CashFlow With Solutions

Acct 592 Spring 2005
The Statement of Cash Flows

Purpose of a statement of cash flows:
To provide information about the cash inflows and outflows of an entity during a period. To summarize the operating, investing, and financing activities of the business.
The cash flow statement helps users to assess a companys liquidity, financial flexibility, operating capabilities, and risk. The statement of cash flows is useful because it provides answers to the following important questions:
Where did cash come from? What was cash used for? What was the change in the cash balance?
Specifically, the information in a statement of cash flows, if used with information in the other financial statements, helps external users to assess:
1. 2. 3. 4. A companys ability to generate positive future net cash flows, A companys ability to meet its obligations and pay dividends, A companys need for external financing, The reasons for differences between a companys net income and associated cash receipts and payments, and Both the cash and noncash aspects of a companys financing and investing transactions.
5.
180694588.doc created by T. Gordon 10/16/2013
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What can we learn from SCF that is not already available in the other financial statements?
It provides answers to important questions like:

Where did cash come from? What was cash used for? What was the change in the cash balance?
Couldnt we just look the balance sheet? The change in cash could be determined, but the statement of cash flows provides detailed information about a companys cash receipts and cash payments during the period. Many things you want to know about a company is summarized in this one statement Operating, financing and investing cash flows
Net income does not always tell the whole story about operating performance. A statement of cash flows is an excellent forecasting tool.
Review of terms
Cash and cash equivalents
It is a short-term, highly liquid investment. It must be readily convertible to cash and it must be so near to maturity that there is insignificant risks of changes in value due to changes in interest rate.
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Noncash revenues and expenses

Net income includes items that were neither cash inflow nor cash outflows: Depreciation expense Accretion expense on asset retirement obligation Amortization of intangibles Impairment loss on goodwill and intangibles Earnings of affiliated companies accounted for using the equity method Impairment losses on other noncurrent assets Compensation expense related to stock options Net income also includes gains and losses from investing and financing activities Gain cash received (unless carrying value was zero) Even when there is a loss, cash might have been received Net income must be adjusted for these items to get the cash provided by operations part of the reconciling schedule or indirect method For other items, there are revenues/expenses as well as cash flows but the amounts are different: Bond interest expense bond interest paid (if bonds were sold at premium or discount) Sales were not all collected in cash (bad debts, other changes in Accounts Receivable) Purchases were not necessarily paid for during period (change in Accounts Payable) Income tax expense income taxes paid due to deferred tax assets/liabilities as well as income taxes refunds receivable or unpaid taxes owed
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Company, Inc. Statement of Cash Flows For the year ended December 31, 199X Cash Flows from Operating Activities Cash received from customers Cash received as interest income * Cash received as dividend income Cash paid for cost of goods sold * Cash paid for selling expenses Cash paid for general & administrative expenses Cash paid for interest (including interest on capital leases) Cash paid for income taxes Cash that would have been paid for taxes except for excess tax deduction related to stock based compensation Net cash provided by (or used by) operating activities Cash Flows from Investing Activities Cash received from sale of property, plant, & equipment Cash received from sale of investments Cash received from repayment of note receivables Cash paid to acquire property, plant, and equipment Cash paid to acquire investments Cash paid out as a loan Net cash provided by (or used by) investing activities Cash Flows from Financing Activities Cash received as proceeds from issuance of debt Cash received as proceeds from issuance of stock Cash received as proceeds from reissuance of treasury stock Cash paid to repay debt (principal payment) Cash paid on principal related to capital leases Cash paid to reacquire stock (purchase treasury stock) Cash paid as dividends Cash retained due to excess tax deduction related to stock options Net cash provided by (or used by) financing activities Net increase (decrease) in cash Beginning cash and cash equivalents balance =Ending cash and cash equivalents balance Schedule of Noncash Investing and Financing Activities Assets for Liabilities &/or Equity Liabilities &/or Equity for Assets Liabilities for Equity and Equity for Liabilities Capital lease (acquisition of asset and obligation for lessee) A reconciliation of net income to cash provided by operations *Brackets indicate items that are normally combined
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Operating Activities
(Usually associated with working capital accounts like Accounts receivable, inventory, salaries payable, etc.) Inflows:
From sale of goods and services From receiving dividends investments From receiving interest from investments or loans From sale of trading securities From reduced income taxes due to excess tax deduction related to stock options
Outflows:
To suppliers for inventory and other materials To employees for services To other entities for services (insurance, etc.) To government for taxes To lenders for interest To purchase trading securities Interest expense is an operating item! Investment earnings (dividends & interest) is an operating item! Buying and selling trading securities are operating activities! These things may not make sense to you so memorize.
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Investing Activities
(Usually associated with long-term assets)
Inflows:
From sale of property, plant and equipment From sale of debt or equity investments of other entities* From collections of principal on loans to other entities
Outflows:
To purchase property, plant and equipment To purchase debt or equity securities of other entities To make loans to other entities
*except investments classified as trading securities which are included in operating activities
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Financing Activities
(Usually associated with long-term liability and equity items)
Inflows:
From issuance of debt (bonds and notes) From issuance of equity securities
Common stock Preferred stock Re-issuance of treasury stock Outflows:
To stockholders as dividends To repay or retire long-term debt, including capital leases for lessee (interest on leases is classified as operating) To reacquire capital stock (treasury stock)
An anomaly on SCF
Dividends are paid to stockholders and interest is paid to bondholders. Dividends paid are shown as outflows under financing activities However, FASB defined interest expense to be an operating activity Interest & dividend revenue are defined to be operating activities, too.
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Direct versus Indirect Presentations

FASB Statement No. 95 allows two ways to calculate and report a companys net cash flow from operating activities on its statement of cash flows.
The Direct Method

Under the direct method, operating cash outflows are deducted from operating cash inflows to determine the net cash flow from operating activities.
If you choose the direct method, a reconciliation of cash provided by operations to net income is a required disclosure. This is the same schedule that appears in a statement prepared using the indirect method The required information items on a direct method statement of cash flow (per FASB) Operating Inflows Cash collected from customers (including lessees, tenants, licensees, and the like) Interest and dividends received Other operating cash receipts, if any Operating outflows Cash paid to employees and other suppliers of goods or services (including insurance, advertising and the like) Interest paid Income taxes paid Other operating cash payments, if any
The Indirect Method

Under the indirect method, net income is adjusted for noncash items related to operations to compute the net cash flow from operating activities.
If you choose to use the indirect method, you must also disclose interest paid and income taxes paid during the year.
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Other disclosures
Under both methods (direct & indirect), you must disclose noncash financing and investing activities
This can be on face of the statement or in the notes to the financial statements. Examples: Trade common stock for land Convertible bonds converted to common stock
Noncash Items
Some financing and investing activities do not affect an entitys cash flow.
Examples: Trade common stock for land Issue bonds in exchange for a building Convertible bonds converted to common stock
Significant transactions should be disclosed separately. The disclosure of significant noncash financing and investing activities are required under both methods (direct & indirect) The disclosure can be on face of the statement or in the notes to the financial statements.
Theoretical Considerations The direct method has the advantage of reporting operating cash inflows separately from operating cash outflows, which may be useful in estimating future cash flows. The direct method is more meaningful to most financial statement users and the tie in to net income is also provided in a separate schedule which is the same as the indirect method presentation. Under the indirect method, adjustments are made to net income to arrive at cash flow from operating activities. Thus, cash from operating activities is tied to net income. An advantage of the indirect method is that income flows are converted from an accrual basis to a cash flow basis. In this manner, the indirect method shows the quality of earnings by providing information about intervals of leads and lags between income flows and operating cash flows.
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Example 1 - Statement of Cash Flow DIRECT METHOD
Palouse Pottery Cash Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Expenses Plant, property & equipment Accumulated Depreciation Accounts Payable Salaries Payable Interest payable Income Taxes Payable Dividends Payable Long term liabilities Common stock, $1 par Retained Earnings Year ending 12/31/06 Ref 15,000 X 40,000 (3,000) 25,000 3,000 215,000 (80,000) 215,000 (23,000) (2,000) (2,000) (1,500) 0 (25,000) (100,000) (61,500) (215,000) 1997 Rev/(Exp) 93,000 (4,000) 20,000 (35,000) (37,000) (2,000) (11,000) (2,500) (7,000) 14,500
(INFLOWS) (OUTFLOWS)
Debit Ref 27,000
Credit
Year ending 12/31/07 42,000 37,500 (4,500) 43,000 6,000 236,000 (82,000) 278,000 (31,000) (9,000) (1,500) (5,500) (8,000) (15,000) (145,000) (63,000) (278,000) 1997 Rec/(Disb)
Target 27,000 (2,500) (1,500) 18,000 3,000 21,000 (2,000) (8,000) (7,000) 500 (4,000) (8,000) 10,000 (45,000) (1,500) 0
Closing entry for Sales Gain/(loss) on sale of PP&E Realized gain/(loss) - land Cost of goods sold Salaries & other operating expenses Bad debt expense Depreciation & amortization Interest expense Income taxes expense Net income (accrual basis) Statement of Cash Flows Operating Activities Investing Activities
Noncash Financing/Investing CHANGE IN CASH Totals X 27,000
Additional information: a. Wrote off $500 accounts receivable as uncollectible b. Sold operational assets for $4,000 cash that had cost $17,000 and had a book value of $8,000 c. Declared a cash dividend of $13,000
d. e. f. g.
Sold land for $30,000 that had been acquired for $10,000 Paid a $10,000 long-term note installment Purchase plant, property & equipment for $48,000 cash. Issued common stock for $45,000 cash.
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Example 1 - Statement of Cash Flow INDIRECT METHOD
Palouse Pottery Cash Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Expenses Plant, property & equipment Accumulated Depreciation Accounts Payable Salaries Payable Interest payable Income Taxes Payable Dividends Payable Long term liabilities Common stock, $1 par Retained Earnings Statement of Cash Flows Operating Activities Year ending 12/31/06 Ref 15,000 X 40,000 (3,000) 25,000 3,000 215,000 (80,000) 215,000 (23,000) (2,000) (2,000) (1,500) 0 (25,000) (100,000) (61,500) (215,000)
Debit Ref 27,000
Credit
Year ending 12/31/07 42,000 37,500 (4,500) 43,000 6,000 236,000 (82,000) 278,000 (31,000) (9,000) (1,500) (5,500) (8,000) (15,000) (145,000) (63,000) (278,000)
Target 27,000 (2,500) (1,500) 18,000 3,000 21,000 (2,000) (8,000) (7,000) 500 (4,000) (8,000) 10,000 (45,000) (1,500) 0
Noncash Financing/Investing CHANGE IN CASH Totals X 27,000
Additional information: a. Wrote off $500 accounts receivable as uncollectible b. Sold operational assets for $4,000 cash that had cost $17,000 and had a book value of $8,000
d. Sold land for $30,000 that had been acquired for $10,000 e. Paid a $10,000 long-term note installment f. Purchase plant, property & equipment for $48,000 cash.
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c. Declared a cash dividend of $13,000 g. Issued common stock for $45,000 cash. Example 2 - Statement of Cash Flow
Debit Ref Credit Year ending 12/31/07 5,000 28,500 (2,000) 17,000 500 289,100 (16,000) 322,100 (13,000) (1,000) (1,000) (10,000) Target (10,000) (1,500) (500) 7,000 (4,000) 69,000 4,000 (3,000) 2,000 (1,000) 20,000 Year ending 12/31/06 Ref 15,000 30,000 (1,500) 10,000 4,500 220,100 (20,000) 258,100 (10,000) (3,000) 0 (30,000) (100,000) (115,100) (258,100) 1997 Rev/(Exp) 80,000 (2,000) (35,000) (26,000) (1,000) (5,000) (2,000) (3,000) 6,000
Moscow Moving & Storage Cash Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Expenses Plant, property & equipment Accumulated Depreciation Accounts Payable Salaries Payable Interest payable Long term liabilities Common stock, $1 par Retained Earnings
Closing entry for Sales Gain/(loss) on sale of PP&E Cost of goods sold Salaries & other operating expenses Bad debt expense Depreciation & amortization Interest expense Income taxes expense Net income (accrual basis) Statement of Cash Flows Operating Activities Investing Activities
(181,000) (81,000) (116,100) (1,000) (322,100) 0 1997 Receipt/(Disb)
Noncash Financing/Investing
CHANGE IN CASH Totals Additional Information
a. Wrote off $500 accounts receivable as uncollectible b. Sold operational assets for $4,000 cash (cost $15,000, acc'd depreciation $9,000) c. Declared and paid a cash dividend, $5,000
d. Issued common stock for $36,000 cash e. Paid a $20,000 long-term note installment f. Purchased operational assets, $39,000 cash g. Acquired land in exchange for 1,000 shares of common stock worth $45 each
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Reconciliation of Net Income to Cash Provided by Operations or the Indirect Method

