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Cash Flow Statement Math Solution File 01

The document provides detailed financial information for Reynolds Company, including comparative balance sheets, an income statement, and additional information necessary for preparing a Statement of Cash Flows for the year ended December 31, 2017, using the indirect method. It outlines cash flows from operating, investing, and financing activities, along with adjustments for non-cash effects and changes in working capital. The document also includes various problems related to cash flow calculations for different corporations.

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6 views34 pages

Cash Flow Statement Math Solution File 01

The document provides detailed financial information for Reynolds Company, including comparative balance sheets, an income statement, and additional information necessary for preparing a Statement of Cash Flows for the year ended December 31, 2017, using the indirect method. It outlines cash flows from operating, investing, and financing activities, along with adjustments for non-cash effects and changes in working capital. The document also includes various problems related to cash flow calculations for different corporations.

Uploaded by

nishanjob04
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© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF or read online on Scribd
Cash Flow Statement Mathematical Problem ‘Using the following financial statements and additional information of Reynolds Company, prepare a Statement of Cash Flows for the year ended December 31, 2017, using the indizect method. Comparative Balance Sheets — December 31 Assets 2017 2016 Cash $54,000 $37,000 ‘Accounts receivable $68,000 ‘$26,000 Inventory 354,000 30 Prepaid expenses $4,000 36,000 [Tad —~—SS SSC«SSAS,00———*Y $70,000 | Buildings $200,000 ‘$200,000 ‘Accumulated depreciation—buildings | (21,000) (11,000) Equipment $193,000 ‘$68,000 ‘Accumulated depreciation—equipment | (28,000) (10,000) Total Assets $569,000 $386,000 Liabilities and Stockholders’ Equity | 2017 2016 ‘Accounts payable $23,000 $40,000 ‘Accrued expenses payable ‘$10,000 30 Bonds payable $110,000 $150,000 Common stock ($1 par) $220,000 $60,000 Retained earnings $206,000 $136,000 Total Liabilities & Equity $569,000 $386,000 Income Statement (For the Year Ended December 31,2017) © Sales revenne: $890,000 © Cost of goods sold: $465,000 + Operating expenses: $221,000 ‘+ Interest expense: $12,000 ‘+ Loss on disposal of equipment $2,000 Page 1 of 34 Income before income taxes: $190,000 Income tax expense: $65,000 Net income: $125,000 Additional Information: 1 pawn Operating expenses inchide depreciation expensé of $23,000 and charges from prepaid expenses of $2,000. Land was sold at its book value for cash. Cash dividends of $55,000 were declared and paid in 2017. Interest expense of $12,000 was paid in eash. Equipment with a cost of $166,000 was purchased for cash. Equipment with a cost of $41,000 and a book value of $36,000 was Sold for $34,000 cash. Bonds of $10,000 were redeemed at their face value for cash. Bonds of $30,000 were converted into ‘counon stock. ‘Common stock ($1 par) of $130,000 was issued for cash. Accounts payable pertain to merchandise suppliers. Solution Cash Flows from Operating Activities Particulars Amount (8) ‘Net income 125,000 ‘Adjustments for non-cash effects: Depreciation expense 33,000 Loss on sale of equipment 2,000 Changes in working capital: herease) in accounts receivable 2,000) Gnerease) in inventory (64,000) ‘Decrease in prepaid expenses 2,000 (Decrease) in accounts payable 17,000) Tnerease in accrued expenses payable 10,000 ‘Net cash provided by Operating Activities 59,000 Cash Flows from Investing Activities Proceeds from sale of land 25,000 Proceeds from sale of equipment 34,000 Page 2 of 34 Purchase of