CashFlow with solutions

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 company’s 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. A company’s ability to generate positive future net cash flows, 2. A company’s ability to meet its obligations and pay dividends, 3. A company’s need for external financing, 4. The reasons for differences between a company’s net income and associated cash receipts and payments, and 5. Both the cash and noncash aspects of a company’s financing and investing transactions. 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? Couldn’t we just look the balance sheet? The change in cash could be determined, but the statement of cash flows provides detailed information about a company’s 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.  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 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 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.” 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 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. Direct versus Indirect Presentations FASB Statement No. 95 allows two ways to calculate and report a company’s 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. 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 entity’s 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.  Example 1 - Statement of Cash Flow – DIRECT METHOD Year ending Year ending Palouse Pottery 12/31/06 Ref Debit Ref Credit 12/31/07 Target Cash 15,000 X 27,000 42,000 27,000 Accounts Receivable 40,000 37,500 (2,500) Allowance for doubtful accounts (3,000) (4,500) (1,500) Merchandise Inventory 25,000 43,000 18,000 Prepaid Expenses 3,000 6,000 3,000 Plant, property & equipment 215,000 236,000 21,000 Accumulated Depreciation (80,000) (82,000) (2,000) 215,000 278,000 Accounts Payable (23,000) (31,000) (8,000) Salaries Payable (2,000) (9,000) (7,000) Interest payable (2,000) (1,500) 500 Income Taxes Payable (1,500) (5,500) (4,000) Dividends Payable 0 (8,000) (8,000) Long term liabilities (25,000) (15,000) 10,000 Common stock, $1 par (100,000) (145,000) (45,000) Retained Earnings (61,500) (63,000) (1,500) (215,000) (278,000) 0 1997 1997 Closing entry for Rev/(Exp) Rec/(Disb) Sales 93,000 Gain/(loss) on sale of PP&E (4,000) Realized gain/(loss) - land 20,000 Cost of goods sold (35,000) Salaries & other operating expenses (37,000) Bad debt expense (2,000) Depreciation & amortization (11,000) Interest expense (2,500) Income taxes expense (7,000) Net income (accrual basis) 14,500 Statement of Cash Flows (INFLOWS) (OUTFLOWS) Operating Activities Investing Activities Financing Activities Noncash Financing/Investing CHANGE IN CASH X 27,000 Totals Additional information: a. Wrote off $500 accounts receivable as uncollectible d. Sold land for $30,000 that had been acquired for $10,000 b. Sold operational assets for $4,000 cash that had cost $17,000 and had a book value of $8,000 e. Paid a $10,000 long-term note installment f. Purchase plant, property & equipment for $48,000 cash. c. Declared a cash dividend of $13,000 g. Issued common stock for $45,000 cash. Example 1 - Statement of Cash Flow – INDIRECT METHOD Year ending Year ending Palouse Pottery 12/31/06 Ref Debit Ref Credit 12/31/07 Target Cash 15,000 X 27,000 42,000 27,000 Accounts Receivable 40,000 37,500 (2,500) Allowance for doubtful accounts (3,000) (4,500) (1,500) Merchandise Inventory 25,000 43,000 18,000 Prepaid Expenses 3,000 6,000 3,000 Plant, property & equipment 215,000 236,000 21,000 Accumulated Depreciation (80,000) (82,000) (2,000) 215,000 278,000 Accounts Payable (23,000) (31,000) (8,000) Salaries Payable (2,000) (9,000) (7,000) Interest payable (2,000) (1,500) 500 Income Taxes Payable (1,500) (5,500) (4,000) Dividends Payable 0 (8,000) (8,000) Long term liabilities (25,000) (15,000) 10,000 Common stock, $1 par (100,000) (145,000) (45,000) Retained Earnings (61,500) (63,000) (1,500) (215,000) (278,000) 0 Statement of Cash Flows (INFLOWS) (OUTFLOWS) Operating Activities Investing Activities Financing Activities Noncash Financing/Investing CHANGE IN CASH X 27,000 Totals Additional information: a. Wrote off $500 accounts receivable as uncollectible d. Sold land for $30,000 that had been acquired for $10,000 b. Sold operational assets for $4,000 cash that had cost $17,000 and had a book value of $8,000 e. Paid a $10,000 long-term note installment f. Purchase plant, property & equipment for $48,000 cash. c. Declared a cash dividend of $13,000 g. Issued common stock for $45,000 cash. Example 2 - Statement of Cash Flow Year ending Year ending Moscow Moving & Storage 12/31/06 Ref Debit Ref Credit 12/31/07 Target Cash 15,000 5,000 (10,000) Accounts Receivable 30,000 28,500 (1,500) Allowance for doubtful accounts (1,500) (2,000) (500) Merchandise Inventory 10,000 17,000 7,000 Prepaid Expenses 4,500 500 (4,000) Plant, property & equipment 220,100 289,100 69,000 Accumulated Depreciation (20,000) (16,000) 4,000 258,100 322,100 Accounts Payable (10,000) (13,000) (3,000) Salaries Payable (3,000) (1,000) 2,000 Interest payable 0 (1,000) (1,000) Long term liabilities (30,000) (10,000) 20,000 Common stock, $1 par (100,000) (181,000) (81,000) Retained Earnings (115,100) (116,100) (1,000) (258,100) (322,100) 0 1997 1997 Closing entry for Rev/(Exp) Receipt/(Disb) Sales 80,000 Gain/(loss) on sale of PP&E (2,000) Cost of goods sold (35,000) Salaries & other operating expenses (26,000) Bad debt expense (1,000) Depreciation & amortization (5,000) Interest expense (2,000) Income taxes expense (3,000) Net income (accrual basis) 6,000 Statement of Cash Flows (INFLOWS) (OUTFLOWS) Operating Activities Investing Activities Financing Activities Noncash Financing/Investing CHANGE IN CASH Totals Additional Information a. Wrote off $500 accounts receivable as uncollectible d. Issued common stock for $36,000 cash b. Sold operational assets for $4,000 cash e. Paid a $20,000 long-term note installment (cost $15,000, acc'd depreciation $9,000) f. Purchased operational assets, $39,000 cash c. Declared and paid a cash dividend, $5,000 g. Acquired land in exchange for 1,000 shares of common stock worth $45 each  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) Ref Net income Cash provided by operations Example 3 Avery Slings & Arrows, Inc. Avery Slings & Arrows Income Statement For year ending 12/31/04 Sales 6,600,000 Earnings of affiliates (equity method) 150,000 Realized loss on sale of equipment (65,000) Realized gain on sale of investments 53,000 Interest and dividend revenue 15,000 Total revenues 6,753,000 Cost of goods sold 3,490,000 Salaries and wages 632,000 Other operating expenses 421,000 Bad debt expense 45,000 Depreciation expense 757,000 Amortization of intangibles 5,000 Accretion expense 25,000 Interest expense 935,000 Income tax expense 177,000 6,487,000 Net income 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.  Avery Slings & Arrows Balance Sheet 12/31/04 12/31/03 Current Assets Cash 2,261,000 2,850,000 Securities Available for Sale (at market) 258,000 100,000 Accounts Receivable (net) 1,947,000 1,900,000 Merchandise Inventory 602,000 900,000 Prepaid Expenses 4,000 50,000 5,072,000 5,800,000 Noncurrent Assets Investments in affiliated companies (equity method) 2,121,000 2,000,000 Land, building & equipment 20,715,000 17,800,000 Less Accumulated Depreciation (2,181,000) (1,800,000) Intangible Assets 568,000 73,000 Total assets 26,295,000 23,873,000 Current Liabilities Accounts Payable 347,000 650,000 Salaries Payable 18,000 21,000 Interest payable 156,000 55,000 Income Taxes Payable 45,000 32,000 Dividends Payable 128,000 60,000 694,000 818,000 Noncurrent Liabilities Bonds Payable 7,000,000 4,000,000 Premium/Discount on Bonds Payable 642,000 656,000 Convertible Bonds Payable 1,500,000 3,000,000 Lease obligation 2,108,000 1,825,000 Asset retirement obligation 275,000 250,000 Deferred Income Taxes 122,000 75,000 Other long term liabilities 590,000 2,590,000 12,237,000 12,396,000 Stockholder's Equity Common stock, $10 par 5,125,000 3,000,000 Additional paid in capital - common 3,525,000 1,600,000 Other paid in capital 13,000 0 Unrealized (gain)/loss AFS invest 27,000 (80,000) Treasury stock (at cost) (38,000) (10,000) Retained Earnings 4,712,000 6,149,000 13,364,000 10,659,000 Total liabilities and equity 26,295,000 23,873,000  Avery Slings & Arrows Year ending         Year ending   12/31/03 Ref Debit Ref Credit 12/30/04 Target Cash 