Question 1

The Keweenaw Sunshine Development Corporation reported the following for the year ended December 31,2014: $$\begin{array}{l}
\begin{array} { l c c } 
 & \underline { 1 / 1 / 14 } & \underline { 12 / 31 / 14 } \
\text { Discount on Bonds Payable } & \$ 17,500 & \$ 15,750 \
\text { Interest Payable } & \$ 19,500 & \$ 17,350
\end{array}\
\text { Interest Expense } \$ 47,750
\end{array}$$
How much cash did Keweenaw pay for interest during 2014?

Accepted Answer

The answer of The Keweenaw Sunshine Development Corporation reported the...

Question 2

A company issued 1,000 shares of $10 par value common stock due to a previously declared stock dividend;the market value at both the date of declaration and distribution was $12 per share.Which of the following correctly describes the reporting of this stock issue within the financing activities section of the cash flow statement?

Accepted Answer

The issuance of stock as a dividend does not involve any cash flow, as it is a transfer of ownership of the company's resources from retained earnings to common stock. Therefore, this transaction would not be reported within the financing activities section of the cash flow statement.

Question 3

During 2015,Krug Company reported net sales of $1,025,000.During the year net accounts receivable increased $39,750 even though Krug wrote-off $7,150 of receivables as uncollectible;Krug uses the allowance method to account for bad debts.Krug's bad debt expense during 2015 was $20,500.How much cash was collected from customers during 2015?

Accepted Answer

$1,025,000 (net sales)- $39,750 (the increase in net accounts receivable)- $20,500 (bad debt expense)= $964,750.The write-off of receivables does not impact net accounts receivable and is therefore irrelevant.

Question 4

Changes in the balance sheet accounts at June 30, 2014 and 2015 for the Poker Company are presented below:
$\begin{array}{lr}
\text { Assets } & \begin{array}{r}
\text { Increase } \
\text { (Decrease }
\end{array} \
\text { Cash } & \$ 80,000 \
\text { Accounts receivable } & 200,000 \
\text { Lnventory } & 300,000 \
\text { Long-term investments } & 200,000 \
\text { Equipment } & (200,000 \
\text { Accumulated depreciation } & (60,000)\\
\text { Liabilities and Stockholders' Equity }\
\text {Accounts payable }&\$(40,000)\
\text {Dividends payable}&400,000\
\text {Notes payable-Current }&(200,000)\
\text {Notes payable-Long-term }&400,000\
\text {Common stock, $ \$ 1.00 $ par }&300,000\
\text {Additional paid-in capital }&100,000\
\text {Retained eamings }&80,000\
\end{array}$
Additional Information for 2015:
Net income was $480,000 and dividends of $400,000 were declared.
Common stock was issued for cash.
A Long-term investment was sold for $160,000.
A new Long-term investment was acquired for $360,000.
Equipment that cost $600,000 was sold for $200,000. The book value of those assets was $150,000.
-The depreciation for 2015 is

Accepted Answer

The depreciation for 2015 can be calculated by adjusting the change in accumulated depreciation with the gain on the sale of equipment. The change in accumulated depreciation is a decrease of $60,000, indicating depreciation expense was more than the accumulated depreciation related to the sold equipment. The equipment was sold for $200,000 with a book value of $150,000, resulting in a gain of $50,000. To find the total depreciation expense for the year, add the gain to the decrease in accumulated depreciation: $60,000 (decrease in accumulated depreciation) + $50,000 (gain) = $110,000. However, since the equipment originally cost $600,000 and was sold for $200,000, the total depreciation must account for the difference between the original cost and the book value, which is $450,000 - $150,000 (book value) = $300,000. This indicates an error in calculation, as the correct approach should involve directly calculating the depreciation expense from available data. Given the information provided, the correct depreciation calculation should consider the net changes affecting accumulated depreciation, including the disposal of assets and any adjustments for gains or losses on sales, which isn't directly provided in the options. The provided explanation mistakenly combines different aspects of the transaction in an attempt to calculate depreciation, which is not directly calculable from the given data without more specific details on depreciation policies or the breakdown of the accumulated depreciation changes.

