Cash Flow Statement, Journal Entries etc...

This solution assists in determining cash flows for specific problems.

E14-2

An analysis of comparative balance sheets, the current year's income statement, and the general ledger accounts of Gagliano Corp. uncovered the following items. Assume all items involve cash unless there is information to the contrary.
Instructions
Indicate how each item should be classified in the statement of cash flows using these four major classifications: operating activity (indirect method), investing activity, financing activity, and significant noncash investing and financing activity.
(a) Payment of interest on notes payable.

(b) Exchange of land for patent.

(c) Sale of building at book value.

(d) Payment of dividends.

(e) Depreciation.

(f) Receipt of dividends on investment in stock.

(g) Receipt of interest on notes receivable.

(h) Issuance of capital stock.

(i) Amortization of patent.

(j) Issuance of bonds for land.

(k) Purchase of land.

(l) Conversion of bonds into common stock.

(m) Loss on sale of land (loss only).

(n) Retirement of bonds.

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E14-3

Rachael Ray Corporation had the following transactions.
1. Sold land (cost $12,000) for $15,000.
2. Issued common stock for $20,000.
3. Recorded depreciation of $17,000.
4. Paid salaries of $9,000.
5. Issued 1,000 shares of $1 par value common stock for equipment worth $8,000.
6. Sold equipment (cost $10,000, accumulated depreciation $7,000) for $1,200.
Instructions
For each transaction above, (a) prepare the journal entry, and (b) indicate how it would affect the statement of cash flows. (For multiple debit/credit entries, list amounts from largest to smallest eg 10, 5, 3, 2.)
Account / Description Debit Credit
1. (a)
$

$

$

(b) The cash receipt is reported in the section. The is net income in the section.

Account / Description Debit Credit
2. (a)
$

$

(b) The cash receipt is reported in the section.

Account / Description Debit Credit
3. (a)
$

$

(b) Depreciation expense is added to net income in the section.

Account / Description Debit Credit
4. (a)
$

$

(b) Salaries expense reported separately on the statement of cash flows.

Account / Description Debit Credit
5. (a)
$

$

$

(b) The issuance of common stock for equipment is reported as a activity at the bottom of the statement of cash flows.

Account / Description Debit Credit
6. (a)
$

$

$

$

(b) The cash receipt is reported in the section. The is net income in the section.

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E14-6

The three accounts shown below appear in the general ledger of Cesar Corp. during 2008.

Equipment
Date Debit Credit Balance
Jan. 1 Balance 160,000
July 31 Purchase of equipment 70,000 230,000
Sept. 2 Cost of equipment constructed 53,000 283,000
Nov. 10 Cost of equipment sold 49,000 234,000

Accumulated Depreciation-Equipment
Date Debit Credit Balance
Jan. 1 Balance 71,000
Nov. 10 Accumulated depreciation on
equipment sold 30,000 41,000
Dec. 31 Depreciation for year 28,000 69,000

Retained Earnings
Date Debit Credit Balance
Jan. 1 Balance 105,000
Aug. 23 Dividends (cash) 14,000 91,000
Dec. 31 Net income 67,000 158,000
Instructions
From the postings in the accounts, indicate how the information is reported on a statement of cash flows using the indirect method. The loss on sale of equipment was $5,000. (Hint: Cost of equipment constructed is reported in the investing activities section as a decrease in cash of $53,000.) (If amount decreases cash flow, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). List amounts from largest positive to smallest positive followed by most negative to least negative, e.g. 15, 14, 10, -17, -5, -1.)
CESAR CORP
Partial Statement of Cash Flows
For the Year Ended December 31, 2008
Cash flows from operating activities

$

Adjustments to reconcile net income
to net cash by operating activities

$

Net cash by operating activities

Cash flows from investing activities

Net cash by investing activities

Cash flows from financing activities

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E14-7

Scully Corporation's comparative balance sheets are presented below.

SCULLY CORPORATION
Comparative Balance Sheets
December 31
2008 2007
Cash $14,300 $10,700
Accounts receivable 21,200 23,400
Land 20,000 26,000
Building 70,000 70,000
Accumulated depreciation (15,000) (10,000)
Total $110,500 $120,100

Accounts payable $12,370 $31,100
Common stock 75,000 69,000
Retained earnings 23,130 20,000
Total $110,500 $120,100
Additional information:
1. Net income was $22,630. Dividends declared and paid were $19,500.
2. All other changes in noncurrent account balances had a direct effect on cash flows, except the change in accumulated depreciation. The land was sold for $4,900.

