True/False
2. In the statement of cash flows, increases in a company's capital stock accounts are generally
T treated as a "source" rather than as a "use" of cash.
Medium
5. Under the indirect method of determining the net cash flow from operating activities on the
T statement of cash flows, a gain on the sale of equipment would be subtracted from net income.
Hard
6. An increase in taxes payable between the beginning and the end of the year would be added to
T net income when determining the net cash provided by operating activities under the indirect
Medium method on the statement of cash flows.
7. Under the indirect method of determining the net cash provided by operating activities on the
F statement of cash flows, increases in current liabilities such as accounts payable are subtracted
Medium from net income.
8. If the income statement shows a loss for the period, then the net cash provided by operating
F activities on the statement of cash flows cannot be positive.
Hard
9. Transactions that involve acquiring or disposing of noncurrent assets are generally classified as
F financing activities on the statement of cash flows.
Medium
10. Cash dividends paid to the owners of a company would be classified as part of financing
T activities on the statement of cash flows.
Medium
Managerial Accounting, 9/e 98
11. (Appendix) If accounts receivable increase during a period, then the amount of cash collected
F from customers will be greater than the amount of sales reported on the income statement for
Medium the period.
12. (Appendix) Under the direct method of determining net cash provided by operating activities
F on the statement of cash flows, the net income figure is adjusted for changes in current assets
Medium and liabilities.
13. (Appendix) Under the direct method of determining the net cash provided by operating
F activities on the statement of cash flows, an increase in accounts payable would be added to
Hard cost of goods sold to convert cost of goods sold to a cash basis.
14. The net cash provided by operating activities on the statement of cash flows will generally be
T different than net income.
Easy
15. For external reporting purposes, the FASB recommends that the direct method of determining
T the net cash provided by operating activities be used for the statement of cash flows.
Easy
Multiple Choice
16. An increase in the Inventory account of a company from $10,000 at the beginning of the year
B to $15,000 at the end of the year would be shown on the company's statement of cash flows
Medium prepared under the indirect method as:
a. an addition to net income of $5,000 in order to arrive at cash flows from operating
activities.
b. a deduction from net income of $5,000 in order to arrive at cash flows from operating
activities.
c. an addition to net income of $15,000 in order to arrive at cash flows from operating
activities.
d. a deduction from net income of $10,000 in order to arrive at cash flows from
operating activities.
17. Under the indirect method of determining net cash provided by operating activities, which of
C the following would be recorded as a deduction from net income?
Hard a. A decrease in accounts receivable.
b. An increase in salaries payable.
c. A decrease in accounts payable.
d. An increase in deferred tax liability.
99 Managerial Accounting, 9/e
18. An increase in the Interest Payable account of a company from $0 at the beginning of the year,
A to $1,000 at the end of the year, would be shown on the company's statement of cash flows
Medium prepared under the indirect method as:
a. an addition to net income of $1,000 in order to arrive at cash flows from operating
activities.
b. a deduction from net income of $1,000 in order to arrive at cash flows from operating
activities.
c. a cash flow of $1,000 under the Investing Activities heading.
d. a cash flow of $1,000 under the Financing Activities heading.
19. Which of the following would be considered a "use" of cash for purpose of constructing a
C statement of cash flows?
Medium a. selling the company's own common stock to investors.
b. issuing long-term debt.
c. purchasing equipment.
d. amortizing a patent.
20. Which of the following would be considered a "use" of cash for purposes of constructing a
A statement of cash flows?
Medium a. an increase in accounts receivable.
b. a decrease in prepaid expenses.
c. an increase in bonds payable.
d. an increase in accumulated depreciation.
21. Which of the following would be considered a "use" of cash for purposes of constructing a
B statement of cash flows?
Medium a. an increase in accounts payable.
b. an increase in prepaid expenses.
c. an increase in accrued liabilities.
d. an increase in accumulated depreciation.
22. An increase in the prepaid expenses account of $1,000 over the course of a year would be
B shown on the company's statement of cash flows prepared under the indirect method as:
Medium a. an addition to net income of $1,000 in order to arrive at net cash provided by operating
activities.
b. a deduction from net income of $1,000 in order to arrive at net cash provided by operating
activities.
c. an addition of $1,000 under financing activities.
d. a deduction of $1,000 under financing activities.
23. When using the indirect method to prepare the statement of cash flows, amortization of
D goodwill should be presented as a(n):
Medium a. cash flow from investing activities.
CMA adapted b. cash flow from financing activities.
c. deduction from net income.
d. addition to net income.
e. investing and financing activity not affecting cash.
Managerial Accounting, 9/e 100
24. (Appendix) During the year the balance in the accounts payable account decreased by $8,000.
D In order to adjust the company's net income to a cash basis using the direct method on the
Hard statement of cash flows, it would be necessary to:
a. deduct the $8,000 from the sales revenue reported on the income statement.
b. add the $8,000 to the sales revenue reported on the income statement.
c. deduct the $8,000 from the cost of goods sold reported on the income statement.
d. add the $8,000 to the cost of goods sold reported on the income statement.
25. (Appendix) During the year the balance in the accrued liabilities account increased by
A $12,000. In order to adjust the company's net income to a cash basis using the direct method on
Hard the statement of cash flows, it would be necessary to:
a. deduct the $12,000 from the operating expenses on the income statement.
b. add the $12,000 to the operating expenses on the income statement.
c. deduct the $12,000 from the cost of goods sold reported on the income statement.
d. add the $12,000 to the cost of goods sold reported on the income statement.
26. In a statement of cash flows, a change in prepaid expenses would be classified as:
A a. an operating activity.
Easy b. a financing activity.
c. an investing activity.
d. a noncash item that need not appear on the statement of cash flows.
27. In a statement of cash flows, a change in the inventories account would be classified as:
A a. an operating activity.
Easy b. a financing activity.
c. an investing activity.
d. a noncash item that need not appear on the statement of cash flows.
28. All of the following should be classified under the operating section of the statement of cash
D flows EXCEPT:
Medium a. a decrease in inventory.
CMA adapted b. an increase in accumulated depreciation.
c. a decrease in prepaid insurance.
d. a purchase of land in exchange for a long-term note.
e. an increase in income tax payable.
101Managerial Accounting, 9/e
29. An increase in the plant and equipment account of $100,000 over the course of a year would be
D shown on the company's statement of cash flows prepared under the indirect method as:
Medium a. an addition to net income of $100,000 in order to arrive at net cash provided by operating
activities.
b. a deduction from net income of $100,000 in order to arrive at net cash provided by
operating activities.
c. an addition of $100,000 under investing activities.
d. a deduction of $100,000 under investing activities.