Question 5

Changes in the balance sheet accounts at June 30, 2014 and 2015 for the Poker Company are presented below:
$\begin{array}{lr}
\text { Assets } & \begin{array}{r}
\text { Increase } \
\text { (Decrease }
\end{array} \
\text { Cash } & \$ 80,000 \
\text { Accounts receivable } & 200,000 \
\text { Lnventory } & 300,000 \
\text { Long-term investments } & 200,000 \
\text { Equipment } & (200,000 \
\text { Accumulated depreciation } & (60,000)\\
\text { Liabilities and Stockholders' Equity }\
\text {Accounts payable }&\$(40,000)\
\text {Dividends payable}&400,000\
\text {Notes payable-Current }&(200,000)\
\text {Notes payable-Long-term }&400,000\
\text {Common stock, $ \$ 1.00 $ par }&300,000\
\text {Additional paid-in capital }&100,000\
\text {Retained eamings }&80,000\
\end{array}$
Additional Information for 2015:
Net income was $480,000 and dividends of $400,000 were declared.
Common stock was issued for cash.
A Long-term investment was sold for $160,000.
A new Long-term investment was acquired for $360,000.
Equipment that cost $600,000 was sold for $200,000. The book value of those assets was $150,000.
-The purchase of equipment during 2015 is

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Question 6

The Superior Real Estate Corporation reported rental income totaling $175,000 for the year ending December 31,2015.The following information was obtained from Superior Corporation's balance sheets: $$\begin{array}{l}\begin{array} { l l l } 
&\underline { 1 / 1 / 15 } & \underline { 12 / 31 / 15 }\

\text { Unearned Rent } & \$ 7,500 & \$ 6,750 \
\text { Rent Receivable } & \$ 9,250 & \$ 6,750
\end{array}
\end{array}$$
How much cash did Superior collect from its tenants during 2015?

Accepted Answer

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Question 7

A building costing $550,000 with accumulated depreciation of $225,000 was sold for $275,000 cash.Which of the following statements is correct with respect to preparing the cash flow statement if the indirect method is being used?

Accepted Answer

The correct answer is C because the loss on sale of the building ($50,000) is added back to net income in the operating activities section (since the building sold for $275,000 with a book value of $325,000 [$550,000 cost - $225,000 accumulated depreciation], resulting in a $50,000 loss). The cash received from the sale ($275,000) is reported as a cash inflow in the investing activities section.

Question 8

Which of the following transactions would not be reported within the financing activities section of the cash flow statement?

Accepted Answer

An issue of common stock in order to retire a bond liability would not be reported within the financing activities section of the cash flow statement. This is because it involves a transaction between equity and debt, and as such, it would be reported in both the financing and investing activities sections of the statement. The other options, such as the payment of a cash dividend, an issue of preferred stock, and the payment of cash to acquire treasury stock, are all activities that strictly involve financing and would therefore be reported within that section of the cash flow statement.

Question 9

Changes in the balance sheet accounts at June 30, 2014 and 2015 for the Poker Company are presented below:
$\begin{array}{lr}
\text { Assets } & \begin{array}{r}
\text { Increase } \
\text { (Decrease }
\end{array} \
\text { Cash } & \$ 80,000 \
\text { Accounts receivable } & 200,000 \
\text { Lnventory } & 300,000 \
\text { Long-term investments } & 200,000 \
\text { Equipment } & (200,000 \
\text { Accumulated depreciation } & (60,000)\\
\text { Liabilities and Stockholders' Equity }\
\text {Accounts payable }&\$(40,000)\
\text {Dividends payable}&400,000\
\text {Notes payable-Current }&(200,000)\
\text {Notes payable-Long-term }&400,000\
\text {Common stock, $ \$ 1.00 $ par }&300,000\
\text {Additional paid-in capital }&100,000\
\text {Retained eamings }&80,000\
\end{array}$
Additional Information for 2015:
Net income was $480,000 and dividends of $400,000 were declared.
Common stock was issued for cash.
A Long-term investment was sold for $160,000.
A new Long-term investment was acquired for $360,000.
Equipment that cost $600,000 was sold for $200,000. The book value of those assets was $150,000.
-The cash flow from investing activities for 2015 is a

Accepted Answer

The cash flow from investing activities includes cash flows related to the purchase and sale of long-term investments and equipment. The sale of a long-term investment for $160,000 is an inflow, and the purchase of a new long-term investment for $360,000 is an outflow. The sale of equipment, regardless of its book value or sale price, is considered an investing activity; however, only the cash received ($200,000) is relevant for the cash flow statement. Therefore, the total cash flow from investing activities is $160,000 (inflow) - $360,000 (outflow) - $200,000 (outflow for the purchase of equipment not explicitly mentioned but implied by the decrease in equipment value and accumulated depreciation adjustments) = $400,000 outflow.

