Ch18 student

MULTIPLE CHOICE QUESTIONS
37. The statement of cash flows should help investors and creditors assess each of the following except
the
a. entity's ability to generate future income.
b. entity's ability to pay dividends.
c. reasons for the difference between net income and net cash provided by operating activities.
d. cash investing and financing transactions during the period.
38. The statement of cash flows
a. must be prepared on a daily basis.
b. summarizes the operating, financing, and investing activities of an entity.
c. is another name for the income statement.
d. is a special section of the income statement.
39. Which one of the following items is not generally used in preparing a statement of cash flows?
a. Adjusted trial balance
b. Comparative balance sheets
c. Current income statement
d. Additional information
40. The primary purpose of the statement of cash flows is to
a. provide information about the investing and financing activities during a period.
b. prove that revenues exceed expenses if there is a net income.
c. provide information about the cash receipts and cash payments during a period.
d. facilitate banking relationships.
41. If a company reports a net loss, it
a. may still have a net increase in cash.
b. will not be able to pay cash dividends.
c. will not be able to get a loan.
d. will not be able to make capital expenditures.
42. In addition to the three basic financial statements, which of the following is also a required financial
statement?
a. the "Cash Budget"
b. the Statement of Cash Flows
c. the Statement of Cash Inflows and Outflows
d. the "Cash Reconciliation"
43. The statement of cash flows will not report the
a. amount of checks outstanding at the end of the period.
b. sources of cash in the current period.
c. uses of cash in the current period.
d. change in the cash balance for the current period.
44. Cash equivalents do not include
a. short-term corporate notes.
b. treasury bills.
c. money market funds.
d. 2-year certificates of deposit.
45. Which of the following characteristics does not apply to cash equivalents?
a. Short-term
b. Highly-liquid
c. Readily convertible into cash
d. Sensitive to interest rate changes

46. Cash equivalents are generally investments with maturities of
a. $1,000 or more.
b. three months or less.
c. at least six months.
d. one year or the operating cycle, whichever is less.
47. The best measure of a company's ability to generate sufficient cash to continue as a going concern is
net cash provided by
a. financing activities.
b. investing activities.
c. operating activities.
d. processing activities.
48. The acquisition of land by issuing common stock is
a. a noncash transaction which is not reported in the body of a statement of cash flows.
b. a cash transaction and would be reported in the body of a statement of cash flows.
c. a noncash transaction and would be reported in the body of a statement of cash flows.
d. only reported if the statement of cash flows is prepared using the direct method.
49. The order of presentation of activities on the statement of cash flows is
a. operating, investing, and financing.
b. operating, financing, and investing.
c. financing, operating, and investing.
d. financing, investing, and operating.
50. Financing activities involve
a. lending money.
b. acquiring investments.
c. issuing debt.
d. acquiring long-lived assets.
51. Investing activities include
a. collecting cash on loans made.
b. obtaining cash from creditors.
c. obtaining capital from owners.
d. repaying money previously borrowed.
52. Generally, the most important category on the statement of cash flows is cash flows from
a. operating activities.
c. financing activities.
d. significant noncash activities.
53. The category that is generally considered to be the best measure of a company's ability to continue as
a going concern is
a. cash flows from operating activities.
b. cash flows from investing activities.
c. cash flows from financing activities.
d. usually different from year to year.
54. Cash receipts from interest and dividends are classified as
a. financing activities.
c. operating activities.
d. either financing or investing activities.

