Question 1

What are the five usual steps involved in the preparation of the statement of cash flows?

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Question 2

Use the following information to calculate the net cash provided or used by financing activities for the Streams Corporation:
(a) Net income, $10,000
(b) Sold common stock for $40,000 cash
(c) Paid cash dividend of $13,000
(d) Paid bond payable, $28,000
(e) Purchased equipment for $12,000 cash

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Question 3

Use the following company information to calculate net cash provided or used by investing activities:
(a) Equipment with a book value of $175,000 and an original cost of $300,000 was sold at a loss of
$17,000.
(b) Paid $62,000 cash for a new truck.
(c) Sold land costing $32,000 for $36,000 cash, realizing a $4,000 gain.
(d) Purchased treasury stock for $61,000 cash.
(e) Long-term investments in stock are sold for $41,000 cash, realizing a gain of $3,500.

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Question 4

Rowan, Inc.'s, income statement is shown below. Based on this income statement and the other information provided, calculate the net cash provided by operations using the indirect method.
Rowan, Inc.
Income Statement
For Year Ended December 31, 20X1
 $$\begin{array} { l | r | r } 
\hline \text { Sales } & & \$ 248,000 \
\hline \text { Cost of goods sold } & & 116,000 \
\hline \text { Grost profit } & & \$ 132,000 \
\hline \text { Operating expenses } & & \
\hline \text { Wages and salaries expense } & \$ 44,000 & \
\hline \text { Rent expense } & 16,000 & \
\hline \text { Depreciation expense } & 30,000 & \
\hline \text { Other operating expenses } & 18,000 & \underline { 108,000 } \
\hline \text { Income from operations } & & \$ 24,000 \
\hline \text { Gain on sale of equipment } & & \$ 26,000 \
\hline \text { Income before income taxes } & & \$ 50,000 \
\hline \text { Income taxes expense } & & \$ 17,500 \
\hline \text { Net income } & & \$ 32,500 \
\hline
\end{array}$$
$\begin{array}{l}
\text { Additional information: }\
\begin{array} { l | r } 
\text { Increase in accounts receivable } & \$ 4,000 \
\hline \text { Increase in accounts payable } & 16,000 \
\hline \text { Increase in income taxes payable } & 300 \
\hline \text { Decrease in prepaid expenses } & 10,000 \
\hline \text { Decrease in merchandise inventory } & 14,000 \
\hline \text { Decrease in long-term notes payable } & 20,000
\end{array}
\end{array}$

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Question 5

The following information is available for the Brookstone Company:
Brookstone Company Balance Sheets
At December 31
  Brookstone Company Income Statement
For Year Ended December 31, 20X2
   $$\begin{array} { | l | r | r | } 
\hline \text { Sales } & & \$ 288,000 \
\hline \text { Cost of goods sold } & \$ 97,080 & \
\hline \text { Depreciation expense } & 35,280 & \
\hline \text { Other operating expenses } & 57,600 & \
\hline \text { Interest expense } & 2,400 & ( 192,360 \
\hline \text { Other gains (losses): } & & \
\hline \text { Loss on sale of equipment } & & ( 10,080 ) \
\hline \text { Income before taxes } & & 85,560 \
\hline \text { Income taxes expense } & &33,180 \
\hline \text { Net income } & & \$ 52,180\
\hline
\end{array}$$  Additional information:
(1) There was no gain or loss on the sales of the long-term investments, nor on the bonds retired.
(2) Old machinery with an original cost of $45,060 was sold for $2,520 cash.
(3) New machinery was purchased for $81,060 cash.
(4) Cash dividends of $40,320 were paid.
(5) Additional shares of stock were issued for cash.
Prepare a complete statement of cash flows for calendar-year 20X2 using the indirect method.

