Intermediate Accounting III Assignment
Treatment and processing of the statement of cash flows preparation and reporting.
Exercises: P23-2B ; P23-3B ; P23-4B ; P23-5B; P23-6B
B PROBLEMS
P23-1B (L02,4) (SCF—Indirect Method) The following are Sanibel Corp.’s comparative balance sheet accounts at Decem- ber 31, 2017 and 2016, with a column showing the increase (decrease) from 2016 to 2017.
Additional information:
1. On December 31, 2016, Sanibel acquired 25% of Island Co.’s common stock for $420,000. On that date, the carrying value of Island’s assets and liabilities, which approximated their fair values, was $1,680,000. Island reported income of $220,000 for the year ended December 31, 2017. No dividend was paid on Island’s common stock during the year.
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2. During 2016, Sanibel loaned $500,000 to POI Co., an unrelated company. POI made the first semi-annual principal repay- ment of $50,000, plus interest at 10%, on December 31, 2016. POI is current on the loan as of December 31, 2017.
3. On January 2, 2017, Sanibel sold equipment costing $100,000, with a carrying amount of $31,000, for $20,000 cash. 4. On December 31, 2017, Sanibel entered into a capital lease for a new factory. The present value of the annual rental pay-
ments is $850,000, which equals the fair value of the building. Sanibel made the first rental payment of $120,000 when due on January 2, 2018.
5. Net income for 2017 was $285,000. 6. Sanibel declared and paid cash dividends for 2017 and 2016 as follows.
Instructions
Prepare a statement of cash flows for Sanibel Corp. for the year ended December 31, 2017, using the indirect method. (AICPA adapted)
1Intermediate Accounting III Assignment
COMPARATIVE BALANCE SHEETS
Increase 2017 2016 (Decrease)
Cash $ 650,000 $ 510,000 $ 140,000 Accounts receivable 1,260,000 1,090,000 170,000 Inventory 1,538,000 1,370,000 168,000 Property, plant, and equipment 2,680,000 1,763,000 917,000 Accumulated depreciation (850,000) (760,000) (90,000) Investment in Island Co. 475,000 420,000 55,000 Loan receivable 350,000 450,000 (100,000)
Total assets $6,103,000 $4,843,000 $1,260,000
Accounts payable $1,080,000 $ 910,000 $ 170,000 Income taxes payable 90,000 75,000 15,000 Dividends payable 100,000 60,000 40,000 Capital lease obligation 850,000 0 850,000 Common stock, $1 par 400,000 400,000 0 Paid-in capital in excess of 2,100,000 2,100,000 0 par—common stock Retained earnings 1,483,000 1,298,000 185,000
Total liabilities and stockholders’ equity $6,103,000 $4,843,000 $1,260,000
2017 2016
Declared December 15, 2017 December 15, 2016 Paid February 28, 2018 February 28, 2017 Amount $100,000 $60,000
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2 Chapter 23 Statement of Cash Flows
P23-2B (L02,4) (SCF—Indirect Method) The comparative balance sheets for Queen Corporation show the following information.
Additional data related to 2017 are as follows.
1. Equipment that had cost $20,000 and was 60% depreciated at time of disposal was sold for $2,000. 2. $18,000 of the long-term note payable was paid by issuing common stock. 3. Cash dividends paid were $12,000. 4. On January 1, 2017, the building was completely destroyed by a hurricane. Insurance proceeds on the building were
$245,000 (net of $22,000 taxes). 5. Investments (available-for-sale) were sold at $2,800 below their cost. The company has made similar sales and investments in the past. 6. Cash was paid for the acquisition of equipment. 7. A long-term note for $20,000 was issued for the acquisition of equipment. 8. Interest of $1,000 and income taxes of $23,600 were paid in cash. Intermediate Accounting III Assignment
Instructions
Prepare a statement of cash flows using the indirect method. Hurricane damage is unusual in that part of the country.
P23-3B (L02,3) (SCF—Direct Method) Seahorse Inns Company has not yet prepared a formal statement of cash flows for the 2017 fiscal year. Comparative balance sheets as of December 31, 2016 and 2017, and a statement of income and retained earn- ings for the year ended December 31, 2017, are presented below.