55. Each of the following is an example of a significant noncash activity except
a. conversion of bonds into common stock.
b. exchanges of plant assets.
c. issuance of debt to purchase assets.
d. stock dividends.
56. If a company has both an inflow and outflow of cash related to property, plant, and equipment, the
a. two cash effects can be netted and presented as one item in the investing activities section.
b. cash inflow and cash outflow should be reported separately in the investing activities section.
c. two cash effects can be netted and presented as one item in the financing activities section.
d. cash inflow and cash outflow should be reported separately in the financing activities section.
57. Of the items below, the one that appears first on the statement of cash flows is
a. noncash investing and financing activities.
b. net increase (decrease) in cash.
c. cash at the end of the period.
d. cash at the beginning of the period.
58. Which of the following transactions does not affect cash during a period?
a. Write-off of an uncollectible account
b. Collection of an accounts receivable
c. Sale of treasury stock
d. Exercise of the call option on bonds payable
59. Significant noncash transactions would not include
a. conversion of bonds into common stock.
b. asset acquisition through bond issuance.
c. treasury stock acquisition.
d. exchange of plant assets.
60. In preparing a statement of cash flows, a conversion of bonds into common stock will be reported in
a. the financing section.
b. the "extraordinary" section.
c. a separate schedule or note to the financial statements.
d. the stockholders' equity section.
61. The third (final) step in preparing the statement of cash flows is to
a. analyze changes in noncurrent asset and liability accounts.
b. compare the net change in cash with the change in the cash account reported on the balance
sheet.
c. determine net cash provided by operating activities.
d. list the noncash activities.
62. Which one of the following items is not necessary in preparing a statement of cash flows?
a. Determine the change in cash
b. Determine the cash provided by operations
c. Determine cash from financing and investing activities
d. Determine the cash in all bank accounts
63. If accounts receivable have increased during the period,
a. revenues on an accrual basis are less than revenues on a cash basis.
b. revenues on an accrual basis are greater than revenues on a cash basis.
c. revenues on an accrual basis are the same as revenues on a cash basis.
d. expenses on an accrual basis are greater than expenses on a cash basis.
64. If accounts payable have increased during a period,
a. revenues on an accrual basis are less than revenues on a cash basis.

b. expenses on an accrual basis are less than expenses on a cash basis.
c. expenses on an accrual basis are greater than expenses on a cash basis.
d. expenses on an accrual basis are the same as expenses on a cash basis.
65. Which one of the following affects cash during a period?
a. Recording depreciation expense
b. Declaration of a cash dividend
c. Write-off of an uncollectible account receivable
d. Payment of an accounts payable
66. In calculating cash flows from operating activities using the indirect method, a gain on the sale of
equipment is
a. added to net income.
b. deducted from net income.
c. ignored because it does not affect cash.
d. not reported on a statement of cash flows.
67. Meyer Company reported net income of $30,000 for the year. During the year, accounts receivable
increased by $7,000, accounts payable decreased by $3,000 and depreciation expense of $5,000 was
recorded. Net cash provided by operating activities for the year is
a. $25,000.
b. $45,000.
c. $29,000.
d. $30,000.
68. Flynn Company reported a net loss of $10,000 for the year ended December 31, 2005. During the year,
accounts receivable decreased $5,000, merchandise inventory increased $8,000, accounts payable
increased by $10,000, and depreciation expense of $5,000 was recorded. During 2005, operating
activities
a. used net cash of $2,000.
b. used net cash of $8,000.
c. provided net cash of $2,000.
d. provided net cash of $8,000.
69. Starting with net income and adjusting it for items that affected reported net income but which did not
affect cash is called the
a. direct method.
b. indirect method.
c. working capital method.
d. cost-benefit method.
70. In calculating net cash provided by operating activities using the indirect method, an increase in prepaid
expenses during a period is
a. deducted from net income.
b. added to net income.
c. ignored because it does not affect income.
d. ignored because it does not affect expenses.
71. Using the indirect method, patent amortization expense for the period
a. is deducted from net income.
b. causes cash to increase.
c. causes cash to decrease.
d. is added to net income.
72. In developing the cash flows from operating activities, most companies in the U. S.
a. use the direct method.

