Chapter 12 Exercise Solution

Chapter 12 Reporting and Analyzing Cash Flows
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Exercise 12-4 page Cash flow from operations - Exercise 12-4 Exercise 12-4
547 Indirect Algo
547 Direct Algo
547 Indirect Algo
548 Direct Algo
Exercise 12-8 page Investing Activities Exercise 12-8 Exercise 12-8
548 Algo
Exercise 12-9 page Financing Activities Exercise 12-9 Exercise 12-9
548 Algo
Exercise 12-10 page SCF Indirect Method Exercise 12-10 Exercise 12-10
548 Algo
Exercise 12-11 page SCF Direct Method Exercise 12-11 Exercise 12-11
549 Algo
549 Indirect Algo
549 Indirect Algo
Exercise 12-14 page Cash Flows Spreadsheet Exercise 12-14 Exercise 12-14
549
McGraw-Hill/Irwin
Algo
Copyright 2013 by The McGraw-Hill Companies, Inc. All
Exercise 12-4 page 547
12-2
Salud Company reports net income of $400,000 for the year ended December 31, 2013. It also reports
$80,000 of depreciation expense, and a $20,000 gain on sale of machinery. Its comparative balance sheets
reveal a $40,000 increase in Accounts receivable, $6,000 increase in Accounts payable, $12,000 decrease
in Prepaid expenses, and $2,000 decrease in Wages payable.
Required:
Prepare only the operating activities section of the statement of cash flows for 2013 using the indirect method.
Salud Company
Statement of Cash Flows (partial) - Indirect Method
For the year ended December 31, 2013
Cash flows from operating activities
Net income $400,000
Adjustments to reconcile net income to operating cash flow:
Depreciation expense $80,000
Gain on sale of machinery (20,000)
Increase In Accounts Receivable (40,000)
Decrease In Prepaid Expenses 12,000
Increase In Accounts Payable 6,000
Decrease In Wages Payable (2,000)
36,000
Net cash provided by operating activities $436,000
Exercise 12-4 page 547 12-3

Salud Company reports net income of $340,000 for the year ended December 31, 2013. It also reports $61,200
of depreciation expense, and a $3,500 gain on sale of machinery. Its comparative balance sheets reveal a
$27,200 increase in Accounts receivable, $13,940 increase in Accounts payable, $7,480 decrease in Prepaid
expenses, and $10,540 decrease in Wages payable.
Prepare only the operating activities section of the statement of cash flows for 2013 using the indirect method.
Salud Company
Net income $340,000
Gain on sale of machinery (3,500)
Increase in Accounts Receivable (27,200)
Decrease in Prepaid Expenses 7,480
Increase in Accounts Payable 13,940
Decrease in Wages Payable (10,540)
41,380
Exercise 12-4 page 547 Algorithm 12-4

12-5
Case X: Compute cash received from customers:
Sales $515,000
Accounts receivable, December 31, 2013 27,200
Case Y: Compute cash paid for rent:

Rent expense $139,800
Rent payable, December 31, 2013 7,800
Case Z: Compute cash paid for merchandise:

Cost of goods sold $525,000
Merchandise inventory, December 31, 2013 158,600
Accounts payable, December 31, 2013 66,700
For each of the above three separate cases, use the information provided about the calendar-year 2014
operations of Sahim Company to compute the required cash flow information.

Case X: Compute cash received from customers: $508,600
Sales $515,000
Date General Journal Debit Credit

Cash 508,600
Accounts receivable 6,400
Sales 515,000
Case Y: Compute cash paid for rent: $141,400


Rent expense 139,800
Rent payable 1,600
Cash 141,400

Case Z: Compute cash paid for merchandise: $481,500

Cost of goods sold 525,000
Merchandise inventory 28,200
Accounts payable 15,300
Cash 481,500


Cash 481,500

Case X: Compute cash received from customers:
Sales $430,000
Case Y: Compute cash paid for rent:


For each of the above three separate cases, use the information provided about the calendar-year 2014
operations of Sahim Company to compute the required cash flow information.

Case X: Compute cash received from customers: $413,660
Sales $430,000

Cash 413,660
Sales 430,000
Case Y: Compute cash paid for rent: $106,890


Rent expense 105,600
Rent payable 1,290
Cash 106,890

Case Z: Compute cash paid for merchandise: $415,393

Cash 415,393

12-13
The following income statement and information about changes in noncash current assets and current
liabilities are reported.
Sohad Company
Income Statement
Sales $1,828,000
Gross profit 837,000
Operating expenses
Salaries expense $245,535
Depreciation expense 44,200
Rent expense 49,600
Amortization expense - Patents 4,200
Utilities expense 18,125
Total operating expenses 361,660
475,340
Gain on sale of equipment 6,200
Net income $481,540
Changes in current asset and current liability accounts for the year that relate to operating activities follow:
Accounts receivable $30,500 Increase Accounts payable $12,500 Decrease

Merchandise inventory 25,000 Increase Salaries payable 3,500 Decrease
Prepare only the cash flows from operating activities section of the statement of cash flows for 2013 using the
indirect method.

Statement of Cash Flows - Indirect Method
Net income Start assuming that NI = change in cash
Adjustments to reconcile net income to operating cash flow: Correct for that assumption
Income statement items (opposite direction): Why?
+ Noncash expenses (Depreciation, amortization) These expenses didn't reduce cash
- Noncash revenues (Equity method earnings) These revenues didn't provide cash
+ Loss on sale of LT assets Cash flow is reported in the
- Gain on sale of LT assets Investing activities section
Balance sheet items: Think of it as a journal entry:
Change in noncash operating assets (opposite direction) Debit Credit
+ Decreases in current operating assets Cash Current asset
- Increases in current operating assets Current asset Cash
Change in noncash operating liabilities (same direction)
+ Increases in current operating liabilities Cash Current liability
- Decreases in current operating liabilities Current liability Cash
Net cash provided (used) by operating activities

Sohad Company Sohad Company
Income Statement Statement of Cash Flows (partial) - Indirect Method
For the year ended December 31, 2013 For the year ended December 31, 2013
Sales $1,828,000 Cash flows from operating activities
Cost of goods sold 991,000 Net income $481,540
Gross profit 837,000 Adjustments to reconcile net income to operating cash flow:
Operating expenses Depreciation expense $44,200
Salaries expense $245,535 Amortization expense - Patents 4,200
Depreciation expense 44,200 Gain on sale of equipment (6,200)
Rent expense 49,600 Increase in Accounts receivable (30,500)
Amortization expense - Patents 4,200 Increase in Merchandise inventory (25,000)
Utilities expense 18,125 Decrease in Accounts payable (12,500)
Total operating expenses 361,660 Decrease in Salaries payable (3,500)
475,340 (29,300)
Gain on sale of equipment 6,200 Net cash provided by operating activities $452,240
Net income $481,540


Sahim Company
Income Statement
Sales $2,012,000
Gross profit 1,026,120
Operating expenses
Rent expense 54,324
619,696
Net income $627,744

Prepare only the cash flows from operating activities section of the statement of cash flows for 2013 using
the indirect method.