30. An increase in the bonds payable account of $200,000 over the course of a year would be
C shown on the company's statement of cash flows prepared under the indirect method as:
Medium a. an addition of $200,000 under investing activities.
b. a deduction of $200,000 under investing activities.
c. an addition of $200,000 under financing activities.
d. a deduction of $200,000 under financing activities.
31. An decrease in the bonds payable account of $200,000 over the course of a year would be
D shown on the company's statement of cash flows prepared under the indirect method as:
Medium a. an addition of $200,000 under investing activities.
b. a deduction of $200,000 under investing activities.
c. an addition of $200,000 under financing activities.
d. a deduction of $200,000 under financing activities.
32. Which one of the following transactions should be classified as a financing activity on the
B statement of cash flows?
Hard a. Purchase of equipment.
CMA adapted b. Purchase of the company's own stock.
c. Sale of a patent.
d. Payment of interest on a note.
e. Receipt of an income tax refund.
33. Which of the following would be classified as a Financing Activity on the statement of cash
B flows?
Hard a. Interest paid on bonds issued by the reporting company.
b. Dividends paid to shareholders of the company on the company's common stock.
c. Interest received on investments in another company's bonds.
d. Dividends received on investments in another company's common stock.
Managerial Accounting, 9/e 102
34. The sale of equipment at a gain would be shown on the statement of cash flows prepared under
A the indirect method in which of the following manners?
Hard a. Cash received would be shown under Investing Activities and the gain would be
deducted from net income.
b. Cash received would be shown under Investing Activities and the gain would be
added to net income.
c. Cash received would be shown under Investing Activities and the gain would not
appear on the statement of cash flows.
d. Cash received would be shown as an adjustment to net income and the gain would not
appear on the statement of cash flows.
35. Which of the following presentations on the statement of cash flows of the transactions
C described is correct?
Hard a. A company that purchases $600,000 in property during a year, and sells other
property for $400,000, shows a $200,000 net investment in property for the year as an
Investing Activity.
b. A company that receives $700,000 from the issuance of bonds, and pays $600,000 to
retire other bonds, shows a $100,000 net amount from Financing Activities.
c. A company has an increase of $400,000 in accounts receivable as a result of sales for
the year, and a decrease of $300,000 in accounts receivable as a result of collections
during the year, shows a $100,000 net difference in determining the cash flow from
operating activities during the year.
d. None of the above presentations is correct.
36. The data given below are from the accounting records of the Kuhn Company:
C
Hard Net Income (accrual basis) ............... $45,000
Depreciation Expense ..................... $ 9,000
Decrease in Accounts Payable ............. $ 2,500
Decrease in Merchandise Inventory ........ $ 3,000
Increase in Long-term Liabilities ........ $10,000
Sale of Capital Stock for cash ........... $30,000
Increase in Accounts Receivable .......... $ 4,500
Based on this information, the cash provided by operating activities using the indirect method
would be:
a. $55,000.
b. $58,000.
c. $50,000.
d. $60,000.
103Managerial Accounting, 9/e
37. Morey Company's net income last year was $27,000 and cash dividends declared and paid to
C the company's stockholders totaled $13,000. Changes in selected balance sheet accounts for
Hard the year appear below:
Increases
(Decreases)
Debit balances:
Accounts receivable ......... $ 8,000
Inventory ................... (3,000)
Prepaid expenses ............ 4,000
Credit balances:
Accumulated depreciation .... 18,000
Accounts payable ............ 6,000
Taxes payable ............... (4,000)
Bonds payable ............... 10,000
Based solely on this information, the net cash provided by operations under the indirect
method on the statement of cash flows would be:
a. $16,000.
b. $45,000.
c. $38,000.
d. $25,000.
38. Moravec Company's net income last year was $46,000 and cash dividends declared and paid to
B the company's stockholders totaled $18,000. Changes in selected balance sheet accounts for
Hard the year appear below:
Increases
(Decreases)
Debit balances:
Accounts receivable ......... $ 8,000
Inventory ................... (5,000)
Credit balances:
Accumulated depreciation .... 26,000
Accounts payable ............ 10,000
Accrued liabilities ......... (9,000)
Taxes payable ............... 4,000
Bonds payable ............... 60,000
Based solely on this information, the net cash provided by operations under the indirect
method on the statement of cash flows would be:
a. $126,000.
b. $74,000.
c. $72,000.
d. $18,000.
Managerial Accounting, 9/e 104
39. Morera Company's net income last year was $37,000 and cash dividends declared and paid to
D the company's stockholders totaled $14,000. Changes in selected balance sheet accounts for
Hard the year appear below:
Increases
(Decreases)
Debit balances:
Accounts receivable ......... $ 6,000
Inventory ................... 5,000
Prepaid expenses ............ (3,000)
Long term investments ....... 20,000
Credit balances:
Accumulated depreciation .... 26,000
Accounts payable ............ (7,000)
Taxes payable ............... 8,000
Based solely on this information, the net cash provided by operations under the indirect
method on the statement of cash flows would be:
a. $63,000.
b. $32,000.
c. $18,000.
d. $56,000.
40. Nordstrand Company's net income last year was $36,000. Changes in selected balance sheet
B accounts for the year appear below:
Medium
Increases
(Decreases)
Debit balances:
Accounts receivable ......... $(7,000)
Inventory ................... (5,000)
Prepaid expenses ............ 3,000
Credit balances:
Accumulated depreciation .... 18,000
Accounts payable ............ 13,000
Accrued liabilities ......... (9,000)
Taxes payable ............... -0-
Deferred taxes .............. 1,000
Based solely on this information, the net cash provided by operations under the indirect
method on the statement of cash flows would be:
a. $4,000.
b. $68,000.
c. $50,000.
d. $54,000.
105Managerial Accounting, 9/e
41. Nordquist Company's net income last year was $33,000. Changes in selected balance sheet
C accounts for the year appear below:
Medium
Increases
(Decreases)
Debit balances:
Accounts receivable ......... $12,000
Inventory ................... (4,000)
Prepaid expenses ............ 8,000
Credit balances:
Accumulated depreciation .... 23,000
Accounts payable ............ 14,000
Accrued liabilities ......... (9,000)
Taxes payable ............... -0-
Deferred taxes .............. 3,000
Based solely on this information, the net cash provided by operations under the indirect
method on the statement of cash flows would be:
a. $80,000.
b. $18,000.
c. $48,000.
d. $56,000.
42. Norbury Company's net income last year was $34,000. Changes in selected balance sheet
A accounts for the year appear below:
Medium
Increases
(Decreases)
Debit balances:
Accounts receivable ......... $12,000
Inventory ................... (9,000)
Prepaid expenses ............ 4,000
Credit balances:
Accumulated depreciation .... 19,000
Accounts payable ............ 5,000
Accrued liabilities ......... 7,000
Taxes payable ............... (6,000)
Deferred taxes .............. -0-
Based solely on this information, the net cash provided by operations under the indirect
method on the statement of cash flows would be:
a. $52,000.
b. $66,000.
c. $53,000.
d. $16,000.