SEAHORSE INNS COMPANY STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 2017 ($000 OMITTED)
Sales $15,200 Expenses
Cost of goods sold $9,200 Salaries and benefi ts 2,250 Heat, light, and power 150
Depreciation 110 Property taxes 24
Patent amortization 60 Miscellaneous expenses 20
Interest 45 11,859
Income before income taxes 3,341
December 31
2017 2016
Cash $ 55,800 $ 19,000 Accounts receivable 56,000 51,000 Inventory 81,600 84,000 Buildings 0 180,000 Equipment 195,000 120,000 Investments 0 42,000 Patents 25,000 30,000
Total assets $413,400 $526,000
Allowance for doubtful accounts $ 5,000 $ 4,500 Accumulated depreciation-buildings 46,000 Accumulated depreciation-equipment 45,000 20,000 Accounts payable 76,000 74,000 Dividends payable 6,000 12,000 Notes payable, short-term 10,000 6,000 Long-term notes payable 50,000 260,000 Common stock 68,000 50,000 Retained earnings 153,400 53,500
Total liabilities and stockholders’ equity $413,400 $526,000
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B Problems 3
SEAHORSE INNS COMPANY COMPARATIVE BALANCE SHEETS
AS OF DECEMBER 31 ($000 OMITTED)
Assets 2017 2016 Current assets
Cash $ 129 $ 210 Investments (available-for-sale) 85 50
Accounts receivable, net 2,800 3,100 Inventory 2,860 2,600
Total current assets 5,874 5,960 Long-term assets Land 540 360
Buildings and equipment 3,200 2,450 Accumulated depreciation (1,070) (960) Patents, net 140 200
Total long-term assets 2,810 2,050
Total assets $8,684 $8,010
Liabilities and Stockholders’ Equity Current liabilities Accounts payable $1,239 $2,740
Income taxes payable 240 460 Notes payable 300 0
Total current liabilities 1,779 3,200 Long-term notes payable—due 2016 200 510
Total liabilities 1,979 3,710
Stockholders’ equity Common stock 1,900 500 Retained earnings 4,805 3,800
Total stockholders’ equity 6,705 4,300
Total liabilities and stockholders’ equity $8,684 $8,010
Income taxes 1,336 Intermediate Accounting III Assignment
Net income 2,005 Retained earnings—Jan. 1, 2017 3,800
5,805 Stock dividend declared and issued 1,000
Retained earnings—Dec. 31, 2017 $ 4,805
Instructions
Prepare a statement of cash flows using the direct method. Changes in accounts receivable and accounts payable relate to sales and cost of goods sold. Do not prepare a reconciliation schedule.
(CMA adapted)
P23-4B (L02,3,4) (SCF—Direct Method) Wizard Company had available at the end of 2017 the information shown below and on the next page.
WIZARD COMPANY COMPARATIVE BALANCE SHEETS
AS OF DECEMBER 31, 2017 AND 2016
2017 2016
$ 2,000 $ 12,000 31,500 40,000
95,600 90,000 15,600 26,000
200,000 260,000 650,000 650,000
Cash Short-term investments Accounts receivable Inventory Prepaid expenses Land Buildings Accounts receivable
60,000 50,800
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4 Chapter 23 Statement of Cash Flows
Instructions
Prepare a statement of cash flows for Wizard Company using the direct method accompanied by a reconciliation schedule. As- sume the short-term investments are classified as available-for-sale.
P23-5B (L02,4) (SCF—Indirect Method) You have completed the field work in connection with your audit of Clark Corpo- ration for the year ended December 31, 2017. The balance sheet accounts at the beginning and end of the year are shown on the next page.
