P a g e | 182 Exercise 19-1 Indicate how the following data should be reported in a statement of cash flowsA company paid

$120,000 cash for land. A building was acquired for $240,000 by assuming a mortgage on the building. Solution to Exercise 19-1 A company paid $120,000 cash for land. This item will be reported in the cash flow from investing activities in statement of cash flows. This is a cash outflow. A building was acquired for $240,000 by assuming a mortgage on the building. This item will not be reported in statement of cash flows. This item will be reported in a separate schedule named schedule of noncash financing & investing activities.

Solution 3G to Accounting Principles Hermanson

P a g e | 183 Exercise 19-2 The situation will be clear from the journal entry New auto is traded for an old one. New auto will be debited & old one be credited. Accumulated depreciation- Auto should be dissolved as depreciation is nil for new auto. Loss should be debited & the difference in values now should be credited as cash Now, place the amounts in the relevant locations of
The following data are from the automobile & the accumulated depreciation- Automobile accounts of a certain company.
Automobile Date Jan.1 Jul. 1 Debit Credit Balance Balance brought 8,000 forward Traded for -08,000 new auto 8,800 New auto 8,800 Accumulated Depreciation- Automobile Balance brought forward One-half years depreciation Auto traded One-half years depreciation

Solution to Exercise 19-2 The situation will be clear from the journal entry: New auto Accumulated Depreciation- Auto Loss on disposal of plant assets Old auto Cash 8,800 7,000 600 8,000 8,400

Jan.1

6,000

Partial statement of Cash flows Indirect Method Cash flow from operating activities: Net income *** Adjustments: Loss on disposal of old auto Cash flow from investing activities: Purchase of new auto

Jul. 1

1,000 7,000 1,100

7,000
-01,100

600

Dec.31

(8,400)

The old auto was traded for a new one, with the difference in values paid in cash. The income statement for the year shows a loss on the exchange of autos of $600. Indicate the dollar amounts, the descriptions of these amounts, & their exact locations in a statement of cash flows- indirect method.

Solution 3G to Accounting Principles Hermanson

P a g e | 184 Exercise 19-3 Following are balance sheet data for Batroos Corporation Cash spent to purchase plant assets = Current balance Previous balance+ Accumulated depreciation
Cash Accounts receivable, net Merchandise Inventory Prepaid expenses Plant assets (net of accumulated depreciation) Accounts payable Accrued liabilities payable Capital stock Retained earnings 1995 23,500 70,500 41,500 4,500 1994 13,000 67,000 51,000 5,500

Solution to Exercise 19-3 Cash spent to purchase plant assets =Current balance Previous balance+ Accumulated depreciation = 117,500 115,000 + 7,500 = 10,000

117,500
61,000 20,000 150,000 26,5000

115,000
63,500 20,500 150,000 17,500

Assume that the depreciation recorded in 1995 was $7,500. Compute the cash spent to purchase plant assets, assuming no assets were sold or scrapped in 1995.

Solution 3G to Accounting Principles Hermanson

P a g e | 185 Exercise 19-4

Cash Accounts receivable, net Merchandise Inventory Prepaid expenses Plant assets (net of accumulated depreciation) Accounts payable Accrued liabilities payable Capital stock Retained earnings 1995 23,500 70,500 41,500 4,500 1994 13,000 67,000 51,000 5,500

Solution to Exercise 19-4 Batroos Corporation Statement of cash flows Indirect Method For the year ended December 31, 1995
Particulars Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities Depreciation expense Increase in accounts receivable (70,500 67,000) Decrease in merchandise inventory (51,000 41,500) Decrease in prepaid expense (5,500 4,500) Decrease in accounts payable (63,500 61,000) Decrease in accrued liabilities payable (20,500 20,000) Net cash provided by operating activities Cash flows from investing activities Purchase of plant assets (117,500 115,000) Cash flows from financing activities Dividends paid Net increase in cash Amount 12,000 Amount

117,500
61,000 20,000 150,000 26,5000

115,000
63,500 20,500 150,000 17,500

7,500 (3,500) 9,500 1,000 (2,500)

Use the data in Exercise 19-3, assume the net income for 1995 was $12,000; depreciation was $7,500, & dividends declared & paid were $3,000. Prepare a statement of cash flows indirect method.