Net income Start assuming that NI = change in cash
Adjustments to reconcile net income to operating cash flow: Correct for that assumption
Income statement items (opposite direction): Why?
+ Noncash expenses (Depreciation, amortization) These expenses didn't reduce cash
- Noncash revenues (Equity method earnings) These revenues didn't provide cash
+ Loss on sale of LT assets Cash flow is reported in the
- Gain on sale of LT assets Investing activities section
Balance sheet items: Think of it as a journal entry:
Change in noncash operating assets (opposite direction) Debit Credit
+ Decreases in current operating assets Cash Current asset
- Increases in current operating assets Current asset Cash
+ Increases in current operating liabilities Cash Current liability
- Decreases in current operating liabilities Current liability Cash
Net cash provided (used) by operating activities

Sahim Company Sahim Company
Income Statement Statement of Cash Flows (partial) - Indirect Method
Gross profit 1,026,120 Adjustments to reconcile net income to operating cash flow:
Salaries expense $275,644 Amortization expense - Patents 6,036
Depreciation expense 48,288 Gain on sale of equipment (8,048)
Rent expense 54,324 Increase in Accounts Receivable (18,100)
Amortization expense - Patents 6,036 Increase in Merchandise Inventory (18,200)
Utilities expense 22,132 Decrease in Accounts Payable (9,300)
Total operating expenses 406,424 Decrease in Salaries Payable (5,550)
619,696 (4,874)
Gain on sale of equipment 8,048 Net cash provided by operating activities $622,870
Net income $627,744


12-20
Sohad Company
Income Statement
Sales $1,828,000
Gross profit 837,000
Operating expenses
Rent expense 49,600
475,340
Net income $481,540

Prepare only the cash flows from operating activities section of the statement of cash flows for 2013 using the
direct method.

Sohad Company Sohad Company
Income Statement Statement of Cash Flows (partial) - Direct Method
Cost of goods sold 991,000 Receipts from customers $1,797,500
Gross profit 837,000 Payments for merchandise (1,028,500)
Operating expenses Payments for salaries (249,035)
Salaries expense $245,535 Payments for rent (49,600)
Depreciation expense 44,200 Payments for utilities (18,125)
Rent expense 49,600 Net cash provided by operating activities $452,240
Total operating expenses 361,660 Accounts receivable $30,500 Increase
475,340 Merchandise inventory 25,000 Increase
Gain on sale of equipment 6,200 Accounts payable 12,500 Decrease
Net income $481,540 Salaries payable 3,500 Decrease

Cash 1,797,500
Sales 1,828,000

Cash 1,028,500
Salaries expense 245,535

Salaries payable 3,500
Cash 249,035

Sahim Company
Income Statement
Sales $2,012,000
Gross profit 1,026,120
Operating expenses
Rent expense 54,324
619,696
Net income $627,744

Prepare only the cash flows from operating activities section of the statement of cash flows for 2013 using
the direct method.

Sahim Company General Journal Debit Credit
Income Statement Cash 1,993,900
For the year ended December 31, 2013 Accounts receivable 18,100
Sales $2,012,000 Sales 2,012,000
Gross profit 1,026,120 Cost of goods sold 985,880
Operating expenses Merchandise inventory 18,200
Salaries expense $275,644 Accounts payable 9,300
Depreciation expense 48,288 Cash 1,013,380
Rent expense 54,324
Amortization expense - Patents 6,036 Salaries expense 275,644
Utilities expense 22,132 Salaries payable 5,550
Total operating expenses 406,424 Cash 281,194
619,696
Net income $627,744


Sahim Company General Journal Debit Credit
Income Statement Cash 1,993,900
For the year ended December 31, 2013 Accounts receivable 18,100
Sales $2,012,000 Sales 2,012,000
Gross profit 1,026,120 Cost of goods sold 985,880
Operating expenses Merchandise inventory 18,200
Salaries expense $275,644 Accounts payable 9,300
Depreciation expense 48,288 Cash 1,013,380
Rent expense 54,324
Amortization expense - Patents 6,036 Salaries expense 275,644
Utilities expense 22,132 Salaries payable 5,550
Total operating expenses 406,424 Cash 281,194
619,696
Gain on sale of equipment 8,048 Sahim Company
Net income $627,744 Statement of Cash Flows (partial) - Direct Method
Receipts from customers $1,993,900
Payments for merchandise (1,013,380)
Payments for salaries (281,194)
Payments for rent (54,324)
Payments for utilities (22,132)

Sahim Company Sahim Company
Statement of Cash Flows (partial) - Direct Method Statement of Cash Flows (partial) - Indirect Method
Cash flows from operating activities Cash flows from operating activities
Receipts from customers $1,993,900 Net income $627,744
Payments for merchandise (1,013,380) Adjustments to reconcile net income to operating cash flow:
Payments for salaries (281,194) Depreciation expense $48,288
Payments for rent (54,324) Amortization expense - Patents 6,036
Payments for utilities (22,132) Gain on sale of equipment (8,048)
Net cash provided by operating activities $622,870 Increase in Accounts Receivable (18,100)
Increase in Merchandise Inventory (18,200)
Decrease in Accounts Payable (9,300)
Decrease in Salaries Payable (5,550)
(4,874)

12-27
a. Equipment with a book value of $65,300, and an original cost of $133,000 was sold at a loss of $14,000.
b. Paid $89,000 cash for a new truck.
c. Sold land costing $154,000 for $198,000 cash, yielding a gain of $44,000.
d. Long-term investments in stock were sold for $60,800 cash, yielding a gain of $4,150.
Use the above information to determine this company's cash flows from investing activities.
Cash flows from investing activities

Cash received from the sale of equipment $51,300

Cash 51,300
Accumulated depreciation - Equipment 67,700
Loss on sale of equipment 14,000
Equipment 133,000


Cash paid for the new truck (89,000)
Cash received from the sale of land 198,000
Cash received from the sale of long-term investments in stock 60,800
Net cash provided by investing activities $221,100

Truck 89,000
Cash 89,000

Cash 198,000
Gain on sale of land 44,000
Land 154,000

Cash 60,800
Gain on sale of long-term investments in stock 4,150
Long-term investments in stock 56,650

Use the above information to determine this company's cash flows from investing activities.



