17-1A You are provided with the following transactions that took place during a recent

fiscal year. Transaction Where Reported on Statement Cash Inflow, Outflow, or No

Effect? (a) Recorded depreciation expense on the plant assets. (b) Recorded and paid
interest expense. (c) Recorded cash proceeds from a sale of plant assets. (d) Acquired
land by issuing common stock. (e) Paid a cash dividend to preferred stockholders. (f)
Distributed a stock dividend to common stockholders. (g) Recorded cash sales. (h)
Recorded sales on account. (i) Purchased inventory for cash. (j) Purchased inventory on
account. Hint: Distinguish among operating, investing, and financing activities. (SO 2)
Instructions Complete the table indicating whether each item (1) should be reported as an
operating (O) activity, investing (I) activity, financing (F) activity, or as a noncash (NC)
transaction reported in a separate schedule, and (2) represents a cash inflow or cash
outflow or has no cash flow effect. Assume use of the indirect approach.
Transaction
(a) Recorded depreciation
expense on the plant assets.
(b) Recorded and paid interest
expense.
(c) Recorded cash proceeds from
a sale of plant assets.
(d) Acquired land by issuing
common stock.
(e) Paid a cash dividend to preferred
stockholders.
(f) Distributed a stock dividend
to common stockholders.
(g) Recorded cash sales.
(h) Recorded sales on account.
(i) Purchased inventory for cash.
(j) Purchased inventory on account.

Where Reported
O

Cash Inflow, Outflow, or No

Effect?
No cash flow effect

Cash outflow

Cash inflow

NC
F

No cash flow effect

Cash outflow

NC

No cash flow effect

O
O
O
O

Cash inflow
No cash flow effect
Cash outflow
No cash flow effect

P17-2A The following account balances relate to the stockholders' equity accounts of
Gore Corp. at year-end. 2010 2009 Common stock, 10,500 and 10,000 shares,
respectively, for 2010 and 2009 $160,000 $140,000 Preferred stock, 5,000 shares 125,000
125,000 Retained earnings 300,000 260,000 A small stock dividend was declared and
issued in 2010. The market value of the shares was $10,500. Cash dividends were
$15,000 in both 2010 and 2009. The common stock has no par or stated value. Hint:
Determine cash flow effects of changes in equity accounts. (SO 3) Instructions (a) What
was the amount of net income reported by Gore Corp. in 2010? Net income $65,500 (b)
Determine the amounts of any cash inflows or outflows related to the common stock and

dividend accounts in 2010. (c) Indicate where each of the cash inflows or outflows
identified in (b) would be classified on the statement of cash flows.
(a)

Net income can be determined by analyzing

the retained earnings account.
Retained earnings beginning of year......................................................
Add: Net income (plug)...........................................................................
Less: Cash dividends..............................................................................
Stock dividends..........................................................................
Retained earnings, end of year...............................................................
*($300,000 + $10,500 + $15,000 $260,000)

(b)

Cash inflow from the issue of stock was $9,500 ($160,000 $140,000
$10,500).
Common Stock
140,000
10,500
9,500
160,000

Stock Dividend
Shares Issued for Cash

Cash outflow for dividends was $15,000. The stock dividend does not use cash.
(c)

Both of the above activities (issue of common stock and payment of dividends)
would be classified as financing activities on the statement of cash flows.

P17-5A Grania Company's income statement contained the condensed information below.
GRANIA COMPANY Income Statement For the Year Ended December 31, 2010
Revenues $970,000 Operating expenses, excluding depreciation $624,000 Depreciation
expense 60,000 Loss on sale of equipment 16,000 700,000 Income before income taxes
270,000 Income tax expense 40,000 Net income $230,000 Grania's balance sheet
contained the comparative data at December 31, shown below. 2010 2009 Accounts
receivable $75,000 $60,000 Accounts payable 41,000 28,000 Income taxes payable
11,000 7,000 Accounts payable pertain to operating expenses. Hint: Prepare the operating
activities sectionindirect method. (SO 3) Instructions Prepare the operating activities
section of the statement of cash flows using the indirect method. Cash from operations
$308,000

GRANIA COMPANY

Partial Statement of Cash Flows

For the Year Ended December 31, 2010
Cash flows from operating activities
Net income....................................................................................
$230,000
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation expense.........................................................
Loss on sale of equipment..................................................
Increase in accounts payable.............................................
Increase in income taxes payable......................................
Increase in accounts receivable.........................................
78,000
Net cash provided by operating activities............................
$308,000

$ 60,000
16,000
13,000
4,000
(15,000)

*P17-6A Data for Grania Company are presented in P17-5A.

GRANIA COMPANY
Partial Statement of Cash Flows
For the Year Ended December 31, 2010
Cash flows from operating activities
Cash receipts from customers.............................
(1)
Less cash payments:
For operating expenses..............................
For income taxes.........................................
Net cash provided by operating
activities.............................................................
(1)

$955,000

$611,000 (2)
36,000 (3)

Computation of cash receipts from customers

Revenues.............................................................................................
Deduct: Increase in accounts receivable
($75,000 $60,000).........................................................
Cash receipts from customers...........................................................

647,000
$308,000

$970,000
(15,000
$955,000

(2)

(3)

Computation of cash payments for operating expenses

Operating expenses per income statement......................................
Deduct: Increase in accounts payable
($41,000 $28,000).........................................................
Cash payments for operating expenses............................................
Computation of cash payments for income taxes
Income tax expense per income statement.......................................
Deduct: Increase in income taxes payable
($11,000 $7,000)...........................................................
Cash payments for income taxes......................................................

$624,000

$611,000

$ 40,000
(4,000
$ 36,000