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Question 6

The following selected account balances are taken from a merchandising company's records:
 $\begin{array} { l | r | r | r } 
& \text { Dec. 31 } & \text { Dec. 31, } & \text { For the } \
\hline & { \text { 20X2 } } &  { 20 \mathrm { X } 1 } & \text { Year 20X2 } \
\hline \text { Merchandise inventory } & \$ 15,600 & \$ 21,200 & \
\hline\text { Accounts receivable }  & 42,000 & 36,000 & \ 
\hline \text { Accounts payable } & 32,400 & 27,400 & \
\hline \text { Salaries payable } & 4,400 & 3,000 & \
\hline\
\hline \text { Total assets } & 234,000 & 286,000 & \
\hline \text { Sales } & & & \$ 312,000 \
\hline \text { Cost of goods sold } & & & 165,600 \
\hline \text { Salaries expense } & & & 48,000
\end{array}$
  
(a) Calculate the cash payments made during 20X2 for merchandise. Assume all of the company's accounts payable balances result from merchandise purchases.
(b) Calculate the cash receipts from customer sales during 20X2.
(c) Calculate the cash payments for salaries during 20X2.

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Question 7

Explain how the cash flows from operating activities section of the statement of cash flows is prepared using the direct method.

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Question 8

Explain the value of separating cash flows into operating activities, investing activities, and financing activities to financial statement users in analyzing cash flows and the company's financial performance and condition.

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Question 9

Explain how cash flows from investing and financing activities are determined.

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Question 10

Based on the following income statement and balance sheet for Bankowski Corporation, determine the cash flows from operating activities using the indirect method.
$\begin{array}{c}
 \text { Bankowski Corporation}\
 \text {  Income Statement}\
 \text {  For Year Ended December $ 31,20 \times 2 $}\\begin{array}{l|r|r}
\hline \text { Sales } & & \$ 504,000 \
\hline \text { Cost of goods sold } & \$ 327,600 & \
\hline \text { Depreciation expense } & 33,000 & \
\hline \text { Other operating expenses } & \underline{125,500} & (486,100 \
\hline \text { Other gains (losses): } & & \
\hline \text { Gain on sale of equipment } & & 5,200 \
\hline \text { Income before taxes } & & \$ 23,100 \
\hline \text { Income tax expense } & & (4,800 \
\hline \text { Net income } & & \underline{\$ 18,300} \
\hline 
\end{array}\end{array}$

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Question 11

Define and explain significant noncash investing and financing activities and the method of reporting them on the statement of cash flows.

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Question 12

Explain how the cash flows from operating activities section of the statement of cash flows is prepared using the indirect method.

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Question 13

Explain the use of a spreadsheet in the preparation of the statement of cash flows.

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Question 14

Describe the format of the statement of cash flows, including the reporting of significant noncash investing and financing activities.

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Question 15

Define and discuss the differences between operating, investing, and financing activities.

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Question 16

Use the following company information to prepare a schedule of significant noncash investing and financing activities:
(a) Sold a building with a book value of $300,000 for $225,000 cash and sold land with a book value of $40,000 for $65,000 cash.
(b) Issued 15,000 shares of $10 par value common stock in exchange for equipment with a market value of $175,000.
(c) Retired a $100,000, 8% bond by issuing another $100,000, 7% bond issue.
(d) Acquired land by issuing a twenty-year, 5%, $73,000 note payable.

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Question 17

The following information is available for the

Aarons Corporation:
Aarons Corporation 
Balance Sheets
At December 31

\[\begin{array} { | l | r | r } 
\hline & 20 \mathrm { X } 2 & 20 \mathrm { X } 1 \
\hline \text { Astets: } & & \
\hline \text { Cash } & \$ 24,640 & \$ 23,040 \
\hline \text { Accounts receivable } & 32,180 & 29,400 \
\hline \text { Merchandise inventory } & 73,125 & 61,710 \
\hline \text { Long-term investments } & 55,900 & 56,400 \
\hline \text { Equipment } & 175,500 & 145,500 \
\hline \text { Accumulated depreciation } & ( 33,550 & ( 31,200 \
& & \
\hline \text { Total assets } & \$ 327,795 & \$ 284,850 \
\hline & & \
\hline \text { Liabilities: } & & \
\hline \text { Accounts payable } & \$ 65,000 & \$ 40,380 \
\hline \text { Income taxes payable } & 10,725 & 10,200 \
\hline \text { Bonds payable } & 48,750 & 66,000 \
\hline \text { Total liabilities } & \$ 124,475 & \$ 116,580 \
\hline \text { Equity: } & & \
\hline \text { Common stock } & 117,000 & 96,000 \
\hline \text { Paid-in capital in excest of par } & 13,000 & 9,000 \
\hline \text { Retained earnings } & 73,320 & 63,270 \
\hline \text { Total equity } & \$ 203,320 & \$ 168,270 \
\hline \text { Total liabilities and equity } & \$ 327,795 & \$ 284,850 \
\hline & & \
\hline
\end{array}\]

