if any

The Indirect Method

Under the indirect method, net income is adjusted for noncash items related to operations to compute the net cash flow from operating activities.

If you choose to use the indirect method, you must also disclose interest paid and income taxes paid during the year.



Other disclosures

Under both methods (direct & indirect), you must disclose noncash financing and investing activities

This can be on face of the statement or in the notes to the financial statements.

Examples:

Trade common stock for land

Convertible bonds converted to common stock

Noncash Items

Some financing and investing activities do not affect an entity’s cash flow.

Examples:

Trade common stock for land

Issue bonds in exchange for a building

Convertible bonds converted to common stock

Significant transactions should be disclosed separately.

The disclosure of significant noncash financing and investing activities are required under both methods (direct & indirect)

The disclosure can be on face of the statement or in the notes to the financial statements.

Theoretical Considerations

The direct method has the advantage of reporting operating cash inflows separately from operating cash outflows, which may be useful in estimating future cash flows.

The direct method is more meaningful to most financial statement users and the “tie in” to net income is also provided in a separate schedule which is the same as the indirect method presentation.

Under the indirect method, adjustments are made to net income to arrive at cash flow from operating activities. Thus, cash from operating activities is “tied” to net income.

An advantage of the indirect method is that income flows are converted from an accrual basis to a cash flow basis. In this manner, the indirect method shows the “quality of earnings” by providing information about intervals of leads and lags between income flows and operating cash flows.



Example 1 - Statement of Cash Flow – DIRECT METHODYear

endingYear

endingPalouse Pottery 12/31/06 Ref Debit Ref Credit 12/31/07 TargetCash 15,000 X 27,000 42,000 27,000

Accounts Receivable 40,000 37,500 (2,500)Allowance for doubtful accounts (3,000) (4,500) (1,500)Merchandise Inventory 25,000 43,000 18,000 Prepaid Expenses 3,000 6,000 3,000

Plant, property & equipment 215,000 236,000 21,000 Accumulated Depreciation (80,000) (82,000) (2,000)

215,000 278,000

Accounts Payable (23,000) (31,000) (8,000)Salaries Payable (2,000) (9,000) (7,000)Interest payable (2,000) (1,500) 500 Income Taxes Payable (1,500) (5,500) (4,000)Dividends Payable 0 (8,000) (8,000)Long term liabilities (25,000) (15,000) 10,000 Common stock, $1 par (100,000) (145,000) (45,000)Retained Earnings (61,500) (63,000) (1,500) (215,000) (278,000) 0

1997 1997 Closing entry for Rev/(Exp) Rec/(Disb)Sales 93,000 Gain/(loss) on sale of PP&E (4,000)Realized gain/(loss) - land 20,000 Cost of goods sold (35,000)Salaries & other operating expenses

(37,000)

Bad debt expense (2,000)Depreciation & amortization (11,000)Interest expense (2,500)Income taxes expense (7,000)Net income (accrual basis) 14,500

Statement of Cash Flows (INFLOWS) (OUTFLOWS)




Noncash Financing/Investing

CHANGE IN CASH X 27,000 Totals

Additional information:a. Wrote off $500 accounts receivable as uncollectible d. Sold land for $30,000 that had been acquired for $10,000b. Sold operational assets for $4,000 cash that had cost $17,000 and had a book value of $8,000

e. Paid a $10,000 long-term note installmentf. Purchase plant, property & equipment for $48,000 cash.

c. Declared a cash dividend of $13,000 g. Issued common stock for $45,000 cash.


Acct 592 – Spring 2005Example 1 - Statement of Cash Flow – INDIRECT METHOD

Year ending

Year ending

Palouse Pottery 12/31/06 Ref Debit Ref Credit 12/31/07 TargetCash 15,000 X 27,000 42,000 27,000

Accounts Receivable 40,000 37,500 (2,500)Allowance for doubtful accounts (3,000) (4,500) (1,500)Merchandise Inventory 25,000 43,000 18,000 Prepaid Expenses 3,000 6,000 3,000

Plant, property & equipment 215,000 236,000 21,000 Accumulated Depreciation (80,000) (82,000) (2,000)

215,000 278,000

Accounts Payable (23,000) (31,000) (8,000)Salaries Payable (2,000) (9,000) (7,000)Interest payable (2,000) (1,500) 500 Income Taxes Payable (1,500) (5,500) (4,000)Dividends Payable 0 (8,000) (8,000)Long term liabilities (25,000) (15,000) 10,000 Common stock, $1 par (100,000) (145,000) (45,000)Retained Earnings (61,500) (63,000) (1,500) (215,000) (278,000) 0






CHANGE IN CASH X 27,000 Totals

Additional information:a. Wrote off $500 accounts receivable as uncollectible d. Sold land for $30,000 that had been acquired for $10,000b. Sold operational assets for $4,000 cash that had cost $17,000 and had a book value of $8,000

e. Paid a $10,000 long-term note installmentf. Purchase plant, property & equipment for $48,000 cash.


Acct 592 – Spring 2005c. Declared a cash dividend of $13,000 g. Issued common stock for $45,000 cash.

Example 2 - Statement of Cash FlowYear

endingYear

endingMoscow Moving & Storage 12/31/06 Ref Debit Ref Credit 12/31/07 TargetCash 15,000 5,000 (10,000)

Accounts Receivable 30,000 28,500 (1,500)Allowance for doubtful accounts (1,500) (2,000) (500)Merchandise Inventory 10,000 17,000 7,000 Prepaid Expenses 4,500 500 (4,000)

Plant, property & equipment 220,100 289,100 69,000 Accumulated Depreciation (20,000) (16,000) 4,000

258,100 322,100

Accounts Payable (10,000) (13,000) (3,000)Salaries Payable (3,000) (1,000) 2,000 Interest payable 0 (1,000) (1,000)Long term liabilities (30,000) (10,000) 20,000

Common stock, $1 par (100,000) (181,000) (81,000)Retained Earnings (115,100) (116,100) (1,000) (258,100) (322,100) 0

1997 1997 Closing entry for Rev/(Exp) Receipt/(Disb)Sales 80,000 Gain/(loss) on sale of PP&E (2,000)Cost of goods sold (35,000)Salaries & other operating expenses

(26,000)

Bad debt expense (1,000)Depreciation & amortization (5,000)Interest expense (2,000)Income taxes expense (3,000)Net income (accrual basis) 6,000






CHANGE IN CASHTotals

Additional Informationa. Wrote off $500 accounts receivable as uncollectible d. Issued common stock for $36,000 cash b. Sold operational assets for $4,000 cash e. Paid a $20,000 long-term note installment (cost $15,000, acc'd depreciation $9,000) f. Purchased operational assets, $39,000 cash c. Declared and paid a cash dividend, $5,000 g. Acquired land in exchange for 1,000 shares of

common stock worth $45 each



Reconciliation of Net Income to Cash Provided by Operationsor – “the Indirect Method”

Example 2Moscow Moving & Storage

Statement of Cash Flow WorksheetReconciliation Schedule (Indirect method) RefNet income

Cash provided by operations



Example 3Avery Slings & Arrows, Inc.

Avery Slings & ArrowsIncome Statement

For year ending 12/31/04

Sales 6,600,000 Earnings of affiliates (equity method) 150,000 Realized loss on sale of equipment (65,000)Realized gain on sale of investments 53,000 Interest and dividend revenue 15,000 Total revenues 6,753,000

Cost of goods sold 3,490,000 Salaries and wages 632,000 Other operating expenses 421,000 Bad debt expense 45,000 Depreciation expense 757,000 Amortization of intangibles 5,000 Accretion expense 25,000 Interest expense 935,000 Income tax expense 177,000 6,487,000 Net income 266,000

Prepare a statement of cash flows (direct method) including the required reconciling schedule and any other required disclosures for Avery Slings & Arrows, Inc. Information from the balance sheet and income statement have been entered into a worksheet for your convenience. In addition to completing the worksheet, you MUST prepare a formal statement with headings, subtotals, etc. for full credit.

ADDITIONAL INFORMATIONa. During the year, ASA paid $2,767,000 in cash for land, building, and equipment.b. On August 5, 2004, ASA issued 25,000 shares of common stock for $42 per share.c. ASA purchased $273,000 in marketable securities during the year.d. Equipment costing $500,000 was sold during the year for $59,000. The book value was $124,000.e. During the year, AAS declared cash dividends in the amount of $203,000. f. On April 1, 2004, the holders of $1,500,000 in convertible bonds elected to convert their bonds to common

stock. The conversion ratio was 25 shares of common stock for each share $1,000 face value bond.g. The noncurrent investment represents 30% of the outstanding securities of the investee. This investment is

accounted for on the equity method. During 2004, ASA received $29,000 in dividends from the investment.h. On May 1, 2004, ASA acquired equipment under a capital lease. At the inception of the lease, the present

value of the minimum lease payments was $648,000.i. ASA acquired a patent on a new process for $500,000 on October 15, 2004.j. During 2004, ASA sold marketable securities which it had acquired for $222,000 for $275,000.k. In February, ASA issued 150,000 shares of common stock in a 50% stock dividend.l. ASA issued $3,000,000 in bonds at face value on August 1, 2004. m. ASA sold 500 shares of treasury stock which it had acquired for $20 per share for $46 per share on January 18,

2004.n. In October, ASA acquired 1,000 shares of treasury stock at $38 per share.o. Bad debts in the amount of $33,000 were written off during the year.