b. use the indirect method.
c. present both the indirect and direct methods in their financial reports.
d. prepare the operating activities section on the accrual basis.
73. Each of the following is added to net income in computing net cash provided by operating activities
except
a. amortization expense.
b. an increase in accrued expenses payable.
c. a gain on sale of equipment.
d. a decrease in inventory.
74. Which of the following would be subtracted from net income using the indirect method?
a. Depreciation expense
b. An increase in accounts receivable
c. An increase in accounts payable
d. A decrease in prepaid expenses
75. Which of the following would be added to net income using the indirect method?
a. An increase in accounts receivable
b. An increase in prepaid expenses
c. Depreciation expense
d. A decrease in accounts payable
76. Which of the following would not be an adjustment to net income using the indirect method?
a. Depreciation Expense
b. An increase in Prepaid Insurance
c. Amortization Expense
d. An increase in Land
77. In calculating cash flows from operating activities using the indirect method, a loss on the sale of
equipment will appear as a(n)
a. subtraction from net income.
b. addition to net income.
c. addition to cash flow from investing activities.
d. subtraction from cash flow from investing activities.
78. Which of the following adjustments to convert net income to net cash provided by operating activities is
correct?
Add to Net Income Deduct from Net Income
a. Accounts Receivable increase decrease
b. Prepaid Expenses increase decrease
c. Inventory decrease increase
d. Taxes Payable decrease increase
incorrect?
Add to Net Income Deduct from Net Income
a. Accounts Receivable decrease increase
b. Prepaid Expenses increase decrease
c. Inventory decrease increase
d. Accounts Payable increase decrease

not added to net income?
a. Gain on Sale of Equipment
b. Depreciation Expense
c. Patent Amortization Expense
d. Depletion Expense
81. Using the indirect method, if equipment is sold at a gain, the
a. sale proceeds received are deducted in the operating activities section.
b. sale proceeds received are added in the operating activities section.
c. amount of the gain is added in the operating activities section.
d. amount of the gain is deducted in the operating activities section.
82. A company had net income of $230,000. Depreciation expense is $26,000. During the year, Accounts
Receivable and Inventory increased $15,000 and $40,000, respectively. Prepaid Expenses and
Accounts Payable decreased $2,000 and $4,000, respectively. There was also a loss on the sale of
equipment of $3,000. How much cash was provided by operating activities?
a. $196,000.
b. $202,000.
c. $276,000.
d. $288,000.
83. On the statement of cash flows using the indirect method, patent amortization expense will
a. be added to net income in the operating section.
b. be deducted from net income in the operating section.
c. appear as an inflow of cash in the investing section.
d. appear as an outflow of cash in the investing section.
84. The indirect and direct methods of preparing the statement of cash flows are identical except for the
a. significant noncash activity section.
b. operating activities section.
c. investing activities section.
d. financing activities section.
85. Land acquired from the issuance of common stock is reported
a. as a financing activity.
b. as an investing activity.
c. as an operating activity.
d. in a separate schedule at the bottom of the statement.
86. If $200,000 of bonds are issued during the year but $120,000 of old bonds are retired during the year,
the statement of cash flows will show a(n)
a. net increase in cash of $80,000.
b. net decrease in cash of $80,000.
c. increase in cash of $200,000 and a decrease in cash of $120,000.
d. net gain on retirement of bonds of $80,000.
87. Which of the following changes in retained earnings during a period will be reported in the financing
activities section of the statement of cash flows?
1. Declaration of a cash dividend paid during the period.
2. Net income for the period.
a. 1
b. 2
c. Neither 1 nor 2.
d. Both 1 and 2.