2,850,000 x   589,000 2,261,000 (589,000) Securities Available for Sale 180,000         231,000 51,000 Allowance to adjust to market (80,000)         27,000 107,000 Accounts receivable (net) 1,900,000         1,947,000 47,000 Merchandise Inventory 900,000         602,000 (298,000) Prepaid Expenses 50,000         4,000 (46,000) Investments in affiliated companies (equity method) 2,000,000         2,121,000 121,000 Land, building & equipment 17,800,000         20,715,000 2,915,000 Accumulated Depreciation (1,800,000)         (2,181,000) (381,000) Intangible Assets 73,000         568,000 495,000 Total assets 23,873,000         26,295,000               Accounts Payable (650,000)         (347,000) 303,000 Salaries Payable (21,000)         (18,000) 3,000 Interest payable (55,000)         (156,000) (101,000) Income Taxes Payable (32,000)         (45,000) (13,000) Dividends Payable (60,000)         (128,000) (68,000) Bonds Payable (4,000,000)         (7,000,000) (3,000,000) (Premium)/Discount on Bonds Payable (656,000)         (642,000) 14,000 Convertible Bonds Payable (3,000,000)         (1,500,000) 1,500,000 Lease obligation (1,825,000)         (2,108,000) (283,000) Asset retirement obligation (250,000)         (275,000) (25,000) Deferred Income Taxes (75,000)         (122,000) (47,000) Other long term liabilities (2,590,000)         (590,000) 2,000,000  Avery Slings & Arrows Year ending         Year ending   12/31/03 Ref Debit Ref Credit 12/30/04 Target Common stock, $10 par (3,000,000)         (5,125,000) (2,125,000) Additional paid in capital – common (1,600,000)         (3,525,000) (1,925,000) Unrealized (gain)/loss AFS invest 80,000         (27,000) (107,000) Treasury stock (at cost) 10,000         38,000 28,000 Other paid in capital 0         (13,000) (13,000) Retained Earnings (6,149,000)         (4,712,000) 1,437,000 (23,873,000)         (26,295,000) Closing entry for 2004 2004   Revenue/ (Expense)  Ref   Ref   Operating Cash Inflows/(Outflows) Sales 6,600,000           Earnings of affiliated companies 150,000           Gain/(loss) on sale of equipment (65,000)           Gain/(loss) sale of patent 0           Realized gain/(loss) sale of land 0           Realized gain/(loss) on investments 53,000           Interest and dividend revenue 15,000           Cost of goods sold (3,490,000)           Salaries and wages (632,000)           Other operating expenses (421,000)           Bad debt expense (45,000)           Depreciation expense (757,000)           Amortization of intangibles (5,000)           Accretion expense (25,000)           Interest expense (935,000)           Income taxes expense (177,000)           Net income (accrual basis) 266,000            Avery Slings & Arrows     INFLOWS   OUTFLOWS   Cash provided by operations:                           Reconciling schedule:             Net income 266,000                                                                                                                                                                                                                                                         Cash provided by operations                                   Investing Activities           0                                                                                                                                Avery Slings & Arrows     INFLOWS   OUTFLOWS   Financing Activities           0                                                                                                   Noncash Financing/Investing                                                                     CHANGE IN CASH     589,000 x   Totals     0  Avery Slings & Arrows Statement of Cash Flows For year ended December 31, 2004 Inflows Outflows Net Cash provided by operations Cash collected from customers 6,508,000 Interest & dividends received 44,000 Cash paid for merchandise (3,495,000) Cash paid to employees (635,000) Other operating disbursements (375,000) Interest paid (848,000) Income taxes paid (117,000) 6,552,000 (5,470,000) 1,082,000 Cash provided by investing activities Proceeds from sale of equipment 59,000 Cash outlay to acquire equipment (2,767,000) Cash outlay to acquire patent (500,000) Proceeds from sale of securities 275,000 Cash outlay to buy securities (273,000) 334,000 (3,540,000) (3,206,000) Cash provided by financing activities Dividends paid (135,000) Sold treasury stock 23,000 Purchased treasury stock (38,000) Payments on long term debt (2,000,000) Payments on capital leases (365,000) Common stock issued 1,050,000 Proceeds from issuing nonconvertible bonds 3,000,000 4,073,000 (2,538,000) 1,535,000 Change in cash (589,000) Beginning balance - Cash 2,850,000 Ending balance - Cash 2,261,000 Avery Slings & Arrows Statement of Cash Flows For year ended December 31, 2004 Non-cash financing and investing activities Capital lease 648,000 Preferred bonds converted to common stock 1,500,000 Schedule to reconcile net income to cash provided by operations Net Income 266,000 Depreciation 757,000 Amortization & impairment of intangibles 5,000 Accretion expense 25,000 Amortization of bond premium (14,000) Realized loss on sale of equipment 65,000 Realized gain on sale of investments (53,000) Equity method investments – earnings in excess of dividends (121,000) Increase in deferred income taxes 47,000 Change in working capital accounts: Net accounts receivable (47,000) Merchandise Inventory 298,000 Prepaid Expenses 46,000 Accounts Payable (303,000) Salaries Payable (3,000) Interest Payable 101,000 Income Taxes Payable 13,000 Cash provided by operations: 1,082,000 Acct. 301 - Statement of Cash Flows - Homework 4 Wenatchee Whirlpool World Balance Sheet 12/31/96 12/31/95 Current Assets Cash 2,837,600 2,000,000 Securities Available for Sale (at market) 390,000 150,000 Accounts Receivable 1,752,000 1,900,000 Allowance for doubtful accounts (120,500) (110,000) Merchandise Inventory 1,145,000 875,000 Prepaid Operating Expenses 84,000 62,000 6,088,100 4,877,000 Noncurrent Assets Investments (equity method) 3,097,000 3,000,000 Plant, property & equipment 16,420,000 10,800,000 Accumulated Depreciation (829,000) (600,000) Intangible Assets 71,500 128,000 TOTAL ASSETS 24,847,600 18,205,000 Current Liabilities Accounts Payable 880,000 750,000 Salaries Payable 20,000 15,000 Income Taxes Payable 13,400 27,000 Dividends Payable 35,000 60,000 Current portion long term debt 29,000 21,000 977,400 873,000 Noncurrent Liabilities Bonds Payable 10,000,000 5,000,000 Discount on Bonds (247,000) (270,000) Deferred Income Taxes 180,000 88,000 Other long term liabilities 562,000 3,000,000 10,495,000 7,818,000 Stockholder's Equity Convertible preferred, $100 par 500,000 2,000,000 Common stock, $10 par 3,100,000 1,500,000 Additional paid in capital 3,950,000 1,200,000 Unrealized (gain)/loss investments 27,000 78,000 Retained Earnings 5,798,200 4,736,000 13,375,200 9,514,000 Total liabilities and equity 24,847,600 18,205,000  Wenatchee Whirlpool World Income Statement For year ending 12/31/96 Sales 6,200,000 Earnings of affiliated company (equity method) 115,000 Gain/(loss) on sale of PP&E (40,000) Realized gain/(loss) on investments 108,000 Realized gain on sale of patent 950,000 Interest and dividend revenue 13,000 Total revenues 7,346,000 Cost of goods sold 3,600,000 Salaries and wages 590,000 Other operating expenses 345,000 Bad debt expense 38,500 Depreciation & amortization expense 250,500 Interest expense 669,400 Income taxes expense 740,400 6,233,800 Net income 1,112,200 Additional 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. b. 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. c. 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. d. 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. e. On July 20, WWW sold 50,000 shares of its common stock for $41 per share. f. By the end of the year, WWW had written off as uncollectible a total of $28,000 in accounts receivable. g. 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. 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. i. 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. j. 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. k. Dividends declared during the year totaled $50,000.  