Avery Slings & ArrowsBalance Sheet

12/31/04 12/31/03 Current AssetsCash 2,261,000 2,850,000 Securities Available for Sale (at market) 258,000 100,000 Accounts Receivable (net) 1,947,000 1,900,000 Merchandise Inventory 602,000 900,000 Prepaid Expenses 4,000 50,000

5,072,000 5,800,000 Noncurrent AssetsInvestments in affiliated companies (equity method) 2,121,000 2,000,000 Land, building & equipment 20,715,000 17,800,000 Less Accumulated Depreciation (2,181,000) (1,800,000)Intangible Assets 568,000 73,000

Total assets 26,295,000 23,873,000

Current LiabilitiesAccounts Payable 347,000 650,000 Salaries Payable 18,000 21,000 Interest payable 156,000 55,000 Income Taxes Payable 45,000 32,000 Dividends Payable 128,000 60,000

694,000 818,000 Noncurrent LiabilitiesBonds Payable 7,000,000 4,000,000 Premium/Discount on Bonds Payable 642,000 656,000 Convertible Bonds Payable 1,500,000 3,000,000 Lease obligation 2,108,000 1,825,000 Asset retirement obligation 275,000 250,000 Deferred Income Taxes 122,000 75,000 Other long term liabilities 590,000 2,590,000

12,237,000 12,396,000

Stockholder's EquityCommon stock, $10 par 5,125,000 3,000,000 Additional paid in capital - common 3,525,000 1,600,000 Other paid in capital 13,000 0 Unrealized (gain)/loss AFS invest 27,000 (80,000)Treasury stock (at cost) (38,000) (10,000)Retained Earnings 4,712,000 6,149,000

13,364,000 10,659,000

Total liabilities and equity 26,295,000 23,873,000



Avery Slings & Arrows Year ending Year ending 12/31/03 Ref Debit Ref Credit 12/30/04 Target

Cash 2,850,000 x 589,000 2,261,000 (589,000)

Securities Available for Sale 180,000 231,000 51,000

Allowance to adjust to market (80,000) 27,000 107,000

Accounts receivable (net) 1,900,000 1,947,000 47,000

Merchandise Inventory 900,000 602,000 (298,000)

Prepaid Expenses 50,000 4,000 (46,000)

Investments in affiliated companies (equity method)

2,000,000 2,121,000 121,000

Land, building & equipment17,800,000 20,715,000 2,915,000

Accumulated Depreciation (1,800,000) (2,181,000) (381,000)

Intangible Assets 73,000 568,000 495,000

Total assets 23,873,000 26,295,000

Accounts Payable (650,000) (347,000) 303,000

Salaries Payable (21,000) (18,000) 3,000

Interest payable (55,000) (156,000) (101,000)

Income Taxes Payable (32,000) (45,000) (13,000)

Dividends Payable (60,000) (128,000) (68,000)

Bonds Payable (4,000,000) (7,000,000) (3,000,000)

(Premium)/Discount on Bonds Payable

(656,000) (642,000) 14,000

Convertible Bonds Payable (3,000,000) (1,500,000) 1,500,000

Lease obligation (1,825,000) (2,108,000) (283,000)

Asset retirement obligation (250,000) (275,000) (25,000)

Deferred Income Taxes (75,000) (122,000) (47,000)

Other long term liabilities (2,590,000) (590,000) 2,000,000



Avery Slings & Arrows Year ending Year ending 12/31/03 Ref Debit Ref Credit 12/30/04 Target

Common stock, $10 par (3,000,000) (5,125,000) (2,125,000)

Additional paid in capital – common

(1,600,000) (3,525,000) (1,925,000)

Unrealized (gain)/loss AFS invest 80,000 (27,000) (107,000)

Treasury stock (at cost) 10,000 38,000 28,000

Other paid in capital 0 (13,000) (13,000)

Retained Earnings (6,149,000) (4,712,000) 1,437,000

(23,873,000) (26,295,000)

Closing entry for 2004 2004

Revenue/ (Expense)

Ref Ref

Operating Cash Inflows/(Outflows)

Sales 6,600,000

Earnings of affiliated companies 150,000

Gain/(loss) on sale of equipment (65,000)

Gain/(loss) sale of patent 0

Realized gain/(loss) sale of land 0 Realized gain/(loss) on investments 53,000

Interest and dividend revenue 15,000

Cost of goods sold (3,490,000)

Salaries and wages (632,000)

Other operating expenses (421,000)

Bad debt expense (45,000)

Depreciation expense (757,000)

Amortization of intangibles (5,000)

Accretion expense (25,000)

Interest expense (935,000)

Income taxes expense (177,000)

Net income (accrual basis) 266,000



Avery Slings & Arrows INFLOWS OUTFLOWS

Cash provided by operations:

Reconciling schedule:

Net income 266,000


Investing Activities 0



Avery Slings & Arrows INFLOWS OUTFLOWS

Financing Activities 0


CHANGE IN CASH 589,000 x

Totals 0



Avery Slings & ArrowsStatement of Cash Flows

For year ended December 31, 2004

Inflows Outflows Net


Cash collected from customers 6,508,000

Interest & dividends received 44,000

Cash paid for merchandise (3,495,000)

Cash paid to employees (635,000)

Other operating disbursements (375,000)

Interest paid (848,000)

Income taxes paid (117,000)

6,552,000 (5,470,000) 1,082,000

Cash provided by investing activities

Proceeds from sale of equipment 59,000

Cash outlay to acquire equipment (2,767,000)

Cash outlay to acquire patent (500,000)

Proceeds from sale of securities 275,000

Cash outlay to buy securities (273,000)

334,000 (3,540,000) (3,206,000)

Cash provided by financing activities

Dividends paid (135,000)

Sold treasury stock 23,000

Purchased treasury stock (38,000)

Payments on long term debt (2,000,000)

Payments on capital leases (365,000)

Common stock issued 1,050,000

Proceeds from issuing nonconvertible bonds 3,000,000

4,073,000 (2,538,000) 1,535,000

Change in cash (589,000)

Beginning balance - Cash 2,850,000

Ending balance - Cash 2,261,000



Avery Slings & ArrowsStatement of Cash Flows


Non-cash financing and investing activities

Capital lease 648,000

Preferred bonds converted to common stock 1,500,000

Schedule to reconcile net income to cash provided by operations

Net Income 266,000

Depreciation 757,000

Amortization & impairment of intangibles 5,000

Accretion expense 25,000

Amortization of bond premium (14,000)

Realized loss on sale of equipment 65,000

Realized gain on sale of investments (53,000)

Equity method investments – earnings in excess of dividends (121,000)

Increase in deferred income taxes 47,000

Change in working capital accounts:

Net accounts receivable (47,000)

Merchandise Inventory 298,000

Prepaid Expenses 46,000

Accounts Payable (303,000)

Salaries Payable (3,000)

Interest Payable 101,000

Income Taxes Payable 13,000

Cash provided by operations: 1,082,000



Acct. 301 - Statement of Cash Flows - Homework 4Wenatchee Whirlpool World

Balance Sheet12/31/96 12/31/95

Current AssetsCash 2,837,600 2,000,000 Securities Available for Sale (at market) 390,000 150,000 Accounts Receivable 1,752,000 1,900,000 Allowance for doubtful accounts (120,500) (110,000)Merchandise Inventory 1,145,000 875,000 Prepaid Operating Expenses 84,000 62,000

6,088,100 4,877,000

Noncurrent AssetsInvestments (equity method) 3,097,000 3,000,000 Plant, property & equipment 16,420,000 10,800,000 Accumulated Depreciation (829,000) (600,000)Intangible Assets 71,500 128,000 TOTAL ASSETS 24,847,600 18,205,000

Current LiabilitiesAccounts Payable 880,000 750,000 Salaries Payable 20,000 15,000 Income Taxes Payable 13,400 27,000 Dividends Payable 35,000 60,000 Current portion long term debt 29,000 21,000

977,400 873,000 Noncurrent LiabilitiesBonds Payable 10,000,000 5,000,000 Discount on Bonds (247,000) (270,000)Deferred Income Taxes 180,000 88,000 Other long term liabilities 562,000 3,000,000

10,495,000 7,818,000

Stockholder's EquityConvertible preferred, $100 par 500,000 2,000,000 Common stock, $10 par 3,100,000 1,500,000 Additional paid in capital 3,950,000 1,200,000 Unrealized (gain)/loss investments 27,000 78,000 Retained Earnings 5,798,200 4,736,000

13,375,200 9,514,000 Total liabilities and equity 24,847,600 18,205,000



Wenatchee Whirlpool WorldIncome Statement


Sales 6,200,000 Earnings of affiliated company (equity method) 115,000 Gain/(loss) on sale of PP&E (40,000)Realized gain/(loss) on investments 108,000 Realized gain on sale of patent 950,000 Interest and dividend revenue 13,000 Total revenues 7,346,000

Cost of goods sold 3,600,000 Salaries and wages 590,000 Other operating expenses 345,000 Bad debt expense 38,500 Depreciation & amortization expense 250,500 Interest expense 669,400 Income taxes expense 740,400 6,233,800

Net income 1,112,200

Additional information:

a. On February 25, WWW sold an internally developed patent for $1,000,000. The patent was carried on the books at unamortized legal fees amounting to $50,000 at date of sale.

b. On March 31, WWW issued $5,000,000 in bonds at face value. The semi-annual bonds have a coupon rate of 10% per annum.

c. During the year, WWW disposed of various items of equipment with a total book value of $65,000 and original cost of $80,000. The amount received was $25,000 in cash.

d. During the third quarter, shareholders holding 15,000 shares of the preferred stock converted them into common stock. The conversion ratio was 6 shares of common for each share of preferred.

e. On July 20, WWW sold 50,000 shares of its common stock for $41 per share.

f. By the end of the year, WWW had written off as uncollectible a total of $28,000 in accounts receivable.

g. An existing factory with equipment was acquired during the year. The acquisition cost was allocated as follows: $772,000 to land, $3,450,000 to building and 678,000 to equipment.

h. WWW acquired a parcel of land adjoining the new factory by giving the owner 20,000 shares of its common stock. At the date of the transaction, the market value of the stock was $40 per share.

i. During the year WWW purchased $875,000 in marketable securities and sold securities which had cost $584,000. The market value of the portfolio at the end of the year was $390,000.

j. WWW owns 30% of a company which manufactures parts that WWW uses in its production process. WWW received $18,000 in dividends from this partially owned company during 1996.

k. Dividends declared during the year totaled $50,000.



Homework 4 - Acct 315Worksheet Year

endingYear

endingWenatchee Whirlpool World 12/31/95 Ref Debit Ref Credit 12/31/96 Target

Cash 2,000,000 837,600 2,837,600 837,600

Securities Available for Sale (at market)

150,000 390,000 240,000

Accounts Receivable 1,900,000 1,752,000 (148,000)

Allowance for doubtful accounts (110,000) (120,500) (10,500)

Merchandise Inventory 875,000 1,145,000 270,000

Prepaid Operating Expenses 62,000 84,000 22,000

Investments in affiliated companies (equity method)

3,000,000 3,097,000 97,000

Plant, property & equipment 10,800,000 16,420,000 5,620,000

Accumulated Depreciation (600,000) (829,000) (229,000)

Intangible Assets 128,000 71,500 (56,500)

18,205,000

24,847,600

Accounts Payable (750,000) (880,000) (130,000)

Salaries Payable (15,000) (20,000) (5,000)

Income Taxes Payable (27,000) (13,400) 13,600

Dividends Payable (60,000) (35,000) 25,000

Current portion long term debt (21,000) (29,000) (8,000)

Bonds Payable (5,000,000) (10,000,000)

(5,000,000)

Premium/Discount on Bonds Payable

270,000 247,000 (23,000)





Wenatchee Whirlpool World12/31/95 ref Debit ref Credit 12/31/96 Target

Convertible preferred, $100 par (2,000,000) (500,000) 1,500,000

Common stock, $10 par (1,500,000) (3,100,000) (1,600,000)

Additional paid in capital (1,200,000) (3,950,000) (2,750,000)

Unrealized (gain)/loss investments

(78,000) (27,000) 51,000

Retained Earnings (4,736,000) (5,798,200) (1,062,200)

0 (18,205,000)

(24,847,600)


Rev/(Exp) Receipt/(Disb)

Sales 6,200,000

Earnings of affiliated companies (equity method)

115,000

Gain/(loss) on sale of PP&E (40,000)

Realized gain/(loss) on investments

108,000

Realized gain on sale of patent 950,000







Amortization of intangible assets (6,500)



Net income (accrual basis) 1,112,200



Wenatchee Whirlpool WorldStatement of Cash Flows INFLOWS OUTFLOWS (Subtotals)





CHANGE IN CASH 837,600

Totals



Statement of Cash Flow – Easy Practice Problems 5 & 65. Ulliman Company

Prepare a statement of cash flow – direct method including the reconciliation schedule. Most information is provided on the attached workpaper.

