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Acct 592 – Spring 2005

The Statement of Cash Flows Purpose of a statement of cash flows: To provide information about the cash inflows and outflows of an entity during a period. To summarize the operating, investing, and financing activities of the business.

The cash flow statement helps users to assess a 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.

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Acct 592 – Spring 2005

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.

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Acct 592 – Spring 2005

Noncash revenues and expenses Net income includes items that were neither cash inflow nor cash outflows: Depreciation expense Accretion expense on asset retirement obligation Amortization of intangibles Impairment loss on goodwill and intangibles Earnings of affiliated companies accounted for using the equity method Impairment losses on other noncurrent assets Compensation expense related to stock options Net income also includes gains and losses from investing and financing activities Gain ≠ cash received (unless carrying value was zero) Even when there is a loss, cash might have been received Net income must be adjusted for these items to get the cash provided by operations – part of the reconciling schedule or “indirect method” For other items, there are revenues/expenses as well as cash flows but the amounts are different: Bond interest expense ≠ bond interest paid (if bonds were sold at premium or discount) Sales were not all collected in cash (bad debts, other changes in Accounts Receivable) Purchases were not necessarily paid for during period (change in Accounts Payable) Income tax expense ≠ income taxes paid due to deferred tax assets/liabilities as well as income taxes refunds receivable or unpaid taxes owed

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Page 3

Acct 592 – Spring 2005 Company, Inc. Statement of Cash Flows For the year ended December 31, 199X Cash Flows from Operating Activities Cash received from customers Cash received as interest income * Cash received as dividend income Cash paid for cost of goods sold * Cash paid for selling expenses Cash paid for general & administrative expenses Cash paid for interest (including interest on capital leases) Cash paid for income taxes Cash that would have been paid for taxes except for “excess tax deduction” related to stock based compensation Net cash provided by (or used by) operating activities Cash Flows from Investing Activities Cash received from sale of property, plant, & equipment Cash received from sale of investments Cash received from repayment of note receivables Cash paid to acquire property, plant, and equipment Cash paid to acquire investments Cash paid out as a loan Net cash provided by (or used by) investing activities Cash Flows from Financing Activities Cash received as proceeds from issuance of debt Cash received as proceeds from issuance of stock Cash received as proceeds from reissuance of treasury stock Cash paid to repay debt (principal payment) Cash paid on principal related to capital leases Cash paid to reacquire stock (purchase treasury stock) Cash paid as dividends Cash retained due to “excess tax deduction” related to stock options Net cash provided by (or used by) financing activities Net increase (decrease) in cash Beginning cash and cash equivalents balance =Ending cash and cash equivalents balance Schedule of Noncash Investing and Financing Activities Assets for Liabilities &/or Equity Liabilities &/or Equity for Assets Liabilities for Equity and Equity for Liabilities Capital lease (acquisition of asset and obligation for lessee) A reconciliation of net income to cash provided by operations *Brackets indicate items that are normally combined

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Acct 592 – Spring 2005

Operating Activities (Usually associated with working capital accounts like Accounts receivable, inventory, salaries payable, etc.) Inflows: From sale of goods and services From receiving dividends investments From receiving interest from investments or loans From sale of trading securities From reduced income taxes due to “excess tax deduction” related to stock options

Outflows: To suppliers for inventory and other materials To employees for services To other entities for services (insurance, etc.) To government for taxes To lenders for interest To purchase trading securities Interest expense is an operating item! Investment earnings (dividends & interest) is an operating item! Buying and selling trading securities are operating activities! These things may not make sense to you – so “memorize.”

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Acct 592 – Spring 2005

Investing Activities (Usually associated with long-term assets) Inflows:

From sale of property, plant and equipment From sale of debt or equity investments of other entities* From collections of principal on loans to other entities Outflows:

To purchase property, plant and equipment To purchase debt or equity securities of other entities To make loans to other entities

*except investments classified as trading securities which are included in operating activities

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Acct 592 – Spring 2005

Financing Activities (Usually associated with long-term liability and equity items) Inflows:

From issuance of debt (bonds and notes) From issuance of equity securities Common stock Preferred stock Re-issuance of treasury stock Outflows:

To stockholders as dividends To repay or retire long-term debt, including capital leases for lessee (interest on leases is classified as operating) To reacquire capital stock (treasury stock)

An “anomaly” on SCF Dividends are paid to stockholders and interest is paid to bondholders. Dividends paid are shown as outflows under financing activities However, FASB defined interest expense to be an operating activity Interest & dividend revenue are defined to be operating activities, too.

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Acct 592 – Spring 2005

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.

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Acct 592 – Spring 2005

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.

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Acct 592 – Spring 2005 Example 1 - Statement of Cash Flow – DIRECT METHOD Year ending 12/31/06 Ref 15,000 X

Palouse Pottery Cash

Year ending 12/31/07 42,000

Target 27,000

40,000 (3,000) 25,000 3,000

37,500 (4,500) 43,000 6,000

(2,500) (1,500) 18,000 3,000

215,000 (80,000) 215,000 (23,000) (2,000) (2,000) (1,500) 0 (25,000) (100,000) (61,500) (215,000) 1997 Rev/(Exp) 93,000 (4,000) 20,000 (35,000) (37,000)

236,000 (82,000) 278,000 (31,000) (9,000) (1,500) (5,500) (8,000) (15,000) (145,000) (63,000) (278,000) 1997 Rec/(Disb)

21,000 (2,000)

Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Expenses Plant, property & equipment Accumulated Depreciation Accounts Payable Salaries Payable Interest payable Income Taxes Payable Dividends Payable Long term liabilities Common stock, $1 par Retained Earnings

Closing entry for Sales Gain/(loss) on sale of PP&E Realized gain/(loss) - land Cost of goods sold Salaries & other operating expenses Bad debt expense Depreciation & amortization Interest expense Income taxes expense Net income (accrual basis) Statement of Cash Flows Operating Activities

Debit Ref 27,000

Credit

(8,000) (7,000) 500 (4,000) (8,000) 10,000 (45,000) (1,500) 0

(2,000) (11,000) (2,500) (7,000) 14,500 (INFLOWS)

(OUTFLOWS)

Investing Activities

Financing Activities

Noncash Financing/Investing CHANGE IN CASH

X

27,000

Totals

Additional information: a. Wrote off $500 accounts receivable as uncollectible b. Sold operational assets for $4,000 cash that had cost $17,000 and had a book value of $8,000 c. Declared a cash dividend of $13,000 180694588.doc created by T. Gordon 10/16/2013

d. e. f. g.

Sold land for $30,000 that had been acquired for $10,000 Paid a $10,000 long-term note installment Purchase plant, property & equipment for $48,000 cash. Issued common stock for $45,000 cash.

Page 10

Acct 592 – Spring 2005 Example 1 - Statement of Cash Flow – INDIRECT METHOD Year ending 12/31/06 Ref 15,000 X

Palouse Pottery Cash

Year ending 12/31/07 42,000

Target 27,000

40,000 (3,000) 25,000 3,000

37,500 (4,500) 43,000 6,000

(2,500) (1,500) 18,000 3,000

215,000 (80,000) 215,000 (23,000) (2,000) (2,000) (1,500) 0 (25,000) (100,000) (61,500) (215,000)

236,000 (82,000) 278,000 (31,000) (9,000) (1,500) (5,500) (8,000) (15,000) (145,000) (63,000) (278,000)

21,000 (2,000)

Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Expenses Plant, property & equipment Accumulated Depreciation Accounts Payable Salaries Payable Interest payable Income Taxes Payable Dividends Payable Long term liabilities Common stock, $1 par Retained Earnings Statement of Cash Flows Operating Activities

Debit Ref 27,000

(INFLOWS)

Credit

(8,000) (7,000) 500 (4,000) (8,000) 10,000 (45,000) (1,500) 0

(OUTFLOWS)

Investing Activities

Financing Activities

Noncash Financing/Investing CHANGE IN CASH

X

27,000

Totals

Additional information: a. Wrote off $500 accounts receivable as uncollectible b. Sold operational assets for $4,000 cash that had cost $17,000 and had a book value of $8,000 180694588.doc created by T. Gordon 10/16/2013

d. Sold land for $30,000 that had been acquired for $10,000 e. Paid a $10,000 long-term note installment f. Purchase plant, property & equipment for $48,000 cash.

Page 11

Acct 592 – Spring 2005 c. Declared a cash dividend of $13,000

Moscow Moving & Storage Cash

Year ending 12/31/06 Ref 15,000

Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Expenses Plant, property & equipment Accumulated Depreciation Accounts Payable Salaries Payable Interest payable Long term liabilities Common stock, $1 par Retained Earnings

g. Issued common stock for $45,000 cash. Example 2 - Statement of Cash Flow Year ending 12/31/07 5,000

Target (10,000)

30,000 (1,500) 10,000 4,500

28,500 (2,000) 17,000 500

(1,500) (500) 7,000 (4,000)

220,100 (20,000) 258,100 (10,000) (3,000) 0 (30,000)

289,100 (16,000) 322,100 (13,000) (1,000) (1,000) (10,000)

69,000 4,000

Debit

Ref

Credit

(100,000) (115,100) (258,100) 1997 Rev/(Exp) 80,000 (2,000) (35,000) (26,000)

Closing entry for Sales Gain/(loss) on sale of PP&E Cost of goods sold Salaries & other operating expenses Bad debt expense Depreciation & amortization Interest expense Income taxes expense Net income (accrual basis) Statement of Cash Flows Operating Activities

(3,000) 2,000 (1,000) 20,000

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

(1,000) (5,000) (2,000) (3,000) 6,000 (INFLOWS)

(OUTFLOWS)

Investing Activities

Financing Activities

Noncash Financing/Investing

CHANGE IN CASH Totals Additional Information

a. Wrote off $500 accounts receivable as uncollectible b. Sold operational assets for $4,000 cash (cost $15,000, acc'd depreciation $9,000) c. Declared and paid a cash dividend, $5,000

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

d. Issued common stock for $36,000 cash e. Paid a $20,000 long-term note installment f. Purchased operational assets, $39,000 cash g. Acquired land in exchange for 1,000 shares of common stock worth $45 each

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Acct 592 – Spring 2005

Reconciliation of Net Income to Cash Provided by Operations or – “the Indirect Method” Example 2 Moscow Moving & Storage Statement of Cash Flow Worksheet Reconciliation Schedule (Indirect method) Net income

Ref

Cash provided by operations

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Page 13

Acct 592 – Spring 2005 Example 3 Avery Slings & Arrows, Inc. Avery Slings & Arrows Income Statement For year ending