Question 10

Changes in the balance sheet accounts at June 30, 2014 and 2015 for the Poker Company are presented below:
$\begin{array}{lr}
\text { Assets } & \begin{array}{r}
\text { Increase } \
\text { (Decrease }
\end{array} \
\text { Cash } & \$ 80,000 \
\text { Accounts receivable } & 200,000 \
\text { Lnventory } & 300,000 \
\text { Long-term investments } & 200,000 \
\text { Equipment } & (200,000 \
\text { Accumulated depreciation } & (60,000)\\
\text { Liabilities and Stockholders' Equity }\
\text {Accounts payable }&\$(40,000)\
\text {Dividends payable}&400,000\
\text {Notes payable-Current }&(200,000)\
\text {Notes payable-Long-term }&400,000\
\text {Common stock, $ \$ 1.00 $ par }&300,000\
\text {Additional paid-in capital }&100,000\
\text {Retained eamings }&80,000\
\end{array}$
Additional Information for 2015:
Net income was $480,000 and dividends of $400,000 were declared.
Common stock was issued for cash.
A Long-term investment was sold for $160,000.
A new Long-term investment was acquired for $360,000.
Equipment that cost $600,000 was sold for $200,000. The book value of those assets was $150,000.
-The dividends actually paid during 2015 are

Accepted Answer

The answer of Changes in the balance sheet accounts at...

Question 11

Treasury stock costing $89,050 was sold for $94,375 cash.Which of the following statements accurately describes the reporting of this transaction within the cash flow statement assuming that the indirect method is used to determine net cash flows from operating activities?

Accepted Answer

C) is correct because the sale of treasury stock is a financing activity, and the cash inflow from the sale is reported in the financing activities section of the cash flow statement. There is no adjustment to net income because treasury stock transactions do not affect net income.

Question 12

Changes in the balance sheet accounts at June 30, 2014 and 2015 for the Poker Company are presented below:
$\begin{array}{lr}
\text { Assets } & \begin{array}{r}
\text { Increase } \
\text { (Decrease }
\end{array} \
\text { Cash } & \$ 80,000 \
\text { Accounts receivable } & 200,000 \
\text { Lnventory } & 300,000 \
\text { Long-term investments } & 200,000 \
\text { Equipment } & (200,000 \
\text { Accumulated depreciation } & (60,000)\\
\text { Liabilities and Stockholders' Equity }\
\text {Accounts payable }&\$(40,000)\
\text {Dividends payable}&400,000\
\text {Notes payable-Current }&(200,000)\
\text {Notes payable-Long-term }&400,000\
\text {Common stock, $ \$ 1.00 $ par }&300,000\
\text {Additional paid-in capital }&100,000\
\text {Retained eamings }&80,000\
\end{array}$
Additional Information for 2015:
Net income was $480,000 and dividends of $400,000 were declared.
Common stock was issued for cash.
A Long-term investment was sold for $160,000.
A new Long-term investment was acquired for $360,000.
Equipment that cost $600,000 was sold for $200,000. The book value of those assets was $150,000.
-The gain on the sale of equipment for 2015 is

Accepted Answer

The gain on the sale of equipment is calculated as the selling price minus the book value of the equipment sold. The equipment was sold for $200,000, and its book value was $150,000, so the gain is $200,000 - $150,000 = $50,000.

Question 13

The Pulaski Corporation reported the following for the year ended December 31,2014: $$\begin{array}{l}
\begin{array} { l l l } 
&\underline { 1 / 1 / 14 }  & \underline { 12 / 31 / 14 } \
\text { Premium on Bonds Payable } & \$ 28,500 & \$ 25,750 \
\text { Interest Payable } & \$ 7,350 & \$ 9,500
\end{array}\
\text { Interest Expense } \quad \$ 62,250
\end{array}$$
How much cash did Pulaski pay for interest during 2014?

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The answer of The Pulaski Corporation reported the following for...

Question 14

During 2015,Lang Corporation reported cost of goods sold of $775,000.During the year inventory decreased $25,000 and accounts payable increased $12,500.How much cash was paid to suppliers during 2015?

Accepted Answer

$775,000 (cost of goods sold)- $25,000 (the decrease in inventory)- $12,500 (the increase in accounts payable)= $737,500

Question 15

Investing transactions that do not directly and immediately affect cash are

Accepted Answer

Investing transactions that do not directly and immediately affect cash are included on a supplemental schedule to the cash flow statement. This schedule is called the "non-cash investing and financing activities" schedule and it provides additional information about investing and financing activities that are not reflected in the cash flow statement. Examples of these activities include the issuance of stock in exchange for assets, the conversion of debt to equity, and the acquisition of assets through the assumption of liabilities.

Question 16

Which of the following transactions would be reported within the investing activities section of the cash flow statement?

Accepted Answer

The cash sale of a building at a loss is reported within the investing activities section of the cash flow statement because it involves the sale of a long-term asset, which falls under investing activities.

