Fall 2005
MORE KEY CONCEPTS FOR FINAL EXAM
CHAPTER 8
1)
Current liabilities are obligations due within:
a. one year or within the company’s normal operating cycle if it is longer than one year
b. one year or within the company’s normal operating cycle if it is shorter than one year
c. one month or within the company’s normal operating cycle if it is longer than one month
d. one month or within the company’s normal operating cycle if it is shorter than one month
2)
Warranty expense should be recorded in the period:
a. that the product sold is repaired or replaced
b. the product is sold
c. immediately following the period in which the product is sold
d. that the product is paid for by the customer
3)
Monthly sales were $200,000. It was estimated that 4% of the units sold would have to be
replaced under warranty. On the date of sale the company should record a debit to:
a. Warranty Expense for $8,000
b. Warranty Payable for $8,000
c. Sales for $8,000
d. No entry is required since the actual liability amount is not known.
4)
The beginning balance in the Warranty Payable account was $20,000. Sales were $750,000 and
warranty costs were estimated at 5% of sales. During the year $45,000 was paid to settle
warranty claims. As a result of these transactions, what is the amount of warranty expense for the
year and what is the ending balance in Warranty Payable?
a.
b.
c.
d.
5)
6)
7)
Warranty
Expense
$20,000
$37,500
$45,000
$57,500
Warranty
Payable
$37,500
$12,500
$37,500
$27,500
Which entry could be used to record sales tax?
a. debit to Sales Tax Expense, credit Sales Tax Payable
b. debit to Sales Tax Payable, credit Sales Tax Expense
c. debit to Sales Tax Expense, credit Sales
d. debit Cash and credit Sales Tax Payable
A $2,500, 8% bond quoted at 98 ½. How much cash will be received when the bond is issued?
a. $2,500
b. $2,538
c. $1,492
d. $2,462.50
A $10,000, 6% bond is quoted at 102½. How much cash will be received when the bond is
issued?
a. $9,662
b. $9,897
c. $10,104
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Fall 2005
d. $10,250
8)
Bonds with a face value of $100,000 were sold at an effective rate of 10% to yield cash proceeds
in excess of $100,000. It is apparent the bonds had a:
a. market rate greater than 10%
b. market rate less than 10%
c. stated rate less than 10%
d. stated rate greater than 10%
9)
Amortizing the discount on a bond payable:
a. increases the face value of the bonds
b. decreases the face value of the bonds
c. increases the carrying amount of the bonds
d. decreases the carrying amount of the bonds
10)
Under the effective-interest method of amortizing bond premium, the interest expense recorded
for each semiannual interest payment:
a. will increase over the life of the bond
b. is equal to the carrying value of the bond times the contract rate of interest for each
semiannual interest period
c. is at the same percentage of the bond’s carrying value for every interest payment
d. will equal the amount of cash paid for each semiannual interest payment
11)
Revision Company has just made the interest payment on its $4,000,000 of outstanding bonds.
The unamortized discount is currently $167,400. Revision decided to retire the bonds by
purchasing the bonds when the bonds were priced at 96. Which statement regarding the
retirement is true?
a. Revision paid $3,840,000 to purchase the bond and recognized a $160,000 loss.
b. Revision paid $4,000,000 to purchase the bond and recognized a $166,697 loss.
c. Revision paid $3,832,600 to purchase the bond and recognized a $153,304 loss.
d. Revision paid $3,840,000 to purchase the bond and recognized a $7,400 loss.