88. The statement of cash flows
a. is prepared instead of an income statement under generally accepted accounting principles.
b. is used to assess an entity's ability to pay dividends and meet obligations.
c. is prepared from comparative income statements.
d. reflects earnings per share figures on a cash basis and on an accrual basis in the body of the
statement.
89. In preparing the statement of cash flows, determining the net increase or decrease in cash requires the
use of
a. the adjusted trial balance.
b. the current period's balance sheet.
c. a comparative balance sheet.
d. a comparative income statement.
90. To determine the net cash provided (used) by operating activities, it is necessary to analyze
a. the current year's income statement.
b. a comparative balance sheet.
c. additional information.
d. all of these.
91. Which of the following would not be needed to determine net cash provided by operating activities?
a. Depreciation expense
b. Change in accounts receivable
c. Payment of cash dividends
d. Change in prepaid expenses
92. When equipment is sold for cash, the amount received is reflected as a cash
a. inflow in the operating section.
b. inflow in the financing section.
c. inflow in the investing section.
d. outflow in the operating section.
93. The statement of cash flows will not provide insight into
a. why dividends were not increased.
b. whether cash flow is greater than net income.
c. the exact proceeds of a future bond issue.
d. how the retirement of debt was accomplished.
94. Which of the following transactions would not be classified as a financing activity?
a. Purchase of treasury stock
b. Payment of dividends
c. Issuance of bonds at a discount
d. Purchase of a long-term investment in bonds
95. Each of the following would be reported under operating activities except cash receipts
a. from sales of goods.
b. from sales of investments.
c. of interest on loans.
d. of dividends from investments.
96. Which of the following statements concerning the statement of cash flows is true?
a. The statement of cash flows is usually more accurate when using the indirect method.
b. If the direct method is used, a supplementary schedule reconciling the net income to a net cash
from operating activities must still be provided.
c. The statement of cash flows reflects both earnings per share and cash per share.
d. The statement of cash flows is an optional financial statement for external reporting purposes.

97. Carter Company reports the following:
End of Year Beginning of Year
Inventory $25,000 $40,000
Accounts Payable 30,000 10,000
If cost of goods sold for the year is $150,000, the amount of cash paid to suppliers is
a. $155,000.
b. $145,000.
c. $115,000.
d. $185,000.
98. During the year, Salaries Payable decreased by $6,000. If Salary Expense amounted to $160,000 for the
year, the cash paid to employees (including deductions from gross pay) is
a. $166,000.
b. $160,000.
c. $154,000.
d. $172,000.
99. Gary Company reports a $15,000 increase in inventory and a $5,000 increase in accounts payable
during the year. Cost of Goods Sold for the year was $150,000. The cash payments made to suppliers
were
a. $150,000.
b. $160,000.
c. $130,000.
d. $145,000.
100. Rader Company had credit sales of $800,000. The beginning accounts receivable balance was
$40,000 and the ending accounts receivable balance was $140,000. What were the cash collections
from customers during the period?
a. $900,000.
b. $800,000.
c. $700,000.
d. $840,000.
101. Foley Inc. had cash sales of $300,000 and credit sales of $1,050,000. The accounts receivable balance
increased $15,000 during the year. How much cash did Foley receive from its customers during the
year?
a. $1,335,000.
b. $1,365,000.
c. $1,035,000.
d. $1,065,000.
102. Stone Company had a cost of purchases of $250,000. The comparative balance sheet analysis
revealed a $10,000 decrease in inventory and a $20,000 increase in accounts payable. What were
Stone's cash payments to suppliers?
a. $230,000.
b. $220,000.
c. $260,000.
d. $280,000.
103. Utley Company had an increase in inventory of $40,000. The cost of goods sold was $90,000. There
was a $5,000 decrease in accounts payable from the prior period. What were Utley's cash payments to
suppliers?
a. $135,000.
b. $85,000.
c. $125,000.
d. $95,000.