Managerial Accounting, 9/e 106
43. Lino Company's records reveal the following account balances at the close and beginning of
A last year:
Medium
CPA adapted December 31 January 1
Accounts receivable $29,000 $23,000
Accumulated depreciation 1,000 800
Prepaid expenses 8,200 12,400
Accounts payable 22,400 19,400
Lino's net income last year was $150,000. The company uses the indirect method to determine
the net cash provided by operating activities. Based solely upon this data, what amount should
Lino include as net cash provided by operating activities in its statement of cash flows for the
year?
a. $151,400
b. $157,000
c. $148,600
d. $145,400
44. (Appendix) Last year Cumley Company reported a cost of goods sold of $90,000. Inventories
C increased by $21,000 during the year, and accounts payable decreased by $14,000. The
Medium company uses the direct method to determine the net cash provided by operating activities on
the statement of cash flows. The cost of goods sold adjusted to a cash basis would be:
a. $55,000.
b. $111,000.
c. $125,000.
d. $104,000.
45. (Appendix) Last year Cumber Company reported a cost of goods sold of $70,000. Inventories
D decreased by $12,000 during the year, and accounts payable increased by $8,000. The
Medium company uses the direct method to determine the net cash provided by operating activities on
the statement of cash flows. The cost of goods sold adjusted to a cash basis would be:
a. $90,000.
b. $62,000.
c. $58,000.
d. $50,000.
46. (Appendix) Last year Cumberland Company reported a cost of goods sold of $120,000.
A Inventories increased by $35,000 during the year, and accounts payable increased by $20,000.
Medium The company uses the direct method to determine the net cash provided by operating activities
on the statement of cash flows. The cost of goods sold adjusted to a cash basis would be:
a. $135,000.
b. $100,000.
c. $155,000.
d. $105,000.
107Managerial Accounting, 9/e
47. (Appendix) Last year Lawton Company reported sales of $110,000 on its income statement.
B During the year, accounts receivable decreased by $10,000 and accounts payable decreased by
Hard $15,000. The company uses the direct method to determine the net cash provided by operating
activities on the statement of cash flows. The sales revenue adjusted to a cash basis for the year
would be:
a. $125,000.
b. $120,000.
c. $115,000.
d. $105,000.
48. (Appendix) Last year Lawsby Company reported sales of $120,000 on its income statement.
C During the year, accounts receivable increased by $10,000 and accounts payable increased by
Hard $15,000. The company uses the direct method to determine the net cash provided by operating
activities on the statement of cash flows. The sales revenue adjusted to a cash basis for the year
would be:
a. $105,000.
b. $125,000.
c. $110,000.
d. $115,000.
49. (Appendix) Last year Lawn Company reported sales of $115,000 on its income statement.
A During the year, accounts receivable decreased by $10,000 and accounts payable increased by
Hard $15,000. The company uses the direct method to determine the net cash provided by operating
activities on the statement of cash flows. The sales revenue adjusted to a cash basis for the year
would be:
a. $125,000.
b. $90,000.
c. $140,000.
d. $100,000.
50. (Appendix) Last year Darrow Company reported sales of $600,000 on its income statement.
B During the year, accounts receivable increased by $30,000 and accounts payable decreased by
Medium $20,000. The company uses the direct method to determine the net cash provided by operating
activities on the statement of cash flows. The sales revenue adjusted to a cash basis for the year
would be:
a. $630,000.
b. $570,000.
c. $610,000.
d. $590,000.
Managerial Accounting, 9/e 108
51. (Appendix) Last year Madson company reported a cost of goods sold of $800,000 on its income
A statement. The following additional data were taken from the company's comparative balance
Medium sheet for the year:
Ending Beginning
Inventory ............. $120,000 $100,000
Accounts payable ...... $ 70,000 $ 80,000
The company uses the direct method to determine the net cash provided by operating activities
on the statement of cash flows. The cost of goods sold adjusted to a cash basis would be:
a. $830,000.
b. $810,000.
c. $770,000.
d. $790,000.
52. (Appendix) Cridge Company's operating expenses for last year totaled $170,000. During the
A year the company's prepaid expense account balance increased by $9,000 and accrued
Medium liabilities decreased by $13,000. Depreciation charges for the year were $15,000. Based on this
information, operating expenses adjusted to a cash basis under the direct method on the
statement of cash flows would be:
a. $177,000.
b. $207,000.
c. $133,000.
d. $163,000.
53. (Appendix) Cridwell Company's operating expenses for last year totaled $210,000. During the
B year the company's prepaid expense account balance increased by $18,000 and accrued
Medium liabilities increased by $12,000. Depreciation charges for the year were $24,000. Based on this
information, operating expenses adjusted to a cash basis under the direct method on the
statement of cash flows would be:
a. $180,000.
b. $192,000.
c. $228,000.
d. $240,000.
54. (Appendix) Cridman Company's operating expenses for last year totaled $180,000. During the
C year the company's prepaid expense account balance decreased by $5,000 and accrued
Medium liabilities increased by $8,000. Depreciation charges for the year were $12,000. Based on this
information, operating expenses adjusted to a cash basis under the direct method on the
statement of cash flows would be:
a. $205,000.
b. $181,000.
c. $155,000.
d. $179,000.
109Managerial Accounting, 9/e
55. (Appendix) The ending balance of accounts receivable was $52,500. Sales, adjusted to a cash
A basis using the direct method on the statement of cash flows, were $425,000. Sales reported on
Hard the income statement were $444,000. Based on this information, the beginning balance in
accounts receivable was:
a. $33,500.
b. $66,500.
c. $71,500.
d. $39,500.
56. (Appendix) During the year just completed, Anderson Company reported a cost of goods sold
C of $100,000. The company's inventory at the beginning of the year was $11,000, and its
Hard inventory at the end of the year was $19,000. The Prepaid Expense account increased by
$2,000 between the beginning and end of the year, and the Accounts Payable account
decreased by $4,000. Cost of goods sold adjusted to the cash basis under the direct method
would be:
a. $94,000.
b. $106,000.
c. $112,000.
d. $110,000.
57. (Appendix) Carlton Company reported on its income statement sales for the year just ended of
A $435,000. Sales during the year adjusted to the cash basis on its statement of cash flows
Hard constructed using the direct method were $460,000. Carlton Company recorded the following
account balances:
Balance o
Account o Beginning of the Year End of the Year
Accounts Receivable ...... ? $35,000
Prepaid Expenses ......... $12,000 $16,000
Inventory ................ $22,000 $19,000
Based on this information, the balance in Accounts Receivable at the beginning of the year was:
a. $60,000.
b. $63,000.
c. $59,000.
d. $10,000.