Example 2 Moscow Moving & Storage Statement of Cash Flow Worksheet Reconciliation Schedule (Indirect method) Net income Ref
Cash provided by operations
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Acct 592 Spring 2005 Example 3 Avery Slings & Arrows, Inc.
Avery Slings & Arrows Income Statement For year ending Sales Earnings of affiliates (equity method) Realized loss on sale of equipment Realized gain on sale of investments Interest and dividend revenue Total revenues Cost of goods sold Salaries and wages Other operating expenses Bad debt expense Depreciation expense Amortization of intangibles Accretion expense Interest expense Income tax expense Net income 3,490,000 632,000 421,000 45,000 757,000 5,000 25,000 935,000 177,000 12/31/04 6,600,000 150,000 (65,000) 53,000 15,000 6,753,000
6,487,000 266,000
Prepare a statement of cash flows (direct method) including the required reconciling schedule and any other required disclosures for Avery Slings & Arrows, Inc. Information from the balance sheet and income statement have been entered into a worksheet for your convenience. In addition to completing the worksheet, you MUST prepare a formal statement with headings, subtotals, etc. for full credit. ADDITIONAL INFORMATION a. During the year, ASA paid $2,767,000 in cash for land, building, and equipment. b. On August 5, 2004, ASA issued 25,000 shares of common stock for $42 per share. c. ASA purchased $273,000 in marketable securities during the year. d. Equipment costing $500,000 was sold during the year for $59,000. The book value was $124,000. e. During the year, AAS declared cash dividends in the amount of $203,000. f. On April 1, 2004, the holders of $1,500,000 in convertible bonds elected to convert their bonds to common stock. The conversion ratio was 25 shares of common stock for each share $1,000 face value bond. g. The noncurrent investment represents 30% of the outstanding securities of the investee. This investment is accounted for on the equity method. During 2004, ASA received $29,000 in dividends from the investment. h. On May 1, 2004, ASA acquired equipment under a capital lease. At the inception of the lease, the present value of the minimum lease payments was $648,000. i. ASA acquired a patent on a new process for $500,000 on October 15, 2004. j. During 2004, ASA sold marketable securities which it had acquired for $222,000 for $275,000. k. In February, ASA issued 150,000 shares of common stock in a 50% stock dividend. l. ASA issued $3,000,000 in bonds at face value on August 1, 2004. m. ASA sold 500 shares of treasury stock which it had acquired for $20 per share for $46 per share on January 18, 2004. n. In October, ASA acquired 1,000 shares of treasury stock at $38 per share. o. Bad debts in the amount of $33,000 were written off during the year.
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Avery Slings & Arrows Balance Sheet 12/31/04 Current Assets Cash Securities Available for Sale (at market) Accounts Receivable (net) Merchandise Inventory Prepaid Expenses Noncurrent Assets Investments in affiliated companies (equity method) Land, building & equipment Less Accumulated Depreciation Intangible Assets Total assets Current Liabilities Accounts Payable Salaries Payable Interest payable Income Taxes Payable Dividends Payable Noncurrent Liabilities Bonds Payable Premium/Discount on Bonds Payable Convertible Bonds Payable Lease obligation Asset retirement obligation Deferred Income Taxes Other long term liabilities Stockholder's Equity Common stock, $10 par Additional paid in capital - common Other paid in capital Unrealized (gain)/loss AFS invest Treasury stock (at cost) Retained Earnings Total liabilities and equity 2,261,000 258,000 1,947,000 602,000 4,000 5,072,000 2,121,000 20,715,000 (2,181,000) 568,000 26,295,000 12/31/03 2,850,000 100,000 1,900,000 900,000 50,000 5,800,000 2,000,000 17,800,000 (1,800,000) 73,000 23,873,000
347,000 18,000 156,000 45,000 128,000 694,000 7,000,000 642,000 1,500,000 2,108,000 275,000 122,000 590,000 12,237,000 5,125,000 3,525,000 13,000 27,000 (38,000) 4,712,000 13,364,000 26,295,000
650,000 21,000 55,000 32,000 60,000 818,000 4,000,000 656,000 3,000,000 1,825,000 250,000 75,000 2,590,000 12,396,000 3,000,000 1,600,000 0 (80,000) (10,000) 6,149,000 10,659,000 23,873,000
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Avery Slings & Arrows Cash Securities Available for Sale Allowance to adjust to market Accounts receivable (net) Merchandise Inventory Prepaid Expenses Investments in affiliated companies (equity method) Land, building & equipment 17,800,000 Accumulated Depreciation Intangible Assets Total assets (1,800,000) 73,000 23,873,000 20,715,000 (2,181,000) 568,000 26,295,000 2,915,000 (381,000) 495,000 Year ending 12/31/03 Ref Debit 2,850,000 x 180,000 (80,000) 1,900,000 900,000 50,000 2,000,000 Year ending 12/30/04 Target 589,000 2,261,000 (589,000) 231,000 27,000 1,947,000 602,000 4,000 2,121,000 51,000 107,000 47,000 (298,000) (46,000) 121,000
Ref Credit
Accounts Payable Salaries Payable Interest payable Income Taxes Payable Dividends Payable Bonds Payable (Premium)/Discount on Bonds Payable Convertible Bonds Payable Lease obligation Asset retirement obligation Deferred Income Taxes Other long term liabilities
(650,000) (21,000) (55,000) (32,000) (60,000) (4,000,000) (656,000) (3,000,000) (1,825,000) (250,000) (75,000) (2,590,000)
(347,000) (18,000) (156,000) (45,000) (128,000)
303,000 3,000 (101,000) (13,000) (68,000)
(7,000,000) (3,000,000) (642,000) 14,000
(1,500,000) 1,500,000 (2,108,000) (275,000) (122,000) (283,000) (25,000) (47,000)
(590,000) 2,000,000
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Avery Slings & Arrows Common stock, $10 par Additional paid in capital common Unrealized (gain)/loss AFS invest Treasury stock (at cost) Other paid in capital Retained Earnings
Year ending 12/31/03 Ref Debit (3,000,000) (1,600,000) 80,000 10,000 0 (6,149,000) (23,873,000)
Ref Credit
Year ending 12/30/04 Target (5,125,000) (2,125,000) (3,525,000) (1,925,000) (27,000) 38,000 (13,000) (4,712,000) (26,295,000) 2004 Operating Cash Inflows/ (Outflows) (107,000) 28,000 (13,000) 1,437,000
Closing entry for
Sales Earnings of affiliated companies Gain/(loss) on sale of equipment Gain/(loss) sale of patent Realized gain/(loss) sale of land Realized gain/(loss) on investments Interest and dividend revenue Cost of goods sold Salaries and wages Other operating expenses Bad debt expense Depreciation expense Amortization of intangibles Accretion expense Interest expense Income taxes expense Net income (accrual basis)
2004 Revenue/ Re (Expense) f 6,600,000 150,000 (65,000) 0 0 53,000 15,000 (3,490,000) (632,000) (421,000) (45,000) (757,000) (5,000) (25,000) (935,000) (177,000) 266,000
Ref
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Avery Slings & Arrows Cash provided by operations: Reconciling schedule: Net income
INFLOWS
OUTFLOWS
266,000
Cash provided by operations
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Avery Slings & Arrows Financing Activities
INFLOWS
OUTFLOWS 0
CHANGE IN CASH Totals
589,000 x 0
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Avery Slings & Arrows Statement of Cash Flows For year ended December 31, 2004 Inflows Cash provided by operations Cash collected from customers Interest & dividends received Cash paid for merchandise Cash paid to employees Other operating disbursements Interest paid Income taxes paid 6,508,000 44,000 (3,495,000) (635,000) (375,000) (848,000) (117,000) (5,470,000) Outflows Net
6,552,000 Cash provided by investing activities Proceeds from sale of equipment Cash outlay to acquire equipment Cash outlay to acquire patent Proceeds from sale of securities Cash outlay to buy securities
1,082,000
59,000 (2,767,000) (500,000) 275,000 334,000 (273,000) (3,540,000) (3,206,000)
Cash provided by financing activities Dividends paid Sold treasury stock Purchased treasury stock Payments on long term debt Payments on capital leases Common stock issued Proceeds from issuing nonconvertible bonds
(135,000) 23,000 (38,000) (2,000,000) (365,000) 1,050,000 3,000,000 4,073,000 (2,538,000) 1,535,000 (589,000) 2,850,000 2,261,000
Change in cash Beginning balance - Cash Ending balance - Cash
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Avery Slings & Arrows Statement of Cash Flows For year ended December 31, 2004 Non-cash financing and investing activities Capital lease Preferred bonds converted to common stock
648,000 1,500,000
Schedule to reconcile net income to cash provided by operations Net Income Depreciation Amortization & impairment of intangibles Accretion expense Amortization of bond premium Realized loss on sale of equipment Realized gain on sale of investments Equity method investments earnings in excess of dividends Increase in deferred income taxes Change in working capital accounts: Net accounts receivable Merchandise Inventory Prepaid Expenses Accounts Payable Salaries Payable Interest Payable Income Taxes Payable Cash provided by operations:
266,000 757,000 5,000 25,000 (14,000) 65,000 (53,000) (121,000) 47,000 (47,000) 298,000 46,000 (303,000) (3,000) 101,000 13,000 1,082,000
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Acct 592 Spring 2005 Acct. 301 - Statement of Cash Flows - Homework 4 Wenatchee Whirlpool World Balance Sheet
12/31/96 12/31/95 Current Assets Cash Securities Available for Sale (at market) Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Operating Expenses Noncurrent Assets Investments (equity method) Plant, property & equipment Accumulated Depreciation Intangible Assets TOTAL ASSETS Current Liabilities Accounts Payable Salaries Payable Income Taxes Payable Dividends Payable Current portion long term debt Noncurrent Liabilities Bonds Payable Discount on Bonds Deferred Income Taxes Other long term liabilities Stockholder's Equity Convertible preferred, $100 par Common stock, $10 par Additional paid in capital Unrealized (gain)/loss investments Retained Earnings Total liabilities and equity 2,837,600 390,000 1,752,000 (120,500) 1,145,000 84,000 6,088,100 3,097,000 16,420,000 (829,000) 71,500 24,847,600 2,000,000 150,000 1,900,000 (110,000) 875,000 62,000 4,877,000 3,000,000 10,800,000 (600,000) 128,000 18,205,000
880,000 20,000 13,400 35,000 29,000 977,400 10,000,000 (247,000) 180,000 562,000 10,495,000 500,000 3,100,000 3,950,000 27,000 5,798,200 13,375,200 24,847,600
750,000 15,000 27,000 60,000 21,000 873,000 5,000,000 (270,000) 88,000 3,000,000 7,818,000 2,000,000 1,500,000 1,200,000 78,000 4,736,000 9,514,000 18,205,000
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Wenatchee Whirlpool World Income Statement For year ending 12/31/96 Sales Earnings of affiliated company (equity method) Gain/(loss) on sale of PP&E Realized gain/(loss) on investments Realized gain on sale of patent Interest and dividend revenue Total revenues Cost of goods sold Salaries and wages Other operating expenses Bad debt expense Depreciation & amortization expense Interest expense Income taxes expense Net income Additional information: a. b. c. d. e. f. g. h. i. j. k. On February 25, WWW sold an internally developed patent for $1,000,000. The patent was carried on the books at unamortized legal fees amounting to $50,000 at date of sale. On March 31, WWW issued $5,000,000 in bonds at face value. The semi-annual bonds have a coupon rate of 10% per annum. During the year, WWW disposed of various items of equipment with a total book value of $65,000 and original cost of $80,000. The amount received was $25,000 in cash. During the third quarter, shareholders holding 15,000 shares of the preferred stock converted them into common stock. The conversion ratio was 6 shares of common for each share of preferred. On July 20, WWW sold 50,000 shares of its common stock for $41 per share. By the end of the year, WWW had written off as uncollectible a total of $28,000 in accounts receivable. An existing factory with equipment was acquired during the year. The acquisition cost was allocated as follows: $772,000 to land, $3,450,000 to building and 678,000 to equipment. WWW acquired a parcel of land adjoining the new factory by giving the owner 20,000 shares of its common stock. At the date of the transaction, the market value of the stock was $40 per share. During the year WWW purchased $875,000 in marketable securities and sold securities which had cost $584,000. The market value of the portfolio at the end of the year was $390,000. WWW owns 30% of a company which manufactures parts that WWW uses in its production process. WWW received $18,000 in dividends from this partially owned company during 1996. Dividends declared during the year totaled $50,000. 3,600,000 590,000 345,000 38,500 250,500 669,400 740,400 6,200,000 115,000 (40,000) 108,000 950,000 13,000 7,346,000
6,233,800 1,112,200
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Acct 592 Spring 2005 Homework 4 - Acct 315