Cash 48,000
Accumulated depreciation - Equipment 84,000
Loss on sale of equipment 34,000
Equipment 166,000


Cash received from the sale of land 415,000
Cash received from the sale of long-term investments in stock 92,100
Net cash provided by investing activities $446,100

Cash 92,100
Gain on sale of long-term investments in stock 15,500
Long-term investments in stock 76,600

12-33
a. Net income was $35,000.
b. Issued common stock for $64,000 cash.
c. Paid cash dividend of $14,600.
d. Paid $50,000 cash to settle a note payable at its $50,000 maturity value.
e. Paid $12,000 cash to acquire its treasury stock.
f. Purchased equipment for $39,000 cash.
Use the above information to determine this company's cash flows from financing activities.
Cash flows from financing activities

Proceeds for issuance of common stock $64,000
Paid cash dividend (14,600)
Repaid note payable (50,000)
Purchased treasury stock (12,000)
Net cash used by financing activities ($12,600)

a. Net income was $473,000.
b. Issued common stock for $73,000 cash.
c. Paid cash dividend of $11,000.
d. Paid $130,000 cash to settle a note payable at its $130,000 maturity value.
e. Paid $116,000 cash to acquire its treasury stock.
f. Purchased equipment for $90,000 cash.
Use the above information to determine this company's cash flows from financing activities.

Proceeds for issuance of common stock $73,000
Paid cash dividend (11,000)
Repaid note payable (130,000)
Purchased treasury stock (116,000)
Net cash used by financing activities ($184,000)

12-36
The following financial statements and additional information are reported:
IKIBAN INC. IKIBAN INC.
Income Statement Comparative Balance Sheets
For the year ended June 30, 2013 June 30, 2013 and 2012
Sales $678,000 2013 2012
Cost of goods sold 411,000 Assets
Gross profit 267,000 Cash $87,500 $44,000
Operating expenses Accounts receivable, net 65,000 51,000
Other expenses $67,000 Inventory 63,800 86,500
Depreciation expense 58,600 Prepaid expenses 4,400 5,400
Total operating expenses 125,600 Equipment 124,000 115,000
141,400 Accum. Depreciation - Equipment (27,000) (9,000)
Gain on sale of equipment 2,000 Total Assets $317,700 $292,900
Income before taxes 143,400
Income taxes expense 43,890 Liabilities and equity
Net income $99,510 Accounts payable $25,000 $30,000
Wages payable 6,000 15,000
Prepare a statement of cash flows for the year Income taxes payable 3,400 3,800
ended June 30, 2013 using the indirect method. Notes payable (long-term) 30,000 60,000
Common stock, $5 par value 220,000 160,000
Retained earnings 33,300 24,100
Total Liabilities and Equity $317,700 $292,900
a. A $30,000 note payable is retired at its $30,000 carrying (book value) in exchange for cash.
b. The only changes affecting retained earnings are net income and cash dividends paid.
c. New equipment is acquired for $57,600 cash.
d. Received cash for the sale of equipment that had cost $48,600, yielding a $2,000 gain.
e. Prepaid expenses and Wages payable relate to Other expenses on the income statement.
f. All purchases and sales of merchandise inventory are on credit.

IKIBAN INC. IKIBAN Inc. Company
Income Statement Statement of Cash Flows - Indirect Method
For the year ended June 30, 2013 For the year ended June 30, 2013
Sales $678,000 Cash flows from operating activities
Gross profit 267,000 Adjustments to reconcile net income to operating cash flow:
Other expenses $67,000
Gain on sale of equipment (2,000)
141,400
Income taxes expense 43,890
Net income $99,510
Net increase in cash

Comparative Balance Sheets Statement of Cash Flows - Indirect Method
June 30, 2013 and 2012 For the year ended June 30, 2013
2013 2012 Cash flows from operating activities
Assets Net income $99,510
Cash $87,500 $44,000 Adjustments to reconcile net income to operating cash flow:
Accounts receivable, net 65,000 51,000 Depreciation expense $58,600
Inventory 63,800 86,500
Prepaid expenses 4,400 5,400
Increase in Accounts receivable, net (14,000)
Equipment 124,000 115,000
Accum. Depreciation - Equipment (27,000) (9,000)
Decrease in Inventory 22,700
Total Assets $317,700 $292,900 Decrease in Prepaid expenses 1,000
Decrease in Accounts payable (5,000)
Liabilities and equity Decrease in Wages payable (9,000)
Accounts payable $25,000 $30,000 Decrease in Income taxes payable (400) 51,900
Wages payable 6,000 15,000 Net cash provided by operating activities 151,410
Income taxes payable 3,400 3,800 Cash flows from investing activities
Notes payable (long-term) 30,000 60,000 Cash received sale of equipment $10,000
Common stock, $5 par value 220,000 160,000 Cash paid for equipment (57,600)
Retained earnings 33,300 24,100 Net cash used by investing activities (47,600)
Total Liabilities and Equity $317,700 $292,900 Cash flows from financing activities

d. Received cash for the sale of equipment that had cost
$48,600, yielding a $2,000 gain.
Net increase in cash
Equipment Accum. Depr
115,000 9,000
57,600 48,600 40,600 58,600
27,000 The book value of the equipment sold was $8,000 ($48,600 cost -
124,000
$40,600) accumulated depreciation. Since it was sold at a gain,
cash receipt was $10,000.