WIZARD COMPANY COMPARATIVE BALANCE SHEETS
AS OF DECEMBER 31, 2017 AND 2016 (CONTINUED)
2017 2016
Accumulated depreciation-buildings (75,000) (57,000) Equipment 346,000 150,000 Accumulated depreciation-equipment (41,000) 0 Patents 68,000 72,000
Total assets $1,370,700 $1,293,800
Accounts payable 81,000 86,900 Income taxes payable 26,800 21,000 Salaries and wages payable –0– 8,000 Notes payable, short-term 25,000 25,000 Long-term notes payable 50,000 75,000 Bonds payable 600,000 600,000 Discount on bonds payable (36,015) (40,865) Common stock 110,000 100,000 Paid-in capital in excess of 248,600 216,800 par-common stock Retained earnings 265,315 201,965
Total liabilities and stockholders’ equity $1,370,700 $1,293,800
WIZARD COMPANY INCOME STATEMENT AND DIVIDEND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 2017
Sales revenue $1,560,000 Cost of goods sold 976,000
Gross margin 584,000 Operating expenses Selling expenses $160,800 Administrative expenses 116,100 Depreciation/Amortization expense 63,000 Total operating expenses 339,900
Income from operations 244,100 Other revenues/expenses Gain on sale of land 21,000 Loss on sale of short-term investment (8,000) Dividend revenue 4,100 Interest expense (95,350) (78,250)
Income before taxes 165,850 Income tax expense 62,500 Net income 103,350 Dividends to common stockholders (40,000)
To retained earnings $ 63,350
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B Problems 5
December 31, December 31, Increase 2017 2016 (Decerase)
Cash $ 99,435 $ 110,700 $ (11,265) Accounts receivable 424,600 380,900 43,700 Inventory 635,740 576,475 59,265 Prepaid expenses 20,000 12,000 8,000 Investment in subsidiary 200,000 0 200,000 Cash surrender value of life isnurance 16,460 14,850 1,610 Land 100,000 100,000 0 Buidings 525,000 400,000 125,000 Equipment 381,000 290,000 91,000 Patents 86,000 70,000 16,000 Trademarks 25,000 35,000 (10,000) Bond discount and issue costs 1,165 6,075 (4,910)
Total debits $2,514,400 $1,996,000 $518,400
Accounts payable $ 534,000 $ 508,000 $ 26,000 Income taxes payable 68,000 34,500 33,500 Salaries and wages payable 73,500 12,900 60,600 Allowance for doubtful accounts 25,000 23,000 2,000 Accumulated depreciation-buildings 248,000 230,000 18,000 Accumulated depreciation-equipment 160,000 103,000 57,000 Long-term notes payable 75,000 75,000 0 Bonds payable 400,000 300,000 100,000 Premium on bonds payable 7,762 0 7,762 Common stock 150,000 125,000 25,000 Paid-in capital in excess of par-common stock 568,000 418,000 150,000 Retained earnings 205,138 166,600 38,538
Total credits $2,514,400 $1,996,000 $518,400
Your working papers from the audit contain the following information:
1. On November 1, 2017, 25,000 shares of $1 par stock were sold for $175,000. 2. A patent was purchased for $31,000. 3. During the year, equipment that had a cost basis of $26,400 and on which there was accumulated depreciation of $5,800
was sold for $15,000. No other plant assets were sold during the year. 4. The 10%, $300,000 40-year bonds were dated and issued on January 2, 2004. Interest was payable on June 30 and Decem-
ber 31. They were sold originally at 97. These bonds were retired at 101 plus accrued interest on May 31, 2017. 5. The 6%, $400,000 20-year bonds were dated January 1, 2017, and were sold on May 31 at 102 plus accrued interest. Inter-
est is payable semiannually on June 30 and December 31. Expense of issuance was $1,200. 6. Clark Corporation acquired 60% control in Pediatric Company on January 2, 2017, for $146,000. The income statement of
Pediatric Company for 2017 shows a net income of $90,000. 7. Extraordinary repairs to buildings of $12,600 were charged to Accumulated Depreciation—Buildings. 8. Interest paid in 2017 was $31,000 and income taxes paid were $38,000. 9. Net income for the year totalled $76,538.
Instructions
From the information given, prepare a statement of cash flows using the indirect method. A worksheet is not necessary, but the principal computations should be supported by schedules or general ledger accounts. The company uses straight-line amortiza- tion for bond interest. Intermediate Accounting III Assignment
P23-6B (L02,3,4) (SCF—Indirect Method, and Net Cash Flow from Operating Activities, Direct Method) Comparative balance sheet accounts of Easton Inc. are presented below and on the next page.