(500) 23,500 (2,500) 3000 24,000

Solution 3G to Accounting Principles Hermanson

P a g e | 186 Exercise 19-5 Cost of goods sold in the income statement for the year ended 1993 was $314,000. The balances in Merchandise Inventory and accounts payable were:
January 1, December 31, 1993 1993 Merchandise Inventory 160,000 170,000 Accounts Payable 44,000 36,000

Solution to Exercise 19-5 Cash paid for merchandise in 1993 = Cost of goods sold Decrease in inventory increase in Accounts Payable = $314,000 - $10,000 - $8,000 = $296,000

Cash paid for merchandise = Cost of goods sold Decrease in inventory increase in Accounts Payable

Calculate the amount of cash paid for merchandise in 1993.

Solution 3G to Accounting Principles Hermanson

P a g e | 187 Exercise 19-6 The income statement of a company shows net income of $75,000; Merchandise inventory on January 1 was $76,500 and on December 31 was $94,500; Accounts payable for merchandise purchases were $57,000 on January 1 and $63,000 on December 31. Compute the cash flows from operating activities under the indirect method. Solution to Exercise 19-6 Partial statement of Cash flowsIndirect Method Cash flow from operating activities: Net income 75,000 Adjustments: Increase in Merchandise inventory (94,500 76,500) Increase in Accounts Payable (63,000 57,000) Net cash provided by operating activities

To prepare Cash flow from operating activities section of an income statement (indirect method) Write Net income State the adjustments to reconcile net income to net cash provided by operating activities Sum up & calculate Net cash provided by operating activities

(18,000) 6,000 63,000

Solution 3G to Accounting Principles Hermanson

P a g e | 188 Exercise 19-7 The operating expenses and taxes (including $60,000 of depreciation) of a company for a given year were $600,000. Net income was $300,000. Prepaid insurance decreased from $18,000 to $12,000 during the year, while wages payable increased from $24,000 to $36,000 during the year. Compute the cash flows from operating activities under the indirect method. Solution to Exercise 19-7 Partial statement of Cash flowsIndirect Method Cash flow from operating activities: Net income 300,000 Adjustments: Depreciation Decrease in prepaid insurance (18,000 12,000) Increase in wages payable (36,000 24,000) Net cash provided by operating activities

To prepare Cash flow from operating activities section of an income statement (indirect method) Write Net income State the adjustments to reconcile net income to net cash provided by operating activities Sum up & calculate Net cash provided by operating activities

60,000 6,000 12,000 378,000

Solution 3G to Accounting Principles Hermanson

P a g e | 189 Exercise 19-8 Dividends payable increased by $6,000 during a year in which total dividends declared were $120,000. What amount appears for dividends paid in the statement of cash flows? Solution to Exercise 19-8 Dividends payable increased by $6,000. That means, $6,000 of the current years dividends are not paid. So, dividend paid = $120,000 - $6,000 = $114,000

Solution 3G to Accounting Principles Hermanson

P a g e | 190 Exercise 19-9 Fill in the following chart, showing how increases & decreases in these accounts affect the conversion of accrual basis income to cash basis income.
Add Deduct Accounts Receivable Merchandise Inventory Prepaid Expenses Accounts Payable Accrued liabilities Payable

Solution to Exercise 19-9

Accounts Receivable Merchandise Inventory Prepaid Expenses Accounts Payable Accrued Liabilities Payable

Add Decrease Decrease Decrease Increase Increase

Deduct Increase Increase Increase Decrease Decrease

Solution 3G to Accounting Principles Hermanson

P a g e | 191

To prepare a working paper to convert Income statement from accrual basis to cash basis Write down the accounts in accrual basis first Then make necessary adjustments (add or deduct) for increase or decrease of different accounts Compute & write down the accounts in cash basis

Solution 3G to Accounting Principles Hermanson

P a g e | 192

To prepare a working paper for statement of cash flows Horizontally Write downthe particulars previous years balances debit-credit analysis for this year this years balances (adjusted) Vertically Write downThe debit accounts The credit accounts Cash flows from operating activities Cash flows from investing activities Cash flow from financial activities Total Solution 3G to Accounting Principles Hermanson

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P a g e | 193

To prepare a statement of cash flows Indirect method Write down cash flows from operating activities Write net income state adjustments to reconcile net income to net cash provided by operating activities Compute net cash provided by operating activities Then, write down cash flows from investing activities & financing activities serially and compute Net increase/decrease in cash Solution 3G to Accounting Principles Hermanson