12)
Convertible bonds may be exchanged for:
a. cash
b. the issuing company’s good and services
c. a related company’s common stock
d. an equity interest in the issuing company
13)
A company wishing to maximize earning per share would:
a. issue stock
b. issue bonds
c. issue stock or bonds, depending upon the interest rate
d. issue stock or bonds, depending upon the tax rate
2
Fall 2005
CHAPTER 9
14)
The price that the stockholder pays to acquire stock from the corporation is the:
a. issue price
b. stated price
c. par price
d. authorized price
15)
GoldenEagle Corporation issues 100 shares of $1 par value common stock for $10 per share. This
transaction will include a:
a. credit to Common Stock for $100 and a credit to Retained Earnings for $900
b. credit to Common Stock for $100 and a credit to Paid-in Capital for $900
c. credit to Common Stock for $100 and a Gain on Issue of Common Stock for $900
d. credit to Common Stock for $1,000
16)
One hundred shares of no-par common stock with a $10 stated value is issued for $14.50 per
share. The entry to record this issuance includes a:
a. credit to Common Stock for $1,450
b. credit to Common Stock for $450
c. credit to Paid-in Capital in Excess of Stated Value-Common for $450
d. debit to Paid-in Capital in Excess of Stated Value-Common for $1,000
17)
Treasury stock is a(n):
a. asset account
b. contra-equity account
c. contra-asset account
d. liability account
18)
Which statement below regarding treasury stock is true?
a. Authorizing treasury stock increases assets and equity.
b. Issuing treasury stock decreases assets and equity.
c. Purchasing treasury stock decreases assets and equity.
d. Treasury stock transactions have no effect on assets and equity.
19)
Treasury stock causes the difference between:
a. issued shares and preferred shares
b. outstanding shares and issued shares
c. issued shares and authorized shares
d. authorized shares and outstanding shares
20)
If treasury stock is sold at a price greater than its reacquisition cost, the difference is:
a. debited to Paid-in Capital from Treasury Stock Transactions
b. credited to Paid-in Capital from Treasury Stock Transactions
c. debited to Retained Earnings
d. credited to Retained Earnings
21)
If treasury stock is sold at a price below its reacquisition cost and there is no balance in the Paidin Capital from Treasury Stock Transactions account, the difference is:
a. credited to Paid-in Capital from Treasury Stock Transactions
b. debited to Loss on Sale of Treasury Stock
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Fall 2005
c. debited to Treasury Stock
d. debited to Retained Earnings
22)
The entry to record the distribution of a stock dividend includes a:
a. credit to Common Stock and a debit to Retained Earnings
b. debit to Retained Earnings and a credit to Stock Dividends Payable
c. debit to Stock Dividends Payable and a credit to Stock Dividends
d. debit to Stock Dividends Payable and a credit to Retained Earnings
23)
Which of the following statements regarding stock splits is incorrect?
a. A stock split increases total owners’ equity.
b. A stock split involves a reduction in the stock’s par value.
c. A stock split decreases the market price of the stock.
d. A stock split is an increase in the number of authorized, issued, and outstanding shares of
stock.
4
Fall 2005
CHAPTER 11
24)
The actual market value of a corporation can be calculated by:
a. dividing the current market price per share by the shares outstanding
b. dividing the shares outstanding times the current market price per share
c. multiplying the shares outstanding times the current market price per share
d. subtracting the current market price per share from the shares outstanding
25)
Which of the following criteria must be met before an item is considered extraordinary?
a. The item must be unusual in its nature.
b. The item must be infrequent in its occurrence.
c. The item must be both unusual in nature and infrequent in occurrence.
d. The item must either unusual in nature or infrequent in its occurrence.
26)
Items appear on the income statement in which order?
a. change in accounting principle, discontinued operations, extraordinary gains and losses, and
income from continuing operations
b. discontinued operations, extraordinary gains and losses, income from continuing operations,
and change in accounting principle
c. extraordinary gains and losses, income from continuing operations, change in accounting
principle, and discontinued operations
d. income from continuing operations, discontinued operations, extraordinary gains and losses,
and change in accounting principle
27)
The amount of cash dividends declared during the period and the amount of cash dividends paid
during the period are reflected in the:
a. statement of retained earnings and statement of cash flows, respectively
b. statement of stockholders’ equity and income statement, respectively
c. statement of stockholders’ equity and the statement of cash flows, respectively
d. statement of cash flows and statement of stockholders’ equity, respectively
28)
On January 1, Victory Corporation’s Common Stock account had a balance of $250,000,
representing 25,000 shares of $10 par value issued at $35 per share. On May 15, 7,000 shares
were issued for $150,000 cash. On August 31, a 10% stock dividend was declared and
distributed. What is the balance in Common Stock appearing on the statement of stockholders’
equity on December 31?