Additional information:a. Dividends declared and paid totaled $700.b. On January 1, 1999 the 10% convertible bonds that had originally been issued at face value

were converted into 500 shares of common stock. The book value method was used to account for the conversion.

c. Long-term nonmarketable investments that cost $1,600 were sold for $2,300.d. The long-term note payable was paid by issuing 250 shares of common stock at the

beginning of the year.e. Equipment with a cost of $2,000 and a book value of $300 was sold for $100.f. Equipment was purchased at a cost of $16,200.g. The 12% bonds payable were issued on September 1, 1999 at 97. They mature on

September 1, 2009. The company uses the straight-line method to amortize the discount.h. Taxable income was less than pretax accounting income, resulting in a $396 increase in

deferred taxes payable.i. Short-term marketable securities were purchased at a cost of $1,300. The portfolio was

increased by $300 to a $3,800 fair value at year end by adjusting the related allowance account.

6. Driskoll CompanyPrepare a statement of cash flow – direct method including the reconciliation schedule. Most information is provided on the attached workpaper.

Additional information:a. Dividends were declared in the amount of $2,100.b. Bonds payable with a face value, book value, and market value of $14,000 were retired on

June 30, 1999.c. Bonds payable with a face value of $8,000 were issued at 90.25 on July 31, 1999, They

mature on July 31, 2004. The company uses the straight-line method to amortize the bond discount.

d. Equipment with a cost of $4,000 and a book value of $1,400 was exchanged for an acre of land valued at $2,700. No cash was exchanged. The transaction was properly considered to be a dissimilar asset exchange.

e. Long-term investments in bonds being held to maturity with a cost of $1,000 were sold for $800.

f. Sixty-five shares of common stock were exchanged for a patent. The common stock was selling for $20 per share at the time of the exchange.

g. A tornado completely destroyed a small building that had an original cost of $8,000 and a book value of $4,800. Settlement with the insurance company resulted in after-tax proceeds of $2,200 and an extraordinary loss (net of income taxes) of $2,600.



5. Homework Assignment – Ulliman CompanyUliman Company Year ending Worksheet Year ending

01/01/99 Ref Debit Ref Credit 12/31/99 TargetCash 1,400 2,400 1,000 Accounts receivable (net) 2,800 2,690 (110)Marketable securities (at cost) 1,700 3,000 1,300 Allowance for change in value 500 800 300 Merchandise Inventory 8,100 7,910 (190)Prepaid Expenses 1,300 1,710 410 Investments (long-term) 7,000 5,400 (1,600)Land 15,000 15,000 0 Buildings and equipment 32,000 46,200 14,200 Accumulated depreciation (16,000) (16,400) (400)

0 0 0 53,800 68,710

Accounts Payable (3,800) (4,150) (350)Income Taxes Payable (2,400) (2,504) (104)Wages payable (1,100) (650) 450 Interest payable 0 (400) (400)12% bonds payable 0 (10,000) (10,000)Premium/Discount on Bonds Payable

0 290 290

Notes payable (long term) (3,500) 0 3,500 10% Convertible bonds (9,000) 0 9,000 Deferred Income Taxes (800) (1,196) (396)Convertible preferred, $100 par 0 0 0 Common stock, $10 par (14,000) (21,500) (7,500)Additional paid in capital (8,700) (13,700) (5,000)Unrealized (gain)/loss investments

(500) (800) (300)

Retained Earnings (10,000) (14,100) (4,100)(53,800) (68,710)

Closing entry for 1999 1999 Rev/ (Exp)

Receipt/(Disb)

Sales 39,930 Other revenue 0 Gain/(loss) on sale of PP&E (200)Realized gain/(loss) on investments

700

Interest and dividend revenue 820 Cost of goods sold (19,890)Salaries & other operating expenses

(11,000)

Other operating expense (1,000)Depreciation & amortization (2,100)Interest expense (410)Income taxes expense (2,050)Net income (accrual basis) 4,800

(53,800)



5. Ulliman Company, continuedStatement of Cash Flows INFLOWS OUTFLOWS SubtotalsOperating Activities

Reconciliation Schedule:







6. Homework Problem – Driskoll CompanyDriskoll Company Year ending Worksheet Year ending

12/31/99 Ref Debit Ref Credit 12/31/99 TargetCash 2,700 3,520 820 Accounts receivable (net) 5,900 6,215 315 Inventories 15,300 15,530 230 Prepaid Expenses 1,400 1,000 (400)Investments (long-term) 8,300 7,300 (1,000)Land 16,300 19,000 2,700 Buildings 68,700 60,700 (8,000)Acc'd depreciation - Bldg (35,000) (34,500) 500 Equipment 29,600 25,600 (4,000)Acc'd depreciation - Equip (14,200) (14,700) (500)Patents 8,700 9,185 485

107,700 98,850

Accounts Payable (8,900) (9,195) (295)Interest payable (630) (300) 330 Wages payable (2,500) (2,600) (100)Bonds payable (23,000) (17,000) 6,000 Discount on bonds 0 715 715 Common stock, $10 par (22,000) (22,650) (650)Additional paid in capital (15,320) (15,970) (650)Unrealized (gain)/loss investments

0 0 0

Retained Earnings (35,350) (31,850) 3,500 (107,700) (98,850)

ok okClosing entry for 1999 1999

Rev/(Exp) Receipt/(Disb)Sales 49,550 Gain/(loss) on exchange of assets 1,300 Realized gain/(loss) on investments

(200)

Interest and dividend revenue 790 Cost of goods sold (23,800)Salaries & other operating expenses

(16,510)

Other operating expense (1,100)Depreciation - buildings (2,700)Depreciation - equipment (3,100)Patent amortization (815)Interest expense (1,715)Income taxes expense (500)Extraordinary loss (net of taxes) (2,600)Net income (accrual basis) (1,400)



6. Driskoll Company, continuedStatement of Cash Flows INFLOWS OUTFLOWS SubtotalsOperating Activities

Reconciliation Schedule:






Acct 592 – Spring 20057. Statement of Cash Flow Problem

from final exam, Spring 1998Albion Altimeters Inc.Balance Sheet 12/31/97 12/31/96 Current AssetsCash 310,200 400,000 Securities Available for Sale (at market)

1,112,000 500,000

Accounts Receivable 781,000 900,000 Allowance for doubtful accounts (33,200) (27,000)Merchandise Inventory 829,000 850,000 Prepaid Operating Expenses 38,800 25,000

3,037,800 2,648,000

Noncurrent AssetsPlant, property & equipment 3,562,000 1,880,000 Accumulated Depreciation (355,000) (350,000)TOTAL ASSETS 6,244,800 4,178,000

Current LiabilitiesAccounts Payable 413,000 350,000 Salaries Payable 7,200 8,500 Income Taxes Payable 23,500 27,000 Dividends Payable 0 25,000

443,700 410,500 Noncurrent LiabilitiesBonds Payable 1,000,000 1,000,000 Premium/Discount on Bonds Payable 118,000 124,000 Deferred Income Taxes 103,700 88,000

1,221,700 1,212,000

Stockholder's EquityCommon stock, $10 par 1,510,000 1,000,000 Additional paid in capital 1,972,000 700,000 Acc'd other comprehensive income* 13,000 (14,000)Retained Earnings 1,084,400 869,500


* Other comprehensive income is composed of the holding gains/losses related to available for sale securities.

Albion Altimeters Inc.Income Statement


Sales 3,600,000 Gain/(loss) on sale of PP&E (30,000)Interest and dividend revenue 15,000 Total revenues 3,585,000

Cost of goods sold 2,100,000 Salaries and wages 650,000 Other operating expenses 230,000 Bad debt expense 17,200 Depreciation & amortization expense 30,000 Interest expense 87,700 Income taxes expense 180,200 3,295,100

Net income 289,900

Required:Use the additional information (below) and the worksheet provided to prepare the statement of cash flow using the direct method. For full credit, use the pages provided to prepare the formal statement in addition to the worksheet.

Additional information: a. AA declared dividends of $75,000 on June 30, 1997.b. On Sept. 3, AA sold equipment with a book value of $65,000 for

$35,000 in cash. The original cost of the item was $90,000.c. AA purchased for cash plant, property & equipment for $1,740,000.d. On May 15, AA issued 50,000 shares of common stock at $35 each.e. AA wrote off $11,000 of bad debts during 1997.f. AA purchased for cash $585,000 in marketable securities on Apr. 1.g. On Oct. 10, AA issued 1,000 shares of stock in exchange for a

parcel of land. At that date, the market price of the stock was $32.



7. Statement of Cash Flow ProblemWorksheet Year ending Year ending

Albion Altimeters Inc. 12/31/96 Ref Debit Ref Credit 12/31/97 Target

Cash 400,000 89,800 310,200 (89,800)Securities Available for Sale (at market) 500,000 1,112,000 612,000

Accounts Receivable 900,000 781,000 (119,000)






4,178,000 6,244,800 Accounts Payable (350,000) (413,000) (63,000)



Dividends Payable (25,000) 0 25,000

Bonds Payable (1,000,000) (1,000,000) 0

Premium/Discount on Bonds Payable (124,000) (118,000) 6,000


Common stock, $10 par (1,000,000) (1,510,000) (510,000)

Additional paid in capital (700,000) (1,972,000) (1,272,000)

Acc'd other comprehensive income 14,000 (13,000) (27,000)

Retained Earnings (869,500) (1,084,400) (214,900)

0 (4,178,000) (6,244,800) (2,066,800)

Closing entry for 1997 Rev/(Exp) Ref Debit Ref Credit Receipt/(Disb)

Sales 3,600,000













7. Albion AltimetersStatement of Cash Flows INFLOWS OUTFLOWS (Subtotals)






Totals



Albion AltimetersStatement of Cash FlowFor year ended 12-31-97






Albion AltimetersStatement of Cash FlowFor year ended 12-31-97

Reconciling schedule

Notes:



Acct 315 - Statement of Cash FlowHomework Problem # 8

Instructions:Prepare the statement of cash flow for Endicott Engines Inc. (attached) using the direct method. Show all your work on clearly labeled and well-organized worksheet (provided) or equivalent printout. Label your work and answers clearly. You must submit a worksheet if you want me to be able to follow your thought process (in case your answer is wrong). If the problem doesn’t “balance”, you may “plug” something (clearly labeled as a plug) and still obtain most of the available points. If you are using spreadsheet software, please explain your computations since I cannot tell what formulas you incorporated into the cells from looking at the printout. The Excel worksheet is available on the course web page: http://www.academic.uidaho.edu/Acct301.