P a g e | 194

To prepare a statement of cash flows Direct method Write down cash flows from operating activities Write down revenues such as cash received from customers, interests received etc. Then, write down various expenses for operating activities Now, write down cash flows from investing activities & financing activities serially and compute Net increase/decrease in cash Solution 3G to Accounting Principles Hermanson

P a g e | 195 Problem 19-1 A The income statement and other data of Branson Corporation are given below: Branson Corporation Income statement For the year ended December 31, 1994 Sales 700,000 Cost of goods sold 250,000 Gross margin 450,000 Operating expenses (other than depreciation) 120,000 Depreciation expense 40,000 160,000 Net income 290,000 Solution to Problem 19-1 A (i) Branson Company Working paper to convert Income Statement From Accrual basis to Cash basis For the year ended December 31, 1994 Cash Basis (cash flow from operating activities) 680,000

Particulars Sales Cost of goods sold Operating expenses Depreciation expenses Net income

Accrual basis $700,000 250,000 120,000 40,000 410,000 $290,000

Add

Deduct 20,000 (1)

30,000 (4) 16,000 (3)

40,000 (2) 240,000 8,000 (5) 128,000 40,000* 368,000 312,000

(1) Accounts receivable (2) Merchandise inventory (3) Prepaid insurance (4) Accounts payable (5) Accrued liabilities payable

Increase 20,000 16,000

Decrease 40,000 30,000

8,000

(i) Prepare a working paper to calculate cash flows from operating activities under the direct method.

(1) Increase in accounts receivable (2) Decrease in Merchandise inventory (3) Increase in prepaid insurance (4) Decrease in Accounts payable (5) Increase in accrued liabilities payable

Solution 3G to Accounting Principles Hermanson

P a g e | 196 Problem 19-1 A

Branson Company Working paper to convert Income Statement From Accrual basis to Cash basis For the year ended December 31, 1994
Cash Basis (cash flow from operating activities)

Solution to Problem 19-1 A (ii) Branscom Corporation Partial Statement of Cash Flows Direct Method For the year ended December 31, 1994 Particulars Cash flows from operating activities Cash received from customers Cash paid for merchandise Operating expenses paid Net cash provided by operating activities Amount Amount

Particulars Sales Cost of goods sold Operating expenses Depreciation expenses Net income

Accrual basis $700,000 250,000 120,000 40,000 410,000 $290,000

Add

Deduct 20,000

680,000 240,000 128,000

368,000 312,000

30,000 16,000

40,000 8,000 40,000

680,000 (240,000) (128,000) 312,000

(ii) Prepare the cash flows from operating activities section of the statement of cash flows under the direct method.

Solution 3G to Accounting Principles Hermanson

P a g e | 197 Problem 19-1 A Net income 290,000 Depreciation expense 40,000 Accounts receivable Merchandise inventory Prepaid insurance Accounts payable Accrued liabilities payable Increase 20,000 16,000 30,000 8,000 Decrease 40,000 Solution to Problem 19-1 A (iii) Branscom Corporation Partial Statement of Cash Flows Indirect Method For the year ended December 31, 1994 Particulars Cash flow from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities Depreciation expense Increase in accounts receivable Decrease in merchandise inventory Increase in prepaid insurance Decrease in accounts payable Increase in accrued liabilities payable Net cash provided by operating activities Amount 290,000 Amount

(iii) Prove that the same cash flows amount will be obtained under the indirect method by preparing the cash flows from operating activities section of the statement of cash flows under the indirect method. you need not prepare a working paper.

40,000 (20,000) 40,000 (16,000) (30,000) 8,000 312,000

Same as of direct method (see ii) (Proved) Solution 3G to Accounting Principles Hermanson

P a g e | 198 Problem 19-2 A

Dalton Corporation Comparative balance sheet December 31, 1995 & 1994
1995 Assets Cash Accounts receivable, net Supplies on hand Prepaid rent Land Equipment Accumulated depreciationequipment Total assets Liabilities & Stockholders equity Accounts payable Accrued liabilities payable Bonds payable 10%, due 2001 Common stock ($20 par) Paid in capital in excess of par Retained earnings Total liabilities & stockholders equity 112,280 160,200 6,000 2,4000 720,000 480,000 (200,000) 1,280,000 20,880 36,000 400,000 520,000 60,000 244,000 1280,880 1994 56,000 158,000 6,800 3,200 800,000 380,000 (180,000) 1,224,000 120,800 30,000 400,000 440,000 233,200 1,224,000