a. $440,000
b. $300,000
c. $352,000
d. $1,232,000
29)
On January 1, Scuppernong Corporation’s Common Stock account had a balance of $300,000,
representing 30,000 shares of $10 par value issued at par. On July 1, 6,000 shares were issued for
$60,000 cash. On October 1, a 10% stock dividend was declared and distributed. On November
30, 15,000 shares were reacquired by the corporation at $12 per share. What is the balance in
Common Stock appearing on the statement of stockholders’ equity on December 31?
a. $216,000
b. $360,000
c. $396,000
d. $246,000
5
Fall 2005
CHAPTER 13
30)
Horizontal analysis focuses on:
a. percentage changes in comparative financial statements
b. percentage and/or dollar amount changes in various financial statement amounts from year to
year
c. the change in key financial statement ratios over a certain time frame or horizon
d. the changes in individual financial statement amounts as a percentage of some related total
31)
Which of the following is typically used as the base in a vertical analysis of an income statement?
a. gross sales
b. total assets
c. net income
d. cash
A vertical analysis is primarily concerned with:
a. percentage changes in the balances shown in comparative financial statements
b. the change in key financial statement ratios over a specified period of time
c. the dollar amount of the change in various financial statement amounts from year to year
d. individual financial statement items expressed as a percentage of a base (which represents
100%)
32)
33)
On a common-size balance sheet each item is expressed as a percentage of:
a. total assets
b. stockholders’ equity
c. common stock
d. common shares outstanding
CHAPTER 12
34)
Which of the three types of activities reported on the statement of cash flows is the MOST critical
for evaluating a company’s viability?
a. operating activities
b. investing activities
c. financing activities
d. All of the sections are equally important.
35)
Increases and decreases in the long-term assets available to a company are reported on the
statement of cash flows as:
a. operating activities
b. investing activities
c. financing activities
d. both operating and investing activities
6
Fall 2005
36)
Increases and decreases in the long-term liability accounts are reported on the statement of cash
flows as:
a. operating activities
b. investing activities
c. financing activities
d. both operating and investing activities
37)
Changes in the current asset and current liability accounts are reported on the statement of cash
flows as:
a. operating activities
b. investing activities
c. financing activities
d. Changes in the current asset accounts are reported as investing activities and changes in
current liability accounts are reported as financing activities.
38)
Which method of preparing the statement of cash flows reports all cash payments and cash
receipts from operating activities?
a. reporting method
b. direct method
c. comprehensive method
d. indirect method
39)
Which statement regarding the statement of cash flows is true?
a. The direct method is preferred by FASB and is used by most companies.
b. The indirect method is preferred by FASB and is used by most companies.
c. The direct method is preferred by FASB; the indirect method is used by most companies.
d. The indirect method is preferred by FASB; the direct method is used by most companies.
40)
On an indirect method statement of cash flows, a gain on the sale of plant assets is:
a. reported in the investing activities section
b. reported in the financing activities section
c. added to net income
d. deducted from net income
41)
All of the following might appear as adjustments to net income on an indirect method statement
of cash flows except:
a. depreciation expense
b. an increase in Accounts Receivable
c. gain on sale of plant assets
d. payment of cash dividends
42)
Naraval Corporation sold used equipment with a book value of $29,000 for $25,000. The indirect
method statement of cash flows will reflect:
a. an addition of $29,000 in the investing activities section and a deduction of $4,000 in the
operating activities section
b. an addition of $25,000 in the investing activities section and a deduction of $4,000 in the
operating activities section
c. an addition of $29,000 in the investing activities section and an addition of $4,000 in the
operating activities section
d. an addition of $25,000 in the investing activities section and an addition of $4,000 in the
operating activities section
7
Fall 2005
43)
ZCMI,Inc., reported an increase in Accounts Receivable of $7,500 and cash collections on
account of $430,000. Sales on account for the period were:
a. $7,500
b. $437,500
c. $430,000
d. $422,500
44)
If the cash collections from customers amounted to $634,800 and the Accounts Receivable
account decreased $19,400 during the same period, sales for the period were:
a. $615,400
b. $634,800
c. $654,200
d. indeterminable from the information given
Stockton-Meadows Incorporated reports an increase in Accounts Payable of $9,200 and an
increase in inventory of $45,000 for the current year. Accounts Payable relates solely to the
purchase of merchandise. Sales on account were $532,100 and cost of goods sold was $358,000.
