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Chapter 14: Q22E (page 778)

Computing cash flows for investing and financing activities Consider the following facts for Java Jolt:

  1. Beginning and ending Retained Earnings are \(45,000 and \)70,000, respectively. Net income for the period is \(60,000.
  2. Beginning and ending Plant Assets are \)124,500 and \(134,500, respectively.
  3. Beginning and ending Accumulated Depreciation—Plant Assets are \)21,500 and \(26,500, respectively.
  4. Depreciation Expense for the period is \)17,000, and acquisitions of new plant assets total \(29,000. Plant assets were sold at a \)5,000 gain. Requirements 1. How much are cash dividends? 2. What was the amount of the cash receipt from the sale of plant assets?

Short Answer

Expert verified

Requirement 1: Cash dividends are $35,000

Requirement 2: Cash receipt from sale of plan assets is $7,000

Step by step solution

01

Step-by-Step SolutionStep 1: Calculation of cash dividends

Dividends = Beginning retained earnings + Net income – Net Loss – Ending retained earnings

= $45,000 + $60,000 – $70,000

= $35,000

02

Calculation of the amount of the cash receipt from the sale of plant assets

Cash Received = Cost – Accumulated depreciation + Gain

= $29,000 – $27,000 + $5,000

= $7,000

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Most popular questions from this chapter

Preparing the statement of cash flows-indirect statement This problem continues the Canyon Canoe Company situation from Chapter 13. Canyon Canoe Company's comparative balance sheet is shown below. 2019 amounts are assumed, but include several transactions from prior chapters.

Additional data fellow:

  1. The income statement for 2019 included the following items: Net income, \(417,000. Depreciation expense for the year, \)34,330. Amortization on the bonds payable, \(254.
  2. There were no disposals of property, plant and equipment during this year. All acquistions of PP&E were for cash except the land, which was acquired by issuing preferred stock.
  3. The company issued bonds payable with a face value of \)210,000, receiving cash of \(208,476.
  4. The company distributed 4,000 shares of common stock in a stock dividend when the market value was \)4.50 per share. All other dividends were paid in cash.
  5. The common stock, except for the stock dividend, was issued for cash.
  6. The cash receipt from the note payable in 2019 is considered a financing activity because it does not relate to operations. Requirements Prepare the statement of cash flows for the year ended December 31, 2019, using the indirect method.

The 2018 income statement and comparative balance sheet of Sweet Valley, Inc. follow:

Additionally, Sweet Valley purchased land of \(20,900 by financing it 100% with long-term notes payable during 2018. During the year, there were no sales of land, no retirements of stock, and no treasury stock transactions. A plant asset was disposed of for \)0. The cost and the accumulated depreciation of the disposed asset was $13,240. Plant asset was acquired for cash.

Requirements

1. Prepare the 2018 statement of cash flows, formatting operating activities by the indirect method.

2. How will what you learned in this problem help you evaluate an investment?

Rouse Exercise Equipment, Inc. reported the following financial statements for 2018:

ROUSE EXERCISE EQUIPMENT, INC.

Income statement

Year ended December 31, 2018

Net sales revenue

\(713,000

Cost of goods sold

342,000

Gross Profit

371,000

Operating expense:

  • Depreciation expense

54,000

  • Other operatin expenses

210,000

Net Income

\)107,000

ROUSE EXERCISE EQUIPMENT, INC.

Comparative Balance sheet

December 31, 2018 and 2017

2018

2017

Assets

Current assets:

Cash

17,000

16,000

Accounts receivable

57,000

46,000

Merchandise inventory

79,000

90,000

Long term assets:

Plant assets

260,500

216,400

Accumulated depreciation-Plant assets

(38,500)

(32,400)

Investments

96,000

73,000

Total assets

\(471,000

\)409,000

Liabilities

Current liabilities

Accounts payable

72,000

71,000

Salaries payable

3,000

5,000

Long-term liabilities

Notes payable

61,000

69,000

Total liabilities

136,000

145,000

Stockholder’s equity

Common stock, no par

45,000

34,000

Retained earnings

290,000

230,000

Total stockholder’s equity

335,000

264,000

Total liabilities and stockholder’s equity

\(471,000

\)409,000

Requirements

1. Compute the amount of Rouse Exercise’s acquisition of plant assets. Assume the acquisition was for cash. Rouse Exercise disposed of plant assets at book value. The cost and accumulated depreciation of the disposed asset was $47,900. No cash was received upon disposal.

2. Compute new borrowing or payment of long-term notes payable, with Rouse

Exercise having only one long-term notes payable transaction during the year.

3. Compute the issuance of common stock with Rouse Exercise having only one

common stock transaction during the year.

4. Compute the payment of cash dividends.

Classifying transactions on the statement of cash flows—indirect method Consider the following transactions:

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

Preparing the statement of cash flows—indirect method with non-cash transactions the 2018 income statement and comparative balance sheet of Sweet Valley, Inc. follow:

Additionally, Sweet Valley purchased land of \(20,900 by financing it 100% with long-term notes payable during 2018. During the year, there were no sales of land, no retirements of stock, and no treasury stock transactions. A plant asset was disposed of for \)0. The cost and the accumulated depreciation of the disposed asset were $13,240. Plant asset was acquired for cash.

Requirements

1. Prepare the 2018 statement of cash flows, formatting operating activities by the indirect method.

2. How will what you learned in this problem help you evaluate an investment?
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