Worksheet Wenatchee Whirlpool World Cash Securities Available for Sale (at market) Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Operating Expenses Investments in affiliated companies (equity method) Plant, property & equipment Accumulated Depreciation Intangible Assets Year ending 12/31/95 Ref 2,000,000 150,000 1,900,000 (110,000) 875,000 62,000 3,000,000 10,800,000 (600,000) 128,000 18,205,00 0 (750,000) (15,000) (27,000) (60,000) (21,000) (5,000,000) 270,000 (88,000) (3,000,000) Debit 837,600 Ref Credit Year ending 12/31/96 2,837,600 390,000 Target 837,600 240,000
1,752,000 (148,000) (120,500) 1,145,000 84,000 3,097,000 (10,500) 270,000 22,000 97,000
16,420,000 5,620,000 (829,000) (229,000) 71,500 (56,500)
Accounts Payable Salaries Payable Income Taxes Payable Dividends Payable Current portion long term debt Bonds Payable Premium/Discount on Bonds Payable Deferred Income Taxes Other long term liabilities
24,847,60 0 (880,000) (130,000) (20,000) (13,400) (35,000) (29,000) (5,000) 13,600 25,000 (8,000)
(10,000,000 (5,000,00 ) 0) 247,000 (180,000) (23,000) (92,000)
(562,000) 2,438,000
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Wenatchee Whirlpool World 12/31/95 ref Convertible preferred, $100 par Common stock, $10 par Additional paid in capital Unrealized (gain)/loss investments Retained Earnings (2,000,000) (1,500,000) (1,200,000) (78,000) (4,736,000) 0 (18,205,00 0) Closing entry for 1996 Rev/(Exp) Sales Earnings of affiliated companies (equity method) Gain/(loss) on sale of PP&E Realized gain/(loss) on investments Realized gain on sale of patent Interest and dividend revenue Cost of goods sold Salaries and wages Other operating expenses Bad debt expense Depreciation expense Amortization of intangible assets Interest expense Income taxes expense Net income (accrual basis)
Debit
ref
Credit
12/31/96
Target
(500,000) 1,500,000 (3,100,000) (1,600,000 ) (3,950,000) (2,750,000 ) (27,000) 51,000
(5,798,200) (1,062,200 ) (24,847,60 0) 1996 Receipt/ (Disb)
6,200,000 115,000 (40,000) 108,000 950,000 13,000 (3,600,000) (590,000) (345,000) (38,500) (244,000) (6,500) (669,400) (740,400) 1,112,200
Page 25

Wenatchee Whirlpool World Statement of Cash Flows Operating Activities INFLOWS OUTFLOWS (Subtotals)
837,600
Page 26
Statement of Cash Flow Easy Practice Problems 5 & 6

5. Ulliman Company Prepare a statement of cash flow direct method including the reconciliation schedule. Most information is provided on the attached workpaper. Additional information: a. Dividends declared and paid totaled $700. b. On January 1, 1999 the 10% convertible bonds that had originally been issued at face value were converted into 500 shares of common stock. The book value method was used to account for the conversion. c. Long-term nonmarketable investments that cost $1,600 were sold for $2,300. d. The long-term note payable was paid by issuing 250 shares of common stock at the beginning of the year. e. Equipment with a cost of $2,000 and a book value of $300 was sold for $100. f. Equipment was purchased at a cost of $16,200. g. The 12% bonds payable were issued on September 1, 1999 at 97. They mature on September 1, 2009. The company uses the straight-line method to amortize the discount. h. Taxable income was less than pretax accounting income, resulting in a $396 increase in deferred taxes payable. i. Short-term marketable securities were purchased at a cost of $1,300. The portfolio was increased by $300 to a $3,800 fair value at year end by adjusting the related allowance account. 6. Driskoll Company Prepare a statement of cash flow direct method including the reconciliation schedule. Most information is provided on the attached workpaper. Additional information: a. Dividends were declared in the amount of $2,100. b. Bonds payable with a face value, book value, and market value of $14,000 were retired on June 30, 1999. c. Bonds payable with a face value of $8,000 were issued at 90.25 on July 31, 1999, They mature on July 31, 2004. The company uses the straight-line method to amortize the bond discount. d. Equipment with a cost of $4,000 and a book value of $1,400 was exchanged for an acre of land valued at $2,700. No cash was exchanged. The transaction was properly considered to be a dissimilar asset exchange. e. Long-term investments in bonds being held to maturity with a cost of $1,000 were sold for $800. f. Sixty-five shares of common stock were exchanged for a patent. The common stock was selling for $20 per share at the time of the exchange. g. A tornado completely destroyed a small building that had an original cost of $8,000 and a book value of $4,800. Settlement with the insurance company resulted in after-tax proceeds of $2,200 and an extraordinary loss (net of income taxes) of $2,600.
Page 27
Acct 592 Spring 2005 5. Homework Assignment Ulliman Company

Year ending 01/01/99 Ref 1,400 2,800 1,700 500 8,100 1,300 7,000 15,000 32,000 (16,000) 0 53,800 (3,800) (2,400) (1,100) 0 0 0 (3,500) (9,000) (800) 0 (14,000) (8,700) (500) (10,000) (53,800) 1999 Rev/ (Exp) 39,930 0 (200) 700 820 (19,890) (11,000) (1,000) (2,100) (410) (2,050) 4,800 (53,800) Debit Worksheet Ref Credit Year ending 12/31/99 Target 1,000 2,400 (110) 2,690 1,300 3,000 300 800 (190) 7,910 410 1,710 (1,600) 5,400 0 15,000 14,200 46,200 (400) (16,400) 0 0 68,710 (350) (4,150) (104) (2,504) 450 (650) (400) (400) (10,000) (10,000) 290 290 0 0 (1,196) 0 (21,500) (13,700) (800) 3,500 9,000 (396) 0 (7,500) (5,000) (300)
Uliman Company Cash Accounts receivable (net) Marketable securities (at cost) Allowance for change in value Merchandise Inventory Prepaid Expenses Investments (long-term) Land Buildings and equipment Accumulated depreciation
Accounts Payable Income Taxes Payable Wages payable Interest payable 12% bonds payable Premium/Discount on Bonds Payable Notes payable (long term) 10% Convertible bonds Deferred Income Taxes Convertible preferred, $100 par Common stock, $10 par Additional paid in capital Unrealized (gain)/loss investments Retained Earnings Closing entry for Sales Other revenue Gain/(loss) on sale of PP&E Realized gain/(loss) on investments Interest and dividend revenue Cost of goods sold Salaries & other operating expenses Other operating expense Depreciation & amortization Interest expense Income taxes expense Net income (accrual basis)
(14,100) (4,100) (68,710) 1999 Receipt/(Disb)
Page 28
Acct 592 Spring 2005 5. Ulliman Company, continued

INFLOWS OUTFLOWS
Statement of Cash Flows Operating Activities Reconciliation Schedule:
Subtotals
Page 29
Acct 592 Spring 2005 6. Homework Problem Driskoll Company

Year ending 12/31/99 Ref 2,700 5,900 15,300 1,400 8,300 16,300 68,700 (35,000) 29,600 (14,200) 8,700 107,700 (8,900) (630) (2,500) (23,000) 0 (22,000) (15,320) 0 Debit Worksheet Ref Credit Year ending 12/31/99 Target 3,520 820 6,215 315 15,530 230 1,000 (400) 7,300 (1,000) 19,000 2,700 60,700 (8,000) (34,500) 500 25,600 (4,000) (14,700) (500) 9,185 485 98,850 (9,195) (300) (2,600) (17,000) 715 (22,650) (15,970) 0 (295) 330 (100) 6,000 715 (650) (650) 0
Driskoll Company Cash Accounts receivable (net) Inventories Prepaid Expenses Investments (long-term) Land Buildings Acc'd depreciation - Bldg Equipment Acc'd depreciation - Equip Patents
Accounts Payable Interest payable Wages payable Bonds payable Discount on bonds Common stock, $10 par Additional paid in capital Unrealized (gain)/loss investments Retained Earnings
(35,350) (107,700) ok Closing entry for 1999 Rev/(Exp) Sales 49,550 Gain/(loss) on exchange of assets 1,300 Realized gain/(loss) on (200) investments Interest and dividend revenue 790 Cost of goods sold (23,800) Salaries & other operating (16,510) expenses Other operating expense (1,100) Depreciation - buildings (2,700) Depreciation - equipment (3,100) Patent amortization (815) Interest expense (1,715) Income taxes expense (500) Extraordinary loss (net of taxes) (2,600) Net income (accrual basis) (1,400)
(31,850) 3,500 (98,850) ok 1999 Receipt/(Disb)
Page 30
Acct 592 Spring 2005 6. Driskoll Company, continued

INFLOWS OUTFLOWS
Statement of Cash Flows Operating Activities Reconciliation Schedule:
Subtotals
Page 31
Acct 592 Spring 2005 7. Statement of Cash Flow Problem from final exam, Spring 1998
Albion Altimeters Inc. Balance Sheet Current Assets Cash Securities Available for Sale (at market) Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Operating Expenses 12/31/97 310,200 1,112,000 781,000 (33,200) 829,000 38,800 3,037,800 12/31/96 400,000 500,000 900,000 (27,000) 850,000 25,000 2,648,000 Albion Altimeters Inc. Income Statement For year ending Sales Gain/(loss) on sale of PP&E Interest and dividend revenue Total revenues Cost of goods sold Salaries and wages Other operating expenses Bad debt expense Depreciation & amortization expense Interest expense Income taxes expense Net income 413,000 7,200 23,500 0 443,700 1,000,000 118,000 103,700 1,221,700 350,000 8,500 27,000 25,000 410,500 1,000,000 124,000 88,000 1,212,000 2,100,000 650,000 230,000 17,200 30,000 87,700 180,200 12/31/97 3,600,000 (30,000) 15,000 3,585,000
Noncurrent Assets Plant, property & equipment Accumulated Depreciation TOTAL ASSETS Current Liabilities Accounts Payable Salaries Payable Income Taxes Payable Dividends Payable Noncurrent Liabilities Bonds Payable Premium/Discount on Bonds Payable Deferred Income Taxes
3,562,000 (355,000) 6,244,800
1,880,000 (350,000) 4,178,000
3,295,100 289,900
Required: Use the additional information (below) and the worksheet provided to prepare the statement of cash flow using the direct method. For full credit, use the pages provided to prepare the formal statement in addition to the worksheet. Additional information: a. AA declared dividends of $75,000 on June 30, 1997. b. On Sept. 3, AA sold equipment with a book value of $65,000 for $35,000 in cash. The original cost of the item was $90,000. c. AA purchased for cash plant, property & equipment for $1,740,000. d. On May 15, AA issued 50,000 shares of common stock at $35 each. e. AA wrote off $11,000 of bad debts during 1997. f. AA purchased for cash $585,000 in marketable securities on Apr. 1. g. On Oct. 10, AA issued 1,000 shares of stock in exchange for a parcel of land. At that date, the market price of the stock was $32.
Stockholder's Equity Common stock, $10 par Additional paid in capital Acc'd other comprehensive income* Retained Earnings Total liabilities and equity
1,510,000 1,972,000 13,000 1,084,400 4,579,400 6,244,800
1,000,000 700,000 (14,000) 869,500 2,555,500 4,178,000
* Other comprehensive income is composed of the holding gains/losses related to available for sale securities.
Page 32