104. Which of the following items does not appear in the statement of cash flows under the direct method?
a. Cash payments to suppliers
b. Cash collections from customers
c. Depreciation Expense
d. Cash from the sale of equipment
105. Olson Company has other operating expenses of $80,000. There has been a decrease in prepaid
expenses of $4,000 during the year, and accrued liabilities are $6,000 larger than in the prior period.
What were Olson's cash payments for operating expenses?
a. $82,000.
b. $78,000.
c. $70,000.
d. $80,000.
106. Benton Corporation shows income tax expense of $70,000. There has been a $5,000 decrease in
federal income taxes payable and a $7,000 increase in state income taxes payable during the year.
What was Benton's cash payment for income taxes?
a. $70,000.
b. $68,000.
c. $65,000.
d. $72,000.
107. Which of the following would not appear in the operating activities section of a statement of cash flows
prepared under the direct method?
a. Cash receipts from customers
b. Cash paid for income taxes
c. Gain on sale of equipment
d. Cash paid to employees
108. A measure that describes the cash remaining from operations after adjustment for capital expenditures
and dividends is
a. adjusted cash from operations.
b. cash provided by operations.
c. free cash flow.
d. net cash provided by operating activities.
109. Free cash flow equals cash provided by
a. operations less capital expenditures and cash dividends.
b. operations less cash dividends.
c. investing activities less capital expenditures and cash dividends.
d. operations less capital expenditures.
a
110. When listing accounts in the statement of cash flows work sheet, the accumulated depreciation account
is shown
a. with accounts that have credit balances.
b. with accounts that have debit balances.
c. as a credit under the reconciling items.
d. as a debit under the reconciling items.
a
111. In the bottom portion of the statement of cash flows work sheet,
a. inflows of cash are debits in the reconciling columns.
b. outflows of cash are debits in the reconciling columns.
c. information pertaining to investing and financing activities only is entered.
d. only significant noncash transactions are entered.
a
112. On the statement of cash flows work sheet,
a. significant noncash investing and financing activities are not entered in the reconciling columns.

b. a decrease in cash will be offset by a debit in the reconciling items columns at the bottom of the
work sheet.
c. an increase in cash will be offset by a debit in the reconciling items column at the bottom of the
work sheet.
d. income statement accounts are listed after balance sheet accounts in the top half of the work sheet
under the indirect method.
Additional Multiple Choice Questions
113. The statement of cash flows reports each of the following except the
a. cash receipts during a period.
b. cash payments during a period.
c. net change in cash during a period.
d. All of these are reported.
114.Financing activities involve
a. lending money to other entities and collecting on those loans.
b. cash receipts from sales of goods and services.
c. acquiring and disposing of productive long-lived assets.
d. long-term liability and owners' equity items.
115. The information needed to prepare the statement of cash flows includes each of the following except
a. the comparative balance sheet.
b. the retained earnings statement.
c. additional information.
d. the current income statement.
116. The statement of cash flows is prepared from all of the following except
a. the adjusted trial balance.
b. comparative balance sheets.
c. selected transaction data.
d. the current income statement.
117. The information in a statement of cash flows will not help investors to assess the entity's ability to
a. generate future cash flows.
b. obtain favorable borrowing terms at a bank.
c. pay dividends.
d. pay its obligations when they become due.
118. Which of the following would be deducted from net income under the indirect method?
a. Amortization Expense
b. Loss on sale of asset
c. Decrease in accrued expenses payable
d. Decrease in accounts receivable
119. In the Freyfogle Company, land decreased $90,000 because of a cash sale for $90,000, the equipment
account increased $30,000 as a result of a cash purchase, and Bonds Payable increased $100,000
from an issuance for cash at face value. The net cash provided by investing activities is
a. $90,000.
b. $160,000.
c. $60,000.
d. $70,000.
120. Under the direct method, cash payments for operating expenses equals operating expenses
a. plus an increase in prepaid expenses and accrued expenses payable.