The total purchases of merchandise for the period were:
a. $174,100
b. $313,000
c. $358,000
d. $403,000
45)
46)
The amounts found in the Salaries Payable account for NovaLights Company were $14,500 and
$16,000 on December 31, 2003, and December 31, 2004, respectively. Cash paid to employees
for the years ended December 31, 2003, and December 31, 2004, were $255,000 and $280,000,
respectively. NovaLights Company’s Salary Expense for the year ended December 31, 2004,
was:
a. $253,500
b. $281,500
c. $278,500
d. $256,500
47)
The balance in Treasury Stock on January 1, 2006, and December 31, 2006, is, respectively,
$45,000 and $72,500. During the year, $57,000 of treasury stock was purchased. During the year,
treasury stock was sold for $1,800 over its cost. The proceeds from the sale of treasury stock
amounted to:
a. $37,500
b. $27,700
c. $31,300
d. $29,500
[End of multiple choice questions]
8
Fall 2005
LONG FORM QUESTIONS
LF1.
Camera Warehouse sold merchandise for cash, collecting $158,000, plus 6% state sales tax, later
remitting the sales tax to the state.
Prepare journal entries for the sales and remittance transactions.
LF2.
In the most recent year of operations, Elsa’s Games sold merchandise costing $75,000 for
$120,000. All merchandise was sold under a one-year warranty. At the time of sale Elsa
estimated that warranty claims would amount to 5% of sales. During the year, Elsa replaced
defective merchandise for $4,900. All transactions were cash transactions.
a. Prepare journal entries to record all transactions related to the warranty.
b. Based solely on the above information, determine Elsa’s operating income for the year.
LF3.
Decide whether the following contingencies should be accrued, disclosed in the notes to the
financial statements, or ignored when the financial statements are prepared.
a) Davidson Company is involved in a lawsuit that its legal counsel believes has no merit. Legal
counsel advises Davidson the chances of incurring a loss are extremely remote.
b) Triple M Mines Corporation is involved in several lawsuits at the end of the current year
involving a defective product. Triple M Mines’s legal counsel believes it is probable that
Triple M Mines will incur losses of $500,000.
c) Gossamer Enterprises is involved with the Internal Revenue Service in a tax dispute.
Gossamer’s legal counsel believes it is reasonably possible that Gossamer will incur losses of
$200,000.
d) Linden Brothers is involved in a lawsuit against a supplier and is anticipating a cash
settlement in its favor of $500,000. Legal counsel advises Linden Brothers its chances of
winning the suit and being awarded the $500,000 are excellent.
9
Fall 2005
LF4.
The Cosmo Company was started by issuing 800 shares of $10 par value stock at an average
market price of $20 per share. The company repurchased 100 shares at a market price of $15 per
share. The company later sold 50 shares at a market price of $25 per share. At the end of the first
year of operations the company has $2,600 of retained earnings in addition to its contributed
capital.
a) Prepare journal entries to record the treasury stock transactions.
b) Prepare the equity section of the balance sheet for Cosmo Company.
LF5. During 2006, Road Ranger Corporation engaged in the following selected transactions:
Jan.
1
Issued 25,000 shares of $1 par value common stock at $18 per share.
June
15
Reacquired 1,000 shares of common stock sold on Jan. 1 for $19 per
share.
Aug.
10
Sold 600 shares of its treasury stock purchased on June 15 for $20 per
share.
Sept.
30
The board of directors declared and distributed a 10% common stock
dividend. The selling price of the common stock was $21 per share at the time of
the declaration.
Nov.
30
The board of directors declared a cash dividend of $.45 per share payable
to stockholders on December 15.
Dec.
15
Paid the cash dividends declared on November 30.
Record journal entries for the above transactions.
10
Fall 2005
LF6.