Solution to Problem 19-2 A Dalton Corporation Statement of cash flows For the year ended December 31, 1995
Particulars Cash flows from operating activities Net income* ( 244,000 + 142,000 233,200) Adjustments to reconcile net income to net cash provided by operating activities Depreciation expense (200,000 180,000) Increase in accounts receivable (160,200 158,00) Decrease in supplies (6,800 6,000) Decrease in prepaid rent (3,200 -2,400) Gain on sale of land Decrease in accounts payable (120,800 20,800) Increase in accrued liabilities payable (36,000 30,000) Net cash provided by operating activities Cash flows from investing activities Proceeds from sale of land (800,000 720,000 + 8,000) Purchase of Equipment (480,000 380,000) Net cash used by investing ativities Cash flow from financing activities Proceeds from issuing common stock Dividends paid Net cash provided by financing activities Net increase (decrease) in cash Amount 152,800 Amount

20,000 2,200 800 800 (8,000) (99,200) 6,000 70,280 88,000 (100,000) (12,000) 140,000 (142,000) (2,000) 56,280

Additional data: 1. A land was sold for a gain of $8,000. 2. No equipment was sold. Additional equipment was purchased for cash. 3. Stock was issued for cash. 4. Dividends declared & paid during 1995 totaled $142,000 Prepare a statement of cash flows under the indirect method. Try to do so without preparing a working paper.

*Calculation of Net income = Retained earnings of 1995 + dividend paid in 1995 Retained earnings of 1994 = 244,000 + 142,00 233,200 = 152,800

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Solution 3G to Accounting Principles Hermanson

P a g e | 199 Problem 19-3 A

Dodson Corporation Comparative balance sheet December 31, 1995 & 1994
1995 Assets Cash Accounts receivable, net Merchandise Inventory Equipment Accumulated depreciationequipment Investments Total assets Liabilities & Stockholders equity Accounts payable Accrued liabilities payable Capital stock- common-($40 par) Paid in capital in excess of par Retained earnings Total liabilities & stockholders equity 90,000 236,000 700,000 1,650,000 (480,000) 300,000 2,496,000 87,000 9,000 1,500,000 600,000 300,000 2,496,000 1994 120,000 240,000 480,000 1,260,000 (420,000) 60,000 1,740,000 75,000 15,000 1,200,000 300,000 150,000 1,740,000

Solution to Problem 19-3 A

Particulars Accont Balance 31/12/1994 120,000 240,000 480,000 1,260,000 60,000 2,160,000 420,000 75,000 15,000 1,200,000 300,000 150,000 2,160,000 Analysis of transaction Debit Credit Account Balance 31/12/1995 90,000 236,000 700,000 1,650,000 300,000 2,976,000 480,000 87,000 9,000 1,500,000 600,000 300,000 5,952,000

Additional data: 1. Net income was $270,000 for the year. 2. Fully depreciated equipment costing $60,000 was sold for $15,000 & equipment costing $450,000 was purchased for cash. 3. Depreciation expense for the year was $120,000. 4. Investments were purchased, $240,000. 5. Additional 7,500 shares of common stock were issued for cash at $80 per share. 6. Cash dividends of $120,000 were declared & paid.

i) Prepare a working paper for a statement of cash flows.

Debits Cash Accounts Receivable Merchandise Inventory Equipment Investments Total Credits Accumulated Depreciation Accounts payable Accrued liabilities payable Capital stock Common Paid in capital in excess of Par Retained Earnings Total Cash flows from operating activities Net income Decrease accounts receivable Increase in merchandise inventory Increase in accounts payable Increase in accrued liability Depreciation expense Gain on sale of equipment Cash flows from investing activities Proceeds from sales of equipment Purchase of Equipment Purchase of Investment Cash flows from financing activities Procceds from issuing common stock (7,500 $80) Payment of dividend Decrease in cash Totals