b. minus a decrease in prepaid expenses and accrued expenses payable.
c. minus a decrease in prepaid expenses and plus a decrease in accrued expenses payable.
d. plus a decrease in prepaid expenses and minus an increase in accrued expenses payable.
121. Bainbridge Company uses the direct method in determining net cash provided by operating activities.
The income statement shows income tax expense $80,000. Income taxes payable were $25,000 at the
beginning of the year and $18,000 at the end of the year. Cash payments for income taxes are
a. $73,000.
b. $80,000.
c. $87,000.
d. $98,000.
122. When a work sheet is used, all but one of the following statements is correct. The incorrect statement is
a. Reconciling items on the work sheet are not journalized or posted.
b. The bottom portion of the work sheet shows the statement of cash flows effects.
c. The balance sheet accounts portion of the work sheet is divided into two parts: assets, and
liabilities and stockholders' equity.
d. Each line pertaining to a balance sheet account should foot across.
Answers to Multiple Choice Questions
Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
37. a 50. c 63. b 76. d 89. c 102. a 115. b
38. b 51. a 64. c 77. b 90. d 103. a 116. a
39. a 52. a 65. d 78. c 91. c 104. c 117. b
40. c 53. a 66. b 79. b 92. c 105. c 118. c
41. a 54. c 67. a 80. a 93. c 106. b 119. c
42. b 55. d 68. c 81. d 94. d 107. c 120. c
43. a 56. b 69. b 82. b 95. b 108. c 121. c
44. d 57. b 70. a 83. a 96. b 109. a a
122. c
45. d 58. a 71. d 84. b 97. c a
110. a
46. b 59. c 72. b 85. d 98. a a
111. a
47. c 60. c 73. c 86. c 99. b a
112. b
48. a 61. b 74. b 87. a 100. c 113. d
49. a 62. d 75. c 88. b 101. a 114. d
EXERCISES
Ex. 124
Selected transactions of Eller Company are listed below.
1. Common stock is sold for cash above par value.
2. Bonds payable are issued for cash at a discount.
3. Interest receivable on a short-term note receivable is collected.
4. Land is sold for cash at book value.
5. Accounts payable are paid in cash.
6. Equipment is purchased by signing a 3-year, 10% note payable.
7. Cash dividends on common stock are declared and paid.
8. 100 shares of XYZ common stock are purchased for cash.
9. Merchandise is sold to customers for cash.
10. Bonds payable are converted into common stock.
Instructions
Classify each transaction as either (a) an operating activity, (b) an investing activity, (c) a financing activity, or
(d) a noncash investing and financing activity.

Solution 124 (8–11 min.)
1. (c) Financing activity 6. (d) Noncash activity
2. (c) Financing activity 7. (c) Financing activity
3. (a) Operating activity 8. (b) Investing activity
4. (b) Investing activity 9. (a) Operating activity
5. (a) Operating activity 10. (d) Noncash activity
Ex. 126
The following information is available for Snider Company:
Receipts from customers $180,000
Dividends from stock investments 3,000
Proceeds from sale of equipment 18,000
Proceeds from issuance of stock 100,000
Payments for goods 90,000
Payments for operating expenses 70,000
Interest paid 5,000
Taxes paid 4,000
Dividends paid 20,000
Instructions
Based on the preceding information, compute the net cash provided by operating activities.
Solution 126 (7 min.)
Receipts from customers $180,000
Dividends from stock investments 3,000
183,000
Payments for goods $90,000
Payments for operating expenses 70,000
Interest paid 5,000
Taxes paid 4,000 169,000
Net cash provided by operating activities $ 14,000
Ex. 127
Pierce Company reported net income of $250,000 for the current year. Depreciation recorded on buildings and
equipment amounted to $80,000 for the year. Balances of the current asset and current liability accounts at the
beginning and end of the year are as follows:
Cash $20,000 $15,000
Accounts receivable 19,000 32,000
Inventories 50,000 65,000
Prepaid expenses 7,500 5,000
Accounts payable 12,000 18,000
Income taxes payable 1,600 1,200
Instructions
Prepare the cash flows from the operating activities section of the statement of cash flows using the indirect
method.

