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Chapter 23: Q15E (page 1379)

The following data are taken from the records of Alee Company

December 31, December 31,

2017 2016

Cash \( 15,000 \) 8,000

Current assets other than cash 85,000 60,000

Long-term debt investments 10,000 53,000

Plant assets 335,000 215,000

\(445,000 \)336,000

December 31, December 31,

2017 2016

Accumulated depreciation \( 20,000 \) 40,000

Current liabilities 40,000 22,000

Bonds payable 75,000 –0–

Common stock 254,000 254,000

Retained earnings 56,000 20,000

\(445,000 \)336,000

Additional information:

1. Held-to-maturity securities carried at a cost of \(43,000 on December 31, 2016, were sold in 2017 for \)34,000. The loss (not unusual) was incorrectly charged directly to Retained Earnings.

2. Plant assets that cost \(50,000 and were 80% depreciated were sold during 2017 for \)8,000. The loss was incorrectly charged directly to Retained Earnings.

3. Net income as reported on the income statement for the year was \(57,000.

4. Dividends paid amounted to \)10,000.

5. Depreciation charged for the year was $20,000.

Instructions

Prepare a statement of cash flows for the year 2017 using the indirect method

Short Answer

Expert verified

As per the statement of cash flow is prepared using the indirect method, net change in cash equals $7,000.

Step by step solution

01

Computation of purchase of plant assets

Amount ($)

Beginning Balance

$215,000

Less: Plant assets sold

50,000

165,000

Ending plant assets

335,000

Plant assets purchased during the year

$170,000

02

Preparation of statement of cash flow using the indirect method

Alee Company
Statement of cash flows
For the year ended December 31, 2017

Particulars

Amount ($)

Amount ($)

Cash flows from operating activities

Net Income

$46,000

Adjustment to reconcile net income to net cash provided by operating activities:

Depreciation expense

20,000

Loss on sale of investments

9,000

Loss on sale of plant assets

2,000

Increase in current assets other than cash

-25,000

Increase in current liabilities

18,000

24,000

Net cash provided by operating activities

70,000

Cash flow from investing activities

Sale of plant assets

8,000

Sale of held-to-maturity investments

34,000

Purchase of plant assets

-170,000

Net cash used by investing activities

-128,000

Cash flow from financing activities

Issuance of bonds payable

75,000

Dividend payment

-10,000

Net cash used by financing activities

65,000

Net Increase in cash

$7,000

Cash, January 1, 2017

8,000

Cash, December 31, 2017

$15,000

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Most popular questions from this chapter

Novak Corporation is preparing its 2017 statement of cash flows, using the indirect method. Presented below is a list of items that may affect the statement. Using the code below, indicate how each item will affect Novak’s 2017 statement of cash flows.

Code Letter Effect

A Added to net income in the operating section

D Deducted from net income in the operating section

R-I Cash receipt in investing section

P-I Cash payment in investing section

R-F Cash receipt in financing section

P-F Cash payment in financing section

N Noncash investing and financing activity

(a)Purchase of land and building

(b)Decrease in accounts receivable

(c)Issuance of stock.

(d)Depreciation expense.

(e)Sale of land at book value.

(f)Sale of land at a gain.

(g)Payment of dividends.

(h)Increase in accounts receivable.

(i)Purchase of available-for-sale debt investment

(j)Increase in accounts payable.

(k)Decrease in accounts payable.

(l)Loan from bank by signing note

(m)Purchase of equipment using a note

(n)Increase in inventory

(o)Issuance of bonds.

(p)Redemption of bonds payable.

(q)Sale of equipment at a loss.

(r)Purchase of treasury stock.

Jobim Inc. had the following condensed balance sheet at the end of operations for 2016.

JOBIM INC.

BALANCE SHEET

DECEMBER 31, 2016

Cash \( 8,500 Current liabilities \) 15,000

Current assets other than cash 29,000 Long-term notes payable 25,500

Equity investments 20,000 Bonds payable 25,000

Plant assets (net) 67,500 Common stock 75,000

Land 40,000 Retained earnings 24,500

\(165,000 \)165,000

During 2017, the following occurred.

1. A tract of land was purchased for \(9,000.

2. Bonds payable in the amount of \)15,000 were redeemed at par.

3. An additional \(10,000 in common stock was issued at par.

4. Dividends totaling \)9,375 were paid to stockholders.

5. Net income was \(35,250 after allowing depreciation of \)13,500.

6. Land was purchased through the issuance of \(22,500 in bonds.

7. Jobim Inc. sold part of its investment portfolio for \)12,875. This transaction resulted in a gain of $2,000 for the company. No unrealized gains or losses were recorded on these investments in 2017.

8. Both current assets (other than cash) and current liabilities remained at the same amount.

Instructions

(a) Prepare a statement of cash flows for 2017 using the indirect method.

(b) Prepare the condensed balance sheet for Jobim Inc. as it would appear at December 31, 2017

Question: What are some of the arguments in favor of using the indirect (reconciliation) method as opposed to the direct method for reporting a statement of cash flows?

In 2017, Leppard Inc. issued 1,000 shares of \(10 par value common stock for land worth \)40,000.

(a) Prepare Leppard’s journal entry to record the transaction.

(b) Indicate the effect the transaction has on cash.

(c) Indicate how the transaction is reported on the statement of cash flows.

Dingel Corporation has contracted with you to prepare a statement of cash flows. The controller has provided the following information.

December 31

2017

2016

Buildings

\( –0–

\)29,750

Equipment

45,000

20,000

Patents

5,000

6,250

Investments

–0–

3,000

Inventory

12,000

9,000

Accounts receivable

12,250

10,000

Cash

33,500

13,000

\(107,750

\)91,000

Share capital—ordinary

\( 43,000

\)33,000

Retained earnings

20,750

6,000

Allowance for doubtful accounts

3,000

4,500

Accumulated depreciation on equipment

2,000

4,500

Accumulated depreciation on buildings

–0–

6,000

Accounts payable

5,000

3,000

Dividends payable

–0–

5,000

Long-term notes payable

31,000

25,000

Notes payable, short-term (non-trade)

3,000

4,000

\(107,750

\)91,000

Additional data related to 2017 are as follows.

  1. Equipment that had cost \(11,000 and was 40% depreciated at the time of disposal was sold for \)2,500.
  2. \(10,000 of the long-term notes payable was paid by issuing ordinary shares.
  3. Cash dividends paid were \)5,000.
  4. On January 1, 2017, the building was completely destroyed by a flood. Insurance proceeds on the building were \(32,000.
  5. Equity investments (non-trading) were sold at \)1,700 above their cost.
  6. Cash was paid for the acquisition of equipment.
  7. A long-term note for \(16,000 was issued for the acquisition of equipment.
  8. Interest of \)2,000 and income taxes of $6,500 were paid in cash.

Instructions Prepare a statement of cash flows using the indirect method.
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