Managerial Accounting, 9/e 110
58. (Appendix) LFM Company reported Cost of Goods Sold on its income statement of $15,000 for
B the year just ended, as well as the balances shown in the following accounts at the respective year-
Hard ends:
Using the direct method of constructing the statement of cash flows, the cost of goods sold
adjusted to a cash basis would be:
a. $14,000.
b. $16,000.
c. $10,000.
d. $15,000.
59. (Appendix) During the year just completed, Blume Company reported total cost of goods sold
C on the income statement as $140,000. During the year, the balance in Accounts Payable
Hard decreased $25,000 and the balance in Inventory increased $10,000. Under the direct method,
cost of goods sold adjusted to the cash basis would be:
a. $105,000.
b. $125,000.
c. $175,000.
d. $155,000.
60. Last year Marmin Company sold equipment with a net book value of $120,000 for $160,000 in
C cash. This equipment was originally purchased for $230,000. What will be the net effect of this
Hard transaction on the net cash provided by investing activities on the statement of cash flows?
a. A net deduction of $40,000 from cash.
b. A net addition of $40,000 to cash.
c. A net deduction of $70,000 from cash.
d. A net addition of $70,000 to cash.
61. Last year Marlstrom Company sold equipment with a net book value of $110,000 for $90,000
B in cash. This equipment was originally purchased for $280,000. What will be the net effect of
Hard this transaction on the net cash provided by investing activities on the statement of cash flows?
a. A net addition of $190,000 to cash.
b. A net deduction of $190,000 from cash.
c. A net addition of $20,000 to cash.
d. A net deduction of $20,000 from cash.
111Managerial Accounting, 9/e
62. Last year Marty Company sold equipment with a net book value of $125,000 for $110,000 in
D cash. This equipment was originally purchased for $275,000. What will be the net effect of this
Hard transaction on the net cash provided by investing activities on the statement of cash flows?
a. A net addition of $15,000 to cash.
b. A net deduction of $15,000 from cash.
c. A net addition of $165,000 to cash.
d. A net deduction of $165,000 from cash.
63. The following events occurred last year for the Cashback Company:
C
Hard Issuance of Common Stock ................ $46,000
Dividends paid to shareholders .......... 11,000
Dividends received from investments ..... 4,000
Interest paid on Bonds Payable .......... 14,000
Proceeds from sale of used equipment .... 19,000
Repurchase of preferred stock ........... 10,000
Based solely on the above information, the net cash provided by financing activities for the
year on the statement of cash flows was:
a. $44,000.
b. $48,000.
c. $25,000.
d. $15,000.
Based solely on the above information, the net cash provided by financing activities for the
year on the statement of cash flows would be:
a. $(131,000).
b. $279,000.
c. $(63,000).
d. $(85,000).
Managerial Accounting, 9/e 112
65. The following transactions occurred last year at Jogger Company:
D
Hard Issuance of shares of the
company's own common stock ............. $110,000
Dividends paid to the
company's own shareholders ............. 3,000
Dividends received from investments
in other companies' shares ............. 4,000
Interest paid on the company's own bonds .. 8,000
Repayment of principal on
the company's own bonds ................ 100,000
Proceeds from sale of the
company's used equipment ............... 29,000
Purchase of land .......................... 170,000
Based solely on the above information, the net cash provided by financing activities for the
year on the statement of cash flows would be:
a. $424,000.
b. $(138,000).
c. $(1,000).
d. $7,000.
Based solely on the above information, the net cash provided by financing activities for the
year on the statement of cash flows would be:
a. $379,000.
b. $59,000.
c. $(109,000).
d. $46,000.
113Managerial Accounting, 9/e
67. Grading Company's cash and cash equivalents consist of cash and marketable securities. Last
D year the company's cash account decreased by $14,000 and its marketable securities account
Hard increased by $18,000. Cash provided by operating activities was $21,000. Net cash used for
financing activities was $22,000. Based on this information, the net cash flow from investing
activities on the statement of cash flows was:
a. a net $13,000 decrease.
b. a net $1,000 increase.
c. a net $3,000 decrease.
d. a net $5,000 increase.
68. Last year Burbach Company's cash account increased by $10,000. Net cash provided by
A investing activities was $16,000. Net cash used in financing activities was $34,000. On the
Medium statement of cash flows, the net cash flow provided by (used in) operating activities was:
a. $28,000.
b. $(8,000).
c. $10,000.
d. $(18,000).
69. Last year Burford Company's cash account decreased by $19,000. Net cash used in investing
B activities was $9,000. Net cash provided by financing activities was $16,000. On the statement
Medium of cash flows, the net cash flow provided by (used in) operating activities was:
a. $(19,000).
b. $(26,000).
c. $(12,000).
d. $7,000.
70. Last year Burch Company's cash account decreased by $6,000. Net cash provided by investing
D activities was $13,000. Net cash used in financing activities was $30,000. On the statement of
Medium cash flows, the net cash flow provided by (used in) operating activities was:
a. $(23,000).
b. $(17,000).
c. $(6,000).
d. $11,000.
Managerial Accounting, 9/e 114
Reference: 17-1
(Appendix) Balance sheet accounts for Hollis, Inc. contained the following amounts at the ends of years 1 and 2:
Year 2 Year 1
Debit balances
Cash .......................... $ 7,500 $ 5,000
Accounts Receivable ........... 21,000 15,000
Inventory ..................... 37,000 28,000
Prepaid Expenses .............. 2,500 2,000
Long-term Investments ......... 21,000 25,000
Plant and Equipment ........... 196,000 175,000
Totals .............. $285,000 $250,000
Credit balances
Accumulated Depreciation ...... $ 41,000 $ 32,000
Accounts Payable .............. 24,000 28,000
Accrued Liabilities ........... 9,000 5,000
Bonds Payable ................. 30,000 35,000
Common Stock .................. 75,000 60,000
Retained Earnings ............. 106,000 90,000
Totals .............. $285,000 $250,000
There were no sales or retirements of plant and equipment in Year 2. Cash dividends of $5,000 were paid during
Year 2. The company pays no income taxes. The company uses the direct method to determine the net cash
provided by operating activities on the statement of cash flows.
72. Cost of goods sold adjusted to a cash basis for Year 2 would be:
D a. $64,000.
Medium b. $72,000.
Refer To: 17- c. $82,000.
1 d. $90,000.
115Managerial Accounting, 9/e
73. The net cash provided by operating activities for Year 2 would be:
A a. $14,500.
Medium b. $30,000.
Refer To: 17- c. $18,500.
1 d. $27,500.
74. Net cash used for investing activities for Year 2 would be:
C a. $12,000.