NOTE: For full credit, you must prepare the statement of cash flow in good form (direct method) with all necessary disclosures including a reconciling schedule and disclosures about noncash financing and investing activities.

Endicott Engines Inc.Income Statement


Sales 6,500,000 Earnings of affiliated companies (equity method) 125,000 Gain/(loss) on sale of PP&E (30,000)Realized gain/(loss) on investments 192,000 Realized gain on sale of patent 450,000 Interest and dividend revenue 15,000 Total revenues 7,252,000

Cost of goods sold 3,800,000 Salaries and wages 610,000 Other operating expenses 354,000 Bad debt expense 47,200 Depreciation & amortization expense 261,000

692,100 Income taxes expense 572,700 6,337,000

Net income 915,000



Endicott Engines Inc.

Additional information:

a. On February 19, EEI sold an internally developed patent for $500,000.b. On April 3, EEI issued $6,000,000 in bonds at face value. The semi-annual bonds have a

coupon rate of 10% per annum.c. During the year, EEI disposed of various items of equipment with a total book value of

$60,000 and original cost of $80,000. The amount received was $30,000 in cash.d. During the third quarter, shareholders holding 10,000 shares of the preferred stock

converted them into common stock. The conversion ratio was 8 shares of common for each share of preferred.

e. On July 20, EEI sold 25,000 shares of its common stock for $43 per share.f. By the end of the year, EEI had written off as uncollectible a total of $35,000 in accounts

receivable.g. An existing factory with equipment was acquired during the year. The acquisition cost

was allocated as follows: $750,000 to land, $4,000,000 to building and 600,000 to equipment.

h. EEI acquired a parcel of land adjoining the new factory by giving the owner 10,000 shares of its common stock. At the date of the transaction, the market value of the stock was $45 per share.

i. New equipment for the factory was obtained under a capital lease. The present value of the minimum lease payments was $722,000.

j. During the year EEI purchased $900,000 in marketable securities and sold securities which had cost $600,000. The market value of the portfolio at the end of the year was $536,000.

k. EEI owns 40% of a company that manufactures parts that EEI uses in its production process. EEI received $20,000 in dividends from this partially owned company during 2002.

l. Dividends declared during the year totaled $100,000.



Endicott Engines Inc.Balance Sheet 12/31/02 12/31/01

Current AssetsCash 1,308,200 1,500,000 Securities Available for Sale 536,000 300,000 Accounts Receivable 2,145,000 2,000,000 Allowance for doubtful accounts (122,200) (110,000)Merchandise Inventory 1,165,000 975,000 Prepaid Operating Expenses 63,000 50,000

5,095,000 4,715,000

Noncurrent AssetsInvestments (partially owned companies) 2,605,000 2,500,000 Plant, property & equipment 17,142,000 10,700,000 Accumulated Depreciation (934,000) (700,000)Intangible Assets 93,000 150,000 TOTAL ASSETS 24,001,000 17,365,000

Current LiabilitiesAccounts Payable 1,050,000 800,000 Salaries Payable 43,000 18,000 Income Taxes Payable 24,000 35,000 Dividends Payable 85,000 60,000

1,202,000 913,000

Noncurrent LiabilitiesBonds Payable 11,000,000 5,000,000 Discount on Bonds (277,000) (300,000)Deferred Income Taxes 142,000 90,000 Lease obligations 749,000 323,000 Other long term liabilities 570,000 3,000,000

12,184,000 8,113,000

Stockholder's EquityConvertible preferred, $100 par 1,000,000 2,000,000 Common stock, $10 par 2,150,000 1,000,000 Additional paid in capital 2,575,000 1,200,000 Unrealized (gain)/loss investments 27,000 91,000 Retained Earnings 4,863,000 4,048,000



Acct 592 – Spring 2005Endicott Engines Inc.

Worksheet Year ending Year ending

Endicott Engines Inc. 12/31/01 Ref Debit Ref Credit 12/31/02 Target

Cash 1,500,000 191,800 1,308,200 (191,800)

Securities Available for Sale 300,000 536,000 236,000

Accounts Receivable 2,000,000 2,145,000 145,000


Merchandise Inventory 975,000 1,165,000 190,000


Investments (equity method) 2,500,000 2,605,000 105,000




17,365,000 24,001,000

Accounts Payable (800,000) (1,050,000) (250,000)

Salaries Payable (18,000) (43,000) (25,000)



Bonds Payable (5,000,000) (11,000,000) (6,000,000)

Premium/Discount on Bonds Payable 300,000 277,000 (23,000)


Lease obligations (323,000) (749,000) (426,000)

document.doc Created by T. Gordon 4/17/2023


12/31/01 Ref Debit Ref Credit 12/31/02 Target


Convertible preferred, $100 par (2,000,000) (1,000,000) 1,000,000

Common stock, $10 par (1,000,000) (2,150,000) (1,150,000)

Additional paid in capital (1,200,000) (2,575,000) (1,375,000)

Unrealized (gain)/loss investments (91,000) (27,000) 64,000

Retained Earnings (4,048,000) (4,863,000) (815,000)

0 (17,365,000) (24,001,000)

Closing entry for 2002: Rev/(Exp) Receipt/(Disb)

Sales 6,500,000

Earnings of affiliated company (equity method)

125,000


Realized gain/(loss) on investments 192,000

Realized gain on sale of patent 450,000







Amortization of intangible assets (7,000)




Endicott Engines Inc.Statement of Cash Flows INFLOWS OUTFLOW

SOperating Activities





CHANGE IN CASH 191,800 Totals


Acct 592 – Spring 2005Statement of Cash Flow Examples - Solutions

Example 1 - completed worksheet

Year ending

Year ending

Palouse Pottery 12/31/96 Ref Debit Ref Credit 12/31/97 Target

Cash 15,000 x 27,000 42,000 27,000

i 2,000

Accounts Receivable 40,000 a 500 37,500 (2,500)

Allowance for doubtful accounts (3,000) a 500 j 2,000 (4,500) (1,500)

Merchandise Inventory 25,000 k 18,000 43,000 18,000

Prepaid Expenses 3,000 L 3,000 6,000 3,000

d 10,000

Plant, property & equipment 215,000 f 48,000 b 17,000 236,000 21,000

Accumulated Depreciation (80,000) b 9,000 m 11,000 (82,000) (2,000)

215,000 278,000

Accounts Payable (23,000) n 8,000 (31,000) (8,000)

Salaries Payable (2,000) o 7,000 (9,000) (7,000)

Interest payable (2,000) p 500 (1,500) 500

Income Taxes Payable (1,500) q 4,000 (5,500) (4,000)

Dividends Payable 0 h 5,000 c 13,000 (8,000) (8,000)

Long term liabilities (25,000) e 10,000 (15,000) 10,000

Common stock, $1 par (100,000) g 45,000 (145,000) (45,000)

Retained Earnings (61,500) c 13,000 x 14,500 (63,000) (1,500)

(215,000) x (278,000) 0

1997 1997 Closing entry for Rev/(Exp) Receipt/(Disb)

Sales 93,000 i 2,000 95,000

Gain/(loss) on sale of PP&E (4,000) b 4,000 0

Realized gain/(loss) - land 20,000 d 20,000 0

Cost of goods sold (35,000) n 8,000 k 18,000 (45,000)

Salaries & other operating expenses

(37,000) o 7,000 L 3,000 (33,000)

Bad debt expense (2,000) j 2,000 0

Depreciation & amortization (11,000) m 11,000 0

Interest expense (2,500) p 500 (3,000)

Income taxes expense (7,000) q 4,000 (3,000)

Net income (accrual basis) 14,500 X 14,500 X 11,000 11,000 Operating Cash


Operating Activities X 11,000 11,000

Investing Activities (14,000)

Sold operational asset b 4,000

Sold land d 30,000

Purchased Plant, Property & Equipment

f 48,000

Financing Activities 30,000

Paid long-term debt e 10,000

Issued common stock g 45,000

Paid cash dividend h 5,000


CHANGE IN CASH X 27,000 27,000

Totals 276,500 276,500



Solutions for Example Problems

Example 1 for Acct 301 Solution:

Palouse PotteryStatement of Cash FlowsFor year ended 31-Dec-97

Inflows Outflows NetCash provided by operationsCash collected from customers 95,000 Interest & dividends received 0 Cash paid for merchandise (45,000)Cash paid to employees (20,000)Other operating disbursements (13,000)Interest paid (3,000)Income taxes paid (3,000)

Subtotals 95,000 (84,000) 11,000

Cash provided by investing activitiesPurchase plant, property & equipment (48,000)Sale of plant, property & equipment 4,000 Sale of land 30,000

Subtotals 34,000 (48,000) (14,000)

Cash provided by financing activitiesDividends paid (5,000)Long-term debt retired (10,000)Common stock issued 45,000

Subtotals 45,000 (15,000) 30,000

Change in cash 27,000 Beginning balance - Cash 15,000 Ending balance - Cash 42,000

Schedule to reconcile net income to cash provided by operationsNet Income 14,500 Depreciation & amortization 11,000 Realized gains/losses PP&E 4,000 Realized gain/loss - land sale (20,000)Change in working capital accounts:Net accounts receivable 4,000 Merchandise Inventory (18,000)Prepaid Expenses (3,000)Accounts Payable 8,000 Salaries Payable 7,000 Income Taxes Payable 4,000 Interest Payable (500)Cash provided by operations: 11,000

Non-cash financing and investing activitiesNone



Example 1 for Acct 301 – INDIRECT METHOD SOLUTION Statement of Cash Flow Worksheet

Year ending Year

ending Palouse Pottery 12/31/96 Ref Debit Ref Credit 12/31/97 TargetCash 15,000 x 27,000 42,000 27,000 Accounts Receivable 40,000 2,500 37,500 (2,500)Allowance for doubtful accounts (3,000) 1,500 (4,500) (1,500)Merchandise Inventory 25,000 18,000 43,000 18,000 Prepaid Expenses 3,000 3,000 6,000 3,000 Plant, property & equipment 215,000 f 48,000 b,d 27,000 236,000 21,000 Accumulated Depreciation (80,000) b 9,000 11,000 (82,000) (2,000) 215,000 278,000

Accounts Payable (23,000) 8,000 (31,000) (8,000)Salaries Payable (2,000) 7,000 (9,000) (7,000)Interest payable (2,000) 500 (1,500) 500 Income Taxes Payable (1,500) 4,000 (5,500) (4,000)Dividends Payable 0 c 5,000 c 13,000 (8,000) (8,000)Long term liabilities (25,000) e 10,000 (15,000) 10,000 Common stock, $1 par (100,000) g 45,000 (145,000) (45,000)Retained Earnings (61,500) c 13,000 h 14,500 (63,000) (1,500) (215,000) (278,000) 0

