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Chapter 23: Q3IFRS (page 1399)
What are some of the key obstacles for the FASB and IASB within their accounting guidance in the area of cash flow reporting? Explain.
FASB prefers to use direct method for showing the operating activities, but it is not mandatory in case of IASB.
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The accounts below appear in the ledger of Anita Baker Company.
Retained Earnings Dr. Cr. Bal.
Jan. 1, 2017 Credit Balance \( 42,000
Aug. 15 Dividends (cash) \)15,000 27,000
Dec. 31 Net Income for 2017 \(40,000 67,000
Equipment Dr. Cr. Bal.
Jan. 1, 2017 Debit Balance \)140,000
Aug. 3 Purchase of Equipment \(62,000 202,000
Sept. 10 Cost of Equipment Constructed 48,000 250,000
Nov. 15 Equipment Sold \)56,000 194,000
Accumulated Depreciation— Equipment Dr. Cr. Bal.
Jan. 1, 2017 Credit Balance \( 84,000
Apr. 8 Major Repairs \)21,000 63,000
Nov. 15 Accum. Depreciation on Equipment Sold 25,200 37,800
Dec. 31 Depreciation for 2017 \(16,800 54,600
Instructions
From the postings in the accounts above, indicate how the information is reported on a statement of cash flows by preparing a partial statement of cash flows using the indirect method. The loss on sale of equipment (November 15) was \)5,800.
Each of the following items must be considered in preparing a statement of cash flows (indirect method) for Turbulent Indigo Inc. for the year ended December 31, 2017.
(a) Plant assets that had cost \(20,000 6 years before and were being depreciated on a straight-line basis over 10 years with no estimated scrap value were sold for \)5,300.
(b) During the year, 10,000 shares of common stock with a stated value of \(10 a share were issued for \)43 a share.
(c) Uncollectible accounts receivable in the amount of \(27,000 were written off against Allowance for Doubtful Accounts.
(d) The company sustained a net loss for the year of \)50,000. Depreciation amounted to \(22,000, and a gain of \)9,000 was realized on the sale of land for \(39,000 cash.
(e) A 3-month U.S. Treasury bill was purchased for \)100,000. The company uses a cash and cash equivalent basis for its cash flow statement.
(f) Patent amortization for the year was \(20,000.
(g) The company exchanged common stock for a 70% interest in Tabasco Co. for \)900,000.
(h) During the year, treasury stock costing $47,000 was purchased.
Instructions State where each item is to be shown in the statement of cash flows, if at all.
Stan Conner and Mark Stein were discussing the statement of cash flows of Bombeck Co. In the notes to the statement of cash flows was a schedule entitled “Non-cash investing and financing activities.” Give three examples of significant non-cash transactions that would be reported in this schedule.
Question:Mortonson Company has not yet prepared a formal statement of cash flows for the 2017 fiscal year. Comparative balance sheets as of December 31, 2016 and 2017, and a statement of income and retained earnings for the year ended December 31, 2017, are presented as follows.
MORTONSON COMPANY STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 2017 (\(000 OMITTED) | ||
Sales revenue | \)3,800 | |
Expenses | ||
Cost of goods sold | \(1,200 | |
Salaries and benefits | 725 | |
Heat, light and power | 75 | |
Depreciation | 80 | |
Property tax | 19 | |
Patent amortization | 25 | |
Miscellaneous expenses | 10 | |
Interest | 30 | 2,164 |
Income before taxes | 1,636 | |
Income tax | 818 | |
Net income | 818 | |
Retained earnings – Jan 1, 2017 | 310 | |
1,128 | ||
Stock dividend declared and issued | 600 | |
Retained earnings Dec 31, 2017 | \)528 | |
MORTONSON COMPANY COMPARATIVE BALANCE SHEETS AS OF DECEMBER 31 (\(000 OMITTED) | ||
Assets | 2017 | 2016 |
Current assets | ||
Cash | \)333 | \(100 |
U.S treasury notes (available for sale) | 10 | 50 |
Accounts receivables | 780 | 500 |
Inventory | 720 | 560 |
Total current assets | 1,843 | 1,210 |
Long-term assets | ||
Land | 150 | 70 |
Building and equipment | 910 | 600 |
Accumulated depreciation – building and equipment | (200) | (120) |
Patent (less: amortization) | 105 | 130 |
Total long-term assets | 965 | 680 |
Total assets | \)2,808 | \(1,890 |
Liabilities and stockholder’s equity | ||
Current liabilities | ||
Account payable | \)420 | \(330 |
Income tax payable | 40 | 30 |
Notes payable | 320 | 320 |
Total current liabilities | 780 | 680 |
Long-term note payable | 200 | 200 |
Total liabilities | 980 | 880 |
Stockholder’s equity | ||
Common stock | 1,300 | 700 |
Retained earnings | 528 | 310 |
Total stockholder’s equity | 1,828 | 1,010 |
Total liabilities and stockholder’s equity | \)2,808 | $1,890 |
Instructions
Prepare a statement of cash flows using the direct method. Changes in accounts receivable and accounts payable relate to sales and the cost of goods sold. Do not prepare a reconciliation schedule.
Identify the following items as (1) operating, (2) investing, or (3) financing activities: purchase of land, payment of dividends, cash sales, and purchase of treasury stock.
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