equipment (166,000) ‘Net cash used in Investing Activities (107,000) Cash Flows from Financing Activities Dividends paid G5,000) Redemption of bonds for cash (10,000) Proceeds from issuance of common stock 130,000 ‘Net cash provided by Financing Activities 65,000 ‘Net Increase in Cash 17,000 Cash at Beginning of Year (Jan 1,2017) 37,000 Cash at End of Year (Dec 31, 2017) 54,000 Problem-02 1, Furst Corporation had the following transactions, Paid salaries of $14,000. Isstied:f,000 shares of $1 par value common stock for equipment worth $16,000. - Sold equipment (cost $10,000, accumulated depreciation $6,000) for $3,000. |. Sold land (cost $12,000) for $16,000. > Issued another 1,000 shares of $1 per value common stock for $18,000. Recorded depreciation of $20,000. Instructions For each transaction above, (a) prepare the journal entry, and (b) indteate how it would affect the statement of cash flows. Assume the indirect method. oy bay S Solution 1. 1. (@) Salaries and Wages Expense 14,000 Cash 14,000 (b) Salaries and wages expense is not reported separately on the statement of cash flows. It is part of the computation of net incomé in the income statement and is included in the net income amount on the statement of cash flows. 2. (a) Equipment 16,000 Common Stock 1,000 Paid-in Capital in Excess of Par—Common Stock 15,000 Page 3 of 34 () The issuance of common stock for equipment ($16,000) is reported as a noncash financ- ing and investing activity at the bottom of the statement 6f cash flows. (a) Cash 3,000 Loss on Disposal of Plant Assets 1,000 Accumulated Depreciation—Equipment 6,000 Equipment 10,000 (b) The cash receipt ($3,000) is reported in the investing section. The loss ($1,000) is added to net income in the operating section, (@ Cash 16,000 Land 12,000 Gain on Disposal of Plant Assets. 4,000 (b) The cash receipt ($16,000) is reported in the investing section. The gain ($4,000) is deducted from net income in the operating section. (@) Cash 18,000 ‘Common Stock 1,000 Paid-in Capital in Exeess 6f Par—Common Stock 17.000 (b) The cash receipt ($18,000) is reported in the financing section. (@) Depreciation Expense 20,000 Accumulated Depreciation Equipment 20,000 (b) Depreciation expense ($20,000) is added to net income in the operating section. Problem-03 Strong Corporation’s comparative balance sheets are presented below. “Assets 2017(8) | 2016 (S) Caste 28,200 | 17,700 Accounts receivable 24,200 | 22,300 Investments 23,000 | 16,000 Equipment 60,000 | 70,000 ‘Accumulaied depreciation—equipment | (14,000) | (10,000) Total Assets 121,400 | 116,000 Liabilities and Stockholders’ Equity 2017(8) | 2016 (S) ‘Accounts payable 19,600 [11,100 Bonds payable 10,000 | 30,000 ‘Common stock 60,000 [45,000 Retained earnings 31,800. | 39,900 Total Liabilities & Equity 121,400 | 116,000 Page 4 of 34 Additional Information: 1. Net income was $28,300. Dividends declared and paid were $26,400. 2. Equipment which cost $10,000 and had accumulated depreciation of $1,200 was sold for $4,300. 3. Allother changes in noncurrent account balances had a diréct effect on cash flows, except the change in accumulated depreciation. Instructions: (a) Prepare a statement of cash flows for 2017 using the indirect method (b) Compute free cash flow. Solution Particulars ‘Amount (8) ‘Cash Flows from Operating Activities ‘Net income 28,300 ‘Adjustments to reconcile net income to net cash provided by operating activities: ‘Depreciation expense (14,000 — 10,000 + 1,200) 5,200 Loss on sale of equipment (10,000 — 1,200 4,300 = 4,500 loss) 4,500 ‘Changes in working capit Tnciease in accounts receivable (900) Increase in accounts payable 8,500 ‘Net cash provided by Operating Activities 44,600 Cash Flows from Investing Activities Proceeds from sale of equipment 4300 Purchase of investments (23,000 — 16,000) (7,000) ‘Net cash used in Investing Activities (2,700) Cash Flows