Statement of Cash Flows (INFLOWS) (OUTFLOW

S) Operating Activities 11,000 Net income h 14,500 Add back loss on sale of equipment b 4,000 Minus gain on sale of land d 20,000 depreciation 11,000 Change in working capital accounts: A/R (net) 4,000 Inventory 18,000 Prepaid expenses 3,000 A/P 8,000 Salaries payable 7,000 Interest payable 500 Income taxes payable 4,000 Investing Activities Sold equipment b 4,000 Sold land d 30,000 Purchase PP&E f 48,000 Financing Activities Dividends paid c 5,000 Payment on LT debt e 10,000 Issued common stock g 45,000 Noncash Financing/Investing CHANGE IN CASH X 27,000 Totals

265,000 265,000


Acct 592 – Spring 2005Example 2 for Acct 301 - S97

Statement of Cash Flow Worksheet

Year ending Year ending

Moscow Moving & Storage 12/31/96 Ref Debit Ref Credit 12/31/97 Target

Cash 15,000 x 10,000 5,000 (10,000)

j 1,000

Accounts Receivable 30,000 a 500 28,500 (1,500)

Allowance for doubtful accounts (1,500) a 500 h 1,000 (2,000) (500)

Merchandise Inventory 10,000 k 7,000 17,000 7,000

Prepaid Expenses 4,500 L 4,000 500 (4,000)

g 45,000

Plant, property & equipment 220,100 f 39,000 b 15,000 289,100 69,000

Accumulated Depreciation (20,000) b 9,000 i 5,000 (16,000) 4,000

258,100 322,100

Accounts Payable (10,000) m 3,000 (13,000) (3,000)

Salaries Payable (3,000) n 2,000 (1,000) 2,000

Interest payable 0 o 1,000 (1,000) (1,000)

Long term liabilities (30,000) e 20,000 (10,000) 20,000

g 45,000

Common stock, $1 par (100,000) d 36,000 (181,000) (81,000)

Retained Earnings (115,100) c 5,000 x 6,000 (116,100) (1,000)

(258,100) (322,100) 0

1997 1997

Closing entry for Rev/(Exp) Receipt/(Disb)

Sales 80,000 j 1,000 81,000

Gain/(loss) on sale of PP&E (2,000) b 2,000 0

Cost of goods sold (35,000) m 3,000 k 7,000 (39,000)

Salaries & other operating expenses (26,000) L 4,000 n 2,000 (24,000)

Bad debt expense (1,000) h 1,000 0

Depreciation & amortization (5,000) i 5,000 0

Interest expense (2,000) o 1,000 (1,000)

Income taxes expense (3,000) (3,000)

Net income (accrual basis) 6,000 x 6,000 x 14,000 14,000 Operating Cash


Operating Activities x 14,000 14,000


Sold operational assets b 4,000 (35,000)

Purchased operational assets f 39,000

Financing Activities 11,000

Paid cash dividend c 5,000

Issued common stock d 36,000

Paid long term debt e 20,000


Acquired land in exchange for stock g 45,000 g 45,000

CHANGE IN CASH x 10,000 x (10,000)

Totals 259,500 259,500

0 0

Additional Information 0 0

a. Wrote off $500 accounts receivable as uncollectible d. Issued common stock for $36,000 cash

b. Sold operational assets for $4,000 cash e. Paid a $20,000 long-term note installment

(cost $15,000, acc'd depreciation $9,000) f. Purchased operational assets, $39,000 cash

c. Declared and paid a cash dividend, $5,000 g. Acquired land in exchange for 1000 shares worth $45 each



Example 2 for Acct 301 - Solution: Moscow Moving & StorageStatement of Cash FlowsFor year ended 31-Dec-97

Inflows Outflows NetCash provided by operationsCash collected from customers 81,000 Interest & dividends received 0 Cash paid for merchandise (39,000)Cash paid to employees (14,000)Other operating disbursements (10,000)Interest paid (1,000)Income taxes paid (3,000)

Subtotals 81,000 (67,000) 14,000

Cash provided by investing activitiesPurchase plant, property & equipment (39,000)Sale of plant, property & equipment 4,000 Sale of land

Subtotals 4,000 (39,000) (35,000)

Cash provided by financing activitiesDividends paid (5,000)Long-term debt retired (20,000)Common stock issued 36,000

Subtotals 36,000 (25,000) 11,000

Change in cash (10,000)Beginning balance – Cash 15,000 Ending balance – Cash 5,000

Schedule to reconcile net income to cash provided by operationsNet Income 6,000 Depreciation & amortization 5,000 Realized gains/losses PP&E 2,000 Change in working capital accounts:Net accounts receivable 2,000 Merchandise Inventory (7,000)Prepaid Expenses 4,000 Accounts Payable 3,000 Salaries Payable (2,000)Interest Payable 1,000 Cash provided by operations: 14,000

Non-cash financing and investing activitiesAcquired land in exchange for common stock



Example 3 – workpaper solutionAvery Slings & Arrows Year

endingYear

ending0 12/31/03 Ref Debit Ref Credit 12/30/04 Target

Cash 2,850,000 x 589,000 2,261,000 (589,000)Securities Available for Sale 180,000 c 273,000 J 222,000 231,000 51,000 Allowance to adjust to market (80,000) r 107,000 27,000 107,000 Accounts Receivable 2,000,000 s 92,000 o 33,000 2,059,000 59,000 Allowance for doubtful accounts (100,000) o 33,000 o 45,000 (112,000) (12,000)Merchandise Inventory 900,000 s 298,000 602,000 (298,000)Prepaid Expenses 50,000 s 46,000 4,000 (46,000)Investments in affiliated companies (equity method)

2,000,000 g 150,000 g 29,000 2,121,000 121,000

Land, building & equipment 17,800,000 a 2,767,000 d 500,000 20,715,000 2,915,000

g 648,000 Accumulated Depreciation (1,800,000) d 376,000 p 757,000 (2,181,000) (381,000)Intangible Assets 73,000 I 500,000 p 5,000 568,000 495,000

Total assets 23,873,000 26,295,000

Accounts Payable (650,000) t 303,000 (347,000) 303,000 Salaries Payable (21,000) t 3,000 (18,000) 3,000 Interest payable (55,000) t 101,000 (156,000) (101,000)Income Taxes Payable (32,000) t 13,000 (45,000) (13,000)Dividends Payable (60,000) e 135,000 e 203,000 (128,000) (68,000)Bonds Payable (4,000,000) L 3,000,000 (7,000,000) (3,000,000)Premium/Discount on Bonds Payable

(656,000) u 14,000 (642,000) 14,000

Convertible Bonds Payable (3,000,000) f 1,500,000 (1,500,000) 1,500,000 Lease obligation (1,825,000) v 365,000 g 648,000 (2,108,000) (283,000)Asset retirement obligation (250,000) q 25,000 (275,000) (25,000)Deferred Income Taxes (75,000) w 47,000 (122,000) (47,000)Other long term liabilities (2,590,000) y 2,000,000 (590,000) 2,000,000 Convertible preferred, $100 par 0 0 0 Common stock, $10 par (3,000,000) b 250,000 (5,125,000) (2,125,000)

f 375,000 k 1,500,000

Additional paid in capital - common

(1,600,000) b 800,000 (3,525,000) (1,925,000)

f 1,125,000

Unrealized (gain)/loss AFS invest 80,000 r 107,000 (27,000) (107,000)Treasury stock (at cost) 10,000 n 38,000 m 10,000 38,000 28,000 Other paid in capital 0 m 13,000 (13,000) (13,000)

k 1,500,000 Retained Earnings (6,149,000) e 203,000 X 266,000 (4,712,000) 1,437,000

(23,873,000)

(26,295,000)



Avery Slings & ArrowsClosing entry for 2004 Ref Debits Ref Credits 2004

Rev/(Exp) Receipt/ (Disb)

Sales 6,600,000 s 92,000 6,508,000 Earnings of affiliates (equity method)

150,000 g 150,000 0

Gain/(loss) on sale of PP&E (65,000) d 65,000 0 Realized gain/(loss) on investments

53,000 J 53,000 0

Interest and dividend revenue 15,000 g 29,000 44,000 Cost of goods sold (3,490,000) s 298,000 t 303,000 (3,495,000)Salaries and wages (632,000) t 3,000 (635,000)Other operating expenses (421,000) s 46,000 (375,000)Bad debt expense (45,000) o 45,000 0 Depreciation expense (757,000) p 757,000 0 Amortization of intangibles (5,000) p 5,000 0 Accretion expense (25,000) q 25,000 0 Interest expense (935,000) t 101,000 u 14,000 (848,000)

w 47,000 Income taxes expense (177,000) t 13,000 (117,000)

Net income (accrual basis) 266,000 X 266,000 X 1,082,000 1,082,000

INFLOWS OUTFLOWS

Cash provided by operations: X 1,082,000 1,082,000

Reconciling schedule:Net income 266,000 Depreciation 757,000 Amortization & impairment of intangibles

5,000

Accretion expense 25,000 Bond premiums/discounts (14,000)Realized gains/losses PP&E 65,000 Realized gain/loss investments (53,000)Equity method investments (121,000)Deferred income taxes 47,000 Change in working capital:Net accounts receivable (47,000)Merchandise Inventory 298,000 Prepaid Expenses 46,000 Accounts Payable (303,000)Salaries Payable (3,000)Interest payable 101,000 Income Taxes Payable 13,000

Cash provided by operations 1,082,000 off by 0



Avery Slings & Arrows Ref Inflows Ref Outflows

Investing Activities (3,206,000)Purchased PP&E a 2,767,000 Purchased marketable securities c 273,000 Sold equipment d 59,000 Purchased patent I 500,000 Sold investments J 275,000

Financing Activities 1,535,000 Issued common stock b 1,050,000 Paid dividends e 135,000 Issued bonds L 3,000,000 Sold treasury stock m 23,000 Purchased treasury stock n 38,000 Payments on capital leases v 365,000 Payments on long-term debt y 2,000,000

Noncash Financing/InvestingBonds converted into stock f 1,500,000 f 1,500,000 Capital lease h 648,000 648,000 Stock dividend K

CHANGE IN CASH 589,000 x Totals 20,930,000 20,930,000 (589,000) Change in

Cashok 0 0 half

0 double0 divide by 9



SolutionExample 4- Acct 315


Wenatchee Whirlpool World 12/31/95 Ref Debit Ref Credit 12/31/96 Target

Cash 2,000,000 X 837,600 2,837,600 837,600

o 51,000

Securities Available for Sale (at market) 150,000 I 875,000 I 584,000 390,000 240,000

p 120,000

Accounts Receivable 1,900,000 f 28,000 1,752,000 (148,000)

Allowance for doubtful accounts (110,000) f 28,000 m 38,500 (120,500) (10,500)