Medium b. $21,000.
Refer To: 17- c. $17,000.
1 d. $22,000.
75. Net cash provided by financing activities for Year 2 would be:
C a. $6,000.
Medium b. $10,000.
Refer To: 17- c. $5,000.
1 d. $11,000.
Reference: 17-2
Watley Company's comparative balance sheet and income statement for last year appear below:
Ending Beginning
Balance Balance
Cash ....................... $ 27,000 $ 21,000
Accounts receivable ........ 28,000 35,000
Inventory .................. 48,000 36,000
Prepaid expenses ........... 8,000 13,000
Long-term investments ...... 290,000 230,000
Plant and equipment ........ 440,000 440,000
Accumulated depreciation ... (237,000) (202,000)
Total assets ............. $604,000 $573,000
Managerial Accounting, 9/e 116
Income Statement
The company declared and paid $55,000 in cash dividends during the year. The following questions pertain to the
company's statement of cash flows.
76. The net cash provided by (used in) operating activities last year was:
A a. $171,000.
Medium b. $146,000.
Refer To: 17- c. $53,000.
2 d. $112,000.
77. The net cash provided by (used in) investing activities last year was:
D a. $30,000.
Medium b. $(30,000).
Refer To: 17- c. $60,000.
2 d. $(60,000).
78. The net cash provided by (used in) financing activities last year was:
B a. $105,000.
Medium b. $(105,000).
Refer To: 17- c. $(50,000).
2 d. $50,000.
117Managerial Accounting, 9/e
Reference: 17-3
Wabash Company's comparative balance sheet and income statement for last year appear below:
Ending Beginning
Balance Balance
Cash ....................... $ 30,000 $ 38,000
Accounts receivable ........ 76,000 64,000
Inventory .................. 38,000 44,000
Prepaid expenses ........... 18,000 9,000
Long-term investments ...... 240,000 200,000
Plant and equipment ........ 430,000 430,000
Accumulated depreciation ... (220,000) (190,000)
Total assets ............. $612,000 $595,000
Income Statement
The company declared and paid $43,000 in cash dividends during the year. The following questions pertain to the
company's statement of cash flows.
79. The net cash provided by (used in) operating activities last year was:
C a. $107,000.
Medium b. $49,000.
Refer To: 17- c. $105,000.
3 d. $77,000.
80. The net cash provided by (used in) investing activities last year was:
D a. $(20,000).
Medium b. $20,000.
Refer To: 17- c. $40,00).
3 d. $(40,000).
Managerial Accounting, 9/e 118
81. The net cash provided by (used in) financing activities last year was:
B a. $73,000.
Medium b. $(73,000).
Refer To: 17- c. $30,000.
3 d. $(30,000).
Reference: 17-4
Megan Company's net income last year was $98,000. Changes in the company's balance sheet accounts for the
year appear below:
Increases
(Decreases)
Debit balances:
Cash ........................ $ (3,000)
Accounts receivable ......... (14,000)
Inventory ................... 3,000
Prepaid expenses ............ (7,000)
Long-term investments ....... 80,000
Plant and equipment ......... 55,000
Credit balances:
Accumulated depreciation .... 58,000
Accounts payable ............ -0-
Accrued liabilities ......... 15,000
Taxes payable ............... (13,000)
Bonds payable ............... (30,000)
Deferred taxes .............. 2,000
Common stock ................ 20,000
Retained earnings ........... 62,000
The company declared and paid cash dividends of $36,000 last year. The following questions pertain to the
company's statement of cash flows.
82. The net cash provided by (used in) operating activities last year was:
B a. $98,000.
Medium b. $178,000.
Refer To: 17- c. $156,000.
4 d. $120,000.
83. The net cash provided by (used in) investing activities last year was:
D a. $,000.
Medium b. $(115,000).
Refer To: 17- c. $135,000.
4 d. $(135,000).
119Managerial Accounting, 9/e
84. The net cash provided by (used in) financing activities last year was:
A a. $(46,000).
Medium b. $46,000.
Refer To: 17- c. $(10,000).
4 d. $10,000.
Reference: 17-5
(Appendix) Van Ardhom Company's comparative balance sheet and income statement for last year appear below:
Ending Beginning
Balance Balance
Cash ....................... $ 25,000 $ 40,000
Accounts receivable ........ 56,000 34,000
Inventory .................. 71,000 52,000
Prepaid expenses ........... 7,000 13,000
Long-term investments ...... 310,000 240,000
Plant and equipment ........ 420,000 420,000
Accumulated depreciation ... (236,000) (208,000)
Total assets ............. $635,000 $591,000
Income Statement
The company declared and paid $48,000 in cash dividends during the year. The company uses the direct method
to determine the net cash provided by operating activities.
Managerial Accounting, 9/e 120
85. On the statement of cash flows, the sales revenue adjusted to a cash basis would be:
A a. $648,000.
Hard b. $667,000.
Refer To: 17- c. $670,000.
5 d. $692,000.
86. On the statement of cash flows, the cost of goods sold adjusted to a cash basis would be:
B a. $289,000.
Hard b. $308,000.
Refer To: 17- c. $310,000.
5 d. $312,000.
87. On the statement of cash flows, the operating expenses adjusted to a cash basis would be:
B a. $239,000.
Hard b. $211,000.
Refer To: 17- c. $230,000.
5 d. $249,000.
88. On the statement of cash flows, the income tax expense adjusted to a cash basis would be:
D a. $39,000.
Hard b. $62,000.
Refer To: 17- c. $28,000.
5 d. $16,000.
121Managerial Accounting, 9/e
Reference: 17-6
(Appendix) Van Broder Company's comparative balance sheet and income statement for last year appear below:
Ending Beginning
Balance Balance
Cash ....................... $ 46,000 $ 27,000
Accounts receivable ........ 56,000 46,000
Inventory .................. 53,000 66,000
Prepaid expenses ........... 8,000 13,000
Long-term investments ...... 280,000 210,000
Plant and equipment ........ 510,000 510,000
Accumulated depreciation ... (267,000) (235,000)
Total assets ............. $686,000 $637,000
Income Statement
The company declared and paid $20,000 in cash dividends during the year. The company uses the direct method
to determine the net cash provided by operating activities.
89. On the statement of cash flows, the sales revenue adjusted to a cash basis would be:
D a. $640,000.
Hard b. $650,000.
Refer To: 17- c. $617,000.
6 d. $630,000.
Managerial Accounting, 9/e 122
90. On the statement of cash flows, the cost of goods sold adjusted to a cash basis would be:
B a. $315,000.
Hard b. $302,000.
Refer To: 17- c. $300,000.
6 d. $298,000.
91. On the statement of cash flows, the operating expenses adjusted to a cash basis would be:
C a. $281,000.