Homework 4 - Acct 315 Worksheet Year ending Year ending Wenatchee Whirlpool World 12/31/95 Ref Debit Ref Credit 12/31/96 Target Cash 2,000,000 837,600 2,837,600 837,600 Securities Available for Sale (at market) 150,000 390,000 240,000 Accounts Receivable 1,900,000 1,752,000 (148,000) Allowance for doubtful accounts (110,000) (120,500) (10,500) Merchandise Inventory 875,000 1,145,000 270,000 Prepaid Operating Expenses 62,000 84,000 22,000 Investments in affiliated companies (equity method) 3,000,000 3,097,000 97,000 Plant, property & equipment 10,800,000 16,420,000 5,620,000 Accumulated Depreciation (600,000) (829,000) (229,000) Intangible Assets 128,000 71,500 (56,500) 18,205,000 24,847,600 Accounts Payable (750,000) (880,000) (130,000) Salaries Payable (15,000) (20,000) (5,000) Income Taxes Payable (27,000) (13,400) 13,600 Dividends Payable (60,000) (35,000) 25,000 Current portion long term debt (21,000) (29,000) (8,000) Bonds Payable (5,000,000) (10,000,000) (5,000,000) Premium/Discount on Bonds Payable 270,000 247,000 (23,000) Deferred Income Taxes (88,000) (180,000) (92,000) Other long term liabilities (3,000,000) (562,000) 2,438,000 Wenatchee Whirlpool World 12/31/95 ref Debit ref Credit 12/31/96 Target Convertible preferred, $100 par (2,000,000) (500,000) 1,500,000 Common stock, $10 par (1,500,000) (3,100,000) (1,600,000) Additional paid in capital (1,200,000) (3,950,000) (2,750,000) Unrealized (gain)/loss investments (78,000) (27,000) 51,000 Retained Earnings (4,736,000) (5,798,200) (1,062,200) 0 (18,205,000) (24,847,600) Closing entry for 1996 1996 Rev/(Exp) Receipt/(Disb) Sales 6,200,000 Earnings of affiliated companies (equity method) 115,000 Gain/(loss) on sale of PP&E (40,000) Realized gain/(loss) on investments 108,000 Realized gain on sale of patent 950,000 Interest and dividend revenue 13,000 Cost of goods sold (3,600,000) Salaries and wages (590,000) Other operating expenses (345,000) Bad debt expense (38,500) Depreciation expense (244,000) Amortization of intangible assets (6,500) Interest expense (669,400) Income taxes expense (740,400) Net income (accrual basis) 1,112,200 Wenatchee Whirlpool World Statement of Cash Flows INFLOWS OUTFLOWS (Subtotals) Operating Activities Investing Activities Financing Activities Noncash Financing/Investing CHANGE IN CASH 837,600 Totals  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. 5. Homework Assignment – Ulliman Company Uliman Company Year ending Worksheet Year ending 01/01/99 Ref Debit Ref Credit 12/31/99 Target Cash 1,400 2,400 1,000 Accounts receivable (net) 2,800 2,690 (110) Marketable securities (at cost) 1,700 3,000 1,300 Allowance for change in value 500 800 300 Merchandise Inventory 8,100 7,910 (190) Prepaid Expenses 1,300 1,710 410 Investments (long-term) 7,000 5,400 (1,600) Land 15,000 15,000 0 Buildings and equipment 32,000 46,200 14,200 Accumulated depreciation (16,000) (16,400) (400) 0 0 0 53,800 68,710 Accounts Payable (3,800) (4,150) (350) Income Taxes Payable (2,400) (2,504) (104) Wages payable (1,100) (650) 450 Interest payable 0 (400) (400) 12% bonds payable 0 (10,000) (10,000) Premium/Discount on Bonds Payable 0 290 290 Notes payable (long term) (3,500) 0 3,500 10% Convertible bonds (9,000) 0 9,000 Deferred Income Taxes (800) (1,196) (396) Convertible preferred, $100 par 0 0 0 Common stock, $10 par (14,000) (21,500) (7,500) Additional paid in capital (8,700) (13,700) (5,000) Unrealized (gain)/loss investments (500) (800) (300) Retained Earnings (10,000) (14,100) (4,100) (53,800) (68,710) Closing entry for 1999 1999 Rev/ (Exp) Receipt/(Disb) Sales 39,930 Other revenue 0 Gain/(loss) on sale of PP&E (200) Realized gain/(loss) on investments 700 Interest and dividend revenue 820 Cost of goods sold (19,890) Salaries & other operating expenses (11,000) Other operating expense (1,000) Depreciation & amortization (2,100) Interest expense (410) Income taxes expense (2,050) Net income (accrual basis) 4,800 (53,800) 5. Ulliman Company, continued Statement of Cash Flows INFLOWS OUTFLOWS Subtotals Operating Activities Reconciliation Schedule: Investing Activities Financing Activities Noncash Financing/Investing CHANGE IN CASH Totals 6. Homework Problem – Driskoll Company Driskoll Company Year ending Worksheet Year ending 12/31/99 Ref Debit Ref Credit 12/31/99 Target Cash 2,700 3,520 820 Accounts receivable (net) 5,900 6,215 315 Inventories 15,300 15,530 230 Prepaid Expenses 1,400 1,000 (400) Investments (long-term) 8,300 7,300 (1,000) Land 16,300 19,000 2,700 Buildings 68,700 60,700 (8,000) Acc'd depreciation - Bldg (35,000) (34,500) 500 Equipment 29,600 25,600 (4,000) Acc'd depreciation - Equip (14,200) (14,700) (500) Patents 8,700 9,185 485 107,700 98,850 Accounts Payable (8,900) (9,195) (295) Interest payable (630) (300) 330 Wages payable (2,500) (2,600) (100) Bonds payable (23,000) (17,000) 6,000 Discount on bonds 0 715 715 Common stock, $10 par (22,000) (22,650) (650) Additional paid in capital (15,320) (15,970) (650) Unrealized (gain)/loss investments 0 0 0 Retained Earnings (35,350) (31,850) 3,500 (107,700) (98,850) ok ok Closing entry for 1999 1999 Rev/(Exp) Receipt/(Disb) Sales 49,550 Gain/(loss) on exchange of assets 1,300 Realized gain/(loss) on investments (200) Interest and dividend revenue 790 Cost of goods sold (23,800) Salaries & other operating expenses (16,510) 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) 6. Driskoll Company, continued Statement of Cash Flows INFLOWS OUTFLOWS Subtotals Operating Activities Reconciliation Schedule: Investing Activities Financing Activities Noncash Financing/Investing CHANGE IN CASH Totals  7. Statement of Cash Flow Problem from final exam, Spring 1998 Albion Altimeters Inc. Balance Sheet 12/31/97 12/31/96 Current Assets Cash 310,200 400,000 Securities Available for Sale (at market) 1,112,000 500,000 Accounts Receivable 781,000 900,000 Allowance for doubtful accounts (33,200) (27,000) Merchandise Inventory 829,000 850,000 Prepaid Operating Expenses 38,800 25,000 3,037,800 2,648,000 Noncurrent Assets Plant, property & equipment 3,562,000 1,880,000 Accumulated Depreciation (355,000) (350,000) TOTAL ASSETS 6,244,800 4,178,000 Current Liabilities Accounts Payable 413,000 350,000 Salaries Payable 7,200 8,500 Income Taxes Payable 23,500 27,000 Dividends Payable 0 25,000 443,700 410,500 Noncurrent Liabilities Bonds Payable 1,000,000 1,000,000 Premium/Discount on Bonds Payable 118,000 124,000 Deferred Income Taxes 103,700 88,000 1,221,700 1,212,000 Stockholder's Equity Common stock, $10 par 1,510,000 1,000,000 Additional paid in capital 1,972,000 700,000 Acc'd other comprehensive income* 13,000 (14,000) Retained Earnings 1,084,400 869,500 4,579,400 2,555,500 Total liabilities and equity 6,244,800 4,178,000 * Other comprehensive income is composed of the holding gains/losses related to available for sale securities.  Albion Altimeters Inc. Income Statement For year ending 12/31/97 Sales 3,600,000 Gain/(loss) on sale of PP&E (30,000) Interest and dividend revenue 15,000 Total revenues 3,585,000 Cost of goods sold 2,100,000 Salaries and wages 650,000 Other operating expenses 230,000 Bad debt expense 17,200 Depreciation & amortization expense 30,000 Interest expense 87,700 Income taxes expense 180,200 3,295,100 Net income 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: AA declared dividends of $75,000 on June 30, 1997. 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. AA purchased for cash plant, property & equipment for $1,740,000. On May 15, AA issued 50,000 shares of common stock at $35 each. AA wrote off $11,000 of bad debts during 1997. AA purchased for cash $585,000 in marketable securities on Apr. 1. 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.  