Aarons Corporation
 Income Statement
For Year Ended December 31, 20X2

$$\begin{array} { | l | r | r |} 
\hline \text { Sales } & & \$ 240,000 \
\hline \text { Cost of goods sold } & \$ 80,900 & \
\hline \text { Depreciation expente } & 29,400 & \
\hline \text { Other operating expenses } & 48,000 & \
\hline \text { Interest expense } & 2,000 & ( 160,300 \
\hline \text { Other gains (lostes): } & & \
\hline \text { Lost on sale of equipment } & & ( 8,400 \
\hline \text { Income before taxes } & & 71,300 \
\hline \text { Income taxes expense } & & 27,650 \
\hline \text { Net income } & & \$ 43,650 \
\hline & &
\end{array}$$

Additional information:
(1) There was no gain or loss on the sales of the long-term investments, nor on the bonds retired.
(2) Old equipment with an original cost of $37,550 was sold for $2,100 cash.
(3) New equipment was purchased for $67,550 cash.
(4) Cash dividends of $33,600 were paid.
(5) Additional shares of stock were issued for cash.
Prepare a complete statement of cash flows for calendar-year 20X2 using the indirect method.

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Question 18

Use the following income statement and information about selected current assets and current liabilities to calculate the net cash provided or used by operating activities using the indirect method.
PULLMAN COMPANY
Income Statement
For Year Ended December 31, 20X2
 $$\begin{array} { l | r | r } 
\hline \text { Sales } & & \$ 180,000 \
\hline \text { Cost of goods sold } & & 104,000 \
\hline \text { Gross profit from sales } & & \$ 76,000 \
\hline \text { Operating expenses: } &  & \ 
\hline \text { Salaries and wages expense } & \$ 25,000& \
\hline \text { Depreciation expense } & 7,000 & \
\hline \text { Rent expense } & 7,200 \
\hline \text { Interest expense } &1,900 & \underline { 41,100 }  \
\hline \text { Income from operations } & & \$ 34,900 \
\hline \text { Loss on sale of land } & & 3 , 5 0 0 \
\hline \text { Net income } & & \$ 31,400 \
\hline
\end{array}$$ Selected beginning and ending balances of current asset and current liability accounts, all of which relate to operating activities, are as follows:
 $$\begin{array} { l | r | r } 
&{ \text { Balance } } \
\hline & \text { Dec. 31, 20X2 } & \text { Dec. 31, 20X1 } \
\hline \text { Accounts receivable } & \$ 27,600 & \$ 24,000 \
\hline \text { Merchandise inventory } & 22,300 & 20,000 \
\hline \text { Prepaid rent } & 550 & 400 \
\hline \text { Accounts payable } & 27,100 & 26,000 \
\hline \text { Salaries and wages payable } & 10,400 & 9,000 \
\hline \text { Interest payable } & 300 & 250
\end{array}$$

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Question 19

Based on the following information provided about a company's operations, calculate its cost of goods purchased and its cash paid for merchandise.
 $\begin{array}{|l|c|}
\hline \text {Cost of  goods sold } & \$ 522,000 \
\hline \text { Merchandise inventory, beginning year } & 70,000 \
\hline \text { Accounts payable, beginning year. } & 53,000 \
\hline \text { Merchandise inventory, end-of-year } & 57,000 \
\hline\text { Accounts payable, end-of-year.. }&48,000\ 
\hline
\end{array}$

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Question 20

Define the cash flow on total assets ratio and explain how it is used to evaluate cash flows and to assess company performance.

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Quiz 16: Reporting the Statement of Cash Flows