Hard b. $211,000.
Refer To: 17- c. $179,000.
6 d. $230,000.
92. On the statement of cash flows, the income tax expense adjusted to a cash basis would be:
A a. $10,000.
Hard b. $33,000.
Refer To: 17- c. $56,000.
6 d. $15,000.
Reference: 17-7
The changes in Northrup Company's balance sheet account balances for last year appear below:
Increases
(Decreases)
Debit balances:
Cash ........................ $ 4,000
Accounts receivable ......... (4,000)
Inventory ................... (2,000)
Prepaid expenses ............ 2,000
Long-term investments ....... 40,000
Plant and equipment ......... 25,000
Credit balances:
Accumulated depreciation .... 68,000
Accounts payable ............ (6,000)
Accrued liabilities ......... 8,000
Taxes payable ............... (10,000)
Bonds payable ............... (70,000)
Deferred taxes .............. 2,000
Common stock ................ 10,000
Retained earnings ........... 63,000
123Managerial Accounting, 9/e
The company's income statement for the year appears below:
Income Statement
The company declared and paid $28,000 in cash dividends during the year. The company uses the direct method
to determine the net cash provided by operating activities.
93. On the statement of cash flows, the sales revenue adjusted to a cash basis would be:
C a. $976,000.
Hard b. $982,000.
Refer To: 17- c. $984,000.
7 d. $980,000.
94. On the statement of cash flows, the cost of goods sold adjusted to a cash basis would be:
C a. $546,000.
Hard b. $536,000.
Refer To: 17- c. $544,000.
7 d. $540,000.
95. On the statement of cash flows, the operating expenses adjusted to a cash basis would be:
D a. $304,000.
Hard b. $384,000.
Refer To: 17- c. $310,000.
7 d. $236,000.
96. On the statement of cash flows, the income tax expense adjusted to a cash basis would be:
A a. $47,000.
Hard b. $39,000.
Refer To: 17- c. $31,000.
7 d. $49,000.
Managerial Accounting, 9/e 124
Reference: 17-8
Spats Company recorded the following events last year:
On the statement of cash flows, some of these events are classified as operating activities, some are classified as
investing activities, and some are classified as financing activities.
97. Based solely on the information above, the net cash provided by (used in) financing activities
B on the statement of cash flows would be:
Hard a. $1,071,000.
Refer To: 17- b. $(190,000).
8 c. $13,000.
d. $(209,000).
98. Based solely on the information above, the net cash provided by (used in) investing activities
C on the statement of cash flows would be:
Hard a. $(1,071,000).
Refer To: 17- b. $(390,000).
8 c. $(170,000).
d. $(690,000).
125Managerial Accounting, 9/e
Reference: 17-9
Spawle Company recorded the following events last year:
On the statement of cash flows, some of these events are classified as operating activities, some are classified as
investing activities, and some are classified as financing activities.
99. Based solely on the information above, the net cash provided by (used in) financing activities
C on the statement of cash flows would be:
Hard a. $(15,000).
Refer To: 17- b. $941,000.
9 c. $(109,000).
d. $(127,000).
100. Based solely on the information above, the net cash provided by (used in) investing activities
D on the statement of cash flows would be:
Hard a. $(941,000).
Refer To: 17- b. $(320,000).
9 c. $(600,000).
d. $(260,000).
Reference: 17-10
Lucas Company recorded the following events for the year just ended:
Managerial Accounting, 9/e 126
101. The net decrease in cash resulting from financing activities for the year was:
D a. $45,000.
Medium b. $35,000.
Refer To: 17- c. $85,000.
10 d. $140,000.
102. The net change in cash resulting from investing activities for the year was:
A a. $130,000.
Medium b. $40,000.
Refer To: 17- c. ($5,000).
10 d. $10,000.
Reference: 17-11
Crandall Company recorded the following activity for the year just ended:
103. The net cash provided by financing activities for the year was:
D a. $280,000.
Medium b. $200,000.
Refer To: 17- c. $300,000.
11 d. $260,000.
104. The net cash provided by investing activities for the year was:
C a. $400,000.
Hard b. $410,000.
Refer To: 17- c. $280,000.
11 d. $380,000.
127Managerial Accounting, 9/e
Essay
105. Recent balance sheets of Warnick Co. appear below, together with an income statement for the
Medium latest year.
WARNICK CO.
Balance Sheets
May 31, 19x2 and 19x1
19x2 19x1
Cash ............................... $22,300 $24,000
Accounts receivable ................ 6,400 7,500
Inventories......................... 39,900 30,100
Long-term investments .............. -- 8,000
Plant and equipment ................ 132,500 120,000
Less accumulated depreciation ...... ( 50,800) ( 46,800)
Total assets .................... $150,300 $142,800
WARNICK CO.
Income Statement and
For the Year Ended May 31, 19x2
Note: Stock in Bowen Co., held as a long-term investment, was sold for $8,000 cash.
Dividends of $10,500 were declared and paid during the year.
Managerial Accounting, 9/e 128
Required:
Prepare a statement of cash flows for Warnick Co. for the year ended May 31, 19x2. Use the
indirect method.
Answer:
Operating activities:
Net income ................................ $10,500
Adjustments to convert to cash basis:
Depreciation charges .................... 4,000
Decrease in accounts receivable ......... 1,100
Increase in inventories ................. (9,800)
Decrease in accounts payable ............ (800)
Increase in accrued liabilities ......... 300
Net cash provided by operating activities $5,300
Investing activities:
Sale of long-term investment ............. 8,000
Purchase of equipment .................... (12,500)
Net cash used for investing activities ... (4,500)
Financing activities:
Cash dividends ........................... (10,500)
Increase in common stock ................. 8,000
Net cash used for financing activities ... (2,500)
106. Burg Company's net income last year was $91,000. Changes in the company's balance sheet
Medium accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Cash ........................ $(13,000)
Accounts receivable ......... 16,000
Inventory ................... 21,000
Prepaid expenses ............ (8,000)
Long-term investments ....... 30,000
Plant and equipment ......... 60,000
Credit balances:
Accumulated depreciation .... 36,000
Accounts payable ............ (21,000)
Accrued liabilities ......... 14,000
Taxes payable ............... 24,000
Bonds payable ............... (50,000)
Deferred taxes .............. 18,000
Common stock ................ 20,000
Retained earnings ........... 65,000
The company declared and paid cash dividends of $26,000 last year.
129Managerial Accounting, 9/e
Required:
a. Construct in good form the operating activities section of the company's statement of cash
flows for the year. (Use the indirect method.)
b. Construct in good form the investing activities section of the company's statement of cash
flows for the year.
c. Construct in good form the financing activities section of the company's statement of cash
flows for the year.
