Chapter 1 Exercise 1: 1.

Classification of activities Classify each of the following transactions as arising from an operating (O), investing (I), financing (F), or noncash investing/financing (N) activity. a. ___I_____ Received $80,000 from the sale of land. b. ___O____ Received $3,200 from cash sales. c. ___F____ Paid a $5,000 dividend. d. ____O___ Purchased $8,800 of merchandise for cash. e. ____F____ Received $100,000 from the issuance of common stock. f. ___O_____ Paid $1,200 of interest on a note payable.

g. ___I_____ Acquired a new laser printer by paying $650. h. ___N_____ Acquired a $400,000 building by signing a $400,000 mortgage note.

Chapter 1 Exercise 4: 4. Overview of direct and indirect methods Evaluate the comments that follow as being True or False. If the comment is false, briefly explain why. a. Both the direct and indirect methods will produce the same cash flow from operating activities. -True b. Depreciation expense is added back to net income when the indirect method is used. -True c. One of the advantages of using the direct method rather than the indirect method is that larger cash flows from financing activities will be reported. -False, Financing activities are indicated in both indirect and direct methods. d. The cash paid to suppliers is normally disclosed on the statement of cash flows when the indirect method of statement preparation is employed. -False, this sort of transaction would not show up in a statement of cash flows. e. The dollar change in the Merchandise Inventory account appears on the statement of cash flows only when the direct method of statement preparation is used. -False, it would show up on the statement of cash flows as a decrease in either method.

Chapter 1 Exercise 6: 6. Equipment transaction and cash flow reporting Dec. 31, 20X4 Property, Plant & Equipment: Land Equipment Less: Accumulated depreciation $94,000 652,000 -316,000 $94,000 527,000 -341,000 Dec. 31, 20X3

New equipment purchased during 20x4 totaled $280,000. The 20x4 income statement disclosed equipment depreciation expense of $41,000 and a $9,000 loss on the sale of equipment. a. Determine the cost and accumulated depreciation of the equipment sold during 20X4 652,000 (Equipment sold in 20X4) - 280,000 (Equipment purchased in 20x4)=372,000 527,000 (Equipment in 20 x 3) 372,000 = 155,000 155,000 9000 (loss of sales on equipment) = 146,000 Cost of equipment sold 341,000 (accumulated depreciation 20 x3)- 316,000 (accumulated depreciation 20 x 4) = 25,000 Accumulated Depreciation of equipment during 20x4 b. Determine the selling price of the equipment sold. 146,000 (Cost of Equipment sold) -25,000 (Depreciation) =121,000 Selling price of equipment sold c. Show how the sale of equipment would appear on a statement of cash flows prepared by using the indirect method. Statement of Cash Flows: Cash from sale of equipment 121,000

Chapter 1 Problem 3: 3. Cash flow information: Direct and indirect methods The comparative year-end balance sheets of Sign Graphics, Inc., revealed the following activity in the company's current accounts: 20X5 Current assets Cash Accounts receivable (net) Inventory Prepaid expenses Current liabilities Accounts payable Taxes payable Interest payable Accrued liabilities Note payable $123,600 43,600 9,000 38,800 44,000 $140,600 49,200 6,400 60,400 ($17,000) -5,600 2,600 -21,600 44,000 $55,400 83,800 243,400 25,400 $35,200 88,000 233,800 24,200 $20,200 -4,200 9,600 1,200 20X4 Increase / Decrease)

The accounts payable were for the purchase of merchandise. Prepaid expenses and accrued liabilities relate to the firm's selling and administrative expenses. The company's condensed income statement follows. SIGN GRAPHICS INC. Income Statement for the Year Ended December 31, 20x5 Sales Less: Cost of goods sold Gross profit Less: Selling & administrative expenses Depreciation expense Interest expense Add: gain on sale of land $186,000 17,000 27,000 $713,800 323,000 $390,800

230,000 $160,800 21,800

Income before taxes Income taxes Net income

$182,600 36,800 $145,800

Other data: 1. Long-term investments were purchased for cash at a cost of $74,600. 2. Cash proceeds from the sale of land totaled $76,200. 3. Store equipment of $44,000 was purchased by signing a short-term note payable. Also, a $150,000 telecommunications system was acquired by issuing 3,000 shares of preferred stock. 4. A long-term note of $49,400 was repaid. 5. Twenty thousand shares of common stock were issued at $5.19 per share.

6. The company paid cash dividends amounting to $128,600.

Instructions: a. Prepare the operating activities section of the company's statement of cash flows, assuming use of: 1. The direct method. 2. The indirect method.

b. Prepare the investing and financing activities sections of the statement of cash flows.