7. Statement of Cash Flow Problem Worksheet Year ending Year ending Albion Altimeters Inc. 12/31/96 Ref Debit Ref Credit 12/31/97 Target Cash 400,000 89,800 310,200 (89,800) Securities Available for Sale (at market) 500,000 1,112,000 612,000 Accounts Receivable 900,000 781,000 (119,000) Allowance for doubtful accounts (27,000) (33,200) (6,200) Merchandise Inventory 850,000 829,000 (21,000) Prepaid Operating Expenses 25,000 38,800 13,800 Plant, property & equipment 1,880,000 3,562,000 1,682,000 Accumulated Depreciation (350,000) (355,000) (5,000) 4,178,000 6,244,800 Accounts Payable (350,000) (413,000) (63,000) Salaries Payable (8,500) (7,200) 1,300 Income Taxes Payable (27,000) (23,500) 3,500 Dividends Payable (25,000) 0 25,000 Bonds Payable (1,000,000) (1,000,000) 0 Premium/Discount on Bonds Payable (124,000) (118,000) 6,000 Deferred Income Taxes (88,000) (103,700) (15,700) Common stock, $10 par (1,000,000) (1,510,000) (510,000) Additional paid in capital (700,000) (1,972,000) (1,272,000) Acc'd other comprehensive income 14,000 (13,000) (27,000) Retained Earnings (869,500) (1,084,400) (214,900) 0 (4,178,000) (6,244,800) (2,066,800) Closing entry for 1997 Rev/(Exp) Ref Debit Ref Credit Receipt/(Disb) Sales 3,600,000 Gain/(loss) on sale of PP&E (30,000) Interest and dividend revenue 15,000 Cost of goods sold (2,100,000) Salaries and wages (650,000) Other operating expenses (230,000) Bad debt expense (17,200) Depreciation expense (30,000) Interest expense (87,700) Income taxes expense (180,200) Net income (accrual basis) 289,900 7. Albion Altimeters Statement of Cash Flows INFLOWS OUTFLOWS (Subtotals) Operating Activities Investing Activities Financing Activities Noncash Financing/Investing CHANGE IN CASH 89,800 Totals  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  Albion Altimeters Statement of Cash Flow For year ended 12-31-97 Reconciling schedule Notes: 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 doesn’t “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 6,500,000 Earnings of affiliated companies (equity method) 125,000 Gain/(loss) on sale of PP&E (30,000) Realized gain/(loss) on investments 192,000 Realized gain on sale of patent 450,000 Interest and dividend revenue 15,000 Total revenues 7,252,000 Cost of goods sold 3,800,000 Salaries and wages 610,000 Other operating expenses 354,000 Bad debt expense 47,200 Depreciation & amortization expense 261,000 692,100 Income taxes expense 572,700 6,337,000 Net income 915,000 Endicott Engines Inc. Additional information: a. On February 19, EEI sold an internally developed patent for $500,000. b. 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. c. 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. d. 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. e. On July 20, EEI sold 25,000 shares of its common stock for $43 per share. f. By the end of the year, EEI had written off as uncollectible a total of $35,000 in accounts receivable. g. 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. h. 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. i. New equipment for the factory was obtained under a capital lease. The present value of the minimum lease payments was $722,000. j. 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. k. 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. l. Dividends declared during the year totaled $100,000.  Endicott Engines Inc. Balance Sheet 12/31/02 12/31/01 Current Assets Cash 1,308,200 1,500,000 Securities Available for Sale 536,000 300,000 Accounts Receivable 2,145,000 2,000,000 Allowance for doubtful accounts (122,200) (110,000) Merchandise Inventory 1,165,000 975,000 Prepaid Operating Expenses 63,000 50,000 5,095,000 4,715,000 Noncurrent Assets Investments (partially owned companies) 2,605,000 2,500,000 Plant, property & equipment 17,142,000 10,700,000 Accumulated Depreciation (934,000) (700,000) Intangible Assets 93,000 150,000 TOTAL ASSETS 24,001,000 17,365,000 Current Liabilities Accounts Payable 1,050,000 800,000 Salaries Payable 43,000 18,000 Income Taxes Payable 24,000 35,000 Dividends Payable 85,000 60,000 1,202,000 913,000 Noncurrent Liabilities Bonds Payable 11,000,000 5,000,000 Discount on Bonds (277,000) (300,000) Deferred Income Taxes 142,000 90,000 Lease obligations 749,000 323,000 Other long term liabilities 570,000 3,000,000 12,184,000 8,113,000 Stockholder's Equity Convertible preferred, $100 par 1,000,000 2,000,000 Common stock, $10 par 2,150,000 1,000,000 Additional paid in capital 2,575,000 1,200,000 Unrealized (gain)/loss investments 27,000 91,000 Retained Earnings 4,863,000 4,048,000 10,615,000 8,339,000 Total liabilities and equity 24,001,000 17,365,000  Endicott Engines Inc. Worksheet Year ending Year ending Endicott Engines Inc. 12/31/01 Ref Debit Ref Credit 12/31/02 Target Cash 1,500,000 191,800 1,308,200 (191,800) Securities Available for Sale 300,000 536,000 236,000 Accounts Receivable 2,000,000 2,145,000 145,000 Allowance for doubtful accounts (110,000) (122,200) (12,200) Merchandise Inventory 975,000 1,165,000 190,000 Prepaid Operating Expenses 50,000 63,000 13,000 Investments (equity method) 2,500,000 2,605,000 105,000 Plant, property & equipment 10,700,000 17,142,000 6,442,000 Accumulated Depreciation (700,000) (934,000) (234,000) Intangible Assets 150,000 93,000 (57,000) 17,365,000 24,001,000 Accounts Payable (800,000) (1,050,000) (250,000) Salaries Payable (18,000) (43,000) (25,000) Income Taxes Payable (35,000) (24,000) 11,000 Dividends Payable (60,000) (85,000) (25,000) Bonds Payable (5,000,000) (11,000,000) (6,000,000) Premium/Discount on Bonds Payable 300,000 277,000 (23,000) Deferred Income Taxes (90,000) (142,000) (52,000) Lease obligations (323,000) (749,000) (426,000) Endicott Engines Inc. 12/31/01 Ref Debit Ref Credit 12/31/02 Target Other long term liabilities (3,000,000) (570,000) 2,430,000 Convertible preferred, $100 par (2,000,000) (1,000,000) 1,000,000 Common stock, $10 par (1,000,000) (2,150,000) (1,150,000) Additional paid in capital (1,200,000) (2,575,000) (1,375,000) Unrealized (gain)/loss investments (91,000) (27,000) 64,000 Retained Earnings (4,048,000) (4,863,000) (815,000) 0 (17,365,000) (24,001,000) Closing entry for 2002: Rev/(Exp) Receipt/(Disb) Sales 6,500,000 Earnings of affiliated company (equity method) 125,000 Gain/(loss) on sale of PP&E (30,000) Realized gain/(loss) on investments 192,000 Realized gain on sale of patent 450,000 Interest and dividend revenue 15,000 Cost of goods sold (3,800,000) Salaries and wages (610,000) Other operating expenses (354,000) Bad debt expense (47,200) Depreciation expense (254,000) Amortization of intangible assets (7,000) Interest expense (692,100) Income taxes expense (572,700) Net income (accrual basis) 915,000 Endicott Engines Inc. Statement of Cash Flows INFLOWS OUTFLOWS Operating Activities Investing Activities Endicott Engines Inc. Financing Activities Noncash Financing/Investing CHANGE IN CASH 191,800 Totals Statement of Cash Flow Examples - Solutions Example 1 - completed worksheet Year ending Year ending Palouse Pottery 12/31/96 Ref Debit Ref Credit 12/31/97 Target Cash 15,000 x 27,000 42,000 27,000 i 2,000 Accounts Receivable 40,000 a 500 37,500 (2,500) Allowance for doubtful accounts (3,000) a 500 j 2,000 (4,500) (1,500) Merchandise Inventory 25,000 k 18,000 43,000 18,000 Prepaid Expenses 3,000 L 3,000 6,000 3,000 d 10,000 Plant, property & equipment 215,000 f 48,000 b 17,000 236,000 21,000 Accumulated Depreciation (80,000) b 9,000 m 11,000 (82,000) (2,000) 215,000 278,000 Accounts Payable (23,000) n 8,000 (31,000) (8,000) Salaries Payable (2,000) o 7,000 (9,000) (7,000) Interest payable (2,000) p 500 (1,500) 500 Income Taxes Payable (1,500) q 4,000 (5,500) (4,000) Dividends Payable 0 h 5,000 c 13,000 (8,000) (8,000) Long term liabilities (25,000) e 10,000 (15,000) 10,000 Common stock, $1 par (100,000) g 45,000 (145,000) (45,000) Retained Earnings (61,500) c 13,000 x 14,500 (63,000) (1,500) (215,000) x (278,000) 0 1997 1997 Closing entry for Rev/(Exp) Receipt/(Disb) Sales 93,000 i 2,000 95,000 Gain/(loss) on sale of PP&E (4,000) b 4,000 0 Realized gain/(loss) - land 20,000 d 20,000 0 Cost of goods sold (35,000) n 8,000 k 18,000 (45,000) Salaries & other operating expenses (37,000) o 7,000 L 3,000 (33,000) Bad debt expense (2,000) j 2,000 0 Depreciation & amortization (11,000) m 11,000 0 Interest expense (2,500) p 500 (3,000) Income taxes expense (7,000) q 4,000 (3,000) Net income (accrual basis) 14,500 X 14,500 X 11,000 11,000 Operating Cash Statement of Cash Flows (INFLOWS) (OUTFLOWS) Operating Activities X 11,000 11,000 Investing Activities (14,000) Sold operational asset b 4,000 Sold land d 30,000 Purchased Plant, Property & Equipment f 48,000 Financing Activities 30,000 Paid long-term debt e 10,000 Issued common stock g 45,000 Paid cash dividend h 5,000 Noncash Financing/Investing CHANGE IN CASH X 27,000 27,000 Totals 276,500 276,500 Solutions for Example Problems Example 1 for Acct 301 Solution: Palouse Pottery Statement of Cash Flows For year ended 31-Dec-97 Inflows Outflows Net Cash provided by operations Cash collected from customers 95,000 Interest & dividends received 0 Cash paid for merchandise (45,000) Cash paid to employees (20,000) Other operating disbursements (13,000) Interest paid (3,000) Income taxes paid (3,000) Subtotals 95,000 (84,000) 11,000 Cash provided