30,000 4,000 220,000 450,000 240,000 60,000

60,000 6,000

120,000 12,000 300,000 300,000 270,000 1,096,000

120,000 1,096,000

270,000
4,000 220,000 12,000 6,000 120,000 15,000 15,000 450,000 240,000

600,000

120,000
30,000 1,051,000 1,051,000

Solution 3G to Accounting Principles Hermanson

P a g e | 200 Problem 19-3 A Solution to Problem 19-3 A (iii) Dodson Corporation Statement of cash flows For the year ended December 31, 1995
220,000 12,000 6,000 120,000 15,000

Cash flows from operating activities Net income Decrease accounts receivable Increase in merchandise inventory Increase in accounts payable Increase in accrued liability Depreciation expense Gain on sale of equipment Cash flows from investing activities Proceeds from sales of equipment Purchase of Equipment Purchase of Investment Cash flow from financing activities Procceds from issuing common stock Payment of dividend Decrease in cash Totals

270,000 4,000

15,000 450,000 240,000

600,000 120,000 30,000 1,051,00 0 1,051,00 0

Particulars Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities Increase in accounts receivable Increase in Merchandise Inventory Increase in Accounts Payable Decrease in accrued liabilities payable Depreciation expense Gain on sale of equipment Net cash provided by operating activities Cash flows from investing activities Proceeds from sale of equipment Purchase of Equipment Purchase of investment Net cash used by investing activities Cash flows from financing activities Proceeds from issuing common stock Dividends paid Net cash provided by financing activities Net decrease in cash

Amount 270,000

Amount

4,000 (220,000) 12,000 (6,000) 120,000 (15,000) 165,000 15,000 (450,000) (240,000) (675,000) 600,000 (120,000) (480,000) (30,000)

ii) Prepare a statement of cash flow (indirect method)

Solution 3G to Accounting Principles Hermanson

P a g e | 201 Problem 19-4 A

Dalton Corporation Comparative balance sheet December 31, 1995 & 1994
1995 Assets Cash Accounts receivable, net Merchandise inventory Prepaid insurance Investment in stock of affiliated company Buildings Accumulated depreciation- building Equipment
Accumulated depreciation- equipment

Solution to Problem 19-4 A

Particulars Debits Cash Accounts Receivable Merchandise Inventory Prepaid expenses Investment in stock Buildings Equipment Total Credits Accumulated Depreciation - Building Accumulated Depreciation Equipment Accounts payable Accrued liabilities payable Note Payable Capital stock Retained Earnings Total Cash flows from operating activities Net income Increase accounts receivable Decrease in merchandise inventory Decrease in prepaid expense Increase in accounts payable
Decrease in accrued liabilities payable

Accont Balance 31.12.1994 84,000 168,000 189,000 52,500 315,000 588,000 840,000 2,236,500 105,000 252,000 189,000 63,000 1,470,000 157,500 4,473,000

Analysis of transaction Debit 21,000 168,000 21,000 21,000 63,000 210,000 189,000 Credit

Account Balance 31.12.1995 105,000 336,000 168,000 31,500 378,000 798,000 1,029,000 2,845,500 126,000 315,000 294,000 42,000 210,000 1,680,000 178,500 5,691,000

1994 84,000 168,000 189,000 52,500 315,000 588,000 (105,000) 840,000 (252,000) 1,879,500 189,000 63,000 -01,470,000 157,500 1,879,500

105,000 336,000 168,000 31,500 378,000 798,000 (126,000) 1,029,000 (315,000) $2,404,500 294,000 42,000 210,000 1,680,000 178,500 2,404,500

21,000 63,000 105,000 21,000 210,000 210,000 105,000 756,000

Total assets Liabilities & Stockholders equity Accounts payable Accrued liabilities payable Five year note payable Capital stock ($100 par) Retained earnings
Total liabilities & stockholders equity

84,000 756,000 105,000

Additional data: 1. Net income for year ended June 30,1995, was $105,000. 2. Additional shares of stock of the affiliated company were acquired for cash. 3. No equipment or building retirements occurred during the year. 4. Equipment was purchased for cash. 5. The five-year-note was issued to pay for a building erected on land leased by the company. 6. Stock was issued at par for cash. 7. Dividends declared & paid were $84,000. i) Prepare a working paper for a statement of cash flows.