12/31/04

Sales Earnings of affiliates (equity method) Realized loss on sale of equipment Realized gain on sale of investments Interest and dividend revenue Total revenues Cost of goods sold Salaries and wages Other operating expenses Bad debt expense Depreciation expense Amortization of intangibles Accretion expense Interest expense Income tax expense Net income

6,600,000 150,000 (65,000) 53,000 15,000 6,753,000 3,490,000 632,000 421,000 45,000 757,000 5,000 25,000 935,000 177,000

6,487,000 266,000

Prepare a statement of cash flows (direct method) including the required reconciling schedule and any other required disclosures for Avery Slings & Arrows, Inc. Information from the balance sheet and income statement have been entered into a worksheet for your convenience. In addition to completing the worksheet, you MUST prepare a formal statement with headings, subtotals, etc. for full credit. ADDITIONAL INFORMATION a. During the year, ASA paid $2,767,000 in cash for land, building, and equipment. b. On August 5, 2004, ASA issued 25,000 shares of common stock for $42 per share. c. ASA purchased $273,000 in marketable securities during the year. d. Equipment costing $500,000 was sold during the year for $59,000. The book value was $124,000. e. During the year, AAS declared cash dividends in the amount of $203,000. f. On April 1, 2004, the holders of $1,500,000 in convertible bonds elected to convert their bonds to common stock. The conversion ratio was 25 shares of common stock for each share $1,000 face value bond. g. The noncurrent investment represents 30% of the outstanding securities of the investee. This investment is accounted for on the equity method. During 2004, ASA received $29,000 in dividends from the investment. h. On May 1, 2004, ASA acquired equipment under a capital lease. At the inception of the lease, the present value of the minimum lease payments was $648,000. i. ASA acquired a patent on a new process for $500,000 on October 15, 2004. j. During 2004, ASA sold marketable securities which it had acquired for $222,000 for $275,000. k. In February, ASA issued 150,000 shares of common stock in a 50% stock dividend. l. ASA issued $3,000,000 in bonds at face value on August 1, 2004. m. ASA sold 500 shares of treasury stock which it had acquired for $20 per share for $46 per share on January 18, 2004. n. In October, ASA acquired 1,000 shares of treasury stock at $38 per share. o. Bad debts in the amount of $33,000 were written off during the year.

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Acct 592 – Spring 2005

Avery Slings & Arrows Balance Sheet Current Assets Cash Securities Available for Sale (at market) Accounts Receivable (net) Merchandise Inventory Prepaid Expenses Noncurrent Assets Investments in affiliated companies (equity method) Land, building & equipment Less Accumulated Depreciation Intangible Assets Total assets Current Liabilities Accounts Payable Salaries Payable Interest payable Income Taxes Payable Dividends Payable Noncurrent Liabilities Bonds Payable Premium/Discount on Bonds Payable Convertible Bonds Payable Lease obligation Asset retirement obligation Deferred Income Taxes Other long term liabilities Stockholder's Equity Common stock, $10 par Additional paid in capital - common Other paid in capital Unrealized (gain)/loss AFS invest Treasury stock (at cost) Retained Earnings Total liabilities and equity

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12/31/04

12/31/03

2,261,000 258,000 1,947,000 602,000 4,000 5,072,000

2,850,000 100,000 1,900,000 900,000 50,000 5,800,000

2,121,000 20,715,000 (2,181,000) 568,000 26,295,000

2,000,000 17,800,000 (1,800,000) 73,000 23,873,000

347,000 18,000 156,000 45,000 128,000 694,000

650,000 21,000 55,000 32,000 60,000 818,000

7,000,000 642,000 1,500,000 2,108,000 275,000 122,000 590,000 12,237,000

4,000,000 656,000 3,000,000 1,825,000 250,000 75,000 2,590,000 12,396,000

5,125,000 3,525,000 13,000 27,000 (38,000) 4,712,000 13,364,000

3,000,000 1,600,000 0 (80,000) (10,000) 6,149,000 10,659,000

26,295,000

23,873,000

Page 15

Acct 592 – Spring 2005 Avery Slings & Arrows Cash

Year ending 12/31/03 Ref Debit 2,850,000 x

Ref Credit

Year ending 12/30/04 Target 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

1,900,000

1,947,000

47,000

900,000

602,000

(298,000)

50,000

4,000

(46,000)

2,000,000

2,121,000

121,000

17,800,000

20,715,000

2,915,000

(1,800,000)

(2,181,000)

(381,000)

73,000

568,000

495,000

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)

Accounts receivable (net) Merchandise Inventory Prepaid Expenses Investments in affiliated companies (equity method) Land, building & equipment

Accumulated Depreciation Intangible Assets Total assets

Bonds Payable

(4,000,000)

(Premium)/Discount on Bonds Payable

(656,000)

(7,000,000) (3,000,000) (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)

(250,000)

(275,000)

(25,000)

(75,000)

(122,000)

(47,000)

Asset retirement obligation Deferred Income Taxes Other long term liabilities

(2,590,000)

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

(590,000) 2,000,000

Page 16

Acct 592 – Spring 2005

Avery Slings & Arrows

Year ending 12/31/03 Ref Debit

Ref Credit

Year ending 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

0

(13,000)

(13,000)

(6,149,000)

(4,712,000)

1,437,000

(23,873,000)

(26,295,000)

2004 Revenue/ Re (Expense) f 6,600,000 150,000 (65,000) 0 0

2004 Operating Cash Inflows/ (Outflows)

Other paid in capital Retained Earnings

Closing entry for

Sales Earnings of affiliated companies Gain/(loss) on sale of equipment Gain/(loss) sale of patent Realized gain/(loss) sale of land Realized gain/(loss) on investments Interest and dividend revenue Cost of goods sold

Ref

53,000 15,000 (3,490,000)

Salaries and wages Other operating expenses Bad debt expense Depreciation expense Amortization of intangibles Accretion expense

(632,000) (421,000) (45,000) (757,000) (5,000) (25,000)

Interest expense

(935,000)

Income taxes expense

(177,000)

Net income (accrual basis)

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

266,000

Page 17

Acct 592 – Spring 2005

Avery Slings & Arrows Cash provided by operations: Reconciling schedule: Net income

INFLOWS

OUTFLOWS

266,000

Cash provided by operations

Investing Activities

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

0

Page 18

Acct 592 – Spring 2005

Avery Slings & Arrows

INFLOWS

OUTFLOWS

Financing Activities

0

Noncash Financing/Investing

CHANGE IN CASH

589,000 x

Totals

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

0

Page 19

Acct 592 – Spring 2005

Avery Slings & Arrows Statement of Cash Flows For year ended December 31, 2004 Inflows Cash provided by operations Cash collected from customers Interest & dividends received Cash paid for merchandise Cash paid to employees Other operating disbursements Interest paid Income taxes paid

(3,495,000) (635,000) (375,000) (848,000) (117,000) (5,470,000)

1,082,000

59,000 (2,767,000) (500,000) 275,000 334,000

Cash provided by financing activities Dividends paid Sold treasury stock Purchased treasury stock Payments on long term debt Payments on capital leases Common stock issued Proceeds from issuing nonconvertible bonds

Net

6,508,000 44,000

6,552,000 Cash provided by investing activities Proceeds from sale of equipment Cash outlay to acquire equipment Cash outlay to acquire patent Proceeds from sale of securities Cash outlay to buy securities

Outflows

(273,000) (3,540,000)

(3,206,000)

(135,000) 23,000 (38,000) (2,000,000) (365,000) 1,050,000 3,000,000 4,073,000

(2,538,000)

1,535,000

Change in cash Beginning balance - Cash

(589,000) 2,850,000

Ending balance - Cash

2,261,000

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Page 20

Acct 592 – Spring 2005 Avery Slings & Arrows Statement of Cash Flows For year ended December 31, 2004 Non-cash financing and investing activities Capital lease Preferred bonds converted to common stock

648,000 1,500,000

Schedule to reconcile net income to cash provided by operations Net Income Depreciation Amortization & impairment of intangibles Accretion expense Amortization of bond premium Realized loss on sale of equipment Realized gain on sale of investments Equity method investments – earnings in excess of dividends Increase in deferred income taxes

266,000 757,000 5,000 25,000 (14,000) 65,000 (53,000) (121,000) 47,000

Change in working capital accounts: Net accounts receivable Merchandise Inventory Prepaid Expenses Accounts Payable Salaries Payable Interest Payable Income Taxes Payable

(47,000) 298,000 46,000 (303,000) (3,000) 101,000 13,000

Cash provided by operations:

1,082,000

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Page 21

Acct 592 – Spring 2005 Acct. 301 - Statement of Cash Flows - Homework 4 Wenatchee Whirlpool World Balance Sheet Current Assets Cash Securities Available for Sale (at market) Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Operating Expenses Noncurrent Assets Investments (equity method) Plant, property & equipment Accumulated Depreciation Intangible Assets TOTAL ASSETS Current Liabilities Accounts Payable Salaries Payable Income Taxes Payable Dividends Payable Current portion long term debt Noncurrent Liabilities Bonds Payable Discount on Bonds Deferred Income Taxes Other long term liabilities Stockholder's Equity Convertible preferred, $100 par Common stock, $10 par Additional paid in capital Unrealized (gain)/loss investments Retained Earnings Total liabilities and equity

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

12/31/96

12/31/95

2,837,600 390,000 1,752,000 (120,500) 1,145,000 84,000 6,088,100

2,000,000 150,000 1,900,000 (110,000) 875,000 62,000 4,877,000

3,097,000 16,420,000 (829,000) 71,500 24,847,600

3,000,000 10,800,000 (600,000) 128,000 18,205,000

880,000 20,000 13,400 35,000 29,000 977,400 10,000,000 (247,000) 180,000 562,000 10,495,000 500,000 3,100,000 3,950,000 27,000 5,798,200 13,375,200 24,847,600

750,000 15,000 27,000 60,000 21,000 873,000 5,000,000 (270,000) 88,000 3,000,000 7,818,000 2,000,000 1,500,000 1,200,000 78,000 4,736,000 9,514,000 18,205,000

Page 22

Acct 592 – Spring 2005

Wenatchee Whirlpool World Income Statement For year ending 12/31/96 Sales Earnings of affiliated company (equity method) Gain/(loss) on sale of PP&E Realized gain/(loss) on investments Realized gain on sale of patent Interest and dividend revenue Total revenues Cost of goods sold Salaries and wages Other operating expenses Bad debt expense Depreciation & amortization expense Interest expense Income taxes expense

6,200,000 115,000 (40,000) 108,000 950,000 13,000 7,346,000 3,600,000 590,000 345,000 38,500 250,500 669,400 740,400

Net income

6,233,800 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.