7. Statement of Cash Flow Problem Worksheet Albion Altimeters Inc. Cash Securities Available for Sale (at market) Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Operating Expenses Plant, property & equipment Accumulated Depreciation Year ending 12/31/96 Ref 400,000 500,000 900,000 (27,000) 850,000 25,000 1,880,000 (350,000) 4,178,000 (350,000) (8,500) (27,000) (25,000) (1,000,000) (124,000) (88,000) (1,000,000) (700,000) 14,000 (869,500) 0 (4,178,000) Rev/(Exp) 3,600,000 (30,000) 15,000 (2,100,000) (650,000) (230,000) (17,200) (30,000) (87,700) (180,200) 289,900 Ref Debit Ref Credit Year ending 12/31/97 310,200 1,112,000 781,000 (33,200) 829,000 38,800 3,562,000 (355,000) 6,244,800 (413,000) (7,200) (23,500) 0 (1,000,000) (118,000) (103,700) (1,510,000) (1,972,000) (13,000) (1,084,400) (6,244,800) Receipt/(Disb)
Debit
Ref
Credit 89,800
Target (89,800) 612,000 (119,000) (6,200) (21,000) 13,800 1,682,000 (5,000)
Accounts Payable Salaries Payable Income Taxes Payable Dividends Payable Bonds Payable Premium/Discount on Bonds Payable Deferred Income Taxes Common stock, $10 par Additional paid in capital Acc'd other comprehensive income Retained Earnings
(63,000) 1,300 3,500 25,000 0 6,000 (15,700) (510,000) (1,272,000) (27,000) (214,900) (2,066,800)
Closing entry for 1997

Sales Gain/(loss) on sale of PP&E Interest and dividend revenue Cost of goods sold Salaries and wages Other operating expenses Bad debt expense Depreciation expense Interest expense Income taxes expense Net income (accrual basis)
Page 33
Acct 592 Spring 2005 7. Albion Altimeters

Statement of Cash Flows Operating Activities INFLOWS OUTFLOWS (Subtotals)
89,800
Page 34
Acct 592 Spring 2005 Albion Altimeters Statement of Cash Flow For year ended 12-31-97 Cash provided by operations
Cash provided by investing activities
Cash provided by financing activities
Page 35
Albion Altimeters Statement of Cash Flow For year ended 12-31-97 Reconciling schedule
Notes:
Page 36
Acct 315 - Statement of Cash Flow Homework Problem # 8

Instructions: Prepare the statement of cash flow for Endicott Engines Inc. (attached) using the direct method. Show all your work on clearly labeled and well-organized worksheet (provided) or equivalent printout. Label your work and answers clearly. You must submit a worksheet if you want me to be able to follow your thought process (in case your answer is wrong). If the problem doesnt balance, you may plug something (clearly labeled as a plug) and still obtain most of the available points. If you are using spreadsheet software, please explain your computations since I cannot tell what formulas you incorporated into the cells from looking at the printout. The Excel worksheet is available on the course web page: http://www.academic.uidaho.edu/Acct301. NOTE: For full credit, you must prepare the statement of cash flow in good form (direct method) with all necessary disclosures including a reconciling schedule and disclosures about noncash financing and investing activities. Endicott Engines Inc. Income Statement For year ending 12/31/02 Sales Earnings of affiliated companies (equity method) Gain/(loss) on sale of PP&E Realized gain/(loss) on investments Realized gain on sale of patent Interest and dividend revenue Total revenues Cost of goods sold Salaries and wages Other operating expenses Bad debt expense Depreciation & amortization expense Income taxes expense Net income 3,800,000 610,000 354,000 47,200 261,000 692,100 572,700 6,500,000 125,000 (30,000) 192,000 450,000 15,000 7,252,000
6,337,000 915,000
Page 37
Acct 592 Spring 2005 Endicott Engines Inc. Additional information: a. b. c. d. e. f. g. h. i. j. k. l. On February 19, EEI sold an internally developed patent for $500,000. On April 3, EEI issued $6,000,000 in bonds at face value. The semi-annual bonds have a coupon rate of 10% per annum. During the year, EEI disposed of various items of equipment with a total book value of $60,000 and original cost of $80,000. The amount received was $30,000 in cash. During the third quarter, shareholders holding 10,000 shares of the preferred stock converted them into common stock. The conversion ratio was 8 shares of common for each share of preferred. On July 20, EEI sold 25,000 shares of its common stock for $43 per share. By the end of the year, EEI had written off as uncollectible a total of $35,000 in accounts receivable. An existing factory with equipment was acquired during the year. The acquisition cost was allocated as follows: $750,000 to land, $4,000,000 to building and 600,000 to equipment. EEI acquired a parcel of land adjoining the new factory by giving the owner 10,000 shares of its common stock. At the date of the transaction, the market value of the stock was $45 per share. New equipment for the factory was obtained under a capital lease. The present value of the minimum lease payments was $722,000. During the year EEI purchased $900,000 in marketable securities and sold securities which had cost $600,000. The market value of the portfolio at the end of the year was $536,000. EEI owns 40% of a company that manufactures parts that EEI uses in its production process. EEI received $20,000 in dividends from this partially owned company during 2002. Dividends declared during the year totaled $100,000.
Page 38
Endicott Engines Inc. Balance Sheet Current Assets Cash Securities Available for Sale Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Operating Expenses Noncurrent Assets Investments (partially owned companies) Plant, property & equipment Accumulated Depreciation Intangible Assets TOTAL ASSETS Current Liabilities Accounts Payable Salaries Payable Income Taxes Payable Dividends Payable
12/31/02 1,308,200 536,000 2,145,000 (122,200) 1,165,000 63,000 5,095,000 2,605,000 17,142,000 (934,000) 93,000 24,001,000 1,050,000 43,000 24,000 85,000 1,202,000 11,000,000 (277,000) 142,000 749,000 570,000 12,184,000 1,000,000 2,150,000 2,575,000 27,000 4,863,000 10,615,000 24,001,000
12/31/01 1,500,000 300,000 2,000,000 (110,000) 975,000 50,000 4,715,000 2,500,000 10,700,000 (700,000) 150,000 17,365,000 800,000 18,000 35,000 60,000 913,000 5,000,000 (300,000) 90,000 323,000 3,000,000 8,113,000 2,000,000 1,000,000 1,200,000 91,000 4,048,000 8,339,000 17,365,000
Noncurrent Liabilities
Bonds Payable Discount on Bonds Deferred Income Taxes Lease obligations Other long term liabilities Stockholder's Equity Convertible preferred, $100 par Common stock, $10 par Additional paid in capital Unrealized (gain)/loss investments Retained Earnings Total liabilities and equity
Page 39
Acct 592 Spring 2005 Worksheet

Endicott Engines Inc. Cash Securities Available for Sale Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Operating Expenses Investments (equity method) Plant, property & equipment Accumulated Depreciation Intangible Assets
Endicott Engines Inc. Year ending

12/31/01 Ref 1,500,000 300,000 2,000,000 (110,000) 975,000 50,000 2,500,000 10,700,000 (700,000) 150,000 17,365,000 (800,000) (18,000) (35,000) (60,000) (5,000,000) 300,000 (90,000) (323,000) Debit Ref Credit 191,800
Year ending
12/31/02 1,308,200 536,000 2,145,000 (122,200) 1,165,000 63,000 2,605,000 17,142,000 (934,000) 93,000 24,001,000 (1,050,000) (43,000) (24,000) (85,000) (11,000,000) 277,000 (142,000) (749,000) Target (191,800) 236,000 145,000 (12,200) 190,000 13,000 105,000 6,442,000 (234,000) (57,000)
Accounts Payable Salaries Payable Income Taxes Payable Dividends Payable Bonds Payable Premium/Discount on Bonds Payable Deferred Income Taxes Lease obligations
(250,000) (25,000) 11,000 (25,000) (6,000,000) (23,000) (52,000) (426,000)
180694588.doc Created by T. Gordon 10/16/2013
Page 40
Acct 592 Spring 2005 Endicott Engines Inc.

Other long term liabilities Convertible preferred, $100 par Common stock, $10 par Additional paid in capital Unrealized (gain)/loss investments Retained Earnings 0 Closing entry for 2002: Sales Earnings of affiliated company (equity method) Gain/(loss) on sale of PP&E Realized gain/(loss) on investments Realized gain on sale of patent Interest and dividend revenue Cost of goods sold Salaries and wages Other operating expenses Bad debt expense Depreciation expense Amortization of intangible assets Interest expense Income taxes expense Net income (accrual basis) Statement of Cash Flows Operating Activities
180694588.doc Created by T. Gordon 10/16/2013 Page 41
12/31/01 Ref (3,000,000) (2,000,000) (1,000,000) (1,200,000) (91,000) (4,048,000) (17,365,000) Rev/(Exp) 6,500,000 125,000 (30,000) 192,000 450,000 15,000 (3,800,000) (610,000) (354,000) (47,200) (254,000) (7,000) (692,100) (572,700) 915,000
Debit
Ref
Credit
12/31/02 (570,000) (1,000,000)
Target 2,430,000 1,000,000
(2,150,000) (1,150,000) (2,575,000) (1,375,000) (27,000) (4,863,000) (24,001,000) Receipt/(Disb) 64,000 (815,000)
Endicott Engines Inc.

INFLOWS OUTFLOW S
Page 42
Acct 592 Spring 2005 Endicott Engines Inc. Financing Activities
191,800
Page 43
Acct 592 Spring 2005 Statement of Cash Flow Examples - Solutions

Example 1 - completed worksheet Palouse Pottery Cash Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Expenses Plant, property & equipment Accumulated Depreciation Accounts Payable Salaries Payable Interest payable Income Taxes Payable Dividends Payable Long term liabilities Common stock, $1 par Retained Earnings Year ending 12/31/96 15,000 40,000 (3,000) 25,000 3,000 215,000 (80,000) 215,000 (23,000) (2,000) (2,000) (1,500) 0 (25,000) (100,000) (61,500) (215,000) Closing entry for Sales Gain/(loss) on sale of PP&E Realized gain/(loss) - land Cost of goods sold Salaries & other operating expenses Bad debt expense Depreciation & amortization Interest expense Income taxes expense Net income (accrual basis) Statement of Cash Flows Operating Activities Investing Activities Sold operational asset Sold land Purchased Plant, Property & Equipment Financing Activities Paid long-term debt Issued common stock Paid cash dividend Noncash Financing/Investing CHANGE IN CASH Totals 276,500 X 27,000 276,500 27,000 g 45,000 h 5,000 e 10,000 b d 4,000 30,000 f 48,000 X 1997 Rev/(Exp) 93,000 (4,000) 20,000 (35,000) (37,000) (2,000) (11,000) (2,500) (7,000) 14,500 q X 4,000 14,500 (INFLOWS) 11,000 X 11,000 (OUTFLOW S) 11,000 (14,000) n o j m 8,000 7,000 2,000 11,000 p 500 i b 2,000 4,000 d k L 20,000 18,000 3,000 c 13,000 h e 5,000 10,000 g x x 45,000 14,500 p 500 q c 4,000 13,000 n o 8,000 7,000 a k L f b 500 18,000 3,000 48,000 9,000 d b m 10,000 17,000 11,000 Ref x Debit 27,000 i a j 2,000 500 2,000 Ref Credit Year ending 12/31/97 42,000 37,500 (4,500) 43,000 6,000 236,000 (82,000) 278,000 (31,000) (9,000) (1,500) (5,500) (8,000) (15,000) (145,000) (63,000) (278,000) 1997 Receipt/(Disb) 95,000 0 0 (45,000) (33,000) 0 0 (3,000) (3,000) 11,000 Operating Cash (8,000) (7,000) 500 (4,000) (8,000) 10,000 (45,000) (1,500) 0 Target 27,000 (2,500) (1,500) 18,000 3,000 21,000 (2,000)
30,000
Page 44
Solutions for Example Problems