Comparative Balance Sheets Statement of Cash Flows - Indirect Method
June 30, 2013 and 2012 For the year ended June 30, 2013
2013 2012 Cash flows from operating activities
Assets Net income $99,510
Cash $87,500 $44,000 Adjustments to reconcile net income to operating cash flow:
Accounts receivable, net 65,000 51,000 Depreciation expense $58,600
Inventory 63,800 86,500
Increase in Accounts receivable, net (14,000)
Equipment 124,000 115,000
Decrease in Inventory 22,700
Total Assets $317,700 $292,900 Decrease in Prepaid expenses 1,000
Decrease in Accounts payable (5,000)
Liabilities and equity Decrease in Wages payable (9,000)
Accounts payable $25,000 $30,000 Decrease in Income taxes payable (400) 51,900
Wages payable 6,000 15,000 Net cash provided by operating activities 151,410
Income taxes payable 3,400 3,800 Cash flows from investing activities
Notes payable (long-term) 30,000 60,000 Cash received sale of equipment $10,000
Common stock, $5 par value 220,000 160,000 Cash paid for equipment (57,600)
Retained earnings 33,300 24,100 Net cash used by investing activities (47,600)
Total Liabilities and Equity $317,700 $292,900 Cash flows from financing activities
Cash received from stock issuance $60,000
Cash paid to retire notes (30,000)
a. A $30,000 note payable is retired at its $30,000 carrying Cash paid for dividends (90,310)
(book value) in exchange for cash.
Net cash used by financing activities (60,310)
b. The only changes affecting retained earnings are net Net increase in cash $43,500
income and cash dividends paid. Cash balance at June 30, 2012 44,000
$24,100 + $99,510 Dividends = $33,300 Cash balance at June 30, 2013 $87,500
Dividends = $90,310

Prepare a statement of cash flows for the year ended June 30, 2013 using the indirect method.
Sales $672,000 2013 2012
Income taxes payable 2,100 3,800
Notes payable (long-term) 46,000 71,000
IKIBAN Inc. Company IKIBAN INC.
Statement of Cash Flows - Indirect Method Income Statement
Cash flows from operating activities Sales $672,000
Net income $84,000 Cost of goods sold 410,000
Adjustments to reconcile net income to operating cash flow: Gross profit 262,000
Depreciation expense $57,800 Operating expenses
Gain on sale of equipment (2,400) Other expenses $66,600
137,600
Net income $84,000

Statement of Cash Flows - Indirect Method Comparative Balance Sheets
Cash flows from operating activities 2013 2012
Net income $84,000 Assets
Adjustments to reconcile net income to operating cash flow: Cash $100,800 $57,100
Depreciation expense $57,800 Accounts receivable, net 69,700 51,600
Gain on sale of equipment (2,400) Inventory 66,100 95,800
Increase in Accounts receivable, net (18,100) Prepaid expenses 4,300 6,200
Decrease in Inventory 29,700 Equipment 126,300 115,000
Decrease in Prepaid expenses 1,900 Accum. Depreciation - Equipment (28,600) (10,700)
Decrease in Accounts payable (6,200) Total Assets $338,600 $315,000
Decrease in Wages payable (9,500)
Decrease in Income taxes payable (1,700) 51,500 Liabilities and equity
Net cash provided by operating activities 135,500 Accounts payable $26,100 $32,300
Cash flows from investing activities Wages payable 7,500 17,000
Cash paid for equipment (60,100) Notes payable (long-term) 46,000 71,000
Cash flows from financing activities Retained earnings 24,900 7,900


IKIBAN INC.
Equipment Comparative Balance Sheets
115,000 June 30, 2013 and 2012
60,100 48,800 2013 2012
Assets
126,300 Cash $100,800 $57,100
Accounts receivable, net 69,700 51,600
Inventory 66,100 95,800
Accum. Depr Prepaid expenses 4,300 6,200
10,700 Equipment 126,300 115,000
39,900 57,800 Total Assets $338,600 $315,000
28,600
Liabilities and equity
Accounts payable $26,100 $32,300
Cost $48,800
Accumulated depreciation (39,900) Income taxes payable 2,100 3,800
Book Value $8,900 Notes payable (long-term) 46,000 71,000
Gain on sale of equipment 2,400 Common stock, $5 par value 232,000 183,000
Cash received from sale $11,300 Retained earnings 24,900 7,900


Cash received from sale of equipment $11,300 Income taxes payable 2,100 3,800
Net cash used by investing activities (48,800) Common stock, $5 par value 232,000 183,000


Cash received from stock issuance $49,000 Total Liabilities and Equity $338,600 $315,000
Cash paid for dividends (67,000)
Net cash used by financing activities (43,000) a A $25,000 note payable is retired at its $25,000 carrying
Net increase in cash $43,700 (book value) in exchange for cash.
Cash balance at June 30, 2012 57,100
Cash balance at June 30, 2013 $100,800 b. The only changes affecting retained earnings are net
income and cash dividends paid.

Decrease in inventory 29,700 Equipment 126,300 115,000
Cash received from stock issuance $49,000 Total Liabilities and Equity $338,600 $315,000
Net cash used by financing activities (43,000) Compute the company's cash flow on total assets ratio for
Net increase in cash $43,700 its fiscal year 2013.
Cash balance at June 30, 2012 57,100 Operating cash flows $135,500
Cash balance at June 30, 2013 $100,800 Average total assets ($315,000 + $338,600) / 2
$135,500
41.5%
$326,800

12-48
Sales $678,000 2013 2012
Prepare a statement of cash flows for the year Income taxes payable 3,400 3,800
ended June 30, 2013 using the direct method. Notes payable (long-term) 30,000 60,000

IKIBAN Inc. Company Income Statement
Statement of Cash Flows - Direct Method Sales $678,000
For the year ended June 30, 2013 Cost of goods sold 411,000
Cash flows from operating activities Gross profit 267,000
Receipts from customers $664,000 Operating expenses
Payments for merchandise (393,300) Other expenses $67,000
Payments for other expenses (75,000) Depreciation expense 58,600
Payments for income taxes (44,290) Total operating expenses 125,600
Net cash provided by operating activities $151,410 141,400
Cash flows from investing activities Gain on sale of equipment 2,000
Net income $99,510
Comparative Balance Sheets

2013 2012
Assets
Cash $87,500 $44,000
Inventory 63,800 86,500
General Journal Debit Credit Equipment 124,000 115,000
Cash 664,000 Accum. Depreciation - Equipment (27,000) (9,000)
Accounts receivable, net 14,000 Total Assets $317,700 $292,900
Sales 678,000
Cost of goods sold 411,000 Liabilities and equity