Question 17

Changes in the balance sheet accounts at June 30, 2014 and 2015 for the Poker Company are presented below:
$\begin{array}{lr}
\text { Assets } & \begin{array}{r}
\text { Increase } \
\text { (Decrease }
\end{array} \
\text { Cash } & \$ 80,000 \
\text { Accounts receivable } & 200,000 \
\text { Lnventory } & 300,000 \
\text { Long-term investments } & 200,000 \
\text { Equipment } & (200,000 \
\text { Accumulated depreciation } & (60,000)\\
\text { Liabilities and Stockholders' Equity }\
\text {Accounts payable }&\$(40,000)\
\text {Dividends payable}&400,000\
\text {Notes payable-Current }&(200,000)\
\text {Notes payable-Long-term }&400,000\
\text {Common stock, $ \$ 1.00 $ par }&300,000\
\text {Additional paid-in capital }&100,000\
\text {Retained eamings }&80,000\
\end{array}$
Additional Information for 2015:
Net income was $480,000 and dividends of $400,000 were declared.
Common stock was issued for cash.
A Long-term investment was sold for $160,000.
A new Long-term investment was acquired for $360,000.
Equipment that cost $600,000 was sold for $200,000. The book value of those assets was $150,000.
-The net cash flow from operating activities for 2015 is a

Accepted Answer

To calculate the net cash flow from operating activities, start with the net income of $480,000. Adjustments to reconcile net income to net cash provided by operating activities include adding back non-cash expenses and changes in working capital. The increase in accounts receivable ($200,000), inventory ($300,000), and accounts payable ($40,000 decrease) are changes in working capital. The decrease in equipment and accumulated depreciation are related to the sale of equipment, which is an investing activity, not an operating activity. Therefore, the net cash flow from operating activities is the net income of $480,000 minus the increases in accounts receivable and inventory, plus the decrease in accounts payable, which is not directly given in the information provided. However, since the correct answer is identified as an inflow of $280,000, it implies that the adjustments for changes in working capital (accounts receivable, inventory, and accounts payable) and any other adjustments not explicitly mentioned result in a net decrease of $200,000 from the net income to arrive at the $280,000 inflow.

Question 18

Changes in the balance sheet accounts at June 30, 2014 and 2015 for the Poker Company are presented below:
$\begin{array}{lr}
\text { Assets } & \begin{array}{r}
\text { Increase } \
\text { (Decrease }
\end{array} \
\text { Cash } & \$ 80,000 \
\text { Accounts receivable } & 200,000 \
\text { Lnventory } & 300,000 \
\text { Long-term investments } & 200,000 \
\text { Equipment } & (200,000 \
\text { Accumulated depreciation } & (60,000)\\
\text { Liabilities and Stockholders' Equity }\
\text {Accounts payable }&\$(40,000)\
\text {Dividends payable}&400,000\
\text {Notes payable-Current }&(200,000)\
\text {Notes payable-Long-term }&400,000\
\text {Common stock, $ \$ 1.00 $ par }&300,000\
\text {Additional paid-in capital }&100,000\
\text {Retained eamings }&80,000\
\end{array}$
Additional Information for 2015:
Net income was $480,000 and dividends of $400,000 were declared.
Common stock was issued for cash.
A Long-term investment was sold for $160,000.
A new Long-term investment was acquired for $360,000.
Equipment that cost $600,000 was sold for $200,000. The book value of those assets was $150,000.
-The cash flow from financing activities for 2015 is a

Accepted Answer

The cash flow from financing activities includes the issuance of common stock for $400,000 (par value of $300,000 plus additional paid-in capital of $100,000) and the increase in long-term notes payable of $400,000, totaling $800,000 inflow. Subtracting the dividends paid of $400,000 results in a net cash inflow of $400,000.

Question 19

Which of the following transactions would be reported within the financing activities section of the cash flow statement?

Accepted Answer

The sale of treasury stock for cash is a financing activity, as it involves the company raising cash by selling its own stock. A is incorrect because an issue of preferred stock in exchange for a parcel of land is a non-cash transaction and would not be reported in the cash flow statement. B is incorrect because the accrual of a cash dividend does not involve actual cash transactions and would not be reported in the cash flow statement. C is incorrect because the cash payment of interest associated with bonds payable would be reported in the operating activities section of the cash flow statement.

Question 20

Madrid Incorporated's 2015 income statement reported income tax expense of $635,375.During 2015,Madrid's income taxes payable account increased $19,735 while the deferred tax asset account increased $39,365.How much cash was paid for taxes during 2015?

Accepted Answer

$635,375 (income tax expense)- $19,735 (the increase in income taxes payable)+ $39,365 (the increase in the deferred tax asset account)= $655,005

Quiz 17: Statement of Cash Flows