Example 1 for Acct 301 Solution: Palouse Pottery Statement of Cash Flows For year ended Cash provided by operations Cash collected from customers Interest & dividends received Cash paid for merchandise Cash paid to employees Other operating disbursements Interest paid Income taxes paid Subtotals Cash provided by investing activities Purchase plant, property & equipment Sale of plant, property & equipment Sale of land Subtotals Cash provided by financing activities Dividends paid Long-term debt retired Common stock issued Subtotals Change in cash Beginning balance - Cash Ending balance - Cash
31-Dec-97
Inflows 95,000 0
Outflows
Net
95,000
(45,000) (20,000) (13,000) (3,000) (3,000) (84,000)
11,000
4,000 30,000 34,000
(48,000) (48,000) (14,000)
45,000 45,000
(5,000) (10,000) (15,000) 30,000 27,000 15,000 42,000
Schedule to reconcile net income to cash Net Income Depreciation & amortization Realized gains/losses PP&E Realized gain/loss - land sale Change in working capital accounts: Net accounts receivable Merchandise Inventory Prepaid Expenses Accounts Payable Salaries Payable Income Taxes Payable Interest Payable Cash provided by operations:
provided by operations 14,500 11,000 4,000 (20,000) 4,000 (18,000) (3,000) 8,000 7,000 4,000 (500) 11,000
Non-cash financing and investing activities None
Page 45

Example 1 for Acct 301 INDIRECT METHOD SOLUTION Statement of Cash Flow Worksheet Year ending 12/31/96 Ref 15,000 x 40,000 (3,000) 25,000 3,000 215,000 f (80,000) b 215,000 (23,000) (2,000) (2,000) (1,500) 0 c (25,000) e (100,000) (61,500) c (215,000) Year ending 12/31/97 42,000 37,500 (4,500) 43,000 6,000 236,000 (82,000) 278,000 (31,000) (9,000) (1,500) (5,500) (8,000) (15,000) (145,000) (63,000) (278,000)
Palouse Pottery Cash Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Expenses Plant, property & equipment Accumulated Depreciation Accounts Payable Salaries Payable Interest payable Income Taxes Payable Dividends Payable Long term liabilities Common stock, $1 par Retained Earnings
Debit Ref 27,000
Credit 2,500 1,500
18,000 3,000 48,000 b,d 9,000
27,000 11,000 8,000 7,000
Target 27,000 (2,500) (1,500) 18,000 3,000 21,000 (2,000) (8,000) (7,000) 500 (4,000) (8,000) 10,000 (45,000) (1,500) 0
500 5,000 c 10,000 g 13,000 h 4,000 13,000 45,000 14,500 (OUTFLOW S)
Statement of Cash Flows Operating Activities Net income Add back loss on sale of equipment Minus gain on sale of land depreciation Change in working capital accounts: A/R (net) Inventory Prepaid expenses A/P Salaries payable Interest payable Income taxes payable Investing Activities Sold equipment Sold land Purchase PP&E Financing Activities Dividends paid Payment on LT debt Issued common stock Noncash Financing/Investing CHANGE IN CASH Totals
(INFLOWS) h b 14,500 4,000 d 11,000
11,000
20,000
4,000 18,000 3,000 8,000 7,000 500 4,000
b d
4,000 30,000 f 48,000
c e g 45,000
5,000 10,000
X 265,000
27,000 265,000
Page 46

Exam ple 2 fo r Acct 3 01 - S9 7 State m e nt o f Cas h Flo w Wo rks he e t Mo s co w Mo ving & Sto rag e Cash Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Expenses Plant, property & equipment Accumulated Depreciation Accounts Payable Salaries Payable Interest payable Long term liabilities Common stock, $1 par Retained Earnings Ye ar e nding 1 2/31 /9 6 Re f 15,000 30,000 (1,500) 10,000 4,500 220,100 (20,000) 258,100 (10,000) (3,000) 0 (30,000) (100,000) (115,100) (258,100) 1997 Closing entry for Sales Gain/(loss) on sale of PP&E Cost of goods sold Salaries & other operating expenses Bad debt expense Depreciation & amortization Interest expense Income taxes expense Net income (accrual basis) Rev/(Exp) 80,000 (2,000) (35,000) (26,000) (1,000) (5,000) (2,000) (3,000) 6,000 j b m L h i o x x 1,000 2,000 3,000 4,000 1,000 5,000 1,000 6,000
(INFLOWS)
De bit
Re f x j a h L
Cre dit 10,000 1,000 500 1,000 4,000 15,000 5,000 3,000 1,000 45,000 36,000 6,000
Ye ar e nding 12 /3 1/9 7 5,000 28,500 (2,000) 17,000 500 289,100 (16,000) 322,100 (13,000) (1,000) (1,000) (10,000) (181,000) (116,100) (322,100) 1997 Receipt/(Disb) 81,000 0 (39,000) (24,000)
Targ e t (10,000) (1,500) (500) 7,000 (4,000) 69,000 4,000 (3,000) 2,000 (1,000) 20,000 (81,000) (1,000) 0
a k g f b
500 7,000 45,000 39,000 9,000
b i m
n e
2,000 o 20,000 g d x
5,000
k n
7,000 2,000
14,000
(OUTFLOWS)
0 0 (1,000) (3,000) 14,000 Operating Cash 14,000
Statement of Cash Flows

Operating Activities Investing Activities Sold operational assets Purchased operational assets b
14,000
4,000 f 39,000
(35,000)
Financing Activities Paid cash dividend Issued common stock Paid long term debt Noncash Financing/Investing Acquired land in exchange for stock CHANGE IN CASH Totals Additional Information a. Wrote off $500 accounts receivable as uncollectible b. Sold operational assets for $4,000 cash (cost $15,000, acc'd depreciation $9,000) c. Declared and paid a cash dividend, $5,000
11,000 c d 36,000 e g x 45,000 10,000 259,500 0 d. e. f. g. g x 259,500 0 20,000 45,000 (10,000) 5,000
0 0 Issued common stock for $36,000 cash Paid a $20,000 long-term note installment Purchased operational assets, $39,000 cash Acquired land in exchange for 1000 shares worth $45 each
Page 47

Example 2 for Acct 301 - Solution: Moscow Moving & Storage Statement of Cash Flows For year ended Cash provided by operations Cash collected from customers Interest & dividends received Cash paid for merchandise Cash paid to employees Other operating disbursements Interest paid Income taxes paid Subtotals Cash provided by investing activities Purchase plant, property & equipment Sale of plant, property & equipment Sale of land Subtotals Cash provided by financing activities Dividends paid Long-term debt retired Common stock issued Subtotals Change in cash Beginning balance Cash Ending balance Cash
31-Dec-97 Inflows 81,000 0 (39,000) (14,000) (10,000) (1,000) (3,000) (67,000) Outflows Net
81,000
14,000
(39,000) 4,000 4,000 (39,000) (35,000)
(5,000) (20,000) 36,000 36,000 (25,000) 11,000 (10,000) 15,000 5,000
Schedule to reconcile net income to cash provided by operations Net Income 6,000 Depreciation & amortization 5,000 Realized gains/losses PP&E 2,000 Change in working capital accounts: Net accounts receivable 2,000 Merchandise Inventory (7,000) Prepaid Expenses 4,000 Accounts Payable 3,000 Salaries Payable (2,000) Interest Payable 1,000 Cash provided by operations: 14,000 Non-cash financing and investing activities Acquired land in exchange for common stock
Page 48
Acct 592 Spring 2005 Example 3 workpaper solution

Avery Slings & Arrows 0 Cash Securities Available for Sale Allowance to adjust to market Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Expenses Investments in affiliated companies (equity method) Land, building & equipment 17,800,000 Year ending 12/31/03 2,850,000 180,000 (80,000) 2,000,000 (100,000) 900,000 50,000 2,000,000 Ref x c r s o Debit Ref Credit 589,000 222,000 33,000 45,000 298,000 46,000 29,000 Year ending 12/30/04 2,261,000 231,000 27,000 2,059,000 (112,000) 602,000 4,000 2,121,000 Target (589,000) 51,000 107,000 59,000 (12,000) (298,000) (46,000) 121,000 2,915,000
g a
273,000 J 107,000 92,000 o 33,000 o s s 150,000 g 2,767,000 d 648,000 376,000 p 500,000 p
500,000 20,715,000
Accumulated Depreciation Intangible Assets Total assets Accounts Payable Salaries Payable Interest payable Income Taxes Payable Dividends Payable Bonds Payable Premium/Discount on Bonds Payable Convertible Bonds Payable Lease obligation Asset retirement obligation Deferred Income Taxes Other long term liabilities Convertible preferred, $100 par Common stock, $10 par
g (1,800,000) d 73,000 I 23,873,000 (650,000) (21,000) (55,000) (32,000) (60,000) (4,000,000) (656,000) t t
757,000 (2,181,000) 5,000 568,000 26,295,000
(381,000) 495,000
303,000 3,000 t t 135,000 e L 14,000 1,500,000 365,000 g q w 2,000,000 b f k b f 101,000 13,000 203,000 3,000,000
e u
(347,000) 303,000 (18,000) 3,000 (156,000) (101,000) (45,000) (13,000) (128,000) (68,000) (7,000,000) (3,000,000) (642,000) 14,000
(3,000,000) f (1,825,000) v (250,000) (75,000) (2,590,000) y 0 (3,000,000)
(1,500,000) 1,500,000 648,000 (2,108,000) (283,000) 25,000 (275,000) (25,000) 47,000 (122,000) (47,000) (590,000) 2,000,000 0 0 250,000 (5,125,000) (2,125,000) 375,000 1,500,000 800,000 (3,525,000) (1,925,000) 1,125,000 107,000 10,000 13,000 (27,000) 38,000 (13,000) (107,000) 28,000 (13,000) 1,437,000
Additional paid in capital common
(1,600,000)
Unrealized (gain)/loss AFS invest Treasury stock (at cost) Other paid in capital Retained Earnings
80,000 10,000 n 0 k (6,149,000) e (23,873,000 )
r 38,000 m m 1,500,000 203,000 X
266,000 (4,712,000) (26,295,000 )
Page 49
Acct 592 Spring 2005 Avery Slings & Arrows

Closing entry for 2004 Rev/(Exp) 6,600,000 150,000 (65,000) d 53,000 15,000 (3,490,000) (632,000) (421,000) (45,000) (757,000) (5,000) (25,000) (935,000) g s 65,000 J 29,000 298,000 t t 46,000 45,000 757,000 5,000 25,000 101,000 u 47,000 13,000 266,000 X INFLOWS Cash provided by operations: Reconciling schedule: Net income Depreciation Amortization & impairment of intangibles Accretion expense Bond premiums/discounts Realized gains/losses PP&E Realized gain/loss investments Equity method investments Deferred income taxes Change in working capital: Net accounts receivable Merchandise Inventory Prepaid Expenses Accounts Payable Salaries Payable Interest payable Income Taxes Payable X 1,082,000 53,000 Ref Debits Ref Credits 2004 Receipt/ (Disb) 6,508,000 0 0 0
Sales Earnings of affiliates (equity method) Gain/(loss) on sale of PP&E Realized gain/(loss) on investments Interest and dividend revenue Cost of goods sold Salaries and wages Other operating expenses Bad debt expense Depreciation expense Amortization of intangibles Accretion expense Interest expense Income taxes expense Net income (accrual basis)
s g
92,000 150,000
s o p p q t w (177,000) t 266,000 X
44,000 303,000 (3,495,000) 3,000 (635,000) (375,000) 0 0 0 0 14,000 (848,000) (117,000) 1,082,000 OUTFLOW S 1,082,000 1,082,000
266,000 757,000 5,000 25,000 (14,000) 65,000 (53,000) (121,000) 47,000 (47,000) 298,000 46,000 (303,000) (3,000) 101,000 13,000
Cash provided by operations off by
1,082,000 0
Page 50
Avery Slings & Arrows Investing Activities Purchased PP&E Purchased marketable securities Sold equipment Purchased patent Sold investments
Ref
Inflows
Ref
Outflows (3,206,000)
a c d J 59,000 I 275,000
2,767,000 273,000 500,000
Financing Activities Issued common stock Paid dividends Issued bonds Sold treasury stock Purchased treasury stock Payments on capital leases Payments on long-term debt Noncash Financing/Investing Bonds converted into stock Capital lease Stock dividend CHANGE IN CASH Totals
1,535,000 b L m 1,050,000 e 3,000,000 23,000 n v y 38,000 365,000 2,000,000 135,000
f h K
1,500,000 f 648,000
1,500,000 648,000
589,000 x 20,930,000 ok
20,930,000 0
(589,000) Change in Cash 0 half 0 double 0 divide by 9
Page 51
Solution
Example 4- Acct 315 Worksheet Wenatchee Whirlpool World Cash Securities Available for Sale (at market) Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Operating Expenses Investments (equity method) Year ending 12/31/95 Ref 2,000,000 150,000 1,900,000 (110,000) 875,000 62,000 3,000,000 f p p l h Plant, property & equipment Accumulated Depreciation Intangible Assets Accounts Payable Salaries Payable Income Taxes Payable Dividends Payable Current portion long term debt Bonds Payable Premium/Discount on Bonds Payable Deferred Income Taxes Other long term liabilities Convertible preferred, $100 par 10,800,000 (600,000) 128,000 18,205,000 (750,000) (15,000) (27,000) (60,000) (21,000) (5,000,000) 270,000 (88,000) (3,000,000) 12/31/95 (2,000,000) s s ref d 2,430,000 8,000 Debit 1,500,000 h e Common stock, $10 par (1,500,000) d h e Additional paid in capital Unrealized (gain)/loss investments Retained Earnings 0 (1,200,000) (78,000) (4,736,000) (18,205,000) o k 51,000 50,000 X 1,112,200 d 200,000 500,000 900,000 600,000 1,550,000 600,000 (3,950,000) (27,000) (5,798,200) (24,847,600) (2,750,000) 51,000 (1,062,200) (3,100,000) (1,600,000) ref Credit q k 13,600 75,000 k s b r q 50,000 8,000 5,000,000 23,000 92,000 p p 130,000 5,000 g c 28,000 270,000 22,000 115,000 800,000 4,900,000 15,000 c n n a 80,000 244,000 6,500 50,000 16,420,000 (829,000) 71,500 24,847,600 (880,000) (20,000) (13,400) (35,000) (29,000) (10,000,000) 247,000 (180,000) (562,000) 12/31/96 (500,000) (130,000) (5,000) 13,600 25,000 (8,000) (5,000,000) (23,000) (92,000) 2,438,000 Target 1,500,000 5,620,000 (229,000) (56,500) j 18,000 X I Debit 837,600 875,000 o I p f m 51,000 584,000 120,000 28,000 38,500 Ref Credit Year ending 12/31/96 2,837,600 390,000 1,752,000 (120,500) 1,145,000 84,000 3,097,000 Target 837,600 240,000 (148,000) (10,500) 270,000 22,000 97,000
Page 52
Acct 592 Spring 2005 Wenatchee Whirlpool World