Solution 127 (10–15 min.)
Net income.............................................................................................................. $250,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense .................................................................................... 80,000
Decrease in accounts receivable................................................................... 13,000
Decrease in inventories.................................................................................. 15,000
Increase in prepaid expenses........................................................................ (2,500)
Decrease in accounts payable....................................................................... (6,000)
Increase in income taxes payable.................................................................. 400
Net cash provided by operating activities...................................................... $349,900
Ex. 130
The comparative balance sheets for Kohl Company appear below:
KOHL COMPANY
Comparative Balance Sheet
Dec. 31, 2005 Dec. 31, 2004
Assets
Cash $ 23,000 $12,000
Inventory 27,000 18,000
Long-term investments -0- 18,000
Equipment 60,000 30,000
Accumulated depreciation—equipment (18,000) (14,000)
Total assets $116,000 $87,000
Liabilities and Stockholders' Equity
Accounts payable $ 21,000 $ 9,000
Bonds payable 37,000 45,000
Common stock 40,000 23,000
Retained earnings 18,000 10,000
Total liabilities and stockholders' equity $116,000 $87,000
Additional information:
1. Net income for the year ending December 31, 2005 was $20,000.
2. Cash dividends of $12,000 were declared and paid during the year.
3. Long-term investments that had a cost of $18,000 were sold for $16,000.
4. Sales for 2005 were $120,000.
Instructions
Prepare a statement of cash flows for the year ended December 31, 2005, using the indirect method.

Ex. 131
A comparative balance sheet for Isaac Corporation is presented below:
ISAAC CORPORATION
2005 2004
Assets
Cash $ 39,000 $ 31,000
Accounts receivable (net) 80,000 60,000
Prepaid insurance 22,000 17,000
Land 18,000 40,000
Equipment 70,000 60,000
Accumulated depreciation (20,000) (13,000)
Total Assets $209,000 $195,000
Common stock 140,000 115,000
Total liabilities and stockholders' equity $209,000 $195,000
1. Net loss for 2005 is $20,000.
2. Cash dividends of $4,000 were declared and paid in 2005.
3. Land was sold for cash at a loss of $10,000. This was the only land transaction during the year.
4. Equipment with a cost of $15,000 and accumulated depreciation of $10,000 was sold for $5,000 cash.
5. $12,000 of bonds were retired during the year at carrying (book) value.
6. Equipment was acquired for common stock. The fair market value of the stock at the time of the exchange
was $25,000.
Instructions
Prepare a statement of cash flows for the year ended 2005, using the indirect method.
Ex. 132
The following information is available for Hardy Corporation for the year ended December 31, 2005:
Collection of principal on long-term loan to a supplier $35,000
Acquisition of equipment for cash 10,000
Proceeds from the sale of long-term investment at book value 27,000
Issuance of common stock for cash 20,000
Depreciation expense 25,000
Redemption of bonds payable at carrying (book) value 24,000
Payment of cash dividends 9,000
Net income 30,000
Purchase of land by issuing bonds payable 40,000
In addition, the following information is available from the comparative balance sheet for Hardy at the end of
2004 and 2005:
2005 2004
Cash $102,000 $14,000
Accounts receivable (net) 20,000 15,000