EASTON INC. COMPARATIVE BALANCE SHEET ACCOUNTS
AS OF DECEMBER 31, 2017 AND 2016
December 31, December 31, 2017 2016
Cash $ 40,500 $ 33,600 Accounts receivable 120,500 96,000 Inventory 81,000 85,600
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6 Chapter 23 Statement of Cash Flows
Additional data (ignoring taxes):
1. Net income for the year was $71,400. 2. Cash dividends declared and paid during the year were $10,000. 3. A 10% stock dividend was declared during the year. $37,500 of retained earnings was capitalized. 4. Investments that cost $24,000 were sold during the year for $29,500. 5. Equipment that cost $5,400, on which $3,600 of depreciation had accumulated, was sold for $2,200.
Easton’s 2017 income statement follows (ignoring taxes).
Instructions
(a) Compute net cash flow from operating activities using the direct method. (b) Prepare a statement of cash flows using the indirect method.
P23-7B (L02,3,4) (SCF—Direct and Indirect Methods from Comparative Financial Statements) Cooper Company, a sports retailer operates several stores and is a publicly traded company. The comparative balance sheet and income statement for Cooper as of October 31, 2017, are below. The company is preparing its statement of cash flows.
EASTON INC. COMPARATIVE BALANCE SHEET ACCOUNTS
AS OF DECEMBER 31, 2017 AND 2016 (CONTINUED)
December 31, December 31, 2017 2016
Investments (available-for-sale) 41,000 65,000 Land 25,000 25,000 Buidings 98,000 76,000 Equipment 60,800 41,000
Total debits $466,800 $422,200
Allowance for doubtful accounts $ 3,600 $ 3,000 Accumulated depreciation-buildings 26,800 23,200 Accumulated depreciation-equipment 19,300 12,700 Accounts payable 63,000 70,000 Salaries and wages payable 6,000 11,600 Long-term notes payable 45,000 60,000 Common stock 11,000 10,000 Paid-in capital in excess of par-common stock 201,000 164,500 Retained earnings 91,100 67,200
Total credits $466,800 $422,200
Sales $855,600 Less: cost of goods sold 538,900
Gross margin 316,700 Less: Operating expenses (includes $13,800 depreciation and $4,100 bad debts) 251,200
Income from operations 65,500 Other: Gain on sale of investments $5,500 Gain on sale of machinery 400 5,900
Net income $ 71,400
COOPER COMPANY COMPARATIVE BALANCE SHEET
AS OF OCTOBER 31
2017 2016 Current assets Cash $ 21,500 $ 12,000 Accounts receivable 62,000 50,000 Inventory 128,600 109,000 Prepaid expenses 8,000 13,000
Total current assets 220,100 184,000
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B Problems 7
Plant assets Plant assets 575,000 450,000 Accumulated depreciation-plant assets (115,000) (90,000)
Net plant assets 460,000 360,000
Total assets $680,100 $544,000
Current liabilities Accounts payable $ 90,000 $ 86,000 Salaries and wages payable 23,600 28,400 Interest payable 11,000 9,200
Total current liabiltities 124,600 123,600
Long-term notes payable 125,000 80,000
Total liabilities 249,600 203,600
Stockholders’ equity Common stock 105,000 100,000 Paid-in capital in excess of 229,000 196,000 par-common stock Retained earnings 96,500 44,400
Total stockholders’ equity 430,500 340,400
Total liabilities and stockholders’ equity $680,100 $544,000
COOPER COMPANY INCOME STATEMENT
FOR THE YEAR ENDED OCTOBER 31, 2017
Sales $1,600,800 Cost of goods sold 980,200
Gross profi t 620,600 Expenses Salaries and wages expense 346,100 Interest expense 11,000 Depreciation expense 25,000 Other expenses 12,900
Total expenses 395,000
Operating income 225,600 Income tax expense 73,600
Net income $ 152,000
The following is additional information concerning Cooper’s transactions during the year ended October 31, 2017.
1. All sales during the year were made on account. 2. All merchandise was purchased on account, comprising the total accounts payable account. 3. Plant assets costing $75,000 were purchased by paying $50,000 in cash and issuing 3,000 shares of stock. 4. The “other expenses” are related to prepaid items. 5. All income taxes incurred during the year were paid during the year. 6. In order to supplement its cash, Cooper issued 2,000 shares of common stock for $13,000. 7. Cash dividends of $99,900 were declared and paid at the end of the fiscal year.