Closing entry for Sales Earnings of affiliated company (equity method) Gain/(loss) on sale of PP&E Realized gain/(loss) on investments Realized gain on sale of patent Interest and dividend revenue Cost of goods sold Salaries and wages Other operating expenses Bad debt expense Depreciation expense Amortization of intangible assets Interest expense Income taxes expense Net income (accrual basis) Statement of Cash Flows Operating Activities Reconciling schedule: Net Income Depreciation & amortization Bond premiums/discounts Realized gains/losses PP&E Realized gain/loss investments Gain on sale of patent Undistributed Earnings of Investees Deferred income taxes Change in working capital accounts: Net accounts receivable Merchandise Inventory Prepaid Operating Expenses Accounts Payable Salaries Payable Income Taxes Payable Cash provided by operations: 158,500 (270,000) (22,000) 130,000 5,000 (13,600) 350,600 1,112,200 250,500 23,000 40,000 (108,000) (950,000) (97,000) 92,000 X 1996 Rev/(Exp) 6,200,000 115,000 (40,000) 108,000 950,000 13,000 (3,600,000) (590,000) (345,000) (38,500) (244,000) (6,500) (669,400) (740,400) 1,112,200 m n n r q X 38,500 244,000 6,500 23,000 92,000 1,112,200 INFLOWS 350,600 q X 13,600 350,600 OUTFLOWS j p p 18,000 130,000 5,000 p 22,000 p 270,000 c 40,000 I a 108,000 950,000 p 120,000 l 115,000 1996 Receipt/(Disb) 6,320,000 0 0 0 0 31,000 (3,740,000) (585,000) (367,000) 0 0 0 (646,400) (662,000) 350,600 (Subtotals)
Page 53
Investing Activities Sale of patent Sale of equipment Purchase factory Purchase investment securities Sold investment securities I 692,000 a c 1,000,000 25,000 g I 4,900,000 875,000
Financing Activities Issued bonds Issued common stock Dividends paid Long-term debt repaid b e 5,000,000 2,050,000 k s 75,000 2,430,000
Noncash Financing/Investing Preferred converted to common stock Swap common stock for land CHANGE IN CASH Totals 25,237,000 d h 1,500,000 800,000 d h X 1,500,000 800,000 837,600 25,237,000
Page 54

Solution
Working through the additional items of information:

a. On February 25, WWW sold an internally developed patent for $1,000,000. The patent was carried on the books at unamortized legal fees amounting to $50,000 at date of sale.
Cash [Investing - inflow] Intangible Assets Realized gain on sale of patent

b.
1,000,000 50,000 950,000
On March 31, WWW issued $5,000,000 in bonds at face value. The semi-annual bonds have a coupon rate of 10% per annum.
Cash [Financing - inflow] Bonds payable

c.
5,000,000 5,000,000
During the year, WWW disposed of various items of equipment with a total book value of $65,000 and original cost of $80,000. The amount received was $25,000 in cash. Accumulated depreciation would be $15,000 (80,000 - 65,000)
Cash [Investing - inflow] Accumulated depreciation Loss on sale of plant, property & equipment Plant, property and equipment
d.
25,000 15,000 40,000 80,000
During the third quarter, shareholders holding 15,000 shares of the preferred stock converted them into common stock. The conversion ratio was 6 shares of common for each share of preferred. Therefore 90,000 shares of common stock would be issues (6 * 15,000) with a par value of $900,000 ($10 par each). The book value of the preferred was 1,500,000. Therefore, additional paid in capital to balance the journal entry would be 600,000.
Convertible Preferred Stock, $100 par Common stock, $10 par Additional paid-in capital
e.
1,500,000 900,000 600,000
On July 20, WWW sold 50,000 shares of its common stock for $41 per share. The proceeds would be $2,050,000 (41 * 50,000) and the par value portion would be $500,000 with the rest as additional paid in capital.
Cash [Financing - inflow] Common stock, $10 par Additional paid in capital
f.
2,050,000 500,000 1,550,000
By the end of the year, WWW had written off as uncollectible a total of $28,000 in accounts receivable.
Allowance for doubtful accounts Accounts receivable

g.
28,000 28,000
An existing factory with equipment was acquired during the year. The acquisition cost was allocated as follows: $772,000 to land, $3,450,000 to building and 678,000 to equipment. This totals to $4,900,000.
Plant, property and equipment Cash [Investing outflow]
4,900,000 4,900,000
Page 55

h. WWW acquired a parcel of land adjoining the new factory by giving the owner 20,000 shares of its common stock. At the date of the transaction, the market value of the stock was $40 per share. The value of the land is $800,000 (20,000 * 40).
Plant, property and equipment Common stock, $10 par Additional paid in capital
i.
800,000 200,000 600,000
During the year WWW purchased $875,000 in marketable securities and sold securities which had cost $584,000. The market value of the portfolio at the end of the year was $390,000. From the income statement, the gain on sale was 108,000. Therefore, the cash received from the sale of securities was 584+108 = $692,000
Investments - Securities available for sale Cash [Investing outflow] Cash [Investing inflow] Investments - Securities available for sale Gain on sale of investments
j.
875,000 875,000 692,000 584,000 108,000
WWW owns 30% of a company which manufactures parts that WWW uses in its production process. WWW received $18,000 in dividends from this partially owned company during 1996. Dividends received from equity-method investments reduce the investment account and do NOT appear on the income statement .
Cash [Operating - dividends received] Investments (partially-owned companies)

k.
18,000 18,000
Dividends declared during the year totaled $50,000. Dividends declared reduce retained earnings and increase dividends payable. The balancing number in dividends payable (if this account exists) will be the dividends paid. If there is no dividends payable account, then the dividends declared = the dividends paid.
Retained earnings Dividends payable Dividends payable Cash [Financing - outflow]
50,000 50,000 75,000 75,000
Starting through the income statement, looking for noncash items: l. No deposit was made for share of earnings of partially owned companies. Therefore, this account needs to be zeroed out by re-constructing the entry that recorded the share of earnings. 115,000 115,000
Investments in partially owned company Earnings of partially-owned company
m. No check was written for bad debt expense. Therefore, this account needs to be zeroed out by re-constructing the entry that recorded bad debt expense for the year (the credit is always to allowance for doubtful accounts. Bad debt expense Allowance for doubtful accounts 38,500 38,500
Page 56
Acct 592 Spring 2005 n. No checks are written to record depreciation expense and amortization of intangibles. Therefore, these accounts need to be zeroed out by reconstructing the entry that recorded the expenses. 244,000 6,500 244,000 6,500
Depreciation expense Amortization of intangible assets Accumulated depreciation Intangible assets
Starting through the balance sheet to investigate accounts not yet balanced: o. Securities available for sale (at market) doesnt balance by $51,000. However, this amount appears in the owners equity section as the change in Unrealized (gain)/loss on investments. Therefore, this amount must have been the adjusting entry for the allowance for change in value account. 51,000 51,000
Unrealized gain/loss on investments Investments in AFS securities (allowance) p.
The remaining difference in accounts receivable ($120,000) is the adjustment to sales to get from accrual basis to cash basis. The difference in Merchandise Inventory is an adjustment to cost of goods sold. The difference in prepaid operating expenses is an adjustment to other operating expenses. The change in accounts payable would mostly be related to cost of goods sold. The change in salaries payable affects salaries and wages expense. 120,000 120,000 270,000 270,000 22,000 22,000 130,000 130,000 5,000 5,000
Sales Accounts receivable Merchandise inventory Cost of goods sold Prepaid operating expenses Other operating expenses Accounts payable Cost of goods sold Salaries payable Salaries and wages q.
Income tax expense is affected by two accounts on the balance sheet - income taxes payable and deferred income taxes. 13,600 13,600 92,000 92,000
Income taxes payable Income tax expense Deferred income taxes Income tax expense r.
Amortization of premiums and discounts on bonds payable impacts interest expense.
Page 57
Acct 592 Spring 2005 Interest expense Discount on bonds payable s. 23,000 23,000
Long-term debt is presented in two numbers on balance sheet - current and noncurrent. These accounts need to be combined to find out how much was borrowed or repaid during the year. Take the change in one account to the other. The remaining amount to balance will be the cash inflow or outflow. 8,000 8,000
Other long-term debt Current portion of long-term debt
After this entry, the number necessary to balance other long-term debt is $2,430,000 which must be the amount of long-term debt repaid during the year. Other long-term debt Cash [Financing - outflow] 2,430,000 2,430,000
Page 58
Acct 592 Spring 2005 Example 4 - Acct 301 Solution Wenatchee Whirlpool World Statement of Cash Flows For year ended 12/31/96 Inflows Cash provided by operations Cash collected from customers Interest & dividends received Cash paid for merchandise 6,320,000 31,000 Outflows Net
(3,740,000 ) Cash paid to employees (585,000) Other operating disbursements (367,000) Interest paid (646,400) Income taxes paid (662,000) Subtotals 6,351,000 (6,000,400 ) Cash provided by investing activities Purchase plant, property & equipment (4,900,000 )
350,600
Sale of plant, property & equipment 25,000 Sale of patent 1,000,000 Marketable securities purchased (875,000) Marketable securities sold 692,000 Subtotals 1,717,000 (5,775,000 (4,058,000 ) ) Cash provided by financing activities Dividends paid Long-term debt retired Bonds issued Common stock issued (75,000) (2,430,000 )
5,000,000 2,050,000 Subtotals 7,050,000 (2,505,000 4,545,000 ) 837,600 2,000,000 2,837,600
Change in cash Beginning balance - Cash Ending balance - Cash
Non-cash financing and investing activities Preferred stock converted to common 1,500,000
Page 59
Acct 592 Spring 2005 Land obtained by issue of common stock 800,000
Page 60
Example 3 - Acct 301 Wenatchee Whirlpool World For year ended
Solution 12/31/96
Schedule to reconcile net income to cash provided by operations Net Income 1,112,200 Depreciation & amortization 250,500 Bond premiums/discounts 23,000 Realized gains/losses PP&E 40,000 Realized gain/loss investments (108,000) Gain on sale of patent (950,000) Undistributed Earnings of Affiliates (97,000) * Deferred income taxes 92,000 Change in working capital accounts: Net accounts receivable 158,500 ** Merchandise Inventory (270,000) Prepaid Operating Expenses (22,000) Accounts Payable 130,000 Salaries Payable 5,000 Income Taxes Payable (13,600) Cash provided by operations: 350,600 The following notes are explanations and not part of a formal statement of cash flow * Earnings of affiliates (equity method) Dividends received (equity method affiliates) (115,000) 18,000 (97,000)
** This is the easiest way to handle bad debts: just enter change in NET A/R: Change in Accounts 148,000 Receivable Change in Allowance for Doubtful 10,500 Accounts 158,500 This is the more difficult alternate: Adjustment to sales (to get cash collected from 120,000 customers) Bad debt expense 38,500 158,500
Page 61
Acct 592 Spring 2005 What does not work is to include bad debt expense + change in Accounts Receivable and change in Allowance!
Page 62
1. Homework Assignment Ulliman Company
Solution Debit Worksheet Year ending Ref Credit 12/31/99 Target 1,000 1,000 2,400 (110) L 110 2,690 1,300 1,300 3,000 300 300 800 (190) M 190 7,910 410 410 1,710 (1,600) d 1,600 5,400 0 15,000 14,200 16,200 f 2,000 46,200 (400) 1,700 k 2,100 (16,400) 68,710 O p q 450 r h 300 s 3,500 9,000 i c&e c&e j 700 XX 400 10,000 10 350 104 (4,150) (2,504) (650) (400) (10,000) 290 0 0 (1,196) 0 (21,500) (13,700) (800) (14,100) (68,710) ok 1999 Receipt/(Disb) 40,040 0 0 0 820 (19,350) (11,450) (1,410) 0 0 (1,550) 7,100 (350) (104) 450 (400) (10,000) 290 3,500 9,000 (396) 0 (7,500) (5,000) (300) (4,100)
Year ending 0 01/01/99 Ref Cash 1,400 x Accounts receivable (net) 2,800 Marketable securities (at cost) 1,700 j Allowance for change in value 500 j Merchandise Inventory 8,100 Prepaid Expenses 1,300 N Investments (long-term) 7,000 Land 15,000 Buildings and equipment 32,000 g Accumulated depreciation (16,000) f Total assets 53,800 Accounts Payable Income Taxes Payable Wages payable Interest payable 12% bonds payable Premium/Discount on Bonds Payable Notes payable (long term) 10% Convertible bonds Deferred Income Taxes Convertible preferred, $100 par Common stock, $10 par Additional paid in capital Unrealized (gain)/loss investments Retained Earnings Total liab & equity ok Closing entry for Sales Other revenue Gain/(loss) on sale of PP&E Realized gain/(loss) on investments Interest and dividend revenue Cost of goods sold Salaries & other operating expenses Other operating expense Depreciation & amortization Interest expense Income taxes expense Net income (accrual basis) 1999 Rev/(Exp) 39,930 0 (200) 700 820 (19,890) (11,000) (1,000) (2,100) (410) (2,050) 4,800 (3,800) (2,400) (1,100) 0 0 0 (3,500) (9,000) (800) 0 (14,000) (8,700) (500) (10,000) (53,800)
h e c
396 7,500 5,000 300 4,800
L f
110 200 d 700
m&o
540 q N 450 410
k r&s i&p XX
2,100 410 500 4,800 xx
7,100
Page 63
Acct 592 Spring 2005 Ulliman Company