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

Page 23

Acct 592 – Spring 2005 Homework 4 - Acct 315 Worksheet Wenatchee Whirlpool World

Year ending 12/31/95 Ref

Debit

Cash

2,000,000

837,600

Securities Available for Sale (at market) Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Operating Expenses Investments in affiliated companies (equity method) Plant, property & equipment Accumulated Depreciation Intangible Assets

Accounts Payable

Ref

Credit

Year ending 12/31/96

Target

2,837,600

837,600

390,000

240,000

150,000 1,900,000

1,752,000 (148,000)

(110,000)

(120,500)

(10,500)

875,000

1,145,000

270,000

62,000

84,000

22,000

3,000,000

3,097,000

97,000

10,800,000

16,420,000 5,620,000

(600,000)

(829,000) (229,000)

128,000 18,205,00 0 (750,000)

71,500

(56,500)

24,847,60 0 (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 (5,000,00 ) 0)

Premium/Discount on Bonds Payable

270,000

247,000

(23,000)

Deferred Income Taxes

(88,000)

(180,000)

(92,000)

Other long term liabilities

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

(3,000,000)

(562,000) 2,438,000

Page 24

Acct 592 – Spring 2005 Wenatchee Whirlpool World 12/31/95 ref

Debit

ref

Credit

12/31/96

Target

Convertible preferred, $100 par

(2,000,000)

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)

Retained Earnings

(4,736,000) 0 (18,205,00 0)

Closing entry for

Sales

115,000

Gain/(loss) on sale of PP&E

(40,000)

Realized gain/(loss) on investments Realized gain on sale of patent

108,000

Cost of goods sold

(345,000)

Amortization of intangible assets

(38,500) (244,000) (6,500)

Interest expense

(669,400)

Income taxes expense

(740,400)

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

Receipt/ (Disb)

(3,600,000)

Other operating expenses

Depreciation expense

1996

13,000

(590,000)

Bad debt expense

(24,847,60 0)

950,000

Salaries and wages

51,000

(5,798,200) (1,062,200 )

6,200,000

Earnings of affiliated companies (equity method)

Interest and dividend revenue

(27,000)

1996 Rev/(Exp)

Net income (accrual basis)

(500,000) 1,500,000

1,112,200

Page 25

Acct 592 – Spring 2005 Wenatchee Whirlpool World Statement of Cash Flows

INFLOWS

OUTFLOWS

Operating Activities

Investing Activities

Financing Activities

Noncash Financing/Investing

CHANGE IN CASH

837,600

Totals

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

Page 26

(Subtotals)

Acct 592 – Spring 2005

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.

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

Page 27

Acct 592 – Spring 2005 5.

Homework Assignment – Ulliman Company

Uliman Company Cash Accounts receivable (net) Marketable securities (at cost) Allowance for change in value Merchandise Inventory Prepaid Expenses Investments (long-term) Land Buildings and equipment Accumulated depreciation

Accounts Payable Income Taxes Payable Wages payable Interest payable 12% bonds payable Premium/Discount on Bonds Payable Notes payable (long term) 10% Convertible bonds Deferred Income Taxes Convertible preferred, $100 par Common stock, $10 par Additional paid in capital Unrealized (gain)/loss investments Retained Earnings Closing entry for Sales Other revenue Gain/(loss) on sale of PP&E Realized gain/(loss) on investments Interest and dividend revenue Cost of goods sold Salaries & other operating expenses Other operating expense Depreciation & amortization Interest expense Income taxes expense Net income (accrual basis)

Year ending 01/01/99 Ref 1,400 2,800 1,700 500 8,100 1,300 7,000 15,000 32,000 (16,000) 0 53,800 (3,800) (2,400) (1,100) 0 0 0 (3,500) (9,000) (800) 0 (14,000) (8,700) (500) (10,000) (53,800) 1999 Rev/ (Exp) 39,930 0 (200) 700

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

Debit

Worksheet Ref Credit

Year ending 12/31/99 Target 1,000 2,400 (110) 2,690 1,300 3,000 300 800 (190) 7,910 410 1,710 (1,600) 5,400 0 15,000 14,200 46,200 (400) (16,400) 0 0 68,710 (350) (4,150) (104) (2,504) 450 (650) (400) (400) (10,000) (10,000) 290 290 0 0 (1,196) 0 (21,500) (13,700) (800)

3,500 9,000 (396) 0 (7,500) (5,000) (300)

(14,100) (4,100) (68,710) 1999 Receipt/(Disb)

820 (19,890) (11,000) (1,000) (2,100) (410) (2,050) 4,800 (53,800)

Page 28

Acct 592 – Spring 2005 5.

Ulliman Company, continued

Statement of Cash Flows Operating Activities

INFLOWS

OUTFLOWS

Subtotals

Reconciliation Schedule:

Investing Activities

Financing Activities

Noncash Financing/Investing

CHANGE IN CASH Totals

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

Page 29

Acct 592 – Spring 2005 6.

Homework Problem – Driskoll Company

Driskoll Company Cash Accounts receivable (net) Inventories Prepaid Expenses Investments (long-term) Land Buildings Acc'd depreciation - Bldg Equipment Acc'd depreciation - Equip Patents

Year ending 12/31/99 Ref 2,700 5,900 15,300 1,400 8,300 16,300 68,700 (35,000) 29,600 (14,200) 8,700 107,700

Accounts Payable Interest payable Wages payable Bonds payable Discount on bonds Common stock, $10 par Additional paid in capital Unrealized (gain)/loss investments Retained Earnings

(8,900) (630) (2,500) (23,000) 0 (22,000) (15,320) 0

(35,350) (107,700) ok Closing entry for 1999 Rev/(Exp) Sales 49,550 Gain/(loss) on exchange of assets 1,300 Realized gain/(loss) on (200) investments Interest and dividend revenue 790 Cost of goods sold (23,800) Salaries & other operating (16,510) expenses Other operating expense (1,100) Depreciation - buildings (2,700) Depreciation - equipment (3,100) Patent amortization (815) Interest expense (1,715) Income taxes expense (500) Extraordinary loss (net of taxes) (2,600) Net income (accrual basis) (1,400)

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

Debit

Worksheet Ref Credit

Year ending 12/31/99 Target 3,520 820 6,215 315 15,530 230 1,000 (400) 7,300 (1,000) 19,000 2,700 60,700 (8,000) (34,500) 500 25,600 (4,000) (14,700) (500) 9,185 485 98,850 (9,195) (300) (2,600) (17,000) 715 (22,650) (15,970) 0

(295) 330 (100) 6,000 715 (650) (650) 0

(31,850) 3,500 (98,850) ok 1999 Receipt/(Disb)

Page 30

Acct 592 – Spring 2005 6.

Driskoll Company, continued

Statement of Cash Flows Operating Activities

INFLOWS

OUTFLOWS

Subtotals

Reconciliation Schedule:

Investing Activities

Financing Activities

Noncash Financing/Investing

CHANGE IN CASH Totals

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

Page 31

Acct 592 – Spring 2005 7. Statement of Cash Flow Problem from final exam, Spring 1998 Albion Altimeters Inc. Balance Sheet Current Assets Cash Securities Available for Sale (at market) Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Operating Expenses

Noncurrent Assets Plant, property & equipment Accumulated Depreciation TOTAL ASSETS Current Liabilities Accounts Payable Salaries Payable Income Taxes Payable Dividends Payable Noncurrent Liabilities Bonds Payable Premium/Discount on Bonds Payable Deferred Income Taxes

Stockholder's Equity Common stock, $10 par Additional paid in capital Acc'd other comprehensive income* Retained Earnings Total liabilities and equity

12/31/97

12/31/96

310,200 1,112,000

400,000 500,000

781,000 (33,200) 829,000 38,800 3,037,800

900,000 (27,000) 850,000 25,000 2,648,000

3,562,000 (355,000) 6,244,800

1,880,000 (350,000) 4,178,000

Albion Altimeters Inc. Income Statement For year ending Sales Gain/(loss) on sale of PP&E Interest and dividend revenue Total revenues Cost of goods sold Salaries and wages Other operating expenses Bad debt expense Depreciation & amortization expense Interest expense Income taxes expense Net income

413,000 7,200 23,500 0 443,700

350,000 8,500 27,000 25,000 410,500

1,000,000 118,000 103,700 1,221,700

1,000,000 124,000 88,000 1,212,000

1,510,000 1,972,000 13,000 1,084,400 4,579,400 6,244,800

1,000,000 700,000 (14,000) 869,500 2,555,500 4,178,000

3,600,000 (30,000) 15,000 3,585,000 2,100,000 650,000 230,000 17,200 30,000 87,700 180,200

3,295,100 289,900

Required: Use the additional information (below) and the worksheet provided to prepare the statement of cash flow using the direct method. For full credit, use the pages provided to prepare the formal statement in addition to the worksheet. Additional information: a. AA declared dividends of $75,000 on June 30, 1997. b. On Sept. 3, AA sold equipment with a book value of $65,000 for $35,000 in cash. The original cost of the item was $90,000. c. AA purchased for cash plant, property & equipment for $1,740,000. d. On May 15, AA issued 50,000 shares of common stock at $35 each. e. AA wrote off $11,000 of bad debts during 1997. f. AA purchased for cash $585,000 in marketable securities on Apr. 1. g. On Oct. 10, AA issued 1,000 shares of stock in exchange for a parcel of land. At that date, the market price of the stock was $32.

* Other comprehensive income is composed of the holding gains/losses related to available for sale securities.

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

12/31/97

Page 32

Acct 592 – Spring 2005 7. Statement of Cash Flow Problem Worksheet Albion Altimeters Inc.