Instructions
(a) Compare and contrast the direct method and the indirect method for reporting cash flows from operating activities. (b) Prepare a statement of cash flows for Cooper Company for the year ended October 31, 2017, using the direct method. Intermediate Accounting III Assignment
Be sure to support the statement with appropriate calculations. (A reconciliation of net income to net cash provided is not required.)
(c) Using the indirect method, calculate only the net cash flow from operating activities for Cooper Company for the year ended October 31, 2017.
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8 Chapter 23 Statement of Cash Flows
P23-8B (L03,6,8) (SCF—Direct and Indirect Methods) Comparative balance sheet accounts of Hamblin Company are impresented below.
Additional data:
1. Equipment that cost $20,000 and was 40% depreciated was sold in 2017. 2. Cash dividends were declared and paid during the year. 3. Common stock was issued in exchange for land. 4. Investments that cost $25,000 were sold during the year. 5. There were no write-offs of uncollectible accounts during the year.
Hamblin’s 2017 income statement is as follows. Intermediate Accounting III Assignment
Instructions
(a) Compute net cash provided by operating activities under the direct method. (b) Prepare a statement of cash flows using the indirect method.
HAMBLIN COMPANY COMPARATIVE BALANCE SHEET ACCOUNTS
AS OF DECEMBER 31
2017 2016 Debit Balances
Cash $ 60,000 $ 71,500 Investments (available-for-sale) 30,000 55,000 Accounts receivable 152,000 136,000 Inventory 118,000 84,000 Land 50,000 15,000 Buidings 160,000 160,000 Equipment 60,000 41,500
Total assets $630,000 $563,000
Totals
Credit Balances
Allowance for doubtful accounts $ 6,000 $ 3,000 Accumulated depreciation-buildings 40,000 32,000 Accumulated depreciation -equipment 24,000 18,500 Accounts payable 102,000 95,000 Income taxes payable 13,000 8,000 Long-term notes payable 65,000 80,000 Common stock 295,000 236,500 Retained earnings 85,000 90,000
Totals $630,000 $563,000
Sales $750,000 Less: Cost of goods sold 480,000
Gross profi t 270,000 Less: Operating expenses (includes depreciation expense and bad debt expense) 145,000
Income from operations 125,000 Other revenues and expenses Gain on sale of investments $7,000 Loss on sale of equipment (4,000) 3,000
Income before taxes 128,000 Income taxes 52,000
Net income 76,000
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B Problems 9
P23-9B (L02,4) (Indirect SCF) Thompson Corporation has contracted with you to prepare a statement of cash flows. The controller has provided the following information.
December 31, December 31, 2017 2016
Cash $ 39,500 $ 18,000 Investments (available-for-sale) 0 15,000 Accounts receivable 51,000 46,000 Inventory 46,000 30,000 Buildings 0 45,000 Equipment 46,000 15,000 Patents 8,000 10,000. Intermediate Accounting III Assignment
Totals $190,500 $179,000
Allowance for doubtful accounts $ 2,500 $ 2,000 Accumulated depreciation-buildings 0 15,000 Accumulated depreciation-equipment 12,000 5,000 Accounts payable 26,000 34,000 Dividends payable 6,000 0 Notes payable, short-term, nontrade 6,000 5,000 Long-term notes payable 37,000 40,000 Common stock 56,000 43,000 Retained earnings 45,000 35,000
Totals $190,500 $179,000
Additional data related to 2017 are as follows.
1. Equipment that had cost $5,000 and was 20% depreciated at time of disposal was sold for $2,000. 2. $13,000 of the long-term note payable was paid by issuing common stock. 3. Cash dividends paid were $10,000. 4. On January 1, 2017, the building was completely destroyed by a typhoon. Insurance proceeds on the building were
$42,000 (net of $8,000 taxes). 5. Investments (available-for-sale) were sold at $3,000 below their cost. The company has made similar sales and invest-
ments in the past. 6. Cash and long-term note for $10,000 were given for the acquisition of equipment. 7. Interest of $3,000 and income taxes of $9,000 were paid in cash. Intermediate Accounting III Assignment
Instructions
(a) Use the indirect method to analyze the above information and prepare a statement of cash flows for Thompson. Typhoon damage is unusual in that part of the country.
(b) What would you expect to observe in the operating, investing, and financing sections of a statement of cash flows of: (1) A severely financially troubled firm? (2) A recently formed firm that is experiencing rapid growth?
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