by investing activities Purchase plant, property & equipment (48,000) Sale of plant, property & equipment 4,000 Sale of land 30,000 Subtotals 34,000 (48,000) (14,000) Cash provided by financing activities Dividends paid (5,000) Long-term debt retired (10,000) Common stock issued 45,000 Subtotals 45,000 (15,000) 30,000 Change in cash 27,000 Beginning balance - Cash 15,000 Ending balance - Cash 42,000 Schedule to reconcile net income to cash provided by operations Net Income 14,500 Depreciation & amortization 11,000 Realized gains/losses PP&E 4,000 Realized gain/loss - land sale (20,000) Change in working capital accounts: Net accounts receivable 4,000 Merchandise Inventory (18,000) Prepaid Expenses (3,000) Accounts Payable 8,000 Salaries Payable 7,000 Income Taxes Payable 4,000 Interest Payable (500) Cash provided by operations: 11,000 Non-cash financing and investing activities None  Example 1 for Acct 301 – INDIRECT METHOD SOLUTION Statement of Cash Flow Worksheet   Year ending         Year ending   Palouse Pottery 12/31/96 Ref Debit Ref Credit 12/31/97 Target Cash 15,000 x 27,000   42,000 27,000 Accounts Receivable 40,000       2,500 37,500 (2,500) Allowance for doubtful accounts (3,000)       1,500 (4,500) (1,500) Merchandise Inventory 25,000   18,000     43,000 18,000 Prepaid Expenses 3,000   3,000     6,000 3,000 Plant, property & equipment 215,000 f 48,000 b,d 27,000 236,000 21,000 Accumulated Depreciation (80,000) b 9,000   11,000 (82,000) (2,000)   215,000     278,000   Accounts Payable (23,000)       8,000 (31,000) (8,000) Salaries Payable (2,000)       7,000 (9,000) (7,000) Interest payable (2,000)   500     (1,500) 500 Income Taxes Payable (1,500)       4,000 (5,500) (4,000) Dividends Payable 0 c 5,000 c 13,000 (8,000) (8,000) Long term liabilities (25,000) e 10,000     (15,000) 10,000 Common stock, $1 par (100,000)     g 45,000 (145,000) (45,000) Retained Earnings (61,500) c 13,000 h 14,500 (63,000) (1,500) (215,000)         (278,000) 0 Statement of Cash Flows   (INFLOWS)   (OUTFLOWS)   Operating Activities           11,000 Net income   h 14,500       Add back loss on sale of equipment   b 4,000       Minus gain on sale of land       d 20,000   depreciation     11,000                     Change in working capital accounts:             A/R (net)     4,000       Inventory         18,000   Prepaid expenses         3,000   A/P     8,000       Salaries payable     7,000       Interest payable         500   Income taxes payable     4,000                     Investing Activities             Sold equipment   b 4,000       Sold land   d 30,000       Purchase PP&E       f 48,000                 Financing Activities             Dividends paid       c 5,000   Payment on LT debt       e 10,000   Issued common stock   g 45,000       Noncash Financing/Investing                           CHANGE IN CASH     X 27,000   Totals             265,000 265,000   Example 2 for Acct 301 - Solution: Moscow Moving & Storage Statement of Cash Flows For year ended 31-Dec-97 Inflows Outflows Net Cash provided by operations Cash collected from customers 81,000 Interest & dividends received 0 Cash paid for merchandise (39,000) Cash paid to employees (14,000) Other operating disbursements (10,000) Interest paid (1,000) Income taxes paid (3,000) Subtotals 81,000 (67,000) 14,000 Cash provided by investing activities Purchase plant, property & equipment (39,000) Sale of plant, property & equipment 4,000 Sale of land Subtotals 4,000 (39,000) (35,000) Cash provided by financing activities Dividends paid (5,000) Long-term debt retired (20,000) Common stock issued 36,000 Subtotals 36,000 (25,000) 11,000 Change in cash (10,000) Beginning balance – Cash 15,000 Ending balance – Cash 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  Example 3 – workpaper solution Avery Slings & Arrows Year ending Year ending 0 12/31/03 Ref Debit Ref Credit 12/30/04 Target Cash 2,850,000 x 589,000 2,261,000 (589,000) Securities Available for Sale 180,000 c 273,000 J 222,000 231,000 51,000 Allowance to adjust to market (80,000) r 107,000 27,000 107,000 Accounts Receivable 2,000,000 s 92,000 o 33,000 2,059,000 59,000 Allowance for doubtful accounts (100,000) o 33,000 o 45,000 (112,000) (12,000) Merchandise Inventory 900,000 s 298,000 602,000 (298,000) Prepaid Expenses 50,000 s 46,000 4,000 (46,000) Investments in affiliated companies (equity method) 2,000,000 g 150,000 g 29,000 2,121,000 121,000 Land, building & equipment 17,800,000 a 2,767,000 d 500,000 20,715,000 2,915,000 g 648,000 Accumulated Depreciation (1,800,000) d 376,000 p 757,000 (2,181,000) (381,000) Intangible Assets 73,000 I 500,000 p 5,000 568,000 495,000 Total assets 23,873,000 26,295,000 Accounts Payable (650,000) t 303,000 (347,000) 303,000 Salaries Payable (21,000) t 3,000 (18,000) 3,000 Interest payable (55,000) t 101,000 (156,000) (101,000) Income Taxes Payable (32,000) t 13,000 (45,000) (13,000) Dividends Payable (60,000) e 135,000 e 203,000 (128,000) (68,000) Bonds Payable (4,000,000) L 3,000,000 (7,000,000) (3,000,000) Premium/Discount on Bonds Payable (656,000) u 14,000 (642,000) 14,000 Convertible Bonds Payable (3,000,000) f 1,500,000 (1,500,000) 1,500,000 Lease obligation (1,825,000) v 365,000 g 648,000 (2,108,000) (283,000) Asset retirement obligation (250,000) q 25,000 (275,000) (25,000) Deferred Income Taxes (75,000) w 47,000 (122,000) (47,000) Other long term liabilities (2,590,000) y 2,000,000 (590,000) 2,000,000 Convertible preferred, $100 par 0 0 0 Common stock, $10 par (3,000,000) b 250,000 (5,125,000) (2,125,000) f 375,000 k 1,500,000 Additional paid in capital - common (1,600,000) b 800,000 (3,525,000) (1,925,000) f 1,125,000 Unrealized (gain)/loss AFS invest 80,000 r 107,000 (27,000) (107,000) Treasury stock (at cost) 10,000 n 38,000 m 10,000 38,000 28,000 Other paid in capital 0 m 13,000 (13,000) (13,000) k 1,500,000 Retained Earnings (6,149,000) e 203,000 X 266,000 (4,712,000) 1,437,000 (23,873,000) (26,295,000) Avery Slings & Arrows Closing entry for 2004 Ref Debits Ref Credits 2004 Rev/(Exp) Receipt/ (Disb) Sales 6,600,000 s 92,000 6,508,000 Earnings of affiliates (equity method) 150,000 g 150,000 0 Gain/(loss) on sale of PP&E (65,000) d 65,000 0 Realized gain/(loss) on investments 53,000 J 53,000 0 Interest and dividend revenue 15,000 g 29,000 44,000 Cost of goods sold (3,490,000) s 298,000 t 303,000 (3,495,000) Salaries and wages (632,000) t 3,000 (635,000) Other operating expenses (421,000) s 46,000 (375,000) Bad debt expense (45,000) o 45,000 0 Depreciation expense (757,000) p 757,000 0 Amortization of intangibles (5,000) p 5,000 0 Accretion expense (25,000) q 25,000 0 Interest expense (935,000) t 101,000 u 14,000 (848,000) w 47,000 Income taxes expense (177,000) t 13,000 (117,000) Net income (accrual basis) 266,000 X 266,000 X 1,082,000 1,082,000 INFLOWS OUTFLOWS Cash provided by operations: X 1,082,000 1,082,000 Reconciling schedule: Net income 266,000 Depreciation 757,000 Amortization & impairment of intangibles 5,000 Accretion expense 25,000 Bond premiums/discounts (14,000) Realized gains/losses PP&E 65,000 Realized gain/loss investments (53,000) Equity method investments (121,000) Deferred income taxes 47,000 Change in working capital: Net accounts receivable (47,000) Merchandise Inventory 298,000 Prepaid Expenses 46,000 Accounts Payable (303,000) Salaries Payable (3,000) Interest payable 101,000 Income Taxes Payable 13,000 Cash provided by operations 1,082,000 off by 0  Avery Slings & Arrows Ref Inflows Ref Outflows Investing Activities (3,206,000) Purchased PP&E a 2,767,000 Purchased marketable securities c 273,000 Sold equipment d 59,000 Purchased patent I 500,000 Sold investments J 275,000 Financing Activities 1,535,000 Issued common stock b 1,050,000 Paid dividends e 135,000 Issued bonds L 3,000,000 Sold treasury stock m 23,000 Purchased treasury stock n 38,000 Payments on capital leases v 365,000 Payments on long-term debt y 2,000,000 Noncash Financing/Investing Bonds converted into stock f 1,500,000 f 1,500,000 Capital lease h 648,000 648,000 Stock dividend K CHANGE IN CASH 589,000 x Totals 20,930,000 20,930,000 (589,000) Change in Cash ok 0 0 half 0 double 0 divide by 9  Solution Example 4- Acct 315 Worksheet Year ending Year ending Wenatchee Whirlpool World 12/31/95 Ref Debit Ref Credit 12/31/96 Target Cash 2,000,000 X 837,600 2,837,600 837,600 o 51,000 Securities Available for Sale (at market) 150,000 I 875,000 I 584,000 390,000 