Year ending 12/31/96 Ref

Cash Securities Available for Sale (at market)

400,000 500,000

Accounts Receivable

Debit

Ref

Year ending 12/31/97

Credit

310,200 1,112,000

(89,800) 612,000

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

(350,000)

(355,000)

(5,000)

4,178,000 (350,000)

6,244,800 (413,000)

(63,000)

(8,500)

(7,200)

1,300

Income Taxes Payable

(27,000)

(23,500)

3,500

Dividends Payable

(25,000)

0

25,000

(1,000,000)

(1,000,000)

0

(124,000)

(118,000)

6,000

(88,000)

(103,700)

(15,700)

(1,000,000)

(1,510,000)

(510,000)

(700,000)

(1,972,000)

(1,272,000)

14,000

(13,000)

(27,000)

(869,500)

(1,084,400)

(214,900)

(4,178,000)

(6,244,800)

(2,066,800)

Accumulated Depreciation

Accounts Payable Salaries Payable

Bonds Payable Premium/Discount on Bonds Payable Deferred Income Taxes Common stock, $10 par Additional paid in capital Acc'd other comprehensive income Retained Earnings 0

Closing entry for 1997 Sales

Rev/(Exp) (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)

Net income (accrual basis)

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

Ref

Debit

Ref

Credit

Receipt/(Disb)

3,600,000

Gain/(loss) on sale of PP&E

Income taxes expense

89,800

Target

(180,200) 289,900

Page 33

Acct 592 – Spring 2005 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

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

Page 34

Acct 592 – Spring 2005 Albion Altimeters Statement of Cash Flow For year ended 12-31-97 Cash provided by operations

Cash provided by investing activities

Cash provided by financing activities

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

Page 35

Acct 592 – Spring 2005

Albion Altimeters Statement of Cash Flow For year ended 12-31-97 Reconciling schedule

Notes:

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

Page 36

Acct 592 – Spring 2005

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 Earnings of affiliated companies (equity method) Gain/(loss) on sale of PP&E Realized gain/(loss) on investments Realized gain on sale of patent Interest and dividend revenue Total revenues Cost of goods sold Salaries and wages Other operating expenses Bad debt expense Depreciation & amortization expense Income taxes expense Net income

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

6,500,000 125,000 (30,000) 192,000 450,000 15,000 7,252,000 3,800,000 610,000 354,000 47,200 261,000 692,100 572,700

6,337,000 915,000

Page 37

Acct 592 – Spring 2005 Endicott Engines Inc. Additional information: a. b. c. d. e. f. g. h. i. j. k. l.

On February 19, EEI sold an internally developed patent for $500,000. On April 3, EEI issued $6,000,000 in bonds at face value. The semi-annual bonds have a coupon rate of 10% per annum. During the year, EEI disposed of various items of equipment with a total book value of $60,000 and original cost of $80,000. The amount received was $30,000 in cash. During the third quarter, shareholders holding 10,000 shares of the preferred stock converted them into common stock. The conversion ratio was 8 shares of common for each share of preferred. On July 20, EEI sold 25,000 shares of its common stock for $43 per share. By the end of the year, EEI had written off as uncollectible a total of $35,000 in accounts receivable. An existing factory with equipment was acquired during the year. The acquisition cost was allocated as follows: $750,000 to land, $4,000,000 to building and 600,000 to equipment. EEI acquired a parcel of land adjoining the new factory by giving the owner 10,000 shares of its common stock. At the date of the transaction, the market value of the stock was $45 per share. New equipment for the factory was obtained under a capital lease. The present value of the minimum lease payments was $722,000. During the year EEI purchased $900,000 in marketable securities and sold securities which had cost $600,000. The market value of the portfolio at the end of the year was $536,000. EEI owns 40% of a company that manufactures parts that EEI uses in its production process. EEI received $20,000 in dividends from this partially owned company during 2002. Dividends declared during the year totaled $100,000.

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

Page 38

Acct 592 – Spring 2005

Endicott Engines Inc. Balance Sheet Current Assets Cash Securities Available for Sale Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Operating Expenses Noncurrent Assets Investments (partially owned companies) Plant, property & equipment Accumulated Depreciation Intangible Assets TOTAL ASSETS Current Liabilities Accounts Payable Salaries Payable Income Taxes Payable Dividends Payable

12/31/02

12/31/01

1,308,200 536,000 2,145,000 (122,200) 1,165,000 63,000 5,095,000

1,500,000 300,000 2,000,000 (110,000) 975,000 50,000 4,715,000

2,605,000 17,142,000 (934,000) 93,000 24,001,000

2,500,000 10,700,000 (700,000) 150,000 17,365,000

1,050,000 43,000 24,000 85,000 1,202,000

800,000 18,000 35,000 60,000 913,000

11,000,000 (277,000) 142,000 749,000 570,000 12,184,000

5,000,000 (300,000) 90,000 323,000 3,000,000 8,113,000

1,000,000 2,150,000 2,575,000 27,000 4,863,000 10,615,000 24,001,000

2,000,000 1,000,000 1,200,000 91,000 4,048,000 8,339,000 17,365,000

Noncurrent Liabilities Bonds Payable Discount on Bonds Deferred Income Taxes Lease obligations Other long term liabilities Stockholder's Equity Convertible preferred, $100 par Common stock, $10 par Additional paid in capital Unrealized (gain)/loss investments Retained Earnings Total liabilities and equity

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

Page 39

Acct 592 – Spring 2005 Worksheet

Endicott Engines Inc. Year ending

Endicott Engines Inc. Cash Securities Available for Sale

12/31/01 Ref 1,500,000 300,000

Accounts Receivable

12/31/02 1,308,200 536,000

Target (191,800) 236,000

2,000,000

2,145,000

145,000

(110,000)

(122,200)

(12,200)

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

(700,000)

(934,000)

(234,000)

Intangible Assets

150,000

93,000

(57,000)

Accounts Payable

17,365,000 (800,000)

24,001,000 (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)

(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)

(323,000)

(749,000)

(426,000)

Allowance for doubtful accounts Merchandise Inventory

Accumulated Depreciation

Bonds Payable

Lease obligations

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

Debit

Year ending Ref

Credit 191,800

Page 40

Acct 592 – Spring 2005 Endicott Engines Inc. Other long term liabilities

12/31/01 Ref (3,000,000)

Convertible preferred, $100 par

(2,000,000)

(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 Retained Earnings 0 Closing entry for 2002: Sales

(815,000)

(17,365,000)

(24,001,000)

Rev/(Exp) 6,500,000

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)

Receipt/(Disb)

(47,200) (254,000) (7,000)

Interest expense

(692,100)

Income taxes expense

(572,700) 915,000

Endicott Engines Inc. INFLOWS

OUTFLOW S

Operating Activities 180694588.doc Created by T. Gordon 10/16/2013

1,000,000

(4,863,000)

Realized gain/(loss) on investments

Statement of Cash Flows

Target 2,430,000

(4,048,000)

(30,000)

Net income (accrual basis)

12/31/02 (570,000)

64,000

Gain/(loss) on sale of PP&E

Amortization of intangible assets

Credit

(27,000)

125,000

Depreciation expense

Ref

(91,000)

Earnings of affiliated company (equity method)

Bad debt expense

Debit

Page 41

Acct 592 – Spring 2005

Investing Activities

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

Page 42

Acct 592 – Spring 2005 Endicott Engines Inc. Financing Activities

Noncash Financing/Investing

CHANGE IN CASH Totals

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

191,800

Page 43

Acct 592 – Spring 2005 Statement of Cash Flow Examples - Solutions Example 1 - completed worksheet Palouse Pottery

Year ending 12/31/96

Cash

15,000

Ref x

Debit

Credit

27,000

Accounts Receivable

40,000

Allowance for doubtful accounts

(3,000)

a

500

Merchandise Inventory

25,000

k

18,000

3,000

L

3,000

Prepaid Expenses

Ref

42,000

27,000

2,000 500

37,500

(2,500)

j

2,000

(4,500)

(1,500)

43,000

18,000

Plant, property & equipment

215,000

f

48,000

Accumulated Depreciation

(80,000)

b

9,000

m

6,000

3,000

10,000 17,000

236,000

21,000

11,000

(82,000)

(2,000)

215,000

(2,000)

Income Taxes Payable

(1,500)

Dividends Payable Long term liabilities Common stock, $1 par Retained Earnings

278,000

(23,000) (2,000)

Interest payable

0 (25,000)

p h

5,000

e

10,000

c

13,000

(215,000) Closing entry for

n o

8,000 7,000

q

4,000

c

13,000

500

(100,000) (61,500)

(31,000) (9,000) (5,500) (8,000) (15,000)

2,000

Gain/(loss) on sale of PP&E

(4,000)

b

4,000

Realized gain/(loss) - land

20,000

45,000

(145,000)

(45,000)

x

14,500

(63,000)

(1,500)

(278,000)

0 d

20,000

0

(35,000)

n

8,000

k

18,000

(45,000)

Salaries & other operating expenses Bad debt expense

(37,000)

o

7,000

L

3,000

(33,000)

Depreciation & amortization

(11,000)

j m

2,000

(2,500) (7,000)

q

4,000

Net income (accrual basis)

14,500

X

14,500

Statement of Cash Flows

0

11,000

Income taxes expense

0 p

500

X

11,000

11,000

Sold operational asset

b

4,000

Sold land

d

30,000

(3,000) (3,000)

(INFLOWS) X

11,000 Operating Cash

(OUTFLOW S) 11,000

Investing Activities

(14,000)

Purchased Plant, Property & Equipment

f

48,000

e

10,000

h

5,000

Financing Activities

30,000

Paid long-term debt Issued common stock

0

95,000

Cost of goods sold

Operating Activities

(8,000) 10,000

1997 Receipt/(Disb) i

Interest expense

500 (4,000)

g x

93,000

(2,000)

(8,000) (7,000)

(1,500)

1997 Rev/(Exp)

Sales

Target

i a

d b

Accounts Payable Salaries Payable

Year ending 12/31/97

g

45,000

Paid cash dividend Noncash Financing/Investing CHANGE IN CASH Totals

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

X 276,500

27,000

27,000

276,500

Page 44

Acct 592 – Spring 2005

Solutions for Example Problems Example 1 for Acct 301 Solution: Palouse Pottery Statement of Cash Flows For year ended

31-Dec-97

Cash provided by operations Cash collected from customers Interest & dividends received Cash paid for merchandise Cash paid to employees Other operating disbursements Interest paid Income taxes paid

Inflows 95,000 0

Subtotals

95,000

Cash provided by investing activities Purchase plant, property & equipment Sale of plant, property & equipment Sale of land Subtotals

4,000 30,000 34,000

Cash provided by financing activities Dividends paid Long-term debt retired Common stock issued Subtotals

45,000 45,000

Outflows

(45,000) (20,000) (13,000) (3,000) (3,000) (84,000)

11,000

(48,000) (48,000)

(14,000)

(5,000) (10,000) (15,000)

Change in cash Beginning balance - Cash Ending balance - Cash

Schedule to reconcile net income to cash Net Income Depreciation & amortization Realized gains/losses PP&E Realized gain/loss - land sale Change in working capital accounts: Net accounts receivable Merchandise Inventory Prepaid Expenses Accounts Payable Salaries Payable Income Taxes Payable Interest Payable Cash provided by operations:

Net

30,000 27,000 15,000 42,000

provided by operations 14,500 11,000 4,000 (20,000) 4,000 (18,000) (3,000) 8,000 7,000 4,000 (500) 11,000

Non-cash financing and investing activities None

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

Page 45

Acct 592 – Spring 2005 Example 1 for Acct 301 – INDIRECT METHOD SOLUTION Statement of Cash Flow Worksheet