Merchandise Inventory 875,000 p 270,000 1,145,000 270,000

Prepaid Operating Expenses 62,000 p 22,000 84,000 22,000

Investments (equity method) 3,000,000 l 115,000 j 18,000 3,097,000 97,000

h 800,000

Plant, property & equipment 10,800,000 g 4,900,000 c 80,000 16,420,000 5,620,000

Accumulated Depreciation (600,000) c 15,000 n 244,000 (829,000) (229,000)

n 6,500

Intangible Assets 128,000 a 50,000 71,500 (56,500)

18,205,000 24,847,600

Accounts Payable (750,000) p 130,000 (880,000) (130,000)

Salaries Payable (15,000) p 5,000 (20,000) (5,000)

Income Taxes Payable (27,000) q 13,600 (13,400) 13,600

Dividends Payable (60,000) k 75,000 k 50,000 (35,000) 25,000

Current portion long term debt (21,000) s 8,000 (29,000) (8,000)

Bonds Payable (5,000,000) b 5,000,000 (10,000,000) (5,000,000)

Premium/Discount on Bonds Payable 270,000 r 23,000 247,000 (23,000)

Deferred Income Taxes (88,000) q 92,000 (180,000) (92,000)

s 2,430,000

Other long term liabilities (3,000,000) s 8,000 (562,000) 2,438,000

12/31/95 ref Debit ref Credit 12/31/96 Target

Convertible preferred, $100 par (2,000,000) d 1,500,000 (500,000) 1,500,000

h 200,000

e 500,000

Common stock, $10 par (1,500,000) d 900,000 (3,100,000) (1,600,000)

h 600,000

e 1,550,000

Additional paid in capital (1,200,000) d 600,000 (3,950,000) (2,750,000)

Unrealized (gain)/loss investments (78,000) o 51,000 (27,000) 51,000

Retained Earnings (4,736,000) k 50,000 X 1,112,200 (5,798,200) (1,062,200)

0 (18,205,000) (24,847,600)



Wenatchee Whirlpool World


Rev/(Exp) Receipt/(Disb)

Sales 6,200,000 p 120,000 6,320,000

Earnings of affiliated company (equity method)

115,000 l 115,000 0

Gain/(loss) on sale of PP&E (40,000) c 40,000 0

Realized gain/(loss) on investments 108,000 I 108,000 0

Realized gain on sale of patent 950,000 a 950,000 0

Interest and dividend revenue 13,000 j 18,000 31,000

Cost of goods sold (3,600,000) p 130,000 p 270,000 (3,740,000)

Salaries and wages (590,000) p 5,000 (585,000)

Other operating expenses (345,000) p 22,000 (367,000)

Bad debt expense (38,500) m 38,500 0

Depreciation expense (244,000) n 244,000 0

Amortization of intangible assets (6,500) n 6,500 0

Interest expense (669,400) r 23,000 (646,400)

Income taxes expense (740,400) q 92,000 q 13,600 (662,000)

Net income (accrual basis) 1,112,200 X 1,112,200 X 350,600 350,600

Statement of Cash Flows INFLOWS OUTFLOWS (Subtotals)

Operating Activities X 350,600

Reconciling schedule:

Net Income 1,112,200

Depreciation & amortization 250,500

Bond premiums/discounts 23,000

Realized gains/losses PP&E 40,000

Realized gain/loss investments (108,000)

Gain on sale of patent (950,000)

Undistributed Earnings of Investees (97,000)

Deferred income taxes 92,000

Change in working capital accounts:

Net accounts receivable 158,500

Merchandise Inventory (270,000)

Prepaid Operating Expenses (22,000)

Accounts Payable 130,000

Salaries Payable 5,000

Income Taxes Payable (13,600)

Cash provided by operations: 350,600




Sale of patent a 1,000,000

Sale of equipment c 25,000

Purchase factory g 4,900,000

Purchase investment securities I 875,000

Sold investment securities I 692,000


Issued bonds b 5,000,000

Issued common stock e 2,050,000

Dividends paid k 75,000

Long-term debt repaid s 2,430,000


Preferred converted to common stock d 1,500,000 d 1,500,000

Swap common stock for land h 800,000 h 800,000

CHANGE IN CASH X 837,600

Totals 25,237,000 25,237,000



Solution

Working through the additional items of information:

a. On February 25, WWW sold an internally developed patent for $1,000,000. The patent was carried on the books at unamortized legal fees amounting to $50,000 at date of sale.

Cash [Investing - inflow] 1,000,000Intangible Assets 50,000Realized gain on sale of patent 950,000

b. On March 31, WWW issued $5,000,000 in bonds at face value. The semi-annual bonds have a coupon rate of 10% per annum.

Cash [Financing - inflow] 5,000,000Bonds payable 5,000,000

c. During the year, WWW disposed of various items of equipment with a total book value of $65,000 and original cost of $80,000. The amount received was $25,000 in cash. Accumulated depreciation would be $15,000 (80,000 - 65,000)

Cash [Investing - inflow] 25,000Accumulated depreciation 15,000Loss on sale of plant, property & equipment 40,000

Plant, property and equipment 80,000

d. During the third quarter, shareholders holding 15,000 shares of the preferred stock converted them into common stock. The conversion ratio was 6 shares of common for each share of preferred. Therefore 90,000 shares of common stock would be issues (6 * 15,000) with a par value of $900,000 ($10 par each). The book value of the preferred was 1,500,000. Therefore, additional paid in capital to balance the journal entry would be 600,000.

Convertible Preferred Stock, $100 par 1,500,000Common stock, $10 par 900,000Additional paid-in capital 600,000

e. On July 20, WWW sold 50,000 shares of its common stock for $41 per share. The proceeds would be $2,050,000 (41 * 50,000) and the par value portion would be $500,000 with the rest as additional paid in capital.

Cash [Financing - inflow] 2,050,000Common stock, $10 par 500,000Additional paid in capital 1,550,000

f. By the end of the year, WWW had written off as uncollectible a total of $28,000 in accounts receivable.

Allowance for doubtful accounts 28,000Accounts receivable 28,000

g. An existing factory with equipment was acquired during the year. The acquisition cost was allocated as follows: $772,000 to land, $3,450,000 to building and 678,000 to equipment. This totals to $4,900,000.

Plant, property and equipment 4,900,000Cash [Investing outflow] 4,900,000



h. WWW acquired a parcel of land adjoining the new factory by giving the owner 20,000 shares of its common stock. At the date of the transaction, the market value of the stock was $40 per share. The value of the land is $800,000 (20,000 * 40).

Plant, property and equipment 800,000Common stock, $10 par 200,000Additional paid in capital 600,000

i. During the year WWW purchased $875,000 in marketable securities and sold securities which had cost $584,000. The market value of the portfolio at the end of the year was $390,000. From the income statement, the gain on sale was 108,000. Therefore, the cash received from the sale of securities was 584+108 = $692,000

Investments - Securities available for sale 875,000Cash [Investing outflow] 875,000

Cash [Investing inflow] 692,000Investments - Securities available for sale 584,000Gain on sale of investments 108,000

j. WWW owns 30% of a company which manufactures parts that WWW uses in its production process. WWW received $18,000 in dividends from this partially owned company during 1996. Dividends received from equity-method investments reduce the investment account and do NOT appear on the income statement.

Cash [Operating - dividends received] 18,000Investments (partially-owned companies) 18,000

k. Dividends declared during the year totaled $50,000. Dividends declared reduce retained earnings and increase dividends payable. The balancing number in dividends payable (if this account exists) will be the dividends paid. If there is no dividends payable account, then the dividends declared = the dividends paid.

Retained earnings 50,000Dividends payable 50,000

Dividends payable 75,000Cash [Financing - outflow] 75,000

Starting through the income statement, looking for noncash items:

l. No deposit was made for share of earnings of partially owned companies. Therefore, this account needs to be zeroed out by re-constructing the entry that recorded the share of earnings.

Investments in partially owned company 115,000Earnings of partially-owned company 115,000

m. No check was written for bad debt expense. Therefore, this account needs to be zeroed out by re-constructing the entry that recorded bad debt expense for the year (the credit is always to allowance for doubtful accounts.

Bad debt expense 38,500Allowance for doubtful accounts 38,500



n. No checks are written to record depreciation expense and amortization of intangibles. Therefore, these accounts need to be zeroed out by reconstructing the entry that recorded the expenses.

Depreciation expense 244,000Amortization of intangible assets 6,500

Accumulated depreciation 244,000Intangible assets 6,500

Starting through the balance sheet to investigate accounts not yet balanced:

o. Securities available for sale (at market) doesn’t balance by $51,000. However, this amount appears in the owners’ equity section as the change in Unrealized (gain)/loss on investments. Therefore, this amount must have been the adjusting entry for the “allowance for change in value” account.

Unrealized gain/loss on investments 51,000Investments in AFS securities (allowance) 51,000

p. The remaining difference in accounts receivable ($120,000) is the adjustment to sales to get from accrual basis to cash basis. The difference in Merchandise Inventory is an adjustment to cost of goods sold. The difference in prepaid operating expenses is an adjustment to other operating expenses. The change in accounts payable would mostly be related to cost of goods sold. The change in salaries payable affects salaries and wages expense.

Sales 120,000Accounts receivable 120,000

Merchandise inventory 270,000Cost of goods sold 270,000

Prepaid operating expenses 22,000Other operating expenses 22,000Accounts payable 130,000

Cost of goods sold 130,000Salaries payable 5,000

Salaries and wages 5,000

q. Income tax expense is affected by two accounts on the balance sheet - income taxes payable and deferred income taxes.

Income taxes payable 13,600Income tax expense 13,600Deferred income taxes 92,000

Income tax expense 92,000

r. Amortization of premiums and discounts on bonds payable impacts interest expense.



Interest expense 23,000Discount on bonds payable 23,000

s. Long-term debt is presented in two numbers on balance sheet - current and noncurrent. These accounts need to be combined to find out how much was borrowed or repaid during the year. Take the change in one account to the other. The remaining “amount to balance” will be the cash inflow or outflow.

Other long-term debt 8,000Current portion of long-term debt 8,000

After this entry, the number necessary to balance other long-term debt is $2,430,000 which must be the amount of long-term debt repaid during the year.