168,000 21,000 21,000 105,000 21,000 84,000 189,000 63,000 210,000

Depreciation expense Cash flows from investing activities Purchase of Equipment Investment in stock Cash flow from financing activities Procceds from issuing common stock Payment of dividend Decrease in cash

Total

84,000 21,000 546,000 Principles 546,000Hermanson Solution 3G to Accounting

P a g e | 202 Problem 19-4 A Solution to Problem 19-3 A FIEBELKORN Corporation Statement of cash flows- Indirect Method For the year ended December 31, 1995
Particulars Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities Increase in accounts receivable Increase in merchandise inventory Decrease in prepaid expense Decrease in accounts payable Decrease in accrued liabilities payable Depreciation expense Net cash provided by operating activities Cash flows from investing activities Purchase of Equipment Investment in stock Net cash used by investing activities Cash flows from financing activities Proceeds from issuing common stock Dividends paid Net cash provided by financing activities Net increase in cash Amount 105,000 Amount

Particulars

Cash flows from operating activities Net income Increase accounts receivable Decrease in merchandise inventory Decrease in prepaid expense Increase in accounts payable Decrease in accrued liabilities payable Depreciation expense Cash flows from investing activities Purchase of Equipment Investment in stock Cash flow from financing activities Procceds from issuing common stock Payment of dividend Decrease in cash Totals

Analysis of transaction Debit Credit 105,000

168,000 21,000 21,000 105,000 21,000 84,000

(168,000) 21,000 21,000 105,000 (21,000) 84,000 147,000 (189,000) (63,000) (252,000) 210,000 (84,000) 126,000 21,000

189,000 63,000

210,000 84,000 21,000 546,000

546,000

ii) Prepare a statement of cash flow (indirect method)

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Solution 3G to Accounting Principles Hermanson

P a g e | 203 Problem 19-5 A Problem 19-5 A

The Gutman corporation comparative balance sheets as December 31,1995 & 1994 and the statement of income and retained earnings for 1995 are presented below: Gutman Corporation Comparative balance sheet December 31, 1995 & 1994
Assets Current Assets Cash Accounts receivable, net Merchandise Inventory Prepaid Insurance Total Current Assets Property, Plant & Equipment Land Buildings Accumulated Depreciation buildings Equipment Accumulated Depreciation Equipment Total Property, Plant &Equipment Total Assets 1995 39,000 330,200 317,200 7,800 694,2000 1994 52,000 254,800 291,200 10,400 608,400

Liabilities & Stockholders Equity Current Liabilities Accounts Payable Federal income taxes payable Salaries & wages payable Accrued liabilities payable Total current liabilities Lomg-term liabilities Bonds Payable Total liabilities Stockholders Equity Capital stock- common, $100 par Paid in capital in excess of par Retained Earnings Total Stockholders Equity Total liabilities & stockholders equity

1995

1994

Gutman Corporation Income statement & statement of retained earnings For the year ended December 31,1995
Sales, net Cost of goods sold Gross margin Salaries & wages expense Depreciation expense Insurance expense Other expenses (including interest) Loss on sale of equipment Income before federal income taxes Deuct: Federal income taxes Net income Retained earnings, January 1, 1995 Less: Dividends earned & paid Retained earnings, December 31, 1995 2,340,000 1,560,000 780,000 390,000 96,2000 5,200 130,000 2,600 624,000 156,000 67,600 88,400 83,200 171,600 62,400 109,200

244,400 93,600 10,400 15,600 364,000 260,000 624,000 780,000 39,000 109,200 928,200 1,552,200

234,000 78,000 7,800 10,400 330,200 260,000 590,200 520,000 83,200 603,200 $1,193,400

130,000 520,000 (65,000) 598,000 (325,000)

78,000 260,000 (52,000) 559,000 (260,000)

858,000 $1,552,200

$585,000 $1,193,400

Additional Data: 1. Cash of $13,000 & all of the additional capital stock issued during this year were exchanged for land & a building. 2. Equipment having an original cost of $26,000 & on which $18,200 of depreciation was recorded was sold at a loss of $2600. Equipment additions were for cash. Prepare-

i) a working paper for a statement of cash flows. iii) a working paper to convert the income statement to a cash basis. ii) a statement of cash flows under the indirect method.; a separate schedule of noncash investing & financing activities.iv) a statement of cash flows (direct method)

Assets

1995

1994

Liabilities & Stockholders Equity

Current Liabilities Accounts Payable Federal income taxes payable Salaries & wages payable Accrued liabilities payable Total current liabilities Lomg-term liabilities Bonds Payable Total liabilities Stockholders Equity Capital stockcommon, $100 par Paid in capital in excess of par Retained Earnings