Accounts payable 5,000 Accounts payable $25,000 $30,000
Inventory 22,700 Wages payable 6,000 15,000
Cash 393,300 Income taxes payable 3,400 3,800
Other expenses 67,000 Common stock, $5 par value 220,000 160,000
Wages payable 9,000 Retained earnings 33,300 24,100
Prepaid expenses 1,000 Total Liabilities and Equity $317,700 $292,900
Cash 75,000

Income taxes payable 400
Cash 44,290
Cash received from sale of equipment $10,000
Cash paid for equipment (57,600)
Net cash used by investing activities (47,600)
Net income $99,510

2013 2012
Assets
Cash $87,500 $44,000
Equipment 124,000 115,000

c. New equipment is acquired for $57,600 cash. Accum. Depreciation - Equipment (27,000) (9,000)
Total Assets $317,700 $292,900
Equipment Accum. Depr
115,000 9,000
57,600 48,600 40,600 58,600
124,000 27,000 Common stock, $5 par value 220,000 160,000
The book value of the equipment sold was Total Liabilities and Equity $317,700 $292,900
$8,000 ($48,600 cost - $40,600 accumulated
depreciation.) Since it was sold at a gain, cash
receipt was $10,000.

Net income $99,510
Cash paid for dividends (90,310) 2013 2012
Net cash used by financing activities (60,310) Assets
Net increase in cash $43,500 Cash $87,500 $44,000
Cash balance at June 30, 2012 44,000 Accounts receivable, net 65,000 51,000
Cash balance at June 30, 2013 $87,500 Inventory 63,800 86,500
Equipment 124,000 115,000
Total Assets $317,700 $292,900

a. A $30,000 note payable is retired at its $30,000 carrying Wages payable 6,000 15,000
(book value) in exchange for cash. Income taxes payable 3,400 3,800
b. The only changes affecting retained earnings are net Notes payable (long-term) 30,000 60,000
income and cash dividends paid. Common stock, $5 par value 220,000 160,000
$24,100 + $99,510 Dividends = $33,300 Total Liabilities and Equity $317,700 $292,900
Dividends = $90,310

Prepare a statement of cash flows for the year ended June 30, 2013 using the direct method.
Sales $672,000 2013 2012
Statement of Cash Flows - Direct Method Income Statement
Cash flows from operating activities Sales $672,000
Receipts from customers $653,900 Cost of goods sold 410,000
Payments for merchandise (386,500) Gross profit 262,000
Payments for other expenses (74,200) Operating expenses
Payments for income taxes (57,700) Other expenses $66,600
Net cash provided by operating activities $135,500 Depreciation expense 57,800
Debit Credit
137,600
Cash 653,900 Gain on sale of equipment 2,400
Accounts receivable, net 18,100
Sales 672,000 Income taxes expense 56,000
Net income $84,000
Accounts payable 6,200 IKIBAN INC.
Inventory 29,700 Comparative Balance Sheets
Cash 386,500 June 30, 2013 and 2012
2013 2012
Other expenses 66,600 Cash $100,800 $57,100
Wages payable 9,500 Accounts receivable, net 69,700 51,600
Prepaid expenses 1,900 Inventory 66,100 95,800
Cash 74,200 Prepaid expenses 4,300 6,200
Income taxes expense 56,000 Wages payable 7,500 17,000
Income taxes payable 1,700 Income taxes payable 2,100 3,800
Cash 57,700

Statement of Cash Flows - Direct Method Comparative Balance Sheets
Receipts from customers $653,900 Assets
Payments for merchandise (386,500) Equipment 126,300 115,000
Payments for other expenses (74,200) Accum. Depreciation - Equipment (28,600) (10,700)
Payments for income taxes (57,700) Total Assets $338,600 $315,000
Cash paid for equipment (60,100) Equipment Accum. Depr
Net cash used by investing activities (48,800) 115,000 10,700
60,100 48,800 39,900 57,800
126,300 28,600
Cost $48,800
Accumulated depreciation (39,900)
Book Value $8,900
Income Statement: Gain on sale of equipment 2,400
Depreciation expense $57,800 Cash received from sale $11,300

Receipts from customers $653,900 Notes payable (long-term) 46,000 71,000
Payments for merchandise (386,500) Common stock, $5 par value 232,000 183,000
Payments for other expenses (74,200) Retained earnings 24,900 7,900
Payments for income taxes (57,700)
Cash flows from investing activities a A $25,000 note payable is retired at its $25,000 carrying
Cash received from sale of equipment $11,300 (book value) in exchange for cash.
Net cash used by investing activities (48,800) b. The only changes affecting retained earnings are net
Cash flows from financing activities income and cash dividends paid.
Cash received from stock issuance $49,000 Retained Earnings
7,900
67,000 84,000
Net increase in cash $43,700 24,900

Receipts from customers $653,900 Assets
Payments for merchandise (386,500) Cash $100,800 $57,100
Payments for other expenses (74,200) Accounts receivable, net 69,700 51,600
Payments for income taxes (57,700) Inventory 66,100 95,800
Net cash provided by operating activities $135,500 Prepaid expenses 4,300 6,200
Cash flows from investing activities Equipment 126,300 115,000
Cash received from sale of equipment $11,300 Accum. Depreciation - Equipment (28,600) (10,700)
Cash paid for equipment (60,100) Total Assets $338,600 $315,000
Cash flows from financing activities Liabilities and equity
Net increase in cash $43,700
Cash balance at June 30, 2012 57,100
Cash balance at June 30, 2013 $100,800
Compute the company's cash flow on total assets ratio for its fiscal year 2013.
Operating cash flows $135,500 $135,500

41.5%
Average total assets ($315,000 + $338,600) / 2 $326,800

12-58
Hampton Company reports the following information for its recent calendar year.
Income Statement
Sales $160,000
Net income $24,000
Accounts receivable $10,000 Increase

Merchandise inventory 16,000 Decrease
Salaries payable 1,000 Increase
Prepare the operating activities section of the statement of cash flows for Hampton Company using the
indirect method.

