Solutions to Homework Questions Topic 7

Final Exam Semester 2, 2007 - Question 1 adapted (33 marks)

Part (a) Calculate Cash Flows from Operations and show all workings (12 marks)
$000
1,492
5
(1,059)
(9)
(25)
(80)
(75)
$249

Receipts from customers

Receipts from dividends
Payments to suppliers
Payments for insurance
Payments for interest expense
Payments for other operating expenses
Payments for income tax
Cash Flows from Operations
WORKINGS:
Accounts Receivable
DR
CR
128
11
ADD
1,520
1,492
CASH
145 c/b
1,648
1,648

o/b
sales

Allowance for Doubtful Debts

DR
CR
A/c Rec
11
12
15
c/b
16
27
27

Accounts Payable
DR
CASH
c/b

1,059
87
1,146

CR
51 o/b
1,095

o/b

Inventory
DR
o/b
purchases

190
1,095

1,146

1,285

CR
1,110 COGS
175
1,285

c/b

Other expenses less Depreciation: $198,000 - $102,000 = $96,000

Acc. Depreciation - Buildings
DR
CR
43
81 o/b
c/b
75
37 Exp.
118
118
Depreciation expense: 37 + $65 = $10;
Other expenses cash only = 198 102 = 96
Accrued Expenses
DR
CR
11 o/b
CASH
80
c/b
27
96 Exp.
107
107

c/b

Acc. Depreciation - Equipment

DR
CR
149 o/b
214
65 Exp.
214
214

Income Tax Payable

DR
CASH
c/b

75
15
90

CR
23 o/b
67 Exp.
90

Note: Insurance Expense in the Income statement is = cash paid for insurance ($9,000) as
there are no prepaid insurance or insurance payable accounts in the balance sheet.
1

Part (b) Calculate Cash Flows from Investing and show all workings (6 marks)

Proceeds from sale of land

Proceeds from sale of buildings
Cash paid for purchase of investments
Cash paid for purchase of land
Cash paid for purchase of buildings

$000
42
77
(45)
(53)
(50)

Cash Flows from Investing Activities

$(29)

WORKINGS
Land

Buildings

DR
o/b
Revalue
Purchase

CR
149
30
53
232

60
172
232

DR

c/b

DR 42,000
DR 18,000
CR

60,000

Cash
Acc. Depreciation
Gain on Sale of Buildings
Buildings

DR 77,000
DR 43,000
CR
CR

31,000
89,000

Revaluation Reserve
DR
CR
17
15
32
47

30
47

225

Purchase

50
275

Sale

Cash
Loss on Disposal
Land

(Bonus
Issue)
c/b

o/b

CR
89 Sale
186
275

c/b

Investments
DR
o/b
Land

o/b
Purchases

CR
169
45
214

214
214

c/b

Part (c) Calculate Cash Flows from Financing and show all workings (9 marks)
$000
75
56
(11)
(150)
(12)
(15)

Proceeds from mortgage

Proceeds from share issue
Repayment of short-term loan
Redemption of bonds
Cash paid for 2005 final dividends
Cash paid for 2006 interim dividends
Cash Flows from Financing Activities

$(57)

WORKINGS

c/b

Mortgage debenture
DR
CR
0
75
75
75
75

Share Capital
DR
o/b
Cash

Revaluation Reserve
DR
CR
17
(Bonus
Issue)
c/b

15
32
47

30

c/b

CR
o/b
(Share issue)
(Bonus issue)

420
56
15
491

491
491

o/b
Land

47

Short term Loan

DR
CR
20 o/b
CASH
11
c/b
9
20
20
Retained Earnings
DR
CR
Final Dividend
16
280 o/b
114 Profit
Interim Dividend
15
Transfer to GR
49
c/b 314
394
394

Bonds Payable
DR
CASH
c/b

CR
259 o/b
150
109
259

259

General Reserve
DR

c/b

CR
29 o/b
49 RE
78
78

78

(d) Consider this independent case and calculate cash flows from investing activities:
Cash received for sale of building $200,000 = Investing cash inflow
Sale of building journal entry:
DR
DR
CR
CR

Cash
Acc. Depn Building
Gain on sale of Building
Building

200,000
650,000
10,000
840,000

T-accounts in $ millions:

DR
o/b
Purchases of
assets

Total Non-current assets

CR
Sales of
7.5 assets at cost 0.840

All Accum. Dep for Non-current assets

DR
CR
3
Write-off
for
building

1.44
8.1

0.975

3.325
3.975

3.975

Dep
exp.

c/b
c/b

8.94

0.65

o/b

8.94

Answer:
Cash flows from investing activities:
Proceeds on sale of building

$ 200,000

Purchase of non-current assets

(1,440,000)

Total cash flows from investing activities

($1,240,000)