Complete the statement of stockholders’ equity for Elm Corporation given the following
transactions:
a. Issued 2,000 shares of $10 par value common stock for $74,000.
b. Earned net income, $86,500.
c. Declared cash dividends, $12,800.
d. Distributed 10% common stock dividend ($7,000 par value) with a market value of
$30,000.
e. Purchased treasury stock, $5,000.
f. Sold treasury stock that cost $3,500 for $9,900.
Common
Stock
Balance
Additional
Paid-in
Capital
$50,000
Retained
Earnings
$140,000
$ 65,000
Treasury
Stock
Total
$(7,000)
$248,000
a.
b.
c.
d.
e.
f.
Balance
LF7.
For each of the following items, identify the section of the statement of cash flows where it would
appear. Use (O) for operating activities, (I) for investing activities, (F) for financing activities,
(NIF) for the schedule of noncash investing and financing activities, and (N) if the item does not
appear anywhere on the statement of cash flows. Assume the statement is prepared using the
direct method.
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
purchased treasury stock
sold land for cash
depreciation of machinery
issued long-term note payable to purchase equipment
earned net income
paid cash dividends
accrued, but did not pay, wages
sold equipment at a gain
issued common stock for cash
purchased bond as a held-to-maturity investment
distributed a 10% stock dividend
sold merchandise on account
paid income taxes
received dividends on shares held as trading securities
received payment on accounts receivable
11
Fall 2005
LF8.
The following information has been extracted from the accounting records of Sandy Shores
Enterprises.
Prepare the statement of cash flows for Sandy Shores Enterprises for the year ended December
31, 2006, using the indirect method and including a schedule of noncash investing and financing
activities, if necessary, together with the following data from the accounting records:
Principal payments on long-term debt
Collections on accounts receivable
Increase in accounts payable
Acquisition of equipment by issuing long-term note payable
Amortization expense
Collection of loan principal
Proceeds from sale of investments, not including $5,100 gain
Increase in accounts receivable
Cash payments to purchase plant assets
Decrease in accrued liabilities
Payment of cash dividends
Income tax expense and payments
Proceeds from sale of plant assets, not including $7,400 loss
Net income
Depreciation expense
Cash sales
Proceeds from issuance of common stock
Increase in inventory
Loan to another company
Bonds payable converted into common stock
Payments to suppliers
Decrease in prepaid expenses
Cash balance: December 31, 2005
Cash balance: December 31, 2006
12
$ 50,000
297,500
24,300
70,000
18,700
58,000
49,100
8,700
62,000
60,300
64,500
43,400
22,600
174,100
35,500
217,400
300,000
71,400
60,000
130,000
283,100
12,800
52,500
373,000
Fall 2005
LF9. The following information was extracted from the accounting records of Ocean Adventures, Inc.:
a. Net income, $46,200
b. Depreciation on equipment, $3,400
c. Purchased long-term investments, $6,900
d. Sold land for $46,900 (amount includes a loss of $8,700)
e. Issued long-term note payable to acquire equipment, $12,300
f. Payment on long-term note payable, $41,000
g. Issued common stock for cash, $4,900
h. Declared and paid cash dividend, $28,100
Increases (decreases) in selected accounts were as follows:
Accounts receivable
Interest receivable
Inventory
Prepaid expenses
Accounts payable
Income tax payable
Accrued liabilities
Interest payable
Salaries payable
(2,400)
(700)
8,400
900
2,100
(700)
(1,500)
800
(1,700)
Beginning cash was $52,500.
Prepare the statement of cash flows for Ocean Adventures for the year ended December 31, 2006,
using the indirect method and including a schedule of noncash investing and financing activities,
if necessary.
13
Fall 2005
LF10. Altair,Inc., gathered the following data from its accounting records for the year ended December
31, 2006:
Sales
Gain on sale of investments
Cost of goods sold
Depreciation expense
Other operating expenses
Loss on sale of plant assets
Income tax expenses
Net income
$750,000
5,000
450,000
25,000
198,000
2,000
24,000
56,000
Increases (decreases) in selected account balances:
Cash
Accounts receivable
Inventory
Prepaid expenses
Accounts payable
Accrued liabilities
Income taxes payable
$ 7,000
80,000
(35,000)
2,000
75,000
(10,000)
8,000
Prepare the operating activities section of Altair's 2006 statement of cash flows using BOTH the
direct method and the indirect method.