Income Statement
Sales $160,000
Net income $24,000

Salaries payable 1,000 Increase
Hampton Company Company

Net income $24,000
Increase in Accounts receivable (10,000)
Decrease in Merchandise inventory 16,000
Increase in Salaries payable 1,000 19,000

Income Statement
Sales $78,000
Net income $20,000

Salaries payable 600 Increase
Prepare the operating activities section of the statement of cash flows for Hampton Company using
the indirect method.

Income Statement
Sales $78,000
Net income $20,000

Salaries payable 600 Increase
Hampton Company Company


Net income $20,000
Increase in Accounts Receivable (6,000)
Decrease in Merchandise Inventory 3,000
Increase in Salaries Payable 600 2,600

12-63
Arundel Company
Income Statement
Revenues $100,000
Operating expenses
Other expenses 3,400
Net loss ($16,000)
Decrease in Accounts receivable $24,000

Purchased a Machine $10,000
Increase in Salaries payable 18,000
Decrease in Other accrued liabilities 8,000
Prepare the operating activities section of the statement of cash flows using the indirect method.

Arundel Company
Income Statement
Revenues $100,000 Decrease in Accounts receivable $24,000
Operating expenses Purchased a Machine $10,000
Salaries expense $84,000 Increase in Salaries payable 18,000
Utilities expense 14,000 Decrease in Other accrued liabilities 8,000
Net loss ($16,000)
Arundel Company
Net loss ($16,000)
Decrease in Accounts receivable 24,000
Increase in Salaries payable 18,000
Decrease in Other accrued liabilities (8,000)

Arundel Company
Income Statement
Revenues $85,000
Operating expenses
Net loss ($58,600)
Decrease in Accounts Receivable $24,000

Purchased a Machine $20,000
Increase in Salaries Payable 26,000
Decrease in Other Accrued Liabilities 15,000
Prepare the operating activities section of the statement of cash flows using the indirect method.

Arundel Company Statement of Cash Flows - Indirect Method
Income Statement Cash flows from operating activities
For the year ended December 31, 2013 Net income (loss)
Revenues $85,000
Income statement items (opposite direction):
Operating expenses
+ Noncash expenses (Depreciation, amortization)
Salaries expense $70,000 - Noncash revenues (Equity method earnings)
Utilities expense 35,000 + Loss on sale of LT assets
Depreciation expense 31,400 - Gain on sale of LT assets
Other expenses 7,200 Balance sheet items:
Total operating expenses 143,600 Change in noncash operating assets (opposite direction)
Net loss ($58,600) + Decreases in current operating assets
- Increases in current operating assets
Decrease in Accounts Receivable $24,000 + Increases in current operating liabilities
Purchased a Machine $20,000 - Decreases in current operating liabilities
Increase in Salaries Payable 26,000 Net cash provided (used) by operating activities
Decrease in Other Accrued Liabilities 15,000
Arundel Company
Net loss ($58,600)
Depreciation Expense $31,400
Decrease in Accounts Receivable 24,000
Increase in Salaries Payable 26,000
Decrease in Other Accrued Liabilities (15,000)

12-68
Complete the following spreadsheet in preparation of the statement of cash flows. (The statement of cash
flows is not required.) Report operating activities under the indirect method
a. Net income for the year was $100,000. d. The company purchased plant assets for $70,000 cash.
b. Dividends of $80,000 cash were declared and paid. e. Notes payable of $20,000 were issued for $20,000 cash.
c. Scoreteck's only noncash expense was
depreciation expense of $70,000.
12/31/2012 Debit Credit 12/31/2013

Balance sheet - debit balance accounts
Cash $80,000 $60,000
Accounts receivable, net 120,000 70,000 190,000
Merchandise inventory 250,000 20,000 230,000
Plant assets 600,000 70,000 670,000
$1,050,000 $1,150,000
Balance sheet - credit balance accounts
Accum. Depreciation - Equipment $100,000 70,000 $170,000
Accounts payable 150,000 10,000 140,000
Notes payable (long-term) 370,000 20,000 390,000
Retained earnings 230,000 80,000 100,000 250,000
$1,050,000 $1,150,000

a. Net income for the year was $100,000. d. The company purchased plant assets for $70,000 cash.
b. Dividends of $80,000 cash were declared and paid. e. Notes payable of $20,000 were issued for $20,000 cash.
c. Scoreteck's only noncash expense was
depreciation expense of $70,000.
12/31/2012 Debit Credit 12/31/2013

Cash $80,000 $60,000
Plant assets 600,000 70,000 670,000
$1,050,000 $1,150,000
$1,050,000 $1,150,000
Statement of Cash Flows
Operating activities
Net income 100,000
Increase in Accounts receivable, net 70,000
Decrease in Accounts payable 10,000
Investing activities
Cash paid to purchase plant assets 70,000
Financing activities
Cash paid for dividends 80,000
Cash received from note payable 20,000
$440,000 $440,000

Complete the following spreadsheet in preparation of the statement of cash flows. (The statement of
cash flows is not required.) Report operating activities under the indirect method.
a. Net income for the year was $240,000.
b. Dividends of $144,000 cash were declared and paid.
c. Scoreteck's only noncash expense was depreciation expense of $60,000.
d. The company purchased plant assets for $92,000 cash.
e. Notes payable of $76,000 were issued for $76,000 cash.
12/31/2012 Debit Credit 12/31/2013

Cash $218,000 $289,000
Merchandise inventory 274,000 247,000
Plant assets 612,000 704,000
$1,236,000 $1,451,000
Accum. Depreciation - Equipment $184,000 $244,000
Accounts payable 166,000 149,000
$1,236,000 $1,451,000
a. Dividends of $144,000 cash were declared and paid.

b. Net income for the year was $240,000.
c. Scoreteck's only noncash expense was depreciation expense of $60,000.
d. The company purchased plant assets for $92,000 cash.

e. Notes payable of $76,000 were issued for $76,000 cash.
12/31/2012 Debit Credit 12/31/2013
Cash $218,000 $289,000 $71,000

Plant assets 612,000 92,000 704,000
$1,236,000 $1,451,000
$1,236,000 $1,451,000
Statement of Cash Flows
Operating activities
Net income 240,000
Increase in Accounts receivable, net 79,000
Decrease in Accounts payable 17,000 $231,000
Investing activities
Cash paid to purchase plant assets 92,000 (92,000)
Financing activities
Cash paid for dividends 144,000
Cash received from note payable 76,000 (68,000)
$735,000 $735,000

12-73
Cash and cash equivalents balance, December 31, 2012 $40,000
Cash and cash equivalents balance, December 31, 2013 148,000
Cash received as interest 3,500
Cash paid for salaries 76,500
Bonds payable retired by issuing common stock (no gain or loss on retirement) 185,500
Cash paid to retire long-term notes payable 100,000
Cash received from sale of equipment 60,250
Cash received in exchange for six-month note payable 35,000
Land purchased by issuing long-term note payable 105,250
Cash paid for store equipment 24,750
Cash dividends paid 10,000
Cash paid for other expenses 20,000
Cash received from customers 495,000
Cash paid for merchandise 254,500
Use the above information about the cash flows of Ferron Company to prepare a complete
statement of cash flows (direct method) for the year ended December 31, 2013.