Answer:
a. Operating activities
b. Investing activities:
Increase in long-term investments ......... $(30,000)
Increase in plant & equipment ............. (60,000)
Net cash used for investing activities .... $(90,000)
c. Financing activities:
Decrease in bonds payable ................. $(50,000)
Increase in common stock .................. 20,000
Cash dividends ............................ (26,000)
Net cash used in financing activities ..... $(56,000)
Managerial Accounting, 9/e 130
107. Burdge Company's net income last year was $77,000. Changes in the company's balance sheet
Medium accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Cash ........................ $ 11,000
Accounts receivable ......... (13,000)
Inventory ................... 19,000
Prepaid expenses ............ (4,000)
Long-term investments ....... 40,000
Plant and equipment ......... 80,000
Credit balances:
Accumulated depreciation .... 38,000
Accounts payable ............ 23,000
Accrued liabilities ......... 8,000
Taxes payable ............... (11,000)
Bonds payable ............... (40,000)
Deferred taxes .............. 14,000
Common stock ................ 30,000
Retained earnings ........... 71,000
The company declared and paid cash dividends of $6,000 last year.
Required:
a. Construct in good form the operating activities section of the company's statement of cash
flows for the year. (Use the indirect method.)
b. Construct in good form the investing activities section of the company's statement of cash
flows for the year.
c. Construct in good form the financing activities section of the company's statement of cash
flows for the year.
Answer:
a. Operating activities
131Managerial Accounting, 9/e
b. Investing activities:
Increase in long-term investments ......... $ (40,000)
Increase in plant & equipment ............. (80,000)
Net cash used for investing activities .... $(120,000)
c. Financing activities:
Decrease in bonds payable ................. $ (40,000)
Increase in common stock .................. 30,000
Cash dividends ............................ (6,000)
Net cash used in financing activities ..... $ (16,000)
108. (Appendix) Cavett Company's comparative balance sheet and income statement for last year
Hard appear below:
Ending Beginning
Balance Balance
Cash ....................... $ 45,000 $ 30,000
Accounts receivable ........ 38,000 40,000
Inventory .................. 67,000 60,000
Long-term investments ...... 162,000 200,000
Plant and equipment ........ 278,000 150,000
Accumulated depreciation ... (52,000) (50,000)
Total assets ............. $538,000 $430,000
Income Statement
Sales .......................................... $250,000
Less costs of goods sold ....................... 100,000
Gross margin ................................... $150,000
Less operating expenses (including depreciation) 90,000
Net operating income before taxes .............. $ 60,000
Loss on sale of investments .................... 5,000
Income before taxes ............................ $ 55,000
Less income taxes .............................. 22,000
Net income ..................................... $ 33,000
a. During the year, the company sold long-term investments with a cost of $38,000 when
purchased for $33,000 in cash.
b. All sales were on credit.
c. The company paid a cash dividend of $25,000.
d. Bonds payable of $25,000 were retired by issuing common stock for $25,000.
e. An addition to one of the company's buildings was completed on December 31, at a
Managerial Accounting, 9/e 132
cost of $128,000. The company paid for the addition with a $100,000 mortgage and
$28,000 in cash.
f. The company raised $15,000 in cash by issuing additional bonds payable.
Required:
a. Using the direct method, determine the net cash provided by operating activities for
the year.
b. Using the indirect method, determine the net cash provided by operating activities for the
year.
c. Using the net cash provided by operating activities figure from either part a or b, prepare
a statement of cash flows for the year.
Answer:
a.
Sales ..................................... $250,000
Adjustment to a cash basis:
Decrease in accounts receivable ......... + 2,000 $252,000
b.
Operating activities:
Net income .............................. $33,000
Adjustments to convert to cash basis:
Depreciation charges .................. 2,000
Decrease in accounts receivable ....... 2,000
Increase in inventories ............... (7,000)
Decrease in accounts payable .......... (4,000)
Decrease in accrued liabilities ....... (6,000)
Loss on sale of investments ........... 5,000
Decrease in deferred taxes ............ (5,000)
Net cash provided by operating activities $20,000
133Managerial Accounting, 9/e
c.
Investing activities:
Sale of long-term investment ........... 33,000
Purchase of equipment .................. (28,000)
Net cash used for investing activities 5,000
Financing activities:
Cash dividends ......................... (25,000)
Sale of bonds payable .................. 15,000
Net cash used for financing activities (10,000)
Ending Beginning
Balance Balance
Cash ............................. $ 15,000 $ 18,000
Accounts receivable .............. 22,000 25,000
Inventory ........................ 20,000 22,000
Prepaid expenses ................. 14,000 10,000
Long-term investments ............ 7,000 25,000
Plant and equipment .............. 77,000 80,000
Accumulated depreciation ......... (61,000) (64,000)
Total assets ................... $ 94,000 $116,000
Income Statement
Sales .......................................... $85,000
Less costs of goods sold ....................... 45,000
Gross margin ................................... $40,000
Less operating expenses (including depreciation) 30,000
Net operating income before taxes............... $10,000
Gain on sale of investments..................... 4,000
Income before taxes............................. $ 6,000
Less income taxes .............................. 2,400
Net income ..................................... $ 3,600
Managerial Accounting, 9/e 134
a. During the year, Parr Company sold equipment for $3,000 that had cost $15,000 and
on which there was accumulated depreciation of $8,000.
b. Equipment was purchased for $12,000 cash.
c. Cash dividends totaling $8,000 were paid.
d. Long-term investments that cost $18,000 when purchased were sold for $22,000.
e. Common stock was issued for $10,000.
f. Depreciation expense for the year was $5,000.
Required:
Prepare a statement of cash flows using the direct method.
Answer:
Parr Company
Statement of Cash Flows
Investing activities:
Sale of long-term investment ........... $18,000
Sale of equipment ...................... 3,000
Purchase of equipment .................. (12,000)
Net cash provided by investing activities 9,000
Financing activities:
Sale of common stock ................... 10,000
Cash dividends ......................... (8,000)
Payment of bonds ....................... (6,000)
Net cash used for financing activities (4,000)
135Managerial Accounting, 9/e
110. (Appendix) The changes in each balance sheet account for Carver Company during the year
Medium just completed are as follows:
Increase Decrease
Cash ....................... $ 3,000 $
Accounts receivable ........ 5,000
Inventory .................. 6,000
Prepaid expenses ........... 3,000
Long-term investments ...... 17,000
Plant and equipment ........ 11,000
Accumulated depreciation ... 9,000
Accounts payable ........... 8,000
Accrued liabilities......... 5,000
Bonds payable...... ........ 12,000
Common stock ............... 3,000
Retained earnings .......... 2,000
Carver Company's income statement for the year just ended shows the following:
There were no sales or retirements of equipment and no dividends paid during the year. Carver
Company uses the direct method to construct its statement of cash flows.