Palouse Pottery Cash Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Expenses Plant, property & equipment Accumulated Depreciation Accounts Payable Salaries Payable Interest payable Income Taxes Payable Dividends Payable Long term liabilities Common stock, $1 par Retained Earnings

Statement of Cash Flows Operating Activities Net income Add back loss on sale of equipment Minus gain on sale of land depreciation

Year ending 12/31/96 Ref 15,000 x 40,000 (3,000) 25,000 3,000 215,000 f (80,000) b 215,000 (23,000) (2,000) (2,000) (1,500) 0 c (25,000) e (100,000) (61,500) c (215,000)

Financing Activities Dividends paid Payment on LT debt Issued common stock Noncash Financing/Investing

18,000 3,000 48,000 b,d 9,000

27,000 11,000 8,000 7,000

500 5,000 c 10,000 g 13,000 h

4,000 13,000 45,000 14,500

(31,000) (9,000) (1,500) (5,500) (8,000) (15,000) (145,000) (63,000) (278,000)

(OUTFLOW S) 11,000

h b

14,500 4,000 d

20,000

11,000

4,000 18,000 3,000 8,000 7,000 500 4,000

b d

g

4,000 30,000 f

48,000

c e

5,000 10,000

X

27,000

45,000

CHANGE IN CASH Totals 265,000

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

Credit 2,500 1,500

(INFLOWS)

Change in working capital accounts: A/R (net) Inventory Prepaid expenses A/P Salaries payable Interest payable Income taxes payable Investing Activities Sold equipment Sold land Purchase PP&E

Debit Ref 27,000

Year ending 12/31/97 42,000 37,500 (4,500) 43,000 6,000 236,000 (82,000) 278,000

265,000

Page 46

Target 27,000 (2,500) (1,500) 18,000 3,000 21,000 (2,000) (8,000) (7,000) 500 (4,000) (8,000) 10,000 (45,000) (1,500) 0

Acct 592 – Spring 2005 Example 2 for Acct 301 - S97 Statement of Cash Flow Worksheet Moscow Moving & Storage

Year ending 12/31/96 Ref

Cash

15,000

Accounts Receivable Allowance for doubtful accounts

30,000 (1,500)

Merchandise Inventory Prepaid Expenses

10,000 4,500

k

7,000

39,000 9,000

(10,000) (3,000)

n

2,000

0 (30,000)

e

20,000

Interest payable Long term liabilities

Bad debt expense Depreciation & amortization Interest expense Income taxes expense Net income (accrual basis)

500

45,000

Accounts Payable Salaries Payable

Sales Gain/(loss) on sale of PP&E Cost of goods sold Salaries & other operating expenses

a

f b

220,100 (20,000) 258,100

Closing entry for

Ref

g Plant, property & equipment Accumulated Depreciation

Common stock, $1 par Retained Earnings

Debit

(100,000) (115,100) (258,100)

c

5,000

Year ending 12/31/97

Credit

x j a h

10,000 1,000 500 1,000

L

4,000

b i

(10,000)

28,500 (2,000)

(1,500) (500)

17,000 500

7,000 (4,000)

15,000 5,000

289,100 (16,000) 322,100

69,000 4,000

m

3,000

(13,000) (1,000)

(3,000) 2,000

o

1,000

(1,000) (10,000)

(1,000) 20,000

g

45,000

d x

36,000 6,000

(181,000) (116,100) (322,100)

(81,000) (1,000) 0

1997

1997

Rev/(Exp)

Receipt/(Disb)

80,000 (2,000) (35,000) (26,000)

j b m L

1,000 2,000 3,000 4,000

(1,000) (5,000) (2,000) (3,000) 6,000

h i o

1,000 5,000 1,000

x

Statement of Cash Flows Operating Activities

6,000

k n

x

(INFLOWS)

x

14,000

b

4,000

Target

5,000

7,000 2,000

14,000

81,000 0 (39,000) (24,000) 0 0 (1,000) (3,000) 14,000 Operating Cash

(OUTFLOWS)

14,000

Investing Activities Sold operational assets Purchased operational assets

(35,000) f

39,000

c

5,000

e

20,000 45,000

Financing Activities Paid cash dividend Issued common stock

11,000 d

36,000

Paid long term debt Noncash Financing/Investing Acquired land in exchange for stock

g

45,000

g

CHANGE IN CASH Totals

x

10,000 259,500

x

0 Additional Information a. Wrote off $500 accounts receivable as uncollectible b. Sold operational assets for $4,000 cash (cost $15,000, acc'd depreciation $9,000) c. Declared and paid a cash dividend, $5,000 180694588.doc Created by T. Gordon 10/16/2013

d. e. f. g.

(10,000) 259,500 0

0 0 Issued common stock for $36,000 cash Paid a $20,000 long-term note installment Purchased operational assets, $39,000 cash Acquired land in exchange for 1000 shares worth $45 each Page 47

Acct 592 – Spring 2005 Example 2 for Acct 301 - Solution: Moscow Moving & Storage Statement of Cash Flows For year ended

31-Dec-97 Inflows

Cash provided by operations Cash collected from customers Interest & dividends received Cash paid for merchandise Cash paid to employees Other operating disbursements Interest paid Income taxes paid

Outflows

81,000 0

Subtotals Cash provided by investing activities Purchase plant, property & equipment Sale of plant, property & equipment Sale of land

81,000

(39,000) (14,000) (10,000) (1,000) (3,000) (67,000)

14,000

(39,000) 4,000 Subtotals

Cash provided by financing activities Dividends paid Long-term debt retired Common stock issued

4,000

(39,000)

(35,000)

(5,000) (20,000) Subtotals

36,000 36,000

(25,000)

Change in cash Beginning balance – Cash Ending balance – Cash

11,000 (10,000) 15,000 5,000

Schedule to reconcile net income to cash provided by operations Net Income 6,000 Depreciation & amortization 5,000 Realized gains/losses PP&E 2,000 Change in working capital accounts: Net accounts receivable 2,000 Merchandise Inventory (7,000) Prepaid Expenses 4,000 Accounts Payable 3,000 Salaries Payable (2,000) Interest Payable 1,000 Cash provided by operations: 14,000 Non-cash financing and investing activities Acquired land in exchange for common stock

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

Net

Page 48

Acct 592 – Spring 2005 Example 3 – workpaper solution Avery Slings & Arrows

Year ending 12/31/03 2,850,000 180,000 (80,000) 2,000,000 (100,000) 900,000 50,000 2,000,000

0 Cash Securities Available for Sale Allowance to adjust to market Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Expenses Investments in affiliated companies (equity method) Land, building & equipment 17,800,000

Ref x c r s o

Debit

Ref

g

273,000 J 107,000 92,000 o 33,000 o s s 150,000 g

a

2,767,000 d

Accumulated Depreciation Intangible Assets

g (1,800,000) d 73,000 I

648,000 376,000 p 500,000 p

Total assets

23,873,000

Accounts Payable Salaries Payable Interest payable Income Taxes Payable Dividends Payable Bonds Payable Premium/Discount on Bonds Payable Convertible Bonds Payable Lease obligation Asset retirement obligation Deferred Income Taxes Other long term liabilities Convertible preferred, $100 par Common stock, $10 par

(650,000) (21,000) (55,000) (32,000) (60,000) (4,000,000) (656,000)

Additional paid in capital common

(1,600,000)

Retained Earnings

t t

303,000 3,000

e

t t 135,000 e L 14,000

u

(3,000,000) f (1,825,000) v (250,000) (75,000) (2,590,000) y 0 (3,000,000)

80,000 10,000 n 0 k (6,149,000) e (23,873,000 )

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

33,000 45,000 298,000 46,000 29,000

500,000 20,715,000

757,000 (2,181,000) 5,000 568,000

Target (589,000) 51,000 107,000 59,000 (12,000) (298,000) (46,000) 121,000 2,915,000

(381,000) 495,000

26,295,000

1,500,000 365,000 g q w 2,000,000

101,000 13,000 203,000 3,000,000

(347,000) 303,000 (18,000) 3,000 (156,000) (101,000) (45,000) (13,000) (128,000) (68,000) (7,000,000) (3,000,000) (642,000) 14,000

b f k

(1,500,000) 1,500,000 648,000 (2,108,000) (283,000) 25,000 (275,000) (25,000) 47,000 (122,000) (47,000) (590,000) 2,000,000 0 0 250,000 (5,125,000) (2,125,000) 375,000 1,500,000

b

800,000 (3,525,000) (1,925,000)

f Unrealized (gain)/loss AFS invest Treasury stock (at cost) Other paid in capital

Credit 589,000 222,000

Year ending 12/30/04 2,261,000 231,000 27,000 2,059,000 (112,000) 602,000 4,000 2,121,000

r 38,000 m m 1,500,000 203,000 X

1,125,000 107,000 10,000 13,000

(27,000) 38,000 (13,000)

266,000 (4,712,000) (26,295,000 )

Page 49

(107,000) 28,000 (13,000) 1,437,000

Acct 592 – Spring 2005 Avery Slings & Arrows Closing entry for

Sales Earnings of affiliates (equity method) Gain/(loss) on sale of PP&E Realized gain/(loss) on investments Interest and dividend revenue Cost of goods sold Salaries and wages Other operating expenses Bad debt expense Depreciation expense Amortization of intangibles Accretion expense Interest expense

2004 Rev/(Exp)

Ref

Debits

6,600,000 150,000

s g

(65,000) d 53,000 15,000 (3,490,000) (632,000) (421,000) (45,000) (757,000) (5,000) (25,000) (935,000)

Income taxes expense Net income (accrual basis)

g s

J

s o p p q t w (177,000) t

29,000 298,000 t t 46,000 45,000 757,000 5,000 25,000 101,000 u 47,000 13,000

266,000 X

266,000 X

Cash provided by operations:

X

Cash provided by operations off by

Credits

92,000 150,000

2004 Receipt/ (Disb) 6,508,000 0

53,000

0 0

65,000

INFLOWS

Reconciling schedule: Net income Depreciation Amortization & impairment of intangibles Accretion expense Bond premiums/discounts Realized gains/losses PP&E Realized gain/loss investments Equity method investments Deferred income taxes Change in working capital: Net accounts receivable Merchandise Inventory Prepaid Expenses Accounts Payable Salaries Payable Interest payable Income Taxes Payable

Ref

1,082,000

44,000 303,000 (3,495,000) 3,000 (635,000) (375,000) 0 0 0 0 14,000 (848,000) (117,000) 1,082,000

1,082,000

OUTFLOW S 1,082,000

266,000 757,000 5,000 25,000 (14,000) 65,000 (53,000) (121,000) 47,000 (47,000) 298,000 46,000 (303,000) (3,000) 101,000 13,000