FERRON COMPANY
Cash and cash equivalents balance, December 31, 2013 148,000 Statement of Cash Flows - Direct Method
Cash received as interest 3,500 For the year ended December 31, 2013
Cash paid for salaries 76,500 Cash flows from operating activities
Bonds payable retired by issuing common stock Cash received from customers $495,000
(no gain or loss on retirement) 185,500 Cash received as interest 3,500
Cash paid to retire long-term notes payable 100,000 Cash paid for merchandise (254,500)
Cash received from sale of equipment 60,250 Cash paid for salaries (76,500)
Cash received in exchange for six-month note payable 35,000 Cash paid for other expenses (20,000)
Cash paid for store equipment 24,750 Net cash provided by operating activities $147,500
Cash dividends paid 10,000 Cash flows from investing activities
Cash paid for other expenses 20,000 Cash received from sale of equipment $60,250
Cash received from customers 495,000 Cash paid for store equipment (24,750)
Cash paid for merchandise 254,500 Net cash provided by investing activities 35,500
Cash paid to retire long-term notes payable ($100,000)
Cash received in exchange for six-month note payable35,000
Cash dividends paid (10,000)

Noncash investing and financing activities:

Bonds payable retired by issuing common stock $185,500
(no gain or loss on retirement)
Land purchased by issuing long-term note payable $105,250

Cash paid for salaries 60,900
Bonds payable retired by issuing common stock (no gain or loss on retirement) 145,000
Cash paid to retire long-term notes payable 105,000
Cash received from sale of equipment 51,450
Cash paid for store equipment 19,950
Cash dividends paid 12,600
Cash paid for other expenses 33,600
Cash received from customers 407,400
Cash paid for merchandise 211,848
Use the above information about the cash flows of Ferron Company to prepare a complete
statement of cash flows (direct method) for the year ended December 31, 2013.

Cash
Bondspurchased
Land and
dividends
received
payable
cash as
from
retired
equivalents
paid
byinterest
issuing
sale
customers
by of
issuing
long-term
equipment
balance,
common
December
note stock
payable
31,
(no2012
gain or loss on retirement) $407,400
$145,000
$21,000
$51,450
$84,100
$12,600
$2,100
Cash and
received
paidcash
to retire
for other
salaries
store
merchandise
in
equivalents
exchange
long-term
equipment
expenses balance,
for
notes
six-month
payable
December
note payable
31, 2013 $105,000
$211,848
$59,052
$60,900
$21,000
$19,950
$33,600
FERRON COMPANY
Statement of Cash Flows - Direct Method
Cash received from customers $407,400
Cash paid for merchandise (211,848)
Cash paid for salaries (60,900)
Cash paid for other expenses (33,600)

Cash paid for store equipment (19,950)
Net cash provided by investing activities 31,500
Cash paid to retire long-term notes payable ($105,000)
Cash dividends paid (12,600)

Noncash investing and financing activities:

Bonds payable retired by issuing common stock $145,000
Land purchased by issuing long-term note payable $84,100

12-78
The following summarized Cash T-account reflects the total debits and total credits to the Cash account of Thomas Corporation for
calendar year 2013.
Cash
Balance, Dec. 31, 2012 333,000
Receipts from customers 5,000,000 Payments for merchandise 2,590,000
Receipts from dividends 208,400 Payments for wages 550,000
Receipts from land sale 220,000 Payments for rent 320,000
Receipts from machinery sale 710,000 Payments for interest 218,000
Receipts from issuing stock 1,540,000 Payments for taxes 450,000
Receipts from borrowing 3,600,000 Payments for machinery 2,236,000
Payments for long-term investments 1,260,000
Payments for note payable 386,000
Payments for dividends 500,000
Payments for treasury stock 218,000
Balance, Dec. 31, 2013 2,883,400
?
Use this information to prepare a complete statement of cash flows for year 2013. The cash provided or used by operating activities
should be reported using the direct method.

Cash
Balance, Dec. 31, 2012 333,000
Receipts from dividends 208,400 Payments for wages 550,000
Payments for note payable 386,000
Payments for dividends 500,000
Balance, Dec. 31, 2013 2,883,400
THOMAS COMPANY
Cash received from customers $5,000,000
Cash received from dividends 208,400
Cash paid for merchandise (2,590,000)
Cash paid for wages (550,000)
Cash paid for rent (320,000)
Cash paid for interest (218,000)
Cash paid for taxes (450,000)
Net cash provided by operating activities $1,080,400

Cash received from sale of land 220,000
Cash received from sale of machinery 710,000
Cash paid for purchases of machinery (2,236,000)
Cash paid for purchases of LT investments (1,260,000)
Net cash used by investing activities (2,566,000)

Cash received from issuing stock 1,540,000
Cash received from borrowing 3,600,000
Cash paid for note payable (386,000)
Cash paid for treasury stock purchases (218,000)
Net cash provided by financing activities 4,036,000

Net increase in cash $2,550,400
Beginning balance of cash 333,000
Ending balance of cash $2,883,400

The following summarized Cash T-account reflects the total debits and total credits to the Cash account of Thomas Corporation for
calendar year 2013.
Cash
Balance, Dec. 31, 2012 174,500
Receipts from dividends 209,000 Payments for wages 1,152,000
Payments for note payable 2,010,000
Payments for dividends 1,060,000
Balance, Dec. 31, 2013 623,500
Use this information to prepare a complete statement of cash flows for year 2013. The cash provided or used by operating activities
should be reported using the direct method.