240,000 p 120,000 Accounts Receivable 1,900,000 f 28,000 1,752,000 (148,000) Allowance for doubtful accounts (110,000) f 28,000 m 38,500 (120,500) (10,500) Merchandise Inventory 875,000 p 270,000 1,145,000 270,000 Prepaid Operating Expenses 62,000 p 22,000 84,000 22,000 Investments (equity method) 3,000,000 l 115,000 j 18,000 3,097,000 97,000 h 800,000 Plant, property & equipment 10,800,000 g 4,900,000 c 80,000 16,420,000 5,620,000 Accumulated Depreciation (600,000) c 15,000 n 244,000 (829,000) (229,000) n 6,500 Intangible Assets 128,000 a 50,000 71,500 (56,500) 18,205,000 24,847,600 Accounts Payable (750,000) p 130,000 (880,000) (130,000) Salaries Payable (15,000) p 5,000 (20,000) (5,000) Income Taxes Payable (27,000) q 13,600 (13,400) 13,600 Dividends Payable (60,000) k 75,000 k 50,000 (35,000) 25,000 Current portion long term debt (21,000) s 8,000 (29,000) (8,000) Bonds Payable (5,000,000) b 5,000,000 (10,000,000) (5,000,000) Premium/Discount on Bonds Payable 270,000 r 23,000 247,000 (23,000) Deferred Income Taxes (88,000) q 92,000 (180,000) (92,000) s 2,430,000 Other long term liabilities (3,000,000) s 8,000 (562,000) 2,438,000 12/31/95 ref Debit ref Credit 12/31/96 Target Convertible preferred, $100 par (2,000,000) d 1,500,000 (500,000) 1,500,000 h 200,000 e 500,000 Common stock, $10 par (1,500,000) d 900,000 (3,100,000) (1,600,000) h 600,000 e 1,550,000 Additional paid in capital (1,200,000) d 600,000 (3,950,000) (2,750,000) Unrealized (gain)/loss investments (78,000) o 51,000 (27,000) 51,000 Retained Earnings (4,736,000) k 50,000 X 1,112,200 (5,798,200) (1,062,200) 0 (18,205,000) (24,847,600) Wenatchee Whirlpool World Closing entry for 1996 1996 Rev/(Exp) Receipt/(Disb) Sales 6,200,000 p 120,000 6,320,000 Earnings of affiliated company (equity method) 115,000 l 115,000 0 Gain/(loss) on sale of PP&E (40,000) c 40,000 0 Realized gain/(loss) on investments 108,000 I 108,000 0 Realized gain on sale of patent 950,000 a 950,000 0 Interest and dividend revenue 13,000 j 18,000 31,000 Cost of goods sold (3,600,000) p 130,000 p 270,000 (3,740,000) Salaries and wages (590,000) p 5,000 (585,000) Other operating expenses (345,000) p 22,000 (367,000) Bad debt expense (38,500) m 38,500 0 Depreciation expense (244,000) n 244,000 0 Amortization of intangible assets (6,500) n 6,500 0 Interest expense (669,400) r 23,000 (646,400) Income taxes expense (740,400) q 92,000 q 13,600 (662,000) Net income (accrual basis) 1,112,200 X 1,112,200 X 350,600 350,600 Statement of Cash Flows INFLOWS OUTFLOWS (Subtotals) Operating Activities X 350,600 Reconciling schedule: 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 Investees (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  Investing Activities Sale of patent a 1,000,000 Sale of equipment c 25,000 Purchase factory g 4,900,000 Purchase investment securities I 875,000 Sold investment securities I 692,000 Financing Activities Issued bonds b 5,000,000 Issued common stock e 2,050,000 Dividends paid k 75,000 Long-term debt repaid s 2,430,000 Noncash Financing/Investing Preferred converted to common stock d 1,500,000 d 1,500,000 Swap common stock for land h 800,000 h 800,000 CHANGE IN CASH X 837,600 Totals 25,237,000 25,237,000  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] 1,000,000 Intangible Assets 50,000 Realized gain on sale of patent 950,000 b. 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] 5,000,000 Bonds payable 5,000,000 c. 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] 25,000 Accumulated depreciation 15,000 Loss on sale of plant, property & equipment 40,000 Plant, property and equipment 80,000 d. 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 1,500,000 Common stock, $10 par 900,000 Additional paid-in capital 600,000 e. 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] 2,050,000 Common stock, $10 par 500,000 Additional paid in capital 1,550,000 f. By the end of the year, WWW had written off as uncollectible a total of $28,000 in accounts receivable. Allowance for doubtful accounts 28,000 Accounts receivable 28,000 g. 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 4,900,000 Cash [Investing outflow] 4,900,000 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 800,000 Common stock, $10 par 200,000 Additional paid in capital 600,000 i. 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 875,000 Cash [Investing outflow] 875,000 Cash [Investing inflow] 692,000 Investments - Securities available for sale 584,000 Gain on sale of investments 108,000 j. 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] 18,000 Investments (partially-owned companies) 18,000 k. 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 50,000 Dividends payable 50,000 Dividends payable 75,000 Cash [Financing - outflow] 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. Investments in partially owned company 115,000 Earnings of partially-owned company 115,000 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 38,500 Allowance for doubtful accounts 38,500 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. Depreciation expense 244,000 Amortization of intangible assets 6,500 Accumulated depreciation 244,000 Intangible assets 6,500 Starting through the balance sheet to investigate accounts not yet balanced: o. Securities available for sale (at market) doesn’t 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. Unrealized gain/loss on investments 51,000 Investments in AFS securities (allowance) 51,000 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. Sales 120,000 Accounts receivable 120,000 Merchandise inventory 270,000 Cost of goods sold 270,000 Prepaid operating expenses 22,000 Other operating expenses 22,000 Accounts payable 130,000 Cost of goods sold 130,000 Salaries payable 5,000 Salaries and wages 5,000 q. Income tax expense is affected by two accounts on the balance sheet - income taxes payable and deferred income taxes. Income taxes payable 13,600 Income tax expense 13,600 Deferred income taxes 92,000 Income tax expense 92,000 r. Amortization of premiums and discounts on bonds payable impacts interest expense. Interest expense 23,000 Discount on bonds payable 23,000 s. 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. Other long-term debt 8,000 Current portion of long-term debt 8,000 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 2,430,000 Cash [Financing - outflow] 2,430,000  Example 4 - Acct 301 Solution Wenatchee Whirlpool World Statement of Cash Flows For year ended 12/31/96 Inflows Outflows Net Cash provided by operations Cash collected from customers 6,320,000 Interest & dividends received 31,000 Cash paid for merchandise (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) 350,600 Cash provided by investing activities Purchase plant, property & equipment (4,900,000) 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 (75,000) Long-term debt retired (2,430,000) Bonds issued 5,000,000 Common stock issued 2,050,000 Subtotals 7,050,000 (2,505,000) 4,545,000 Change in cash 837,600 Beginning balance - Cash 2,000,000 Ending balance - Cash 2,837,600 Non-cash financing and investing activities Preferred stock converted to common 1,500,000 Land obtained by issue of common stock 800,000  Example 3 - Acct 301 Solution Wenatchee Whirlpool World For year ended 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) (115,000) Dividends received (equity method affiliates) 18,000 (97,000) ** This is the easiest way to handle bad debts: just enter change in NET A/R: Change in Accounts Receivable 148,000 Change in Allowance for Doubtful Accounts 10,500 158,500 This is the more difficult alternate: Adjustment to sales (to get cash collected from customers) 120,000 Bad debt expense 38,500 158,500 What does not work is to include bad debt expense + change in Accounts Receivable and change in Allowance!  