1995

1994

P a g e | 204 Solution to Problem 19-5 A (i)

Particulars Accont Balance 31.12.1994 52,000 254,800 291,200 10,400 78,000 260,000 559,000 1,505,400 52,000 260,000 234,000 78,000 7,800 10,400 260,000 520,000 83,200 3,010,800 18,200 Analysis of transaction Debit Credit 13,000 75,400 26,000 2,600 52.000 260,000 65,000 330,200 317,200 7,800 130,000 520,000 598,000 1,942,000 65,000 325,000 244,400 93,600 10,400 15,600 260,000 780,000 39,000 109,200 3,559,400 Account Balance 31.12.1995 39,000

Current Assets Cash Accounts receivable, net Merchandise Inventory Prepaid Insurance Total Current Assets Property, Plant & Equipment Land Buildings Accumulated Depreciation buildings Equipment Accumulated Depreciation Equipment Total Property, Plant &Equipment Total Assets

39,000 330,200 317,200 7,800 694,2000

52,000 254,800 291,200 10,400 608,400

244,400 93,600 10,400 15,600 364,000

234,000 78,000 7,800 10,400 330,200

130,000 520,000 (65,000)

78,000 260,000 (52,000)

260,000 624,000

260,000 590,200

598,000 (325,000)

559,000 (260,000)

780,000 39,000

520,000 -

858,000

$585,000

109,200

83,200

$1,552,200

$1,193,400

Total Stockholders Equity

Total liabilities & stockholders equity

928,200
1,552,200

603,200
$1,193,400

Sales, net Cost of goods sold Gross margin Salaries & wages expense Depreciation expense Insurance expense Other expenses (including interest) Loss on sale of equipment Income before federal income taxes Deuct: Federal income taxes Net income Retained earnings, January 1, 1995 Less: Dividends earned & paid Retained earnings, December 31, 1995

2,340,000 1,560,000 780,000 390,000 96,2000 5,200 130,000 2,600

Debits Cash Accounts Receivable Merchandise Inventory Prepaid insurance Land Buildings Equipment Total Credits Accumulated Depreciation - Building Accumulated Depreciation Equipment Accounts payable Federal income taxes payable Salaries & wages payable Accrued liabilities payable Bonds Payable Capital stock Common Paid in capital in excess of par Retained Earnings Total Cash flows from operating activities Net income Increase in accounts receivable Increase in merchandise inventory Decrease in prepaid insurance Increase in accounts payable
Increase in federal income taxes payable

26,000

13,000 83,200 10,400 15,600 2,600 5,200 260,000 39,000 88,400 559,000

62,400 559,000 88,400

(i)
Prepare a working paper for a statemen t of cash flow

75,400 26,000 2,600 10,400 15,600 2,600 5,200 96,200 2,600 5,200 65,000 13,000

624,000 156,000 67,600 88,400 83,200 171,600

62,400
109,200

1. Cash of $13,000 & all of the additional stock issued during this year were exchanged for land & a building. 2. Equipment having an original cost of $26,000 & on which $18,200 of depreciation was

Increase in salaries & wages payable Decrease in accrued liabilities payable Depreciation expense Loss from sale of equipment Cash flows from investing activities Proceeds from sale of equipment Purchase of equipment Purchase of Land & Building Cash flow from financing activities Payment of dividend Decrease in cash Totals

62,400
13,000 241,800 Accounting241,800 Principles Hermanson

recorded was sold for at a loss of $2,600. Equipment additions were for cash

Solution 3G to

P a g e | 205 Problem 19-5 A

Cash flows from operating activities Net income Increase in accounts receivable Increase in merchandise inventory Decrease in prepaid insurance Increase in accounts payable Increase in federal income taxes payable Increase in salaries & wages payable Decrease in accrued liabilities payable Depreciation expense Loss from sale of equipment Cash flows from investing activities Proceeds from sale of equipment Purchase of equipment Purchase of Land & Building Cash flow from financing activities Payment of dividend Decrease in cash Totals 88,400

Solution to Problem 19-5 A Gutman Corporation Statement of cash flows- Indirect Method For the year ended December 31, 1995
Particulars Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities Increase in accounts receivable Increase in merchandise inventory Decrease in prepaid insurance Decrease in accounts payable Decrease in federal income tax payable Increase in salaries & wages payable Increase in accrued liabilities payable Depreciation expense Loss from sale of equipment Net cash provided by operating activities Cash flows from investing activities Proceeds of sale of Equipment Purchase of equipment Purchase of land Net cash used by investing activities Cash flows from financing activities Dividends paid Net decrease in cash Amount 88,400 (75,400) Amount