Other long-term debt 2,430,000Cash [Financing - outflow] 2,430,000



Example 4 - Acct 301Solution

Wenatchee Whirlpool WorldStatement of Cash Flows

For year ended 12/31/96

Inflows Outflows NetCash provided by operationsCash collected from customers 6,320,000 Interest & dividends received 31,000 Cash paid for merchandise (3,740,000

)Cash paid to employees (585,000)Other operating disbursements (367,000)Interest paid (646,400)Income taxes paid (662,000)

Subtotals 6,351,000 (6,000,400)

350,600

Cash provided by investing activitiesPurchase plant, property & equipment (4,900,000

)Sale of plant, property & equipment 25,000 Sale of patent 1,000,000 Marketable securities purchased (875,000)Marketable securities sold 692,000

Subtotals 1,717,000 (5,775,000)

(4,058,000)

Cash provided by financing activitiesDividends paid (75,000)Long-term debt retired (2,430,000

)Bonds issued 5,000,000 Common stock issued 2,050,000

Subtotals 7,050,000 (2,505,000)

4,545,000

Change in cash 837,600 Beginning balance - Cash 2,000,000 Ending balance - Cash 2,837,600 Non-cash financing and investing activities Preferred stock converted to common 1,500,000



Land obtained by issue of common stock 800,000



Example 3 - Acct 301 SolutionWenatchee Whirlpool World


Schedule to reconcile net income to cash provided by operationsNet Income 1,112,200 Depreciation & amortization 250,500 Bond premiums/discounts 23,000 Realized gains/losses PP&E 40,000 Realized gain/loss investments (108,000)Gain on sale of patent (950,000)Undistributed Earnings of Affiliates (97,000) *Deferred income taxes 92,000 Change in working capital accounts:Net accounts receivable 158,500 **Merchandise Inventory (270,000)Prepaid Operating Expenses (22,000)Accounts Payable 130,000 Salaries Payable 5,000 Income Taxes Payable (13,600)Cash provided by operations: 350,600

The following notes are explanations and not part of a formal statement of cash flow

* Earnings of affiliates (equity method) (115,000) Dividends received (equity method affiliates) 18,000

(97,000)

** This is the easiest way to handle bad debts: just enter change in NET A/R: Change in Accounts Receivable

148,000

Change in Allowance for Doubtful Accounts

10,500

158,500 This is the more difficult alternate: Adjustment to sales (to get cash collected from customers)

120,000

Bad debt expense 38,500 158,500



What does not work is to include bad debt expense + change in Accounts Receivable and change in Allowance!



1. Homework Assignment SolutionUlliman Company Year ending Worksheet Year ending

0 01/01/99 Ref Debit Ref Credit 12/31/99 TargetCash 1,400 x 1,000 2,400 1,000 Accounts receivable (net) 2,800 L 110 2,690 (110)Marketable securities (at cost) 1,700 j 1,300 3,000 1,300 Allowance for change in value 500 j 300 800 300 Merchandise Inventory 8,100 M 190 7,910 (190)Prepaid Expenses 1,300 N 410 1,710 410 Investments (long-term) 7,000 d 1,600 5,400 (1,600)Land 15,000 15,000 0 Buildings and equipment 32,000 g 16,200 f 2,000 46,200 14,200 Accumulated depreciation (16,000) f 1,700 k 2,100 (16,400) (400)

Total assets 53,800 68,710

Accounts Payable (3,800) O 350 (4,150) (350)Income Taxes Payable (2,400) p 104 (2,504) (104)Wages payable (1,100) q 450 (650) 450 Interest payable 0 r 400 (400) (400)12% bonds payable 0 h 10,000 (10,000) (10,000)Premium/Discount on Bonds Payable 0 h 300 s 10 290 290 Notes payable (long term) (3,500) e 3,500 0 3,500 10% Convertible bonds (9,000) c 9,000 0 9,000 Deferred Income Taxes (800) i 396 (1,196) (396)Convertible preferred, $100 par 0 0 0 Common stock, $10 par (14,000) c & e 7,500 (21,500) (7,500)Additional paid in capital (8,700) c & e 5,000 (13,700) (5,000)Unrealized (gain)/loss investments (500) j 300 (800) (300)Retained Earnings (10,000) b 700 XX 4,800 (14,100) (4,100)

Total liab & equity (53,800) (68,710)ok ok

Closing entry for 1999 1999 Rev/(Exp) Receipt/(Disb)

Sales 39,930 L 110 40,040 Other revenue 0 0 Gain/(loss) on sale of PP&E (200) f 200 0 Realized gain/(loss) on investments 700 d 700 0 Interest and dividend revenue 820 820 Cost of goods sold (19,890) m&o 540 (19,350)Salaries & other operating expenses (11,000) q 450 (11,450)Other operating expense (1,000) N 410 (1,410)Depreciation & amortization (2,100) k 2,100 0 Interest expense (410) r & s 410 0 Income taxes expense (2,050) i & p 500 (1,550)Net income (accrual basis) 4,800 XX 4,800 xx 7,100 7,100



Ulliman CompanyStatement of Cash Flows INFLOWS OUTFLOWS SubtotalsOperating Activities xx 7,100 7,100

Reconciliation Schedule:Net Income 4,800 Loss on sale of equipment 200 fGain on sale of investments (700) dDepreciation expense 2,100 kBond discount amortization 10 sDeferred income taxes 396 iChange in WC accounts:Accounts receivable (net) 110 Merchandise Inventory 190 Prepaid Expenses (410)Accounts Payable 350 Income Taxes Payable 104 Wages payable (450)Interest payable 400

7,100

Investing Activities (15,100)Investments sold d 2,300 sold equipment f 100 Purchased equipment g 16,200 Purchase mkt securities j 1,300

Financing Activities 9,000 Dividends paid b 700 Issued bonds at a discount h 9,700

Noncash Financing/InvestingLT debt retired by issue of common stock econversion of bonds to stock c

CHANGE IN CASH x 1,000 1,000 Totals 62,720 62,720



Ulliman CompanyStatement of Cash Flows


Cash flows from operating activitiesCollections from customers 40,040 Payments to suppliers (19,350)Payments to employees (11,450)Other operating payments (1,410)Income taxes paid (1,550)Dividends collected 820

Cash provided by operations 7,100

Cash flows from investing activitiesPurchase of marketable securities (1,300)Proceeds from sale of long-term investments 2,300 Disbursements to acquire equipment (16,200)Proceeds from sale of equipment 100

Cash used by investing activities (15,100)

Cash flows from financing activitiesProceeds from issuance of bonds 9,700 Payment of dividends (700)

Cash provided by financing activities 9,000

Net increase in cash 1,000 Beginning balance in cash 1,400 Cash balance at 12-31-97 2,400

Noncash investing and financing activitiesLT debt retired by issue of common stock 3,500 conversion of bonds to stock 9,000

Reconcilation of net income to cash provided by operationsNet income 4,800 Loss on sale of equipment 200 Gain on sale of investments (700)Depreciation expense 2,100 Bond discount amortization 10 Deferred income taxes 396 Change in WC accounts:Accounts receivable (net) 110 Merchandise Inventory 190 Prepaid Expenses (410)Accounts Payable 350 Income Taxes Payable 104 Wages payable (450)Interest payable 400

7,100



2. Homework Assignment SolutionDriskoll Company Year ending Worksheet Year ending

12/31/99 Ref Debit Ref Credit 12/31/99 TargetCash 2,700 x 820 3,520 820 Accounts receivable (net) 5,900 i 315 6,215 315 Inventories 15,300 j 230 15,530 230 Prepaid Expenses 1,400 k 400 1,000 (400)Investments (long-term) 8,300 e 1,000 7,300 (1,000)Land 16,300 d 2,700 19,000 2,700 Buildings 68,700 c 8,000 60,700 (8,000)Acc'd depreciation - Bldg (35,000) c 3,200 g 2,700 (34,500) 500 Equipment 29,600 d 4,000 25,600 (4,000)Acc'd depreciation - Equip (14,200) d 2,600 g 3,100 (14,700) (500)Patents 8,700 f 1,300 h 815 9,185 485

107,700 98,850

Accounts Payable (8,900) L 295 (9,195) (295)Interest payable (630) m 330 (300) 330 Wages payable (2,500) n 100 (2,600) (100)Bonds payable (23,000) a 14,000 b 8,000 (17,000) 6,000 Discount on bonds 0 b 780 o 65 715 715 Common stock, $10 par (22,000) f 650 (22,650) (650)Additional paid in capital (15,320) f 650 (15,970) (650)Unrealized (gain)/loss investments 0 0 0 Retained Earnings (35,350) p 2,100 xx (1,400) (31,850) 3,500

(107,700) (98,850)ok ok

Closing entry for 1999 1999 Rev/(Exp) Receipt/(Disb)

Sales 49,550 i 315 49,235 Gain/(loss) on exchange of assets 1,300 d 1,300 0 Realized gain/(loss) on investments (200) e 200 0 Interest and dividend revenue 790 790 Cost of goods sold (23,800) L 295 j 230 (23,735)Salaries & other operating expenses (16,510) n 100 (16,410)Other operating expense (1,100) k 400 (700)Depreciation - buildings (2,700) g 2,700 0 Depreciation - equipment (3,100) g 3,100 0 Patent amortization (815) h 815 0 Interest expense (1,715) o 65 m 330 (1,980)Income taxes expense (500) (500)Extraordinary loss (net of taxes) (2,600) c 2,600 0 Net income (accrual basis) (1,400) xx (1,400) xx 6,700 6,700



Driskoll CompanyStatement of Cash Flows INFLOWS OUTFLOWS SubtotalsOperating Activities xx 6,700 6,700

Reconciliation Schedule:Net income (1,400)Depreciation 5,800 gamortization 815 hExtraordinary loss (net of taxes) 2,600 Gain/(loss) on exchange of assets (1,300)Realized gain/(loss) on investments 200 Amort of Bond Discount 65 o

change in WC accounts:Accounts receivable (net) (315) iInventories (230) jPrepaid Expenses 400 kAccounts Payable 295 LInterest payable (330) mWages payable 100 n

6,700

Investing Activities 3,000 Proceeds from insurance company c 2,200 Sale of long-term investment e 800

Financing Activities (8,880)Retired bonds payable a 14,000 Proceeds of bond issue b 7,220 dividends paid p 2,100

Noncash Financing/InvestingExchanged equipment for land dExchanged stock for patent f

CHANGE IN CASH x 820 820 Totals 54,170 54,170



Driskoll CompanyStatement of Cash Flows


Cash flows from operating activitiesCollections from customers 49,235 Payments to suppliers (23,735)Payments to employees (16,410)Other operating payments (700)Income taxes paid (500)Interest paid (1,980)Dividends collected 790

Cash provided by operations 6,700

Cash flows from investing activitiesProceeds from insurance company 2,200 Proceeds from sale of long-term investments 800

Cash provided by investing activities 3,000

Cash flows from financing activitiesProceeds from issuance of bonds 7,220 Retire bonds payable (14,000)Payment of dividends (2,100)

Cash used by financing activities (8,880)

Net increase in cash 820 Beginning balance in cash 2,700 Cash balance at 12-31-97 3,520

Noncash investing and financing activitiesExchanged stock for patentExchanged equipment for land

Reconcilation of net income to cash provided by operationsNet income (1,400)Depreciation 5,800 amortization 815 Extraordinary loss (net of taxes) 2,600 Gain/(loss) on exchange of assets (1,300)Realized gain/(loss) on investments 200 Amort of Bond Discount 65 Change in working capital accounts:Accounts receivable (net) (315)Inventories (230)Prepaid Expenses 400 Accounts Payable 295 Interest payable (330)Wages payable 100

6,700



Albion Altimeters Inc.Statement of Cash Flows

For year ended 12/31/97Inflows Outflows Net

Cash provided by operationsCash collected from customers 3,708,000 Interest & dividends received 15,000 Cash paid for merchandise (2,016,000)Cash paid to employees (651,300)Other operating disbursements (243,800)Interest paid (93,700)Income taxes paid (168,000)

Subtotals 3,723,000 (3,172,800) 550,200

Cash provided by investing activitiesPurchase plant, property & equipment (1,740,000)Sale of plant, property & equipment 35,000 Marketable securities purchased (585,000)Marketable securities sold

Subtotals 35,000 (2,325,000) (2,290,000)

Cash provided by financing activitiesDividends paid (100,000)Common stock issued 1,750,000

Subtotals 1,750,000 (100,000) 1,650,000

Change in cash (89,800)Beginning balance - Cash 400,000 Ending balance - Cash 310,200

Land obtained by issue of common stock 32,000



Albion Altimeters Inc.


