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Chapter 14: 9SE (page 732)

Jennifer’s Wedding Shops earned net income of \(27,000, which included depreciation of \)16,000. Jennifer’s acquired a \(119,000 building by borrowing \)119,000 on a long-term note payable.

Requirements

  1. How much did Jennifer’s cash balance increase or decrease during the year?
  2. Were there any non-cash transactions for the company? If so, show how

they would be reported in the statement of cash flows.

Short Answer

Expert verified

(1) There is an increase in cash balance by $43,000 during the year.

(2) Yes, there are non-cash transactions. Depreciation will be reported in the cash flow statement under operating activity section, and building purchased by long term notes payable will be separately under non-cash investing and financing activity.

Step by step solution

01

Calculation of Net Increase/(decrease) in cash

Jennifer’s wedding shop

Statement of Cash Flow (partial)

Cash Flow from Operating activities

$27,000

Adjustments to reconcile net income

to net cash provided by operating activities

Depreciation Expenses

$16,000

Net Increase(decrease) in cash

$43,000

02

Non-cash transactions and their reporting

Non-cash transactions are those transactions that do not involve the transfer of cash and cash equivalents.

Depreciation of $16,000 is a non-cash operating expense and it is shown in the cash flow statement by adding back to the net income so that net income reconciles with net cash flows from operating activities.

Acquisition of building $119,000 by borrowing $119,000 on a long-term note payable is a non-cash investing and financing activity and it will be reported in a separate part of the statement of cash flows. The reporting of this non-cash investing and financing activity will be as follows:

Jennifer’s wedding shop

Statement of Cash Flow (partial)

Non-cash Investing and Financing Activities:

Acquisition of a building by borrowing a long-term loan payable

$119,000

Total Non-Cash Investing and Financing activities

$119,000

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Most popular questions from this chapter

Computing operating activities cash flow—indirect method

The records of Vintage Color Engraving reveal the following:

Net income \( 36,000

Depreciation expense \) 5,000

Sales revenue 53,000

Decrease in current liabilities 19,000

Loss on sale of land 4,000

Increase in current assets other than cash 10,000

Acquisition of land 35,000

Compute cash flows from operating activities by the indirect method for year ended December 31, 2018.

Question: Kalapono Company expects the following for 2018:

• Net cash provided by operating activities of \(100,000.

• Net cash provided by financing activities of \)10,000.

• Net cash used for investing activities of \(20,000 (no sales of long-term assets).

• Cash dividends paid to stockholders was \)2,000.

How much free cash flow does Kalapono expect for 2018?

Identifying and reporting non-cash transactions

Dirtbikes, Inc. identified the following selected transactions that occurred during the year ended December 31, 2018:

  1. Issued 750 shares of \(3 par common stock for cash of \)17,000.
  2. Issued 5,100 shares of \(3 par common stock for a building with a fair market value of \)96,000.
  3. Purchased new truck with a fair market value of \(29,000. Financed it 100% with a long-term note.
  4. Retired short-term notes of \)28,000 by issuing 1,900 shares of \(3 par common stock.
  5. Paid long-term note of \)10,500 to Bank of Tallahassee. Issued new long-term note of $23,000 to Bank of Trust.

Identify any non-cash transactions that occurred during the year, and show how they would be reported in the non-cash investing and financing activities section of the statement of cash flows

Classifying cash flow items Consider the following transactions:

  1. Purchased equipment for \(130,000 cash.
  2. Issued \)14 par preferred stock for cash.
  3. Cash received from sales to customers of \(35,000.
  4. Cash paid to vendors, \)17,000.
  5. Sold building for \(19,000 gain for cash.
  6. Purchased treasury stock for \)28,000.
  7. Retired a notes payable with 1,250 shares of the company’s common stock.

Identify the category of the statement of cash flows in which each transaction would be reported.

Question: Computing cash flows from investing and financing activities Use the data in Short Exercise S14-5 to complete this exercise. Prepare Winding Road Cellular’s statement of cash flows using the indirect method for the year ended April 30, 2018. Assume beginning and ending Cash are \(48,000 and \)52,200, respectively.
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