1,082,000 0

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

Page 50

Acct 592 – Spring 2005

Avery Slings & Arrows Investing Activities Purchased PP&E Purchased marketable securities Sold equipment Purchased patent Sold investments

Financing Activities Issued common stock Paid dividends Issued bonds Sold treasury stock Purchased treasury stock Payments on capital leases Payments on long-term debt Noncash Financing/Investing Bonds converted into stock Capital lease Stock dividend CHANGE IN CASH Totals

Ref

Inflows

Outflows

a c

2,767,000 273,000

(3,206,000)

d

59,000 I

J

500,000

275,000

1,535,000 b

1,050,000

L m

3,000,000 23,000

f h K

e

135,000

n v y

38,000 365,000 2,000,000

1,500,000 f 648,000

1,500,000 648,000

589,000 x 20,930,000

20,930,000

ok

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

Ref

0

(589,000) Change in Cash 0 half 0 double 0 divide by 9

Page 51

Acct 592 – Spring 2005

Solution Example 4- Acct 315 Worksheet

Year ending

Wenatchee Whirlpool World

Year ending

12/31/95 Ref

Cash

2,000,000

Securities Available for Sale (at market)

150,000

Accounts Receivable

X I

Debit

875,000

(110,000)

f

28,000

875,000

p

270,000

Prepaid Operating Expenses

62,000

p

22,000

Investments (equity method)

3,000,000

l

115,000

h

800,000

Plant, property & equipment

10,800,000

g

(600,000)

c

Merchandise Inventory

Accumulated Depreciation Intangible Assets

Credit

12/31/96

837,600

1,900,000

Allowance for doubtful accounts

Ref

2,837,600

837,600

o I

51,000 584,000

390,000

240,000

p f

120,000 28,000

1,752,000

(148,000)

m

38,500

(120,500)

(10,500)

1,145,000

270,000

84,000

22,000

j

18,000

3,097,000

97,000

4,900,000

c

80,000

16,420,000

5,620,000

15,000

n

244,000

(829,000)

(229,000)

n a

6,500 50,000

71,500

(56,500)

128,000 18,205,000

Accounts Payable

Target

24,847,600

(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

(35,000)

25,000

Current portion long term debt

k

50,000

(21,000)

s

8,000

(29,000)

(8,000)

(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)

(562,000)

2,438,000

Bonds Payable

Other long term liabilities

(3,000,000) 12/31/95

Convertible preferred, $100 par

(2,000,000)

Common stock, $10 par

ref d

2,430,000 8,000 Debit

(1,200,000)

Unrealized (gain)/loss investments Retained Earnings 0

ref

Credit

12/31/96

1,500,000

(1,500,000)

Additional paid in capital

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

s s

(78,000)

o

51,000

(4,736,000)

k

50,000

Target

(500,000)

1,500,000

(3,100,000)

(1,600,000)

(2,750,000)

h e

200,000 500,000

d

900,000

h e

600,000 1,550,000

d

600,000

(3,950,000) (27,000)

51,000

X

1,112,200

(5,798,200)

(1,062,200)

(18,205,000)

(24,847,600)

Page 52

Acct 592 – Spring 2005 Wenatchee Whirlpool World Closing entry for

1996

1996

Rev/(Exp) Sales

6,200,000

Receipt/(Disb) p

120,000

6,320,000

Earnings of affiliated company (equity method) Gain/(loss) on sale of PP&E

115,000

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

Cost of goods sold

(3,600,000)

p

130,000

Salaries and wages

(590,000)

p

5,000

Other operating expenses

(345,000) (38,500)

m

38,500

0

(244,000)

n

244,000

0

(6,500)

n

6,500

0

Interest expense

(669,400)

r

23,000

Income taxes expense

(740,400)

q

92,000

q

1,112,200

X

1,112,200

X

Bad debt expense Depreciation expense Amortization of intangible assets

Net income (accrual basis)

(40,000)

l c

INFLOWS

Operating Activities

X

0

40,000

0

31,000 p

270,000

(3,740,000) (585,000)

p

Statement of Cash Flows

115,000

22,000

(367,000)

(646,400) 13,600

(662,000)

350,600 OUTFLOWS

350,600 (Subtotals)

350,600

Reconciling schedule: Net Income Depreciation & amortization

1,112,200 250,500

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 Deferred income taxes

(97,000) 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

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

Page 53

Acct 592 – Spring 2005

Investing Activities Sale of patent

a

1,000,000

Sale of equipment

c

25,000

Purchase factory

g

4,900,000

I

875,000

Dividends paid

k

75,000

Long-term debt repaid

s

2,430,000

Purchase investment securities Sold investment securities

I

692,000

Issued bonds

b

5,000,000

Issued common stock

e

2,050,000

Financing Activities

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

X

837,600

CHANGE IN CASH Totals

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

25,237,000

25,237,000

Page 54

Acct 592 – Spring 2005 Solution

Working through the additional items of information: a.

On February 25, WWW sold an internally developed patent for $1,000,000. The patent was carried on the books at unamortized legal fees amounting to $50,000 at date of sale.

Cash [Investing - inflow] Intangible Assets Realized gain on sale of patent b.

80,000

1,500,000 900,000 600,000

2,050,000 500,000 1,550,000

By the end of the year, WWW had written off as uncollectible a total of $28,000 in accounts receivable.

Allowance for doubtful accounts Accounts receivable g.

25,000 15,000 40,000

On July 20, WWW sold 50,000 shares of its common stock for $41 per share. The proceeds would be $2,050,000 (41 * 50,000) and the par value portion would be $500,000 with the rest as additional paid in capital.

Cash [Financing - inflow] Common stock, $10 par Additional paid in capital f.

5,000,000

During the third quarter, shareholders holding 15,000 shares of the preferred stock converted them into common stock. The conversion ratio was 6 shares of common for each share of preferred. Therefore 90,000 shares of common stock would be issues (6 * 15,000) with a par value of $900,000 ($10 par each). The book value of the preferred was 1,500,000. Therefore, additional paid in capital to balance the journal entry would be 600,000.

Convertible Preferred Stock, $100 par Common stock, $10 par Additional paid-in capital e.

5,000,000

During the year, WWW disposed of various items of equipment with a total book value of $65,000 and original cost of $80,000. The amount received was $25,000 in cash. Accumulated depreciation would be $15,000 (80,000 - 65,000)

Cash [Investing - inflow] Accumulated depreciation Loss on sale of plant, property & equipment Plant, property and equipment d.

50,000 950,000

On March 31, WWW issued $5,000,000 in bonds at face value. The semi-annual bonds have a coupon rate of 10% per annum.

Cash [Financing - inflow] Bonds payable c.

1,000,000

28,000 28,000

An existing factory with equipment was acquired during the year. The acquisition cost was allocated as follows: $772,000 to land, $3,450,000 to building and 678,000 to equipment. This totals to $4,900,000.

Plant, property and equipment Cash [Investing outflow]

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

4,900,000 4,900,000

Page 55

Acct 592 – Spring 2005 h.

WWW acquired a parcel of land adjoining the new factory by giving the owner 20,000 shares of its common stock. At the date of the transaction, the market value of the stock was $40 per share. The value of the land is $800,000 (20,000 * 40).

Plant, property and equipment Common stock, $10 par Additional paid in capital i.

875,000 875,000 692,000 584,000 108,000

WWW owns 30% of a company which manufactures parts that WWW uses in its production process. WWW received $18,000 in dividends from this partially owned company during 1996. Dividends received from equity-method investments reduce the investment account and do NOT appear on the income statement.

Cash [Operating - dividends received] Investments (partially-owned companies) k.

200,000 600,000

During the year WWW purchased $875,000 in marketable securities and sold securities which had cost $584,000. The market value of the portfolio at the end of the year was $390,000. From the income statement, the gain on sale was 108,000. Therefore, the cash received from the sale of securities was 584+108 = $692,000

Investments - Securities available for sale Cash [Investing outflow] Cash [Investing inflow] Investments - Securities available for sale Gain on sale of investments j.

800,000

18,000 18,000

Dividends declared during the year totaled $50,000. Dividends declared reduce retained earnings and increase dividends payable. The balancing number in dividends payable (if this account exists) will be the dividends paid. If there is no dividends payable account, then the dividends declared = the dividends paid.

Retained earnings Dividends payable Dividends payable Cash [Financing - outflow]

50,000 50,000 75,000 75,000

Starting through the income statement, looking for noncash items: l.

No deposit was made for share of earnings of partially owned companies. Therefore, this account needs to be zeroed out by re-constructing the entry that recorded the share of earnings.

Investments in partially owned company Earnings of partially-owned company

115,000 115,000

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 Allowance for doubtful accounts

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

38,500 38,500

Page 56

Acct 592 – Spring 2005 n.

No checks are written to record depreciation expense and amortization of intangibles. Therefore, these accounts need to be zeroed out by reconstructing the entry that recorded the expenses.

Depreciation expense Amortization of intangible assets Accumulated depreciation Intangible assets

244,000 6,500 244,000 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 Investments in AFS securities (allowance) p.

120,000 120,000 270,000 270,000 22,000 22,000 130,000 130,000 5,000 5,000

Income tax expense is affected by two accounts on the balance sheet - income taxes payable and deferred income taxes.

Income taxes payable Income tax expense Deferred income taxes Income tax expense r.

51,000

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 Accounts receivable Merchandise inventory Cost of goods sold Prepaid operating expenses Other operating expenses Accounts payable Cost of goods sold Salaries payable Salaries and wages q.

51,000

13,600 13,600 92,000 92,000

Amortization of premiums and discounts on bonds payable impacts interest expense.

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Page 57

Acct 592 – Spring 2005 Interest expense Discount on bonds payable s.

23,000 23,000

Long-term debt is presented in two numbers on balance sheet - current and noncurrent. These accounts need to be combined to find out how much was borrowed or repaid during the year. Take the change in one account to the other. The remaining “amount to balance” will be the cash inflow or outflow.