Required:
Managerial Accounting, 9/e 136
Answer:
Requirements a through d:
e. Investing activities:
Sale of long-term investment ......... $17,000
Purchase of equipment ................ (11,000)
Net cash provided by investing activities $6,000
f. Financing activities:
Sale of common stock ................. $ 3,000
Payment of bonds ..................... (12,000)
Net cash used for financing activities ($9,000)
111. (Appendix) The changes in each balance sheet account for Bryan Company during the year
Medium just completed are as follows:
Increase Decrease
Cash ....................... $ $ 3,000
Accounts receivable ........ 2,000
Inventory .................. 3,000
Prepaid expenses ........... 5,000
Long-term investments ...... 15,000
Plant and equipment ........ 14,000
Accumulated depreciation ... 8,000
Accounts payable ........... 10,000
Accrued liabilities......... 6,000
Bonds payable...... ........ 13,000
Common stock ............... 5,000
Retained earnings .......... 4,000
137Managerial Accounting, 9/e
Bryan Company's income statement for the year just ended shows the following:
There were no sales or retirements of equipment and no dividends paid during the year. Bryan
Company uses the direct method to construct its statement of cash flows.
Required:
Answer:
Requirements a through d:
e. Investing activities:
Sale of long-term investment ........... $15,000
Purchase of equipment .................. (14,000)
Net cash provided by investing activities $1,000
Managerial Accounting, 9/e 138
f. Financing activities:
Sale of common stock ................... $ 5,000
Payment of bonds ....................... (13,000)
Net cash used for financing activities ($8,000)
Dabney Company's comparative balance sheet and income statement for last year appear
below:
Ending Beginning
Balance Balance
Cash ....................... $ 64,000 $ 26,000
Accounts receivable ........ 24,000 48,000
Inventory .................. 52,000 70,000
Prepaid expenses ........... 14,000 4,000
Long-term investments ...... 310,000 220,000
Plant and equipment ........ 560,000 560,000
Accumulated depreciation ... (424,000) (378,000)
Total assets ............. $600,000 $550,000
Income Statement
The company declared and paid $7,000 in cash dividends during the year.
Required:
139Managerial Accounting, 9/e
a. Construct in good form the operating activities section of the company's statement of cash
flows for the year.
b. Construct in good form the investing activities section of the company's statement of cash
flows for the year.
c. Construct in good form the financing activities section of the company's statement of cash
flows for the year.
Answer:
a. Operating activities
INDIRECT METHOD
DIRECT METHOD
Managerial Accounting, 9/e 140
b. Investing activities:
Increase in long-term investments ......... $(90,000)
Net cash used for investing activities .... $(90,000)
c. Financing activities:
Decrease in bonds payable ................. $(50,000)
Increase in common stock .................. 20,000
Cash dividends ............................ ( 7,000)
Net cash used in financing activities ..... $(37,000)
Dauber Company's comparative balance sheet and income statement for last year appear
below:
Ending Beginning
Balance Balance
Cash ....................... $ 64,000 $ 39,000
Accounts receivable ........ 57,000 44,000
Inventory .................. 58,000 70,000
Prepaid expenses ........... 18,000 10,000
Long-term investments ...... 290,000 230,000
Plant and equipment ........ 520,000 520,000
Accumulated depreciation ... (390,000) (358,000)
Total assets ............. $617,000 $555,000
141Managerial Accounting, 9/e
Income Statement
The company declared and paid $55,000 in cash dividends during the year.
Required:
a. Construct in good form the operating activities section of the company's statement of cash
flows for the year.
b. Construct in good form the investing activities section of the company's statement of cash
flows for the year.
c. Construct in good form the financing activities section of the company's statement of cash
flows for the year.
Answer:
a. Operating activities
INDIRECT METHOD
Managerial Accounting, 9/e 142
DIRECT METHOD
b. Investing activities:
Increase in long-term investments ......... $(60,000)
Net cash used for investing activities .... $(60,000)
c. Financing activities:
Decrease in bonds payable ................. $(20,000)
Increase in common stock .................. 30,000
Cash dividends ............................ (55,000)
Net cash used in financing activities ..... $(45,000)
143Managerial Accounting, 9/e
114. (Appendix) Carson Company's comparative balance sheet and income statement for last year
Hard appear below:
Ending Beginning
Balance Balance
Cash ....................... $ 20,000 $ 15,000
Accounts receivable ........ 27,000 25,000
Inventory .................. 32,000 35,000
Prepaid expenses ........... 8,000 5,000
Long-term investments ...... 36,000 38,000
Plant and equipment ........ 108,000 92,000
Accumulated depreciation ... (49,000) (30,000)
Total assets ............. $182,000 $180,000
Income Statement
Sales .......................................... $200,000
Less costs of goods sold ....................... 100,000
Gross margin ................................... 100,000
Less operating expenses (including depreciation) 52,000
Net operating income before taxes............... 48,000
Gain on sale of investments..................... 2,000
Income before taxes............................. 50,000
Less income taxes .............................. 20,000
Net income ..................................... $ 30,000
Carson Company constructs its statement of cash flows using the direct method.
Required:
Managerial Accounting, 9/e 144
Answer:
115. (Appendix) Carston Company's comparative balance sheet and income statement for last year
Hard appear below:
Ending Beginning
Balance Balance
Cash ....................... $ 58,000 $ 24,000
Accounts receivable ........ 55,000 69,000
Inventory .................. 51,000 42,000
Prepaid expenses ........... 5,000 10,000
Long-term investments ...... 270,000 210,000
Plant and equipment ........ 530,000 500,000
Accumulated depreciation ... (299,000) (263,000)
Total assets ............. $670,000 $592,000
145Managerial Accounting, 9/e
Income Statement
The company declared and paid $27,000 in cash dividends during the year.
Required:
Construct in good form the operating activities section of the company's statement of cash
flows for the year using the direct method.
Answer:
Managerial Accounting, 9/e 146
116. (Appendix) Carpp Company's comparative balance sheet and income statement for last year
Hard appear below:
Ending Beginning
Balance Balance
Cash ....................... $ 58,000 $ 38,000
Accounts receivable ........ 39,000 51,000
Inventory .................. 57,000 46,000
Prepaid expenses ........... 22,000 17,000
Long-term investments ...... 290,000 230,000
Plant and equipment ........ 470,000 460,000
Accumulated depreciation ... (285,000) (257,000)
Total assets ............. $651,000 $585,000
Income Statement
The company declared and paid $50,000 in cash dividends during the year.
Required:
Construct in good form the operating activities section of the company's statement of cash
flows for the year using the direct method.
147Managerial Accounting, 9/e
Answer:
Managerial Accounting, 9/e 148