Statement of Cash Flows Operating Activities Reconciliation Schedule: Net Income Loss on sale of equipment Gain on sale of investments Depreciation expense Bond discount amortization Deferred income taxes Change in WC accounts: Accounts receivable (net) Merchandise Inventory Prepaid Expenses Accounts Payable Income Taxes Payable Wages payable Interest payable xx INFLOWS 7,100
OUTFLOWS Subtotals
7,100
4,800 200 (700) 2,100 10 396 110 190 (410) 350 104 (450) 400 7,100
f d k s i
Investing Activities Investments sold sold equipment Purchased equipment Purchase mkt securities
(15,100) d f 2,300 100 g j 16,200 1,300
Financing Activities Dividends paid Issued bonds at a discount
9,000 b h 9,700 700
Noncash Financing/Investing LT debt retired by issue of common stock conversion of bonds to stock
e c
x 62,720
1,000 62,720
1,000
Page 64
Ulliman Company Statement of Cash Flows For year ended December 31, 1999 Cash flows from operating activities Collections from customers Payments to suppliers Payments to employees Other operating payments Income taxes paid Dividends collected Cash provided by operations Cash flows from investing activities Purchase of marketable securities Proceeds from sale of long-term investments Disbursements to acquire equipment Proceeds from sale of equipment Cash used by investing activities Cash flows from financing activities Proceeds from issuance of bonds Payment of dividends Cash provided by financing activities Net increase in cash Beginning balance in cash Cash balance at 12-31-97 Noncash investing and financing activities LT debt retired by issue of common stock conversion of bonds to stock
40,040 (19,350) (11,450) (1,410) (1,550) 820 7,100
(1,300) 2,300 (16,200) 100 (15,100)
9,700 (700) 9,000 1,000 1,400 2,400
3,500 9,000
Reconcilation of net income to cash provided by operations Net income 4,800 Loss on sale of equipment 200 Gain on sale of investments (700) Depreciation expense 2,100 Bond discount amortization 10 Deferred income taxes 396 Change in WC accounts: Accounts receivable (net) 110 Merchandise Inventory 190 Prepaid Expenses (410) Accounts Payable 350 Income Taxes Payable 104 Wages payable (450) Interest payable 400 7,100
Page 65
2. Homework Assignment Driskoll Company Cash Accounts receivable (net) Inventories Prepaid Expenses Investments (long-term) Land Buildings Acc'd depreciation - Bldg Equipment Acc'd depreciation - Equip Patents
Solution Year ending 12/31/99 Ref 2,700 x 5,900 i 15,300 j 1,400 8,300 16,300 d 68,700 (35,000) c 29,600 (14,200) d 8,700 f 107,700 (8,900) (630) (2,500) (23,000) 0 (22,000) (15,320) 0 (35,350) (107,700) ok 1999 Rev/(Exp) 49,550 1,300 (200) 790 (23,800) (16,510) (1,100) (2,700) (3,100) (815) (1,715) (500) (2,600) (1,400) Debit Worksheet Year ending Ref Credit 12/31/99 Target 820 820 3,520 315 315 6,215 230 230 15,530 (400) k 400 1,000 (1,000) e 1,000 7,300 2,700 2,700 19,000 (8,000) c 8,000 60,700 500 3,200 g 2,700 (34,500) (4,000) d 4,000 25,600 (500) 2,600 g 3,100 (14,700) 485 1,300 h 815 9,185 98,850 L m a b 330 n 14,000 b 780 o f f 2,100 xx 100 8,000 65 650 650 (1,400) ok 1999 Receipt/(Disb) 49,235 0 0 790 (23,735) (16,410) (700) 0 0 0 (1,980) (500) 0 6,700 295 (9,195) (300) (2,600) (17,000) 715 (22,650) (15,970) 0 (31,850) (98,850) (295) 330 (100) 6,000 715 (650) (650) 0 3,500
Accounts Payable Interest payable Wages payable Bonds payable Discount on bonds Common stock, $10 par Additional paid in capital Unrealized (gain)/loss investments Retained Earnings
Closing entry for Sales Gain/(loss) on exchange of assets Realized gain/(loss) on investments Interest and dividend revenue Cost of goods sold Salaries & other operating expenses Other operating expense Depreciation - buildings Depreciation - equipment Patent amortization Interest expense Income taxes expense Extraordinary loss (net of taxes) Net income (accrual basis)
i d e L n k g g h o c xx 200 295 j 100 400 2,700 3,100 815 65 m 2,600 (1,400) xx
315 1,300
230
330
6,700
Page 66
Acct 592 Spring 2005 Driskoll Company

Statement of Cash Flows Operating Activities Reconciliation Schedule: Net income Depreciation amortization Extraordinary loss (net of taxes) Gain/(loss) on exchange of assets Realized gain/(loss) on investments Amort of Bond Discount change in WC accounts: Accounts receivable (net) Inventories Prepaid Expenses Accounts Payable Interest payable Wages payable xx INFLOWS 6,700
OUTFLOWS Subtotals
6,700
(1,400) 5,800 g 815 h 2,600 (1,300) 200 65 o
(315) (230) 400 295 (330) 100 6,700
i j k L m n
Investing Activities Proceeds from insurance company Sale of long-term investment
3,000 c e 2,200 800
Financing Activities Retired bonds payable Proceeds of bond issue dividends paid
(8,880) a b 7,220 p 2,100 14,000
Noncash Financing/Investing Exchanged equipment for land Exchanged stock for patent
d f
x 54,170
820 54,170
820
Page 67
Driskoll Company Statement of Cash Flows For year ended December 31, 1998 Cash flows from operating activities Collections from customers Payments to suppliers Payments to employees Other operating payments Income taxes paid Interest paid Dividends collected Cash provided by operations Cash flows from investing activities Proceeds from insurance company Proceeds from sale of long-term investments Cash provided by investing activities Cash flows from financing activities Proceeds from issuance of bonds Retire bonds payable Payment of dividends Cash used by financing activities Net increase in cash Beginning balance in cash Cash balance at 12-31-97 Noncash investing and financing activities Exchanged stock for patent Exchanged equipment for land Reconcilation of net income to cash provided by operations Net income Depreciation amortization Extraordinary loss (net of taxes) Gain/(loss) on exchange of assets Realized gain/(loss) on investments Amort of Bond Discount Change in working capital accounts: Accounts receivable (net) Inventories Prepaid Expenses Accounts Payable Interest payable Wages payable (1,400) 5,800 815 2,600 (1,300) 200 65 (315) (230) 400 295 (330) 100 6,700
49,235 (23,735) (16,410) (700) (500) (1,980) 790 6,700 2,200 800 3,000 7,220 (14,000) (2,100) (8,880) 820 2,700 3,520
Page 68
Albion Altimeters Inc. Statement of Cash Flows For year ended Cash provided by operations Cash collected from customers Interest & dividends received Cash paid for merchandise Cash paid to employees Other operating disbursements Interest paid Income taxes paid Subtotals Cash provided by investing activities Purchase plant, property & equipment Sale of plant, property & equipment Marketable securities purchased Marketable securities sold Subtotals Cash provided by financing activities Dividends paid Common stock issued Subtotals Change in cash Beginning balance - Cash Ending balance - Cash
12/31/97 Inflows 3,708,000 15,000
Outflows
Net
3,723,000
(2,016,000) (651,300) (243,800) (93,700) (168,000) (3,172,800)
550,200
(1,740,000) 35,000 (585,000) 35,000 (2,325,000) (2,290,000)
(100,000) 1,750,000 1,750,000 (100,000) 1,650,000 (89,800) 400,000 310,200
Land obtained by issue of common stock
32,000
Page 69
Albion Altimeters Inc. For year ended
12/31/97
Schedule to reconcile net income to cash provided by operations Net Income 289,900 Depreciation & amortization 30,000 Bond premiums/discounts (6,000) Realized gains/losses PP&E 30,000 Deferred income taxes 15,700 Change in working capital accounts: Net accounts receivable 125,200 ** Merchandise Inventory 21,000 Prepaid Operating Expenses (13,800) Accounts Payable 63,000 Salaries Payable (1,300) Income Taxes Payable (3,500) Cash provided by operations: 550,200
**
Change in Accounts Receivable