Prepaid insurance 17,000 13,000
Total current assets $139,000 $42,000
Accounts payable $ 25,000 $19,000
Salaries payable 4,000 7,000
Total current liabilities $ 29,000 $26,000
Instructions
Prepare Hardy's statement of cash flows for the year ended December 31, 2005 using the indirect method.
Ex. 133
Trent Company prepared the tabulation below at December 31, 2005.
Net Income................................................................................................................. $400,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense, $35,000........................................................................ _______
Increase in accounts receivable, $80,000........................................................ _______
Decrease in inventory, $13,000........................................................................ _______
Amortization of patent, $4,000.......................................................................... _______
Increase in accounts payable, $5,600.............................................................. _______
Decrease in interest receivable, $4,000........................................................... _______
Increase in prepaid expenses, $6,000.............................................................. _______
Decrease in income taxes payable, $1,500...................................................... _______
Gain on sale of land, $5,000............................................................................. _______
Net cash provided (used) by operating activities ............................................. _______
Instructions
Show how each item should be reported in the statement of cash flows. Use parentheses for deductions.
Ex. 136
The general ledger of Lopez Company provides the following information:
Accounts Receivable $ 55,000 $ 94,000
Inventory 350,000 210,000
Accounts Payable 40,000 65,000
The company's net sales for the year was $2,000,000 and cost of goods sold amounted to $1,700,000.
Instructions
Compute the following:
(a) Cash receipts from customers.
(b) Cash payments to suppliers.
Ex. 138
The income statement of Stover Company is shown below:
STOVER COMPANY
Income Statement
For the Year Ended December 31, 2005
Sales $8,000,000
Cost of goods sold 5,400,000
Gross profit 2,600,000

Operating expenses
Selling expenses $500,000
Administrative expense 700,000
Amortization expense 30,000 1,320,000
Net income $1,280,000
1. Accounts receivable increased $400,000 during the year.
2. Inventory increased $250,000 during the year.
3. Prepaid expenses increased $200,000 during the year.
4. Accounts payable to merchandise suppliers increased $100,000 during the year.
5. Accrued expenses payable increased $180,000 during the year.
Instructions
Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2005,
for Stover Company, using the direct method.
Ex. 140
Condensed financial data of Penny Company appear below:
PENNY COMPANY
December 31
2005 2004
Assets
Cash $ 82,000 $ 35,000
Inventories 120,000 132,000
Investments 90,000 75,000
Plant assets 310,000 250,000
Accumulated depreciation (65,000) (60,000)
Total $641,000 $510,000
Accrued expenses payable 29,000 24,000
Common stock 245,000 170,000
Total $641,000 $510,000
PENNY COMPANY
Income Statement
Sales $490,000
Less:
Cost of goods sold $290,000
Operating expenses (excluding depreciation) 60,000
Income taxes 15,000
Interest expense 18,000
Loss on sale of plant assets 3,000 403,000
Net income $ 87,000

Ex. 140 (cont.)
1. New plant assets costing $85,000 were purchased for cash in 2005.
2. Old plant assets costing $25,000 were sold for $10,000 cash when book value was $13,000.
3. Bonds with a face value of $30,000 were converted into $30,000 of common stock.
4. A cash dividend of $24,000 was declared and paid during the year.
5. Accounts payable pertain to merchandise purchases.
Instructions
Prepare a statement of cash flows for the year using the direct method.
a
Ex. 142
Kotter Company has begun a work sheet for preparing a statement of cash flows. The following additional
information is provided:
1. Cash dividends of $10,000 were paid during the year.
2. Land which originally cost $60,000 was sold for $52,000.
3. Common stock was issued at par value for cash.
Instructions
Complete the work sheet for Kotter Company.
KOTTER COMPANY
Work Sheet
Statement of Cash Flows
Balance Reconciling Items Balance
Balance Sheet Accounts 12/31/04 Debits Credits 12/31/05
Debits
Cash 30,000 65,000
Inventory 90,000 110,000
Land 60,000 -0-
Equipment 131,000 140,000
Total 351,000 368,000
Credits
Accounts payable 15,000 12,000
Accumulated depreciation—
equipment 81,000 95,000
Common stock 170,000 180,000
Total 351,000 368,000
Statement of Cash Flows Effects
Operating activities
Net income 21,000
a
Ex. 143
The following information is available for Wilton Corporation:
Capital expenditures $100,000
Cash dividends 65,000
Cash provided by operations 200,000
Net income 130,000
Sales 500,000
Instructions
Compute Wilton Corporation's free cash flow.

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