14
Fall 2005
SOLUTIONS
MULTIPLE CHOICE
Answers are in the form (difficult level, Learning Objective #, answer). For instance, the answer to
question #1 states that it is of “moderate” difficulty, it tests Learning Objective #1 (“L.O.1”), and the
answer to the question is “a”.
1) (moderate, L.O. 1, a)
2) (easy, L.O. 1, b)
3) (moderate, L.O. 1, a)
4) (moderate, L.O. 1, b)
5) (moderate, L.O. 1, d)
6) (easy, L.O. 2, d)
7) (easy, L.O. 2, d)
8) (moderate, L.O. 2, d)
9) (moderate, L.O. 3, c)
10) (difficult, L.O. 3, c)
11) (difficult, L.O. 3, d)
12) (moderate, L.O. 3, d)
13) (moderate, L.O. 4, b)
14) (moderate, L.O. 2, a)
15) (moderate, L.O. 2, b)
16) (moderate, L.O. 2, c)
17) (moderate, L.O. 3, b)
18) (moderate, L.O. 3, c)
19) (moderate, L.O. 3, b)
20) (moderate, L.O. 3, b)
21) (difficult, L.O. 3, d)
22) (moderate, L.O. 4, a)
23) (moderate, L.O. 4, a)
24) (easy, L.O. 1, c)
25) (moderate, L.O. 1, c)
26) (moderate, L.O. 1, d)
27) (moderate, L.O. 3, c)
28) (moderate, L.O. 3, c)
29) (moderate, L.O. 3, c)
30) (easy, L.O. 1, a)
31) (easy, L.O. 2, a)
32) (moderate, L.O. 2, d)
33) (moderate, L.O. 3, a)
34) (moderate, L.O. 2, a)
35) (moderate, L.O. 2, b)
36) (moderate, L.O. 2, c)
37) (moderate, L.O. 2, a)
38) (easy, L.O. 3, d)
39) (moderate, L.O. 3, c)
40) (moderate, L.O. 3, d)
41) (moderate, L.O. 3, d)
42) (difficult, L.O. 3, d)
43) (difficult, L.O. 4, b)
44) (difficult, L.O. 4, a)
45) (difficult, L.O. 4, d)
46) (difficult, L.O. 4, b)
47) (difficult, L.O. 4, c)
15
Fall 2005
LONG FORM QUESTIONS
LF1.
Cash
167,480
Sales
Sales Tax Payable
Sales Tax Payable
Cash
158,000
9,480
9,480
9,480
LF2.
a.
Warranty Expense
6,000
Estimated Warranty Payable
6,000
Estimated Warranty Payable
Cash
4,900
4,900
b. $120,000 – $75,000 – $6,000 = $39,000
LF3.
a)
b)
c)
d)
Ignore
Accrue
Disclose in footnotes
Ignore
LF4.
a)
b)
Treasury Stock
Cash (100 x $15)
1, 500
Cash
Treasury Stock (50 x $15)
Paid-in Capital from Treasury Stock Transactions
1,250
1, 500
Stockholders’ Equity
Paid-in capital:
Common stock
Paid-in capital in excess of par value-common
Paid-in capital in excess of par value-treasury stock
Total paid-in capital
Retained earnings
Treasury stock, common
Total stockholders’ equity
16
750
500
$ 8,000
8,000
500
$16,500
2,600
(750)
$18,350
Fall 2005
LF5.
Jan.
June
Aug.
Sept.
Nov.
Dec.
1
15
10
30
30
15
Cash
450,000
Common Stock
Paid-in Capital in Excess of Par Value-Common
Treasury Stock
Cash
Cash
25,000
425,000
(25,000 x $17)
19,000
19,000
12,000
Treasury Stock
(600 x 19)
Paid-in Capital from Treasury Stock Transactions
(600 x [$20 – $19])
Retained Earnings
51,660
Common Stock
(24,600 x 10% x $1)
Paid-in Capital in Excess of Par Value-Common
(24,600 x 10% x ($21 - $1))
Retained Earnings ([24,600 + 2,460] x $0.45)
Dividends Payable
12,177
Dividends Payable
Cash
12,177
11,400
600
2,460
49,200
12,177
12,177
LF6.