Change in Allowance for Doubtful Accounts
119,000 6,200 125,200 108,000 17,200 125,200
This is the more difficult alternate: Adjustment to sales (to get cash collected from customers) Bad debt expense
Page 70
Worksheet Albion Altimeters Inc. Cash Securities Available for Sale (at market) Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Operating Expenses Plant, property & equipment Accumulated Depreciation Accounts Payable Salaries Payable Income Taxes Payable Dividends Payable Bonds Payable Premium/Discount on Bonds Payable Deferred Income Taxes Common stock, $10 par Additional paid in capital Acc'd other comprehensive income Retained Earnings 0
Year ending 12/31/96 Ref 400,000 r, 500,000 f 900,000 (27,000) e 850,000 25,000 m g, 1,880,000 c (350,000) b 4,178,000 (350,000) (8,500) n (27,000) o (25,000) A (1,000,000) (124,000) (88,000) (1,000,000) (700,000) 14,000 (869,500) (4,178,000) p
Debit 27,000 585,000
Ref
Credit 89,800
Year ending 12/31/97 310,200 1,112,000
11,000
J e i k
11,000 108,000 17,200 21,000
13,800 32,000 1,740,000 b 25,000 h l 1,300 3,500 100,000
781,000 (33,200) 829,000 38,800
90,000 30,000
3,562,000 (355,000) 6,244,800 63,000 (413,000) (7,200) (23,500) 75,000 0 (1,000,000) (118,000) (103,700)
6,000
75,000
q 15,700 G 10,000 d 500,000 (1,510,000) G 22,000 d 1,250,000 (1,972,000) r 27,000 (13,000) x 289,900 (1,084,400) (6,244,800)
Page 71
Acct 592 Spring 2005 Albion Altimeters

1997 Closing entry for 1997 Sales Gain/(loss) on sale of PP&E Interest and dividend revenue Cost of goods sold Salaries and wages Other operating expenses Bad debt expense Depreciation expense Interest expense Income taxes expense Net income (accrual basis) Statement of Cash Flows Operating Activities Net income Add depreciation expense Add loss on sale of equipment Amortization of discount on B/P Deferred Income Taxes Change in working capital accounts: Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Operating Expenses Accounts Payable Salaries Payable Income Taxes Payable Investing Activities Proceeds from sale of equipment Purchase building & equipment Purchase marketable securities Financing Activities Dividends paid Proceeds from issuance of common stock Noncash Financing/Investing Exchange common stock for land valued at $32,000 CHANGE IN CASH Totals Rev/(Exp) Ref 3,600,000 j (30,000) b 15,000 k (2,100,000) l (650,000) (230,000) (17,200) I (30,000) H (87,700) (180,200) Q 289,900 X Debit Ref 108,000 30,000 21,000 63,000 n m 17,200 30,000 15,700 289,900 INFLOW S 550,200 p o X 6,000 3,500 550,200 OUTFLO WS 1,300 13,800 Credit 1997 Receipt/ (Disb) 3,708,000 0 15,000 (2,016,000) (651,300) (243,800) 0 0 (93,700) (168,000) 550,200 (Subtotals ) 550,200
289,900 30,000 30,000 (6,000) 15,700 119,000 6,200 21,000 (13,800) 63,000 (1,300) (3,500) 550,200
X X H B P Q
(2,290,000) b 35,000 c f 1,740,000 585,000 1,650,000 A d 1,750,000 100,000
89,800 5,619,400 0
5,619,400
(89,800)
Page 72
Page 73
Check figures for cash provided by operations: Endicott Engines Camperdown Company
$ 462,000 $2,647,000
Page 74
Acct 592 Spring 2005 Final Exam Question Spring 2002

Required: Use the financial statements, the additional information (next page) and the worksheet provided to prepare the statement of cash flow using the direct method. For full credit, use the pages provided to prepare the formal statement in addition to the worksheet.
Balance Sheet Current Liabilities Accounts Payable Salaries Payable Income Taxes Payable Dividends Payable Noncurrent Liabilities Bonds Payable Discount on Bonds Payable Deferred Income Taxes Obligation under capital leases
12/31/02 930,000 2,000 9,000 27,000 968,000 7,000,000 (605,000) 64,000 403,000 6,862,000
12/31/01 750,000 5,000 20,000 18,000 793,000 7,000,000 (640,000) 39,000 380,000 6,779,000
Camperdown Company Balance Sheet Current Assets Cash Securities Available for Sale (at cost) Allowance to adjust to market value Net accounts receivable Merchandise Inventory
12/31/02
12/31/01
183,000 727,000 13,000 917,000 480,000 2,320,000
100,000 367,000 (14,000) 1,238,000 540,000 2,231,000
Noncurrent Assets Plant, property & equipment Accumulated Depreciation Investment in Edible Oils Inc. Intangible Assets TOTAL ASSETS
17,208,000 (2,527,000) 2,023,000 480,000 19,504,000
14,500,000 (1,500,000) 2,000,000 500,000 17,731,000
Stockholder's Equity Convertible preferred stock Common stock, $10 par Additional paid in capital Acc'd other comprehensive income Treasury stock (at cost) Retained Earnings Total liabilities and equity
4,500,000 2,000,000 2,106,000 13,000 (26,000) 3,081,000 11,674,000 19,504,000
5,000,000 1,600,000 1,400,000 (14,000) (52,000) 2,225,000 10,159,000 17,731,000
Page 75

Additional information: a. During the year, Camperdown Corporation paid quarterly dividends in the total amount of $86,000. b. The preferred stock is convertible into 6 shares of common stock at the discretion of the stockholder. During the year, 5,000 shares of preferred stock were converted into common stock. c. Camperdown Corporation received $27,000 in dividends from Edible Oils Inc (equity method investment). The securities held in the available for sale portfolio paid no cash dividends during the year. d. During the year, Camperdown Corporation sold a piece of equipment for $25,000. The historical cost of the asset was $100,000 and the book value was $70,000 at the date of sale. e. On April 30, Camperdown Corporation issued 10,000 shares of common stock for $60 per share. f. Camperdown Corporation acquired a new processing plant for a total cost of $2,450,000. $2,000,000 was attributed to the building and the remainder was attributed to the cost of the land. g. Camperdown Corporation wrote off $5,000 in bad debts during the year. h. Camperdown Corporation sold marketable securities that had cost $90,000 for $100,000. i. Camperdown Corporation entered into a new capital lease arrangement to obtain manufacturing equipment needed for the new facility. The present value of the minimum lease payments was $358,000 at the inception of the lease. j. Half of the 1,000 shares of treasury stock were sold for $64 per share. Camperdown Corporation uses the cost method. The treasury stock on hand at the beginning of the year was carried at $52 per share.
Camperdown Company Income Statement For year ending 12/31/02

Sales Investment income Gain/(loss) on sale of PP&E Realized gain/(loss) on investments Total revenues Cost of goods sold Salaries and wages Other operating expenses Bad debt expense Depreciation & amortization expense Interest expense Income taxes expense Net income 6,000,000 600,000 250,000 21,000 1,077,000 565,000 551,000 10,000,000 50,000 (45,000) 10,000 10,015,000
9,064,000 951,000
Page 76

Statement of Cash Flow Problem Worksheet Camperdown Company Cash Securities Available for Sale (at cost) Allowance to adjust to market value Net accounts receivable Merchandise Inventory Plant, property & equipment Accumulated Depreciation Investment in Edible Oils Inc. Intangible Assets Total assets Accounts Payable Salaries Payable Income Taxes Payable Dividends Payable Bonds Payable Premium/Discount on Bonds Payable Deferred Income Taxes Obligation under capital leases
Year ending 12/31/01 Ref 100,000 367,000 (14,000) 1,238,000 540,000 14,500,000 (1,500,000) 2,000,000 500,000 17,731,000 (750,000) (5,000) (20,000) (18,000) (7,000,000) 640,000 (39,000) (380,000)
Debit Ref 83,000
Credit
Year ending 12/31/02 183,000 727,000 13,000 917,000 480,000 17,208,000
Target 83,000 360,000 27,000 (321,000) (60,000) 2,708,000
(2,527,000) (1,027,000) 2,023,000 480,000 19,504,000 (930,000) (2,000) (9,000) (27,000) (7,000,000) 605,000 (64,000) (403,000) (180,000) 3,000 11,000 (9,000) 0 (35,000) (25,000) (23,000) 23,000 (20,000)
Page 77
Statement of Cash Flow Problem Worksheet Camperdown Company Convertible preferred, $100 par
Year ending 12/31/01 Ref (5,000,000)
Debit
Ref
Credit
Year ending 12/31/02 (4,500,000)
Target 500,000
Common stock, $10 par
(1,600,000)
(2,000,000)
(400,000)
Additional paid in capital Acc'd other comprehensive income Treasury stock (at cost) Retained Earnings Total Liab & owners equity Closing entry for
(1,400,000) 14,000 52,000 (2,225,000) (17,731,000) 2002 Rev/(Exp) Ref Debit Ref Credit
(2,106,000) (13,000) 26,000
(706,000) (27,000) (26,000)
(3,081,000) (856,000) (19,504,000) (1,773,000) 2002 Inflow/ (Outflow)
Sales Earnings of investees (equity method) Gain/(loss) on sale of PP&E Realized gain/(loss) on investments Cost of goods sold Salaries and wages Other operating expenses Bad debt expense Depreciation & amortization expense Interest expense Income taxes expense Net income (accrual basis)
10,000,000 50,000 (45,000) 10,000 (6,000,000) (600,000) (250,000) (21,000) (1,077,000) (565,000) (551,000) 951,000
Page 78
Acct 592 Spring 2005 Camperdown Company

Statement of Cash Flows Operating Activities Net income 951,000 INFLOWS OUTFLOWS (Subtotals)
Page 79
Acct 592 Spring 2005 Camperdown Company

INFLOWS Noncash Financing/Investing OUTFLOWS (Subtotals)
83,000
Page 80
Acct 592 Spring 2005 Camperdown Corporation Statement of Cash Flow For year ended 12-31-02 Cash provided by operations
Cash provided by investing activities
Cash provided by financing activities
Page 81
Acct 592 Spring 2005 Camperdown Corporation Statement of Cash Flow For year ended 12-31-02 Reconciling schedule
Notes
Page 82

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Acct 592 Spring 2005

The Statement of Cash Flows

180694588.doc created by T. Gordon 10/16/2013

Acct 592 Spring 2005

It provides answers to important questions like:

180694588.doc created by T. Gordon 10/16/2013

Acct 592 Spring 2005

Noncash revenues and expenses

180694588.doc created by T. Gordon 10/16/2013

Acct 592 Spring 2005

180694588.doc created by T. Gordon 10/16/2013

Acct 592 Spring 2005

180694588.doc created by T. Gordon 10/16/2013

Acct 592 Spring 2005

180694588.doc created by T. Gordon 10/16/2013

Acct 592 Spring 2005

180694588.doc created by T. Gordon 10/16/2013

Acct 592 Spring 2005

Direct versus Indirect Presentations

The Direct Method

The Indirect Method

180694588.doc created by T. Gordon 10/16/2013

Acct 592 Spring 2005

180694588.doc created by T. Gordon 10/16/2013

Acct 592 Spring 2005

Debit Ref 27,000

Noncash Financing/Investing CHANGE IN CASH Totals X 27,000

Acct 592 Spring 2005

Debit Ref 27,000

Noncash Financing/Investing CHANGE IN CASH Totals X 27,000

Acct 592 Spring 2005

(181,000) (81,000) (116,100) (1,000) (322,100) 0 1997 Receipt/(Disb)

CHANGE IN CASH Totals Additional Information

180694588.doc created by T. Gordon 10/16/2013

Acct 592 Spring 2005

Reconciliation of Net Income to Cash Provided by Operations or the Indirect Method

Cash provided by operations

180694588.doc created by T. Gordon 10/16/2013

180694588.doc created by T. Gordon 10/16/2013

Acct 592 Spring 2005

180694588.doc created by T. Gordon 10/16/2013

Acct 592 Spring 2005

(347,000) (18,000) (156,000) (45,000) (128,000)

303,000 3,000 (101,000) (13,000) (68,000)

(7,000,000) (3,000,000) (642,000) 14,000

(1,500,000) 1,500,000 (2,108,000) (275,000) (122,000) (283,000) (25,000) (47,000)

180694588.doc created by T. Gordon 10/16/2013

Acct 592 Spring 2005

Closing entry for

180694588.doc created by T. Gordon 10/16/2013

Acct 592 Spring 2005

Cash provided by operations

180694588.doc created by T. Gordon 10/16/2013

Acct 592 Spring 2005

Avery Slings & Arrows Financing Activities

CHANGE IN CASH Totals

180694588.doc created by T. Gordon 10/16/2013

Acct 592 Spring 2005

59,000 (2,767,000) (500,000) 275,000 334,000 (273,000) (3,540,000) (3,206,000)

Change in cash Beginning balance - Cash Ending balance - Cash

180694588.doc created by T. Gordon 10/16/2013

Acct 592 Spring 2005

180694588.doc created by T. Gordon 10/16/2013

180694588.doc created by T. Gordon 10/16/2013