Schedule to reconcile net income to cash provided by operationsNet Income 289,900 Depreciation & amortization 30,000 Bond premiums/discounts (6,000)Realized gains/losses PP&E 30,000 Deferred income taxes 15,700 Change in working capital accounts:Net accounts receivable 125,200 **Merchandise Inventory 21,000 Prepaid Operating Expenses (13,800)Accounts Payable 63,000 Salaries Payable (1,300)Income Taxes Payable (3,500)Cash provided by operations: 550,200

** Change in Accounts Receivable 119,000 Change in Allowance for Doubtful Accounts 6,200

125,200

This is the more difficult alternate: Adjustment to sales (to get cash collected from customers) 108,000 Bad debt expense 17,200

125,200



Worksheet Year endingYear

ending

Albion Altimeters Inc. 12/31/96 Ref Debit Ref Credit 12/31/97

Cash 400,000 89,800 310,200 Securities Available for Sale (at market) 500,000

r,f

27,000585,000 1,112,000

Accounts Receivable 900,000 Je

11,000108,000 781,000

Allowance for doubtful accounts (27,000) e 11,000 i 17,200 (33,200)Merchandise Inventory 850,000 k 21,000 829,000 Prepaid Operating Expenses 25,000 m 13,800 38,800

Plant, property & equipment 1,880,000 g,c

32,0001,740,000 b 90,000 3,562,000

Accumulated Depreciation (350,000) b 25,000 h 30,000 (355,000) 4,178,000 6,244,800 Accounts Payable (350,000) l 63,000 (413,000)Salaries Payable (8,500) n 1,300 (7,200)Income Taxes Payable (27,000) o 3,500 (23,500)Dividends Payable (25,000) A 100,000 a 75,000 0 Bonds Payable (1,000,000) (1,000,000)Premium/Discount on Bonds Payable (124,000) p 6,000 (118,000)Deferred Income Taxes (88,000) q 15,700 (103,700)

Common stock, $10 par (1,000,000) Gd

10,000500,000 (1,510,000)

Additional paid in capital (700,000) Gd

22,0001,250,000 (1,972,000)

Acc'd other comprehensive income 14,000 r 27,000 (13,000)Retained Earnings (869,500) a 75,000 x 289,900 (1,084,400)

0 (4,178,000) (6,244,800)



Albion Altimeters1997 1997

Closing entry for 1997 Rev/(Exp) Ref Debit Ref CreditReceipt/(Disb)

Sales 3,600,000 j 108,000 3,708,000 Gain/(loss) on sale of PP&E (30,000) b 30,000 0 Interest and dividend revenue 15,000 15,000

Cost of goods sold (2,100,000)kl

21,00063,000 (2,016,000)

Salaries and wages (650,000) n 1,300 (651,300)Other operating expenses (230,000) m 13,800 (243,800)Bad debt expense (17,200) I 17,200 0 Depreciation expense (30,000) H 30,000 0 Interest expense (87,700) p 6,000 (93,700)Income taxes expense (180,200) Q 15,700 o 3,500 (168,000)Net income (accrual basis) 289,900 X 289,900 X 550,200 550,200

Statement of Cash Flows INFLOW

S OUTFLO

WS(Subtotals

)Operating Activities X 550,200 550,200 Net income 289,900 X Add depreciation expense 30,000 H Add loss on sale of equipment 30,000 B Amortization of discount on B/P (6,000) P Deferred Income Taxes 15,700 Q Change in working capital accounts: Accounts Receivable 119,000 Allowance for doubtful accounts 6,200 Merchandise Inventory 21,000 Prepaid Operating Expenses (13,800) Accounts Payable 63,000 Salaries Payable (1,300) Income Taxes Payable (3,500) 550,200 Investing Activities (2,290,000)Proceeds from sale of equipment b 35,000 Purchase building & equipment c 1,740,000 Purchase marketable securities f 585,000 Financing Activities 1,650,000 Dividends paid A 100,000 Proceeds from issuance of common stock d 1,750,000 Noncash Financing/Investing Exchange common stock for land valued at $32,000 CHANGE IN CASH 89,800 Totals 5,619,400 5,619,400 (89,800)

0



Check figures for cash provided by operations:Endicott Engines $ 462,000Camperdown Company $2,647,000



Final Exam Question – Spring 2002

Required:Use the financial statements, the additional information (next page) and the worksheet provided to prepare the statement of cash flow using the direct method. For full credit, use the pages provided to prepare the formal statement in addition to the worksheet.

Camperdown CompanyBalance Sheet 12/31/02 12/31/01

Current AssetsCash 183,000 100,000 Securities Available for Sale (at cost) 727,000 367,000 Allowance to adjust to market value 13,000 (14,000)Net accounts receivable 917,000 1,238,000 Merchandise Inventory 480,000 540,000

2,320,000 2,231,000

Noncurrent AssetsPlant, property & equipment 17,208,000 14,500,000 Accumulated Depreciation (2,527,000) (1,500,000)Investment in Edible Oils Inc. 2,023,000 2,000,000 Intangible Assets 480,000 500,000 TOTAL ASSETS 19,504,000 17,731,000

Balance Sheet 12/31/02 12/31/01 Current LiabilitiesAccounts Payable 930,000 750,000 Salaries Payable 2,000 5,000 Income Taxes Payable 9,000 20,000 Dividends Payable 27,000 18,000

968,000 793,000 Noncurrent LiabilitiesBonds Payable 7,000,000 7,000,000 Discount on Bonds Payable (605,000) (640,000)Deferred Income Taxes 64,000 39,000 Obligation under capital leases 403,000 380,000

6,862,000 6,779,000

Stockholder's EquityConvertible preferred stock 4,500,000 5,000,000 Common stock, $10 par 2,000,000 1,600,000 Additional paid in capital 2,106,000 1,400,000 Acc'd other comprehensive income 13,000 (14,000)Treasury stock (at cost) (26,000) (52,000)Retained Earnings 3,081,000 2,225,000




Camperdown CompanyIncome Statement


Sales 10,000,000 Investment income 50,000 Gain/(loss) on sale of PP&E (45,000)Realized gain/(loss) on investments 10,000 Total revenues 10,015,000

Cost of goods sold 6,000,000 Salaries and wages 600,000 Other operating expenses 250,000 Bad debt expense 21,000 Depreciation & amortization expense 1,077,000 Interest expense 565,000 Income taxes expense 551,000 9,064,000

Net income 951,000

Additional information:a. During the year, Camperdown Corporation paid quarterly dividends in

the total amount of $86,000.b. The preferred stock is convertible into 6 shares of common stock at the

discretion of the stockholder. During the year, 5,000 shares of preferred stock were converted into common stock.

c. Camperdown Corporation received $27,000 in dividends from Edible Oils Inc (equity method investment). The securities held in the available for sale portfolio paid no cash dividends during the year.

d. During the year, Camperdown Corporation sold a piece of equipment for $25,000. The historical cost of the asset was $100,000 and the book value was $70,000 at the date of sale.

e. On April 30, Camperdown Corporation issued 10,000 shares of common stock for $60 per share.

f. Camperdown Corporation acquired a new processing plant for a total cost of $2,450,000. $2,000,000 was attributed to the building and the remainder was attributed to the cost of the land.

g. Camperdown Corporation wrote off $5,000 in bad debts during the year.

h. Camperdown Corporation sold marketable securities that had cost $90,000 for $100,000.

i. Camperdown Corporation entered into a new capital lease arrangement to obtain manufacturing equipment needed for the new facility. The present value of the minimum lease payments was $358,000 at the inception of the lease.

j. Half of the 1,000 shares of treasury stock were sold for $64 per share. Camperdown Corporation uses the cost method. The treasury stock on hand at the beginning of the year was carried at $52 per share.



Statement of Cash Flow Problem


Camperdown Company 12/31/01 Ref Debit Ref Credit 12/31/02 Target

Cash 100,000 83,000 183,000 83,000

Securities Available for Sale (at cost) 367,000 727,000 360,000

Allowance to adjust to market value (14,000) 13,000 27,000

Net accounts receivable 1,238,000 917,000 (321,000)



Accumulated Depreciation (1,500,000) (2,527,000) (1,027,000)

Investment in Edible Oils Inc. 2,000,000 2,023,000 23,000


Total assets 17,731,000 19,504,000

Accounts Payable (750,000) (930,000) (180,000)




Bonds Payable (7,000,000) (7,000,000) 0

Premium/Discount on Bonds Payable 640,000 605,000 (35,000)


Obligation under capital leases (380,000) (403,000) (23,000)



Statement of Cash Flow Problem


Camperdown Company 12/31/01 Ref Debit Ref Credit 12/31/02 Target

Convertible preferred, $100 par (5,000,000) (4,500,000) 500,000

Common stock, $10 par (1,600,000) (2,000,000) (400,000)

Additional paid in capital (1,400,000) (2,106,000) (706,000)

Acc'd other comprehensive income 14,000 (13,000) (27,000)

Treasury stock (at cost) 52,000 26,000 (26,000)

Retained Earnings (2,225,000) (3,081,000) (856,000)Total Liab & owners equity (17,731,000) (19,504,000) (1,773,000)


Rev/(Exp) Ref Debit Ref CreditInflow/

(Outflow)

Sales 10,000,000

Earnings of investees (equity method) 50,000


Realized gain/(loss) on investments 10,000





Depreciation & amortization expense (1,077,000)






Camperdown Company

Statement of Cash Flows INFLOWS OUTFLOWS (Subtotals)


Net income 951,000





Camperdown Company

INFLOWS OUTFLOWS (Subtotals)



Totals



Camperdown CorporationStatement of Cash FlowFor year ended 12-31-02






Camperdown CorporationStatement of Cash FlowFor year ended 12-31-02

Reconciling schedule

Notes


CashFlow With Solutions

Documents

Transcript of CashFlow With Solutions