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Balance
$50,000
$140,000
a.
20,000
54,000
$ 65,000
Treasury
Stock
$(7,000)
Total
$248,000
74,000
b.
86,500
86,500
c.
(12,800)
(12,800)
(30,000)
0
d.
7,000
23,000
e.
f.
Balance
6,400
$77,000
$223,400
17
$108,700
(5,000)
(5,000)
3,500
9,900
$(8,500)
$400,600
Fall 2005
LF7.
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
F
I
N
NIF
N
F
N
N
F
I
N
N
O
O
O
18
Fall 2005
LF8.
Sandy Shores Enterprises
Statement of Cash Flows
For the Year Ended December 31, 2006
Cash flows from operating activities:
Net income
Add (subtract) items that affect net income and
cash flow differently:
Amortization
Depreciation
Loss on sale of plant assets
Gain on sale of investments
Change in accounts receivable
Change in inventory
Change in prepaid expenses
Change in accounts payable
Decrease in accrued liabilities
Net cash inflow from operating activities
Cash flows from investing activities:
Loan collection
Proceeds from sale of investments
Cash payments to purchase plant assets
Proceeds from sale of plant assets
Loan to another company
Net cash inflow from investing activities
Cash flows from financing activities:
Payments of long-term debt
Payment of cash dividends
Proceeds from issuance of common stock
Net cash inflow from financing activities
Net increase in cash
Cash balance: December 31, 2005
Cash balance: December 31, 2006
Noncash investing and financing activities:
Acquisition of equipment by issuing note
Bonds payable converted into common stock
19
$174,100
$ 18,700
35,500
7,400
(5,100)
(8,700)
(71,400)
12,800
24,300
(60,300)
(46,800)
$127,300
$ 58,000
49,100
(62,000)
22,600
(60,000)
7,700
$(50,000)
(64,500)
300,000
185,500
$320,500
52,500
$373,000
$ 70,000
130,000
Fall 2005
LF9.
Ocean Adventures, Inc.
Statement of Cash Flows
For the Year Ended December 31, 2006
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation
$ 3,400
Loss on sale of plant assets
8,700
Change in accounts receivable
2,400
Change in interest receivable
700
Change in inventory
(8,400)
Change in prepaid expenses
(900)
Change in accounts payable
2,100
Change in salaries payable
(1,700)
Change in interest payable
800
Change in income tax payable
(700)
Change in accrued liabilities
(1,500)
Net cash inflow from operating activities
Cash flows from investing activities:
Cash payments to purchase plant assets
Proceeds from sale of land
Net cash inflow from investing activities
Cash flows from financing activities:
Payments of long-term debt
Payment of cash dividends
Proceeds from issuance of common stock
Net cash inflow from financing activities
Net increase in cash
Cash balance: December 31, 2005
Cash balance: December 31, 2006
Noncash investing and financing activities:
Acquisition of equipment by issuing note
Bonds payable converted into common stock
20
$ 46,200
(4,900)
$ 41,300
$ (6,900)
46,900
40,000
$(41,000)
(28,100)
__ 4,900
(64,200)
$ 17,100
52,500
$ 69,600
$ 12,300
130,000
Fall 2005
LF10.
1) Direct Method
Cash flows from operating activities:
Receipts:
Collections from customers
Payments:
To suppliers
For income taxes
Total cash payments
Net cash inflow from operating activities
$ 670,000
$ 550,000
16,000
566,000
$ 104,000
2) Indirect Method
Cash flows from operating activities:
Net income
Adjustment to reconcile net income to net cash provided
by operating activities:
Depreciation
$ 25,000
Loss on sale of plant assets
2,000
Gain on sale of investments
(5,000)
Change in accounts receivable
(80,000)
Change in inventory
35,000
Change in prepaid expenses
(2,000)
Change in accounts payable
75,000
Change in accrued liabilities
(10,000)
Change in income taxes payable
8,000
Net cash inflow from operating activities
21
$56,000
_48,000
$104,000