Other long-term debt Current portion of long-term debt

8,000 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 Cash [Financing - outflow]

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

2,430,000 2,430,000

Page 58

Acct 592 – Spring 2005 Example 4 - Acct 301 Solution Wenatchee Whirlpool World Statement of Cash Flows For year ended 12/31/96 Inflows Cash provided by operations Cash collected from customers Interest & dividends received Cash paid for merchandise

Outflows

6,320,000 31,000

(3,740,000 ) Cash paid to employees (585,000) Other operating disbursements (367,000) Interest paid (646,400) Income taxes paid (662,000) Subtotals 6,351,000 (6,000,400 ) Cash provided by investing activities Purchase plant, property & equipment

Net

350,600

(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 Long-term debt retired Bonds issued Common stock issued

(75,000) (2,430,000 )

5,000,000 2,050,000 Subtotals 7,050,000 (2,505,000 4,545,000 )

Change in cash Beginning balance - Cash Ending balance - Cash

837,600 2,000,000 2,837,600

Non-cash financing and investing activities Preferred stock converted to common 1,500,000

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Page 59

Acct 592 – Spring 2005 Land obtained by issue of common stock 800,000

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Page 60

Acct 592 – Spring 2005

Example 3 - Acct 301 Wenatchee Whirlpool World For year ended

Solution 12/31/96

Schedule to reconcile net income to cash provided by operations Net Income 1,112,200 Depreciation & amortization 250,500 Bond premiums/discounts 23,000 Realized gains/losses PP&E 40,000 Realized gain/loss investments (108,000) Gain on sale of patent (950,000) Undistributed Earnings of Affiliates (97,000) * Deferred income taxes 92,000 Change in working capital accounts: Net accounts receivable 158,500 ** Merchandise Inventory (270,000) Prepaid Operating Expenses (22,000) Accounts Payable 130,000 Salaries Payable 5,000 Income Taxes Payable (13,600) Cash provided by operations: 350,600 The following notes are explanations and not part of a formal statement of cash flow * Earnings of affiliates (equity method) Dividends received (equity method affiliates)

(115,000) 18,000 (97,000)

** This is the easiest way to handle bad debts: just enter change in NET A/R: Change in Accounts 148,000 Receivable Change in Allowance for Doubtful 10,500 Accounts 158,500 This is the more difficult alternate: Adjustment to sales (to get cash collected from 120,000 customers) Bad debt expense 38,500 158,500

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Page 61

Acct 592 – Spring 2005 What does not work is to include bad debt expense + change in Accounts Receivable and change in Allowance!

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Page 62

Acct 592 – Spring 2005

1. Homework Assignment Ulliman Company

Solution

Year ending 0 01/01/99 Ref Cash 1,400 x Accounts receivable (net) 2,800 Marketable securities (at cost) 1,700 j Allowance for change in value 500 j Merchandise Inventory 8,100 Prepaid Expenses 1,300 N Investments (long-term) 7,000 Land 15,000 Buildings and equipment 32,000 g Accumulated depreciation (16,000) f Total assets 53,800 Accounts Payable Income Taxes Payable Wages payable Interest payable 12% bonds payable Premium/Discount on Bonds Payable Notes payable (long term) 10% Convertible bonds Deferred Income Taxes Convertible preferred, $100 par Common stock, $10 par Additional paid in capital Unrealized (gain)/loss investments Retained Earnings Total liab & equity Closing entry for Sales Other revenue Gain/(loss) on sale of PP&E Realized gain/(loss) on investments Interest and dividend revenue Cost of goods sold Salaries & other operating expenses Other operating expense Depreciation & amortization Interest expense Income taxes expense Net income (accrual basis)

(3,800) (2,400) (1,100) 0 0 0 (3,500) (9,000) (800) 0 (14,000) (8,700) (500) (10,000) (53,800)

q

h e c

b

Worksheet Year ending Ref Credit 12/31/99 Target 1,000 1,000 2,400 (110) L 110 2,690 1,300 1,300 3,000 300 300 800 (190) M 190 7,910 410 410 1,710 (1,600) d 1,600 5,400 0 15,000 14,200 16,200 f 2,000 46,200 (400) 1,700 k 2,100 (16,400) 68,710

Debit

O p

350 104

r h 300 s 3,500 9,000 i

400 10,000 10

(4,150) (2,504) (650) (400) (10,000) 290 0 0 (1,196) 0 (21,500) (13,700) (800) (14,100) (68,710)

450

c&e c&e j 700 XX

396 7,500 5,000 300 4,800

ok

ok

1999 Rev/(Exp) 39,930 0 (200) 700 820 (19,890) (11,000) (1,000) (2,100) (410) (2,050) 4,800

1999 Receipt/(Disb) 40,040 0 0 0 820 (19,350) (11,450) (1,410) 0 0 (1,550) 7,100

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

L

110

f

200

m&o

k r&s i&p XX

d

700

q N

450 410

2,100 410 500 4,800 xx

7,100

540

(350) (104) 450 (400) (10,000) 290 3,500 9,000 (396) 0 (7,500) (5,000) (300) (4,100)

Page 63

Acct 592 – Spring 2005 Ulliman Company Statement of Cash Flows Operating Activities Reconciliation Schedule: Net Income Loss on sale of equipment Gain on sale of investments Depreciation expense Bond discount amortization Deferred income taxes Change in WC accounts: Accounts receivable (net) Merchandise Inventory Prepaid Expenses Accounts Payable Income Taxes Payable Wages payable Interest payable

Investing Activities Investments sold sold equipment Purchased equipment Purchase mkt securities

xx

4,800 200 (700) 2,100 10 396

7,100

110 190 (410) 350 104 (450) 400 7,100

(15,100) d f

h

Noncash Financing/Investing LT debt retired by issue of common stock conversion of bonds to stock

e c

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

OUTFLOWS Subtotals

f d k s i

Financing Activities Dividends paid Issued bonds at a discount

CHANGE IN CASH Totals

INFLOWS 7,100

2,300 100 g j

16,200 1,300

b

700

x

1,000 62,720

9,000 9,700

62,720

1,000

Page 64

Acct 592 – Spring 2005

Ulliman Company Statement of Cash Flows For year ended December 31, 1999 Cash flows from operating activities Collections from customers Payments to suppliers Payments to employees Other operating payments Income taxes paid Dividends collected Cash provided by operations

40,040 (19,350) (11,450) (1,410) (1,550) 820 7,100

Cash flows from investing activities Purchase of marketable securities Proceeds from sale of long-term investments Disbursements to acquire equipment Proceeds from sale of equipment Cash used by investing activities

(1,300) 2,300 (16,200) 100 (15,100)

Cash flows from financing activities Proceeds from issuance of bonds Payment of dividends Cash provided by financing activities

9,700 (700) 9,000

Net increase in cash Beginning balance in cash Cash balance at 12-31-97

1,000 1,400 2,400

Noncash investing and financing activities LT debt retired by issue of common stock conversion of bonds to stock

3,500 9,000

Reconcilation of net income to cash provided by operations Net income 4,800 Loss on sale of equipment 200 Gain on sale of investments (700) Depreciation expense 2,100 Bond discount amortization 10 Deferred income taxes 396 Change in WC accounts: Accounts receivable (net) 110 Merchandise Inventory 190 Prepaid Expenses (410) Accounts Payable 350 Income Taxes Payable 104 Wages payable (450) Interest payable 400 7,100

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Page 65

Acct 592 – Spring 2005

2. Homework Assignment Driskoll Company Cash Accounts receivable (net) Inventories Prepaid Expenses Investments (long-term) Land Buildings Acc'd depreciation - Bldg Equipment Acc'd depreciation - Equip Patents

Accounts Payable Interest payable Wages payable Bonds payable Discount on bonds Common stock, $10 par Additional paid in capital Unrealized (gain)/loss investments Retained Earnings

Closing entry for Sales Gain/(loss) on exchange of assets Realized gain/(loss) on investments Interest and dividend revenue Cost of goods sold Salaries & other operating expenses Other operating expense Depreciation - buildings Depreciation - equipment Patent amortization Interest expense Income taxes expense Extraordinary loss (net of taxes) Net income (accrual basis)

Solution Year ending 12/31/99 Ref 2,700 x 5,900 i 15,300 j 1,400 8,300 16,300 d 68,700 (35,000) c 29,600 (14,200) d 8,700 f 107,700 (8,900) (630) (2,500) (23,000) 0 (22,000) (15,320) 0 (35,350) (107,700) ok 1999 Rev/(Exp) 49,550 1,300 (200) 790 (23,800) (16,510) (1,100) (2,700) (3,100) (815) (1,715) (500) (2,600) (1,400)

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

m a b

p

Debit

Worksheet Year ending Ref Credit 12/31/99 Target 820 820 3,520 315 315 6,215 230 230 15,530 (400) k 400 1,000 (1,000) e 1,000 7,300 2,700 2,700 19,000 (8,000) c 8,000 60,700 500 3,200 g 2,700 (34,500) (4,000) d 4,000 25,600 (500) 2,600 g 3,100 (14,700) 485 1,300 h 815 9,185 98,850 L

295

n 14,000 b 780 o f f

100 8,000 65 650 650

(9,195) (300) (2,600) (17,000) 715 (22,650) (15,970) 0 (31,850) (98,850)

330

2,100 xx

(1,400) ok

i d

315 1,300

L n k g g h o

295 j 100 400 2,700 3,100 815 65 m

230

c xx

2,600 (1,400) xx

e

200

330

6,700

1999 Receipt/(Disb) 49,235 0 0 790 (23,735) (16,410) (700) 0 0 0 (1,980) (500) 0 6,700

Page 66

(295) 330 (100) 6,000 715 (650) (650) 0 3,500

Acct 592 – Spring 2005 Driskoll Company Statement of Cash Flows Operating Activities Reconciliation Schedule: Net income Depreciation amortization Extraordinary loss (net of taxes) Gain/(loss) on exchange of assets Realized gain/(loss) on investments Amort of Bond Discount change in WC accounts: Accounts receivable (net) Inventories Prepaid Expenses Accounts Payable Interest payable Wages payable

Investing Activities Proceeds from insurance company Sale of long-term investment

Financing Activities Retired bonds payable Proceeds of bond issue dividends paid

Noncash Financing/Investing Exchanged equipment for land Exchanged stock for patent

CHANGE IN CASH Totals

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

xx

INFLOWS 6,700

OUTFLOWS Subtotals

6,700

(1,400) 5,800 g 815 h 2,600 (1,300) 200 65 o

(315) (230) 400 295 (330) 100 6,700

i j k L m n

3,000 c e

2,200 800

(8,880) b

a

14,000

p

2,100

x

820 54,170

7,220

d f

54,170

820

Page 67

Acct 592 – Spring 2005

Driskoll Company Statement of Cash Flows For year ended December 31, 1998 Cash flows from operating activities Collections from customers Payments to suppliers Payments to employees Other operating payments Income taxes paid Interest paid Dividends collected Cash provided by operations

49,235 (23,735) (16,410) (700) (500) (1,980) 790 6,700

Cash flows from investing activities Proceeds from insurance company Proceeds from sale of long-term investments Cash provided by investing activities

2,200 800 3,000

Cash flows from financing activities Proceeds from issuance of bonds Retire bonds payable Payment of dividends Cash used by financing activities