Complete the statement of cash flows for 2008 using the indirect method. (List multiple entries with a positive cash flow first and then the negative cash flow. List amounts from largest to smallest eg 10, 5, 3, 2. If amount decreases cash flow, use either a negative sign preceding the number eg -45 or parentheses eg (45).)
SCULLY CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2008
Cash flows from operating activities

$

Adjustments to reconcile net income
to net cash provided by operating activities

$

Net cash by operating activities

Cash flows from investing activities

Cash flows from financing activities

Net cash by financing activities

Net in cash

Cash at beginning of period

Cash at end of period $

Compute free cash flow. (If amount decreases cash flow, use either a negative sign preceding the number eg -45 or parentheses eg (45).)
$
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Question Attempts: 0 of 3 used

P14-5A NOTE: GIVEN: CASH FROM OPERATIONS--$308,000.00

Grania Company's income statement contained the condensed information below.
GRANIA COMPANY
Income Statement
For the Year Ended December 31, 2008
Revenues $970,000
Operating expenses, excluding depreciation $624,000
Depreciation expense 60,000
Loss on sale of equipment 16,000 700,000
Income before income taxes 270,000
Income tax expense 40,000
Net income $230,000
Grania's balance sheet contained the comparative data at December 31, shown below.
2008 2007
Accounts receivable $75,000 $60,000
Accounts payable 41,000 28,000
Income taxes payable 11,000 7,000
Accounts payable pertain to operating expenses.
Instructions
Complete the operating activities section of the statement of cash flows using the indirect method. (List multiple entries with a positive cash flow first and then the negative cash flow. List amounts from largest to smallest eg 10, 5, 3, 2. If amount decreases cash flow, use either a negative sign preceding the number eg -45 or parentheses eg (45).)
GRANIA COMPANY
Partial Statement of Cash Flows
For the Year Ended December 31, 2008
Cash flows from operating activities

$

Adjustments to reconcile net income to net cash
provided by operating activities

$

Net cash provided by operating activities $

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P14-9A NOTE: GIVEN: CASH FROM OPERATIONS-$185,250.00

Condensed financial data of Arma Inc. follow.

ARMA INC.
Comparative Balance Sheets
December 31
Assets 2008 2007
Cash $ 90,800 $ 48,400
Accounts receivable 92,800 33,000
Inventories 112,500 102,850
Prepaid expenses 28,400 26,000
Investments 138,000 114,000
Plant assets 270,000 242,500
Accumulated depreciation (50,000) (52,000)
Total $682,500 $514,750

Liabilities and Stockholders' Equity
Accounts payable $112,000 $ 67,300
Accrued expenses payable 16,500 17,000
Bonds payable 110,000 150,000
Common stock 220,000 175,000
Retained earnings 224,000 105,450
Total $682,500 $514,750

ARMA INC.
Income Statement
For the Year Ended December 31, 2008
Sales $392,780
Less:
Cost of goods sold $135,460
Operating expenses, excluding depreciation 12,410
Depreciation expense 46,500
Income taxes 27,280
Interest expense 4,730
Loss on sale of plant assets 7,500 233,880
Net income $158,900
Additional information:
1. New plant assets costing $85,000 were purchased for cash during the year.
2. Old plant assets having an original cost of $57,500 were sold for $1,500 cash.
3. Bonds matured and were paid off at face value for cash.
4. A cash dividend of $40,350 was declared and paid during the year.
Instructions
Complete the statement of cash flows using the indirect method. (List multiple entries with a positive cash flow first and then the negative cash flow. List amounts from largest to smallest eg 10, 5, 3, 2. If amount decreases cash flow, use either a negative sign preceding the number eg -45 or parentheses eg (45).)
ARMA INC.
Statement of Cash Flows
For the Year Ended December 31, 2008
Cash flows from operating activities

$

Adjustments to reconcile net income to net
cash provided by operating activities

$

Net cash by operating activities

Cash flows from investing activities

Net cash by investing activities

Cash flows from financing activities

Net cash by financing activities

Net in cash

Cash at beginning of period

Cash at end of period $

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