75,400 26,000 2,600 10,400 15,600 2,600 5,200 96,200 2,600

5,200 65,000 13,000

(26,000) 2,600 10,400 15,600 2,600 5,200 96,200 2,600 122,200 5,200 (6,500) (13,000) (72,800) (62,400) (13,000)

62,400 13,000 241,800 241,800

ii) Prepare a statement of cash flow (indirect method)

Solution 3G to Accounting Principles Hermanson

P a g e | 206 (iii) Prepare a working paper to convert the income statement to cash basis.
Sales, net Cost of goods sold Gross margin Salaries & wages expense Depreciation expense Insurance expense Other expenses (including interest) Loss on sale of equipment Income before federal income taxes Deuct: Federal income taxes Net income Retained earnings, January 1, 1995 Less: Dividends earned & paid Retained earnings, December 31, 1995
Cash flows from operating activities Net income Increase in accounts receivable Increase in merchandise inventory Decrease in prepaid insurance Increase in accounts payable
Increase in federal income taxes payable

2,340,000 1,560,000 780,000 390,000 96,2000 5,200 130,000 2,600 624,000 156,000 67,600 88,400 83,200 171,600 62,400 109,200

Solution to Problem 19-5 A

Gutmann Company Working paper to convert Income Statement From Accrual basis to Cash basis For the year ended December 31, 1995 Cash Basis (cash flow from operating activities) 2,264,600 1,575,600 387,400 0 2,600 101,400 0 52,000 23,400 2,251,600 88,400 2,142,400 122,200 2,142,000

Particulars Sales Cost of goods sold Salaries & wages payable Depreciation expenses Insurance expenses Other expenses Loss on sale of equipment Federal Income tax Interest expense Net income

Accrual basis 2,340,000 1,560,000 390,000 96,200 5,200 106,600 2,600 67,600 23,400

Add

Deduct (1) 75,400 (3) 10,400 (4) 2,600 96,200 (5) 2,600 (6) 5,200 2,600 (7) 15,600

(2)26,000

88,400 75,400 26,000 2,600 10,400 15,600 2,600 5,200 96,200 2,600 5,200 65,000 13,000 62,400 13,000

Increase in salaries & wages payable Decrease in accrued liabilities payable Depreciation expense Loss from sale of equipment Cash flows from investing activities Proceeds from sale of equipment Purchase of equipment Purchase of Land & Building Cash flow from financing activities Payment of dividend Decrease in cash

(1) Increase in accounts receivable (2) Decrease in Merchandise inventory (3) Increase in accounts payable (4) Increase in salaries & wages (5) Decrease in prepaid insurance (6) Increase in accrued liabilities payable (7) Increase in federal income tax payable

Solution 3G to Accounting Principles Hermanson

P a g e | 207 Problem 19-5 A

Particulars Sales Cost of goods sold Salaries & wages payable Depreciation expenses Insurance expenses Other expenses Loss on sale of equipment Federal Income tax Interest expense Net income Cash Basis (cash flow from operating activities) 2,264,600 1,575,600 387,400 0 2,600 101,400 0 52,000 23,400 2,142,400 122,200 2,142,000

Solution to Problem 19-5 A Gutman Corporation Statement of cash flows- Direct Method For the year ended December 31, 1995
Particulars Cash flows from operating activities Cash received from customers Cash paid for merchandise Salaries & wages paid Insurance paid Federal income tax paid Interest paid Other expenses paid Net cash provided by operating activities Cash flows from investing activities Proceeds of sale of Equipment Purchase of equipment Purchase of land Net cash used by investing activities Cash flows from financing activities Dividends paid Net decrease in cash Amount 2,264,600 (1,575,000) (387,400) (2,600) (52,000) (23,400) (101,400) 122,200 5,200 (6,500) (13,000) (72,800) (62,400) (13,000) Amount

iv) Prepare a statement of cash flows (direct method)

Solution 3G to Accounting Principles Hermanson

P a g e | 208

Coming soon Solution 3G to Managerial Accounting Hermanson

Solution 3G to Accounting Principles Hermanson