THOMAS COMPANY

Ending balance of cash $623,500

THOMAS COMPANY
Cash paid for wages (1,152,000)

Cash paid for purchases of long-term investments (1,130,000)

Cash paid for note payable (2,010,000)
Cash paid for dividends (1,060,000)

THOMAS COMPANY
Cash paid for wages (1,152,000)
Net cash provided by operating activities $2,456,000

Cash paid for purchases of long-term investments (1,130,000)
Net cash used by investing activities (2,704,000)

Cash paid for note payable (2,010,000)
Cash paid for dividends (1,060,000)
Net cash provided by financing activities 697,000

Net increase in cash 449,000
Ending balance of cash $623,500

12-85
A company reported average total assets of $1,240,000 in 2012 and $1,510,000 in
2013. Calculate its cash flow on total assets ratio for both years.
2012 2013
Average total assets $1,240,000 $1,510,000
Net operating cash flow $102,920 $138,920
Net operating cash flow Cash Flow on Total Assets

Average total assets
2012 $102,920 / $1,240,000 = 8.3%
2013 $138,920 / $1,510,000 = 9.2%

A company reported average total assets of $260,000 in 2012 and $286,000 in
2013. Calculate its cash flow on total assets ratio for both years.
2012 2013
Average total assets $260,000 $286,000
Net operating cash flow $18,460 $22,308
Net operating cash flow Cash Flow on Total Assets

Average total assets
2012 $18,460 / $260,000 = 7.1%
2013 $22,308 / $286,000 = 7.8%

12-88
Peugeot, S.A. reports the following financial information for the year ended December 31, 2011 (euros in millions).
Net income 784 Cash paid for purchase of treasury stock and other 199
Net decrease in working capital 1,183 Cash paid for other financing activities 2,282
Depreciation and amortization 3,037 Cash from disposal of plant assets and intangibles 189
Gains on disposals and other 883 Cash paid for plant assets and intangibles 3,921
Cash paid for dividends 290 Cash and cash equivalents, December 31, 2010 10,442
Prepare its statement of cash flows for 2011 using the indirect method.
Peugeot, S.A. Company

Net income 784
Net decrease in working capital 1,183
Depreciation and amortization 3,037
Gains on disposals and other (883)
Net cash provided by operating activities 4,121
Cash from disposal of plant assets and intangibles 189
Cash paid for plant assets and intangibles (3,921)
Cash paid for dividends (290)
Cash paid for purchase of treasury stock and other (199)
Cash paid for other financing activities (2,282)
Net decrease in cash (2,382)
Cash and cash equivalents, December 31, 2010 10,442

Peugeot, S.A. reports the following financial information for the year ended December 31, 2011
(euros in millions).
Gains on disposals and other 1,083 Cash paid for plant assets and intangibles 5,921
Prepare its statement of cash flows for 2011 using the indirect method.

Gains on disposals and other 1,083 Cash paid for plant assets and intangibles 5,921
Peugeot, S.A. Company

Net income 984
Net decrease in working capital 1,383
Depreciation and amortization 5,037
Gains on disposals and other (1,083)
Net cash provided by operating activities 6,321
Cash from disposal of plant assets and intangibles 389
Cash paid for plant assets and intangibles (5,921)
Cash paid for dividends (490)
Cash paid for purchase of treasury stock and other (399)
Cash paid for other financing activities (4,282)
Net decrease in cash (4,382)

12-92
12-93
12-94
12-95

Chapter 12 Exercise Solution

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Chapter 12 Exercise Solution

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Chapter 12 Reporting and Analyzing Cash Flows

Exercise 12-4 page 547 12-3

Exercise 12-4 page 547 Algorithm 12-4

Case Y: Compute cash paid for rent:

Case Z: Compute cash paid for merchandise:

Exercise 12-5 page 547 12-6

Date General Journal Debit Credit

Case Y: Compute cash paid for rent: $141,400

Date General Journal Debit Credit

Exercise 12-5 page 547 12-7

Date General Journal Debit Credit

Exercise 12-5 page 547 12-8

Date General Journal Debit Credit

Exercise 12-5 page 547 12-9

Case Y: Compute cash paid for rent:

Case Z: Compute cash paid for merchandise:

Exercise 12-5 page 547 Algorithm 12-10

Date General Journal Debit Credit

Case Y: Compute cash paid for rent: $106,890

Date General Journal Debit Credit

Exercise 12-5 page 547 Algorithm 12-11

Date General Journal Debit Credit

Exercise 12-5 page 547 Algorithm 12-12

Accounts receivable $30,500 Increase Accounts payable $12,500 Decrease

Exercise 12-6 page 547 12-14

Exercise 12-6 page 547 12-15

Accounts receivable $30,500 Increase Accounts payable $12,500 Decrease

Exercise 12-6 page 547 12-16

Accounts receivable $18,100 Increase Accounts payable $9,300 Decrease

Exercise 12-6 page 547 Algorithm 12-17

Exercise 12-6 page 547 Algorithm 12-18

Accounts receivable $18,100 Increase Accounts payable $9,300 Decrease

Exercise 12-6 page 547 Algorithm 12-19

Accounts receivable $30,500 Increase Accounts payable $12,500 Decrease

Exercise 12-7 page 548 12-21

Date General Journal Debit Credit

Cost of goods sold 991,000

Salaries expense 245,535

Exercise 12-7 page 548 12-22

Accounts receivable $18,100 Increase Accounts payable $9,300 Decrease

Exercise 12-7 page 548 Algorithm 12-23

Accounts receivable $18,100 Increase Accounts payable $9,300 Decrease

Exercise 12-7 page 548 Algorithm 12-24

Exercise 12-7 page 548 Algorithm 12-25

Exercise 12-7 page 548 Algorithm 12-26

Cash flows from investing activities

Date General Journal Debit Credit

Exercise 12-8 page 548 12-28

Cash flows from investing activities

Date General Journal Debit Credit

Date General Journal Debit Credit

Date General Journal Debit Credit

Exercise 12-8 page 548 12-29

Exercise 12-8 page 548 Algorithm 12-30

Cash flows from investing activities

Date General Journal Debit Credit

Exercise 12-8 page 548 Algorithm 12-31

Cash flows from investing activities

Date General Journal Debit Credit

Exercise 12-8 page 548 Algorithm 12-32

Cash flows from financing activities

Exercise 12-9 page 548 12-34

Cash flows from financing activities