1. Homework Assignment Solution Ulliman Company Year ending Worksheet Year ending 0 01/01/99 Ref Debit Ref Credit 12/31/99 Target Cash 1,400 x 1,000 2,400 1,000 Accounts receivable (net) 2,800 L 110 2,690 (110) Marketable securities (at cost) 1,700 j 1,300 3,000 1,300 Allowance for change in value 500 j 300 800 300 Merchandise Inventory 8,100 M 190 7,910 (190) Prepaid Expenses 1,300 N 410 1,710 410 Investments (long-term) 7,000 d 1,600 5,400 (1,600) Land 15,000 15,000 0 Buildings and equipment 32,000 g 16,200 f 2,000 46,200 14,200 Accumulated depreciation (16,000) f 1,700 k 2,100 (16,400) (400) Total assets 53,800 68,710 Accounts Payable (3,800) O 350 (4,150) (350) Income Taxes Payable (2,400) p 104 (2,504) (104) Wages payable (1,100) q 450 (650) 450 Interest payable 0 r 400 (400) (400) 12% bonds payable 0 h 10,000 (10,000) (10,000) Premium/Discount on Bonds Payable 0 h 300 s 10 290 290 Notes payable (long term) (3,500) e 3,500 0 3,500 10% Convertible bonds (9,000) c 9,000 0 9,000 Deferred Income Taxes (800) i 396 (1,196) (396) Convertible preferred, $100 par 0 0 0 Common stock, $10 par (14,000) c & e 7,500 (21,500) (7,500) Additional paid in capital (8,700) c & e 5,000 (13,700) (5,000) Unrealized (gain)/loss investments (500) j 300 (800) (300) Retained Earnings (10,000) b 700 XX 4,800 (14,100) (4,100) Total liab & equity (53,800) (68,710) ok ok Closing entry for 1999 1999 Rev/(Exp) Receipt/(Disb) Sales 39,930 L 110 40,040 Other revenue 0 0 Gain/(loss) on sale of PP&E (200) f 200 0 Realized gain/(loss) on investments 700 d 700 0 Interest and dividend revenue 820 820 Cost of goods sold (19,890) m&o 540 (19,350) Salaries & other operating expenses (11,000) q 450 (11,450) Other operating expense (1,000) N 410 (1,410) Depreciation & amortization (2,100) k 2,100 0 Interest expense (410) r & s 410 0 Income taxes expense (2,050) i & p 500 (1,550) Net income (accrual basis) 4,800 XX 4,800 xx 7,100 7,100 Ulliman Company Statement of Cash Flows INFLOWS OUTFLOWS Subtotals Operating Activities xx 7,100 7,100 Reconciliation Schedule: Net Income 4,800 Loss on sale of equipment 200 f Gain on sale of investments (700) d Depreciation expense 2,100 k Bond discount amortization 10 s Deferred income taxes 396 i 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 Investing Activities (15,100) Investments sold d 2,300 sold equipment f 100 Purchased equipment g 16,200 Purchase mkt securities j 1,300 Financing Activities 9,000 Dividends paid b 700 Issued bonds at a discount h 9,700 Noncash Financing/Investing LT debt retired by issue of common stock e conversion of bonds to stock c CHANGE IN CASH x 1,000 1,000 Totals 62,720 62,720  Ulliman Company Statement of Cash Flows For year ended December 31, 1999 Cash flows from operating activities Collections from customers 40,040 Payments to suppliers (19,350) Payments to employees (11,450) Other operating payments (1,410) Income taxes paid (1,550) Dividends collected 820 Cash provided by operations 7,100 Cash flows from investing activities Purchase of marketable securities (1,300) Proceeds from sale of long-term investments 2,300 Disbursements to acquire equipment (16,200) Proceeds from sale of equipment 100 Cash used by investing activities (15,100) Cash flows from financing activities Proceeds from issuance of bonds 9,700 Payment of dividends (700) Cash provided by financing activities 9,000 Net increase in cash 1,000 Beginning balance in cash 1,400 Cash balance at 12-31-97 2,400 Noncash investing and financing activities LT debt retired by issue of common stock 3,500 conversion of bonds to stock 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  2. Homework Assignment Solution Driskoll Company Year ending Worksheet Year ending 12/31/99 Ref Debit Ref Credit 12/31/99 Target Cash 2,700 x 820 3,520 820 Accounts receivable (net) 5,900 i 315 6,215 315 Inventories 15,300 j 230 15,530 230 Prepaid Expenses 1,400 k 400 1,000 (400) Investments (long-term) 8,300 e 1,000 7,300 (1,000) Land 16,300 d 2,700 19,000 2,700 Buildings 68,700 c 8,000 60,700 (8,000) Acc'd depreciation - Bldg (35,000) c 3,200 g 2,700 (34,500) 500 Equipment 29,600 d 4,000 25,600 (4,000) Acc'd depreciation - Equip (14,200) d 2,600 g 3,100 (14,700) (500) Patents 8,700 f 1,300 h 815 9,185 485 107,700 98,850 Accounts Payable (8,900) L 295 (9,195) (295) Interest payable (630) m 330 (300) 330 Wages payable (2,500) n 100 (2,600) (100) Bonds payable (23,000) a 14,000 b 8,000 (17,000) 6,000 Discount on bonds 0 b 780 o 65 715 715 Common stock, $10 par (22,000) f 650 (22,650) (650) Additional paid in capital (15,320) f 650 (15,970) (650) Unrealized (gain)/loss investments 0 0 0 Retained Earnings (35,350) p 2,100 xx (1,400) (31,850) 3,500 (107,700) (98,850) ok ok Closing entry for 1999 1999 Rev/(Exp) Receipt/(Disb) Sales 49,550 i 315 49,235 Gain/(loss) on exchange of assets 1,300 d 1,300 0 Realized gain/(loss) on investments (200) e 200 0 Interest and dividend revenue 790 790 Cost of goods sold (23,800) L 295 j 230 (23,735) Salaries & other operating expenses (16,510) n 100 (16,410) Other operating expense (1,100) k 400 (700) Depreciation - buildings (2,700) g 2,700 0 Depreciation - equipment (3,100) g 3,100 0 Patent amortization (815) h 815 0 Interest expense (1,715) o 65 m 330 (1,980) Income taxes expense (500) (500) Extraordinary loss (net of taxes) (2,600) c 2,600 0 Net income (accrual basis) (1,400) xx (1,400) xx 6,700 6,700 Driskoll Company Statement of Cash Flows INFLOWS OUTFLOWS Subtotals Operating Activities xx 6,700 6,700 Reconciliation Schedule: Net income (1,400) Depreciation 5,800 g amortization 815 h Extraordinary loss (net of taxes) 2,600 Gain/(loss) on exchange of assets (1,300) Realized gain/(loss) on investments 200 Amort of Bond Discount 65 o change in WC accounts: Accounts receivable (net) (315) i Inventories (230) j Prepaid Expenses 400 k Accounts Payable 295 L Interest payable (330) m Wages payable 100 n 6,700 Investing Activities 3,000 Proceeds from insurance company c 2,200 Sale of long-term investment e 800 Financing Activities (8,880) Retired bonds payable a 14,000 Proceeds of bond issue b 7,220 dividends paid p 2,100 Noncash Financing/Investing Exchanged equipment for land d Exchanged stock for patent f CHANGE IN CASH x 820 820 Totals 54,170 54,170  Driskoll Company Statement of Cash Flows For year ended December 31, 1998 Cash flows from operating activities Collections from customers 49,235 Payments to suppliers (23,735) Payments to employees (16,410) Other operating payments (700) Income taxes paid (500) Interest paid (1,980) Dividends collected 790 Cash provided by operations 6,700 Cash flows from investing activities Proceeds from insurance company 2,200 Proceeds from sale of long-term investments 800 Cash provided by investing activities 3,000 Cash flows from financing activities Proceeds from issuance of bonds 7,220 Retire bonds payable (14,000) Payment of dividends (2,100) Cash used by financing activities (8,880) Net increase in cash 820 Beginning balance in cash 2,700 Cash balance at 12-31-97 3,520 Noncash investing and financing activities Exchanged stock for patent Exchanged equipment for land Reconcilation of net income to cash provided by operations Net income (1,400) Depreciation 5,800 amortization 815 Extraordinary loss (net of taxes) 2,600 Gain/(loss) on exchange of assets (1,300) Realized gain/(loss) on investments 200 Amort of Bond Discount 65 Change in working capital accounts: Accounts receivable (net) (315) Inventories (230) Prepaid Expenses 400 Accounts Payable 295 Interest payable (330) Wages payable 100 6,700  Albion Altimeters Inc. Statement of Cash Flows For year ended 12/31/97 Inflows Outflows Net Cash provided by operations Cash collected from customers 3,708,000 Interest & dividends received 15,000 Cash paid for merchandise (2,016,000) Cash paid to employees (651,300) Other operating disbursements (243,800) Interest paid (93,700) Income taxes paid   (168,000) Subtotals 3,723,000 (3,172,800) 550,200 Cash provided by investing activities Purchase plant, property & equipment (1,740,000) Sale of plant, property & equipment 35,000 Marketable securities purchased (585,000) Marketable securities sold Subtotals 35,000 (2,325,000) (2,290,000) Cash provided by financing activities Dividends paid (100,000) Common stock issued 1,750,000 Subtotals 1,750,000 (100,000) 1,650,000 Change in cash (89,800) Beginning balance - Cash 400,000 Ending balance - Cash 310,200 Land obtained by issue of common stock 32,000  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 119,000 Change in Allowance for Doubtful Accounts 6,200 125,200 This is the more difficult alternate: Adjustment to sales (to get cash collected from customers) 108,000 Bad debt expense 17,200 125,200  Worksheet Year ending Year ending Albion Altimeters Inc. 12/31/96 Ref Debit Ref Credit 12/31/97 Cash 400,000     89,800 310,200 Securities Available for Sale (at market) 500,000 r, f 27,000 585,000     1,112,000 Accounts Receivable 900,000     J e 11,000 108,000 781,000 Allowance for doubtful accounts (27,000) e 11,000 i 17,200 (33,200) Merchandise Inventory 850,000     k 21,000 829,000 Prepaid Operating Expenses 25,000 m 13,800     38,800 Plant, property & equipment 1,880,000 g, c 32,000 1,740,000 b 90,000 3,562,000 Accumulated Depreciation (350,000) b 25,000 h 30,000 (355,000)   4,178,000         6,244,800 Accounts Payable (350,000)     l 63,000 (413,000) Salaries Payable (8,500) n 1,300     (7,200) Income Taxes Payable (27,000) o 3,500     (23,500) Dividends Payable (25,000) A 100,000 a 75,000 0 Bonds Payable (1,000,000)         (1,000,000) Premium/Discount on Bonds Payable (124,000) p 6,000     (118,000) Deferred Income Taxes (88,000)     q 15,700 (103,700) Common stock, $10 par (1,000,000)     G d 10,000 500,000 (1,510,000) Additional paid in capital (700,000)     G d 22,000 1,250,000 (1,972,000) Acc'd other comprehensive income 14,000     r 27,000 (13,000) Retained Earnings (869,500) a 75,000 x 289,900 (1,084,400) 0 (4,178,000)         (6,244,800) Albion Altimeters 1997 1997 Closing entry for 1997 Rev/(Exp) Ref Debit Ref Credit Receipt/(Disb) Sales 3,600,000 j 108,000     3,708,000 Gain/(loss) on sale of PP&E (30,000) b 30,000     0 Interest and dividend revenue 15,000         15,000 Cost of goods sold (2,100,000) k l 21,000 63,000     (2,016,000) Salaries and wages (650,000)     n 1,300 (651,300) Other operating expenses (230,000)     m 13,800 (243,800) Bad debt expense (17,200) I 17,200     0 Depreciation expense (30,000) H 30,000     0 Interest expense (87,700)     p 6,000 (93,700) Income taxes expense (180,200) Q 15,700 o 3,500 (168,000) Net income (accrual basis) 289,900 X 289,900 X 550,200 550,200 Statement of Cash Flows     INFLOWS   OUTFLOWS (Subtotals) Operating Activities   X 550,200     550,200 Net income 289,900 X         Add depreciation expense 30,000 H         Add loss on sale of equipment 30,000 B         Amortization of discount on B/P (6,000) P         Deferred Income Taxes 15,700 Q         Change in working capital accounts:             Accounts Receivable 119,000           Allowance for doubtful accounts 6,200           Merchandise Inventory 21,000           Prepaid Operating Expenses (13,800)           Accounts Payable 63,000           Salaries Payable (1,300)           Income Taxes Payable (3,500)             550,200           Investing Activities           (2,290,000) Proceeds from sale of equipment   b 35,000       Purchase building & equipment       c 1,740,000   Purchase marketable securities       f 585,000                 Financing Activities           1,650,000 Dividends paid       A 100,000   Proceeds from issuance of common stock   d 1,750,000                     Noncash Financing/Investing             Exchange common stock for land valued at $32,000             CHANGE IN CASH     89,800     Totals     5,619,400   5,619,400 (89,800) 0  Check figures for cash provided by operations: Endicott Engines $ 462,000 Camperdown Company $2,647,000  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. Camperdown Company Balance Sheet 12/31/02 12/31/01 Current Assets Cash 183,000 100,000 Securities Available for Sale (at cost) 727,000 367,000 Allowance to adjust to market value 13,000 (14,000) Net accounts receivable 917,000 1,238,000 Merchandise Inventory 480,000 540,000 2,320,000 2,231,000 Noncurrent Assets Plant, property & equipment 17,208,000 14,500,000 Accumulated Depreciation (2,527,000) (1,500,000) Investment in Edible Oils Inc. 2,023,000 2,000,000 Intangible Assets 480,000 500,000 TOTAL ASSETS 19,504,000 17,731,000  Balance Sheet 12/31/02 12/31/01 Current Liabilities Accounts Payable 930,000 750,000 Salaries Payable 2,000 5,000 Income Taxes Payable 9,000 20,000 Dividends Payable 27,000 18,000 968,000 793,000 Noncurrent Liabilities Bonds Payable 7,000,000 7,000,000 Discount on Bonds Payable (605,000) (640,000) Deferred Income Taxes 64,000 39,000 Obligation under capital leases 403,000 380,000 6,862,000 6,779,000 Stockholder's Equity Convertible preferred stock 4,500,000 5,000,000 Common stock, $10 par 2,000,000 1,600,000 Additional paid in capital 2,106,000 1,400,000 Acc'd other comprehensive income 13,000 (14,000) Treasury stock (at cost) (26,000) (52,000) Retained Earnings 3,081,000 2,225,000 11,674,000 10,159,000 Total liabilities and equity 19,504,000 17,731,000  Camperdown Company Income Statement For year ending 12/31/02 Sales 10,000,000 Investment income 50,000 Gain/(loss) on sale of PP&E (45,000) Realized gain/(loss) on investments 10,000 Total revenues 10,015,000 Cost of goods sold 6,000,000 Salaries and wages 600,000 Other operating expenses 250,000 Bad debt expense 21,000 Depreciation & amortization expense 1,077,000 Interest expense 565,000 Income taxes expense 551,000 9,064,000 Net income 951,000 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.  Statement of Cash Flow Problem Worksheet Year ending Year ending Camperdown Company 12/31/01 Ref Debit Ref Credit 12/31/02 Target Cash 100,000   83,000   183,000 83,000 Securities Available for Sale (at cost) 367,000         727,000 360,000 Allowance to adjust to market value (14,000)         13,000 27,000 Net accounts receivable 1,238,000         917,000 (321,000) Merchandise Inventory 540,000         480,000 (60,000) Plant, property & equipment 14,500,000         17,208,000 2,708,000 Accumulated Depreciation (1,500,000)         (2,527,000) (1,027,000) Investment in Edible Oils Inc. 2,000,000         2,023,000 23,000 Intangible Assets 500,000         480,000 (20,000) Total assets 17,731,000         19,504,000   Accounts Payable (750,000)         (930,000) (180,000) Salaries Payable (5,000)         (2,000) 3,000 Income Taxes Payable (20,000)         (9,000) 11,000 Dividends Payable (18,000)         (27,000) (9,000) Bonds Payable (7,000,000)         (7,000,000) 0 Premium/Discount on Bonds Payable 640,000         605,000 (35,000) Deferred Income Taxes (39,000)         (64,000) (25,000) Obligation under capital leases (380,000)         (403,000) (23,000)  Statement of Cash Flow Problem Worksheet Year ending Year ending Camperdown Company 12/31/01 Ref Debit Ref Credit 12/31/02 Target Convertible preferred, $100 par (5,000,000)         (4,500,000) 500,000 Common stock, $10 par (1,600,000)         (2,000,000) (400,000) Additional paid in capital (1,400,000)         (2,106,000) (706,000) Acc'd other comprehensive income 14,000         (13,000) (27,000) Treasury stock (at cost) 52,000         26,000 (26,000) Retained Earnings (2,225,000)         (3,081,000) (856,000) Total Liab & owners equity (17,731,000)         (19,504,000) (1,773,000) Closing entry for 2002 2002 Rev/(Exp) Ref Debit Ref Credit Inflow/ (Outflow) Sales 10,000,000           Earnings of investees (equity method) 50,000           Gain/(loss) on sale of PP&E (45,000)           Realized gain/(loss) on investments 10,000           Cost of goods sold (6,000,000)           Salaries and wages (600,000)           Other operating expenses (250,000)           Bad debt expense (21,000)           Depreciation & amortization expense (1,077,000)           Interest expense (565,000)           Income taxes expense (551,000)           Net income (accrual basis) 951,000           Camperdown Company Statement of Cash Flows     INFLOWS   OUTFLOWS (Subtotals) Operating Activities                            Net income   951,000                                                                                                                                                                                                                                                                             Investing Activities                                                                                                                             Financing Activities                                                                                                                                           Camperdown Company       INFLOWS   OUTFLOWS (Subtotals)               Noncash Financing/Investing                                                                                   CHANGE IN CASH       83,000   Totals              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  Camperdown Corporation Statement of Cash Flow For year ended 12-31-02 Reconciling schedule Notes cct 592 – Spring 2005 FILENAME \* MERGEFORMAT Backup offile:///var/www/apps/academia.edu/academia-app/tmp/tempfiles/CashFlow_with_solutions.doc20241110-13380-15gf1r.doc CashFlow created by T. Gordon DATE 4/7/2005 Page PAGE 39