7,220 (14,000) (2,100) (8,880)

Net increase in cash Beginning balance in cash Cash balance at 12-31-97

820 2,700 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 Depreciation amortization Extraordinary loss (net of taxes) Gain/(loss) on exchange of assets Realized gain/(loss) on investments Amort of Bond Discount Change in working capital accounts: Accounts receivable (net) Inventories Prepaid Expenses Accounts Payable Interest payable Wages payable

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

(1,400) 5,800 815 2,600 (1,300) 200 65 (315) (230) 400 295 (330) 100 6,700

Page 68

Acct 592 – Spring 2005

Albion Altimeters Inc. Statement of Cash Flows For year ended Cash provided by operations Cash collected from customers Interest & dividends received Cash paid for merchandise Cash paid to employees Other operating disbursements Interest paid Income taxes paid Subtotals

12/31/97 Inflows

Net

3,708,000 15,000

3,723,000

Cash provided by investing activities Purchase plant, property & equipment Sale of plant, property & equipment Marketable securities purchased Marketable securities sold Subtotals Cash provided by financing activities Dividends paid Common stock issued

Outflows

(2,016,000) (651,300) (243,800) (93,700) (168,000) (3,172,800)

550,200

(1,740,000) 35,000 (585,000) 35,000

(2,325,000)

(2,290,000)

(100,000) Subtotals

1,750,000 1,750,000

Change in cash Beginning balance - Cash Ending balance - Cash

Land obtained by issue of common stock

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

(100,000)

1,650,000 (89,800) 400,000 310,200

32,000

Page 69

Acct 592 – Spring 2005

Albion Altimeters Inc. For year ended

12/31/97

Schedule to reconcile net income to cash provided by operations Net Income 289,900 Depreciation & amortization 30,000 Bond premiums/discounts (6,000) Realized gains/losses PP&E 30,000 Deferred income taxes 15,700 Change in working capital accounts: Net accounts receivable 125,200 ** Merchandise Inventory 21,000 Prepaid Operating Expenses (13,800) Accounts Payable 63,000 Salaries Payable (1,300) Income Taxes Payable (3,500) Cash provided by operations: 550,200

**

Change in Accounts Receivable Change in Allowance for Doubtful Accounts

This is the more difficult alternate: Adjustment to sales (to get cash collected from customers) Bad debt expense

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

119,000 6,200 125,200 108,000 17,200 125,200

Page 70

Acct 592 – Spring 2005

Worksheet Albion Altimeters Inc. Cash Securities Available for Sale (at market) Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Operating Expenses Plant, property & equipment Accumulated Depreciation Accounts Payable Salaries Payable Income Taxes Payable Dividends Payable Bonds Payable Premium/Discount on Bonds Payable Deferred Income Taxes

Year ending 12/31/96 Ref 400,000 r, 500,000 f 900,000 (27,000) e 850,000 25,000 m g, 1,880,000 c (350,000) b 4,178,000 (350,000) (8,500) n (27,000) o (25,000) A (1,000,000) (124,000) (88,000)

Common stock, $10 par

(1,000,000)

Additional paid in capital Acc'd other comprehensive income Retained Earnings 0

(700,000) 14,000 (869,500) (4,178,000)

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

p

a

Debit

Ref

Credit 89,800

J e i k

11,000 108,000 17,200 21,000

27,000 585,000

11,000

1,112,000

13,800 32,000 1,740,000 b 25,000 h l 1,300 3,500 100,000

a

781,000 (33,200) 829,000 38,800

90,000 30,000

3,562,000 (355,000) 6,244,800 63,000 (413,000) (7,200) (23,500) 75,000 0 (1,000,000)

6,000

75,000

Year ending 12/31/97 310,200

(118,000) (103,700)

q 15,700 G 10,000 d 500,000 (1,510,000) G 22,000 d 1,250,000 (1,972,000) r 27,000 (13,000) x 289,900 (1,084,400) (6,244,800)

Page 71

Acct 592 – Spring 2005 Albion Altimeters 1997 Closing entry for 1997 Sales Gain/(loss) on sale of PP&E Interest and dividend revenue Cost of goods sold Salaries and wages Other operating expenses Bad debt expense Depreciation expense Interest expense Income taxes expense Net income (accrual basis) Statement of Cash Flows Operating Activities Net income Add depreciation expense Add loss on sale of equipment Amortization of discount on B/P Deferred Income Taxes Change in working capital accounts: Accounts Receivable Allowance for doubtful accounts Merchandise Inventory Prepaid Operating Expenses Accounts Payable Salaries Payable Income Taxes Payable Investing Activities Proceeds from sale of equipment Purchase building & equipment Purchase marketable securities Financing Activities Dividends paid Proceeds from issuance of common stock Noncash Financing/Investing Exchange common stock for land valued at $32,000 CHANGE IN CASH Totals

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

Rev/(Exp) Ref 3,600,000 j (30,000) b 15,000 k (2,100,000) l (650,000) (230,000) (17,200) I (30,000) H (87,700) (180,200) Q 289,900 X

289,900 30,000 30,000 (6,000) 15,700

X X H B P Q

Debit Ref 108,000 30,000

Credit

21,000 63,000 n m

1,300 13,800

p o X

6,000 3,500 550,200 OUTFLO WS

17,200 30,000 15,700 289,900 INFLOW S 550,200

1997 Receipt/ (Disb) 3,708,000 0 15,000 (2,016,000) (651,300) (243,800) 0 0 (93,700) (168,000) 550,200 (Subtotals ) 550,200

119,000 6,200 21,000 (13,800) 63,000 (1,300) (3,500) 550,200 (2,290,000) b

35,000 c f

1,740,000 585,000 1,650,000

A d

100,000

1,750,000

89,800 5,619,400 0

5,619,400

Page 72

(89,800)

Acct 592 – Spring 2005

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Page 73

Acct 592 – Spring 2005

Check figures for cash provided by operations: Endicott Engines Camperdown Company

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

$ 462,000 $2,647,000

Page 74

Acct 592 – Spring 2005 Final Exam Question – Spring 2002 Required: Use the financial statements, the additional information (next page) and the worksheet provided to prepare the statement of cash flow using the direct method. For full credit, use the pages provided to prepare the formal statement in addition to the worksheet.

Camperdown Company Balance Sheet Current Assets Cash Securities Available for Sale (at cost) Allowance to adjust to market value Net accounts receivable Merchandise Inventory

Noncurrent Assets Plant, property & equipment Accumulated Depreciation Investment in Edible Oils Inc. Intangible Assets TOTAL ASSETS

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

12/31/02

12/31/01

183,000 727,000 13,000 917,000 480,000 2,320,000

100,000 367,000 (14,000) 1,238,000 540,000 2,231,000

17,208,000 (2,527,000) 2,023,000 480,000 19,504,000

14,500,000 (1,500,000) 2,000,000 500,000 17,731,000

Balance Sheet Current Liabilities Accounts Payable Salaries Payable Income Taxes Payable Dividends Payable Noncurrent Liabilities Bonds Payable Discount on Bonds Payable Deferred Income Taxes Obligation under capital leases

Stockholder's Equity Convertible preferred stock Common stock, $10 par Additional paid in capital Acc'd other comprehensive income Treasury stock (at cost) Retained Earnings Total liabilities and equity

Page 75

12/31/02

12/31/01

930,000 2,000 9,000 27,000 968,000

750,000 5,000 20,000 18,000 793,000

7,000,000 (605,000) 64,000 403,000 6,862,000

7,000,000 (640,000) 39,000 380,000 6,779,000

4,500,000 2,000,000 2,106,000

5,000,000 1,600,000 1,400,000

13,000 (26,000) 3,081,000 11,674,000 19,504,000

(14,000) (52,000) 2,225,000 10,159,000 17,731,000

Acct 592 – Spring 2005

Camperdown Company Income Statement For year ending 12/31/02 Sales Investment income Gain/(loss) on sale of PP&E Realized gain/(loss) on investments Total revenues Cost of goods sold Salaries and wages Other operating expenses Bad debt expense Depreciation & amortization expense Interest expense Income taxes expense

10,000,000 50,000 (45,000) 10,000 10,015,000 6,000,000 600,000 250,000 21,000 1,077,000 565,000 551,000

Net income

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

9,064,000 951,000

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.

Page 76

Acct 592 – Spring 2005 Statement of Cash Flow Problem Worksheet Camperdown Company Cash

Year ending 12/31/01 Ref 100,000

Debit Ref 83,000

Credit

Year ending 12/31/02 183,000

Target 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

500,000

480,000

(20,000)

17,731,000

19,504,000

(750,000)

(930,000)

(180,000)

(5,000)

(2,000)

3,000

Income Taxes Payable

(20,000)

(9,000)

11,000

Dividends Payable

(18,000)

(27,000)

(9,000)

(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)

(380,000)

(403,000)

(23,000)

Intangible Assets Total assets Accounts Payable Salaries Payable

Bonds Payable

Obligation under capital leases

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

Page 77

Acct 592 – Spring 2005

Statement of Cash Flow Problem Worksheet Camperdown Company

Year ending 12/31/01 Ref

Debit

Ref

Credit

Year ending 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 Total Liab & owners equity Closing entry for

(2,225,000) (17,731,000) 2002 Rev/(Exp)

Sales Earnings of investees (equity method) Gain/(loss) on sale of PP&E Realized gain/(loss) on investments

Credit

10,000

(600,000)

Other operating expenses

(250,000) (21,000) (1,077,000)

Interest expense

(565,000)

Income taxes expense

(551,000)

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Ref

(45,000)

Salaries and wages

Net income (accrual basis)

Debit

50,000

(6,000,000)

Depreciation & amortization expense

Ref

2002 Inflow/ (Outflow)

10,000,000

Cost of goods sold

Bad debt expense

(3,081,000) (856,000) (19,504,000) (1,773,000)

951,000

Page 78

Acct 592 – Spring 2005 Camperdown Company Statement of Cash Flows Operating Activities Net income

INFLOWS

OUTFLOWS

(Subtotals)

951,000

Investing Activities

Financing Activities

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Page 79

Acct 592 – Spring 2005 Camperdown Company INFLOWS

OUTFLOWS

(Subtotals)

Noncash Financing/Investing

CHANGE IN CASH Totals

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83,000

Page 80

Acct 592 – Spring 2005 Camperdown Corporation Statement of Cash Flow For year ended 12-31-02 Cash provided by operations

Cash provided by investing activities

Cash provided by financing activities

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Page 81

Acct 592 – Spring 2005 Camperdown Corporation Statement of Cash Flow For year ended 12-31-02 Reconciling schedule

Notes

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Page 82