from Financing Activities Payment of dividends (26.400) Redemption of bonds payable (30,000 — 10,000) (20,000) ‘Proceeds from issuance of common stock (60,000 45,000) 15,000 ‘Net cash used in Financing Activities (31,400) Page 5 of 34 ‘Net Increase in Cash 10,500 Cash at Beginning of Year 17,700 Cash at End of Year 28,200 ) Free Cash Flow ~ Cash from Operations ~ Capital Expenditures ~ Dividends Paid Free Cash Flow ~ 44,600 — 0 -26,400~ 18,200 Problem-04 KOSINSKI MANUFACTURING COMPANY, Income Statement For the Year Ended December 31, 2017 is presented below: Sales revenue $6,583,000 Operating expenses (exchiding depreciation) $4,920,000 ‘Depreciation expense 880,000 Total operating expenses 3,800,000 ‘Tncome before income taxes 783,000 Income tax expense’ 353,000 ‘Net income: $430,000 Included in operating expenses is a $24,000 loss resulting from the sale of equipment for $270,000 cash. Equipment was purchased at a cost of $750,000. The following balances are reported on Kosinski’s comparative balance sheets at December 31. 2017 2016 Cash $672,000 | $130,000 ‘Accounts receivable | 775,000 | 610,000 [inventory ————(| 834,000 [867,000 | ‘Accounts payable | 521,000 | 501,000 Income tax expense of $353,000 represents the amount paid in’2017. Dividends declared and paid in 2017 totaled $200,000. Instructions: Prepare the statement of cash flows using the indirect method, Page 6 of 34 ‘Solution KOSINSKI MANUFACTURING COMPANY pe Seen ee Cae) eR One ase eae Seg Cash flows from operating activities Net income Adjustments to reconcile net income to ny provided by operating activities: 1 Depreciation expense Loss on disposal of equipment Increase in accounts receival eer $3.00, ee ee ee 20.000 792,000 Net Ena provided gh pebPacing acrvises 7222,000 Cash fowe from investin eitice Sale of equipment 270,000, (750,000) (480,000) (200,000) ~ 542,000 Cash, i 130,000 Cas! i $ S208 Problem-05 The T-accounts for Equipment and the related Accumulated Depreciation— Equipment for Camel Company at the end of 2023 are shown here: Equipment ‘Accumulated Depreciation—E quipment Particular | Dr cr Particular Dr Cr Beg. bal. | 80,000 Beg, bal 44,500 ‘Acquisitions | 41,600 Depr. exp. 12,000 Disposals 22,000 | Disposals 5,500 End bal. | 99,600 End. bal 51,000 In addition, Came! Company's income statement reported a loss on the disposal of equipment of 4,500. What amount was reported on the statement of cash flows as “cash flow from sale of equipment”? Page 7 of 34 Solution [Original cost of equipment sold ——=—«; 22,000 [C)Accumulaied depreciation ———S~«*SCS S00. Book value of equipment sold 16,500 (© Loss on sale of equipment 4.500 Cash received from sale of equipment 12,000 Problem Hinck Corporation reported net cash provided by operating activities of 360,000, net cash used by investing activities of 250,000 (including cash spent for capital assets of 200,000), and net cash provided by finaneing activities of 70,000. Dividends of 140,000 were paid. Calculate free cash flow. Solution Free Cash Flow = Net Cash Provided by Operating Activities - Capital Expenditures - Cash Dividends = 360,000 — 0— 140,000 = 220,000 *** Capital asset includes both Tangible and intangible items. Ouly Tangible portion is treated as Capital Expetiditure. As it is not clear whether it contains tangible items only or not, it has not been considered. If you treat the Capital Asset of 200,000 as tangible assets then the answer would have been: Free Cash Flow — Net Cash Provided by Operating Activities - Capital Expenditures - Cash Dividends = 360,000 - 200,000 — 140,000 = 20,000 Problem-07 Howell Corporation reported income fax expense of 340,000 on its 2017 "income statement and income taxes payable of 297,000 at December 31, 2016, and 522,000 at December 31, 2017. What amount of cash payments ‘were made for income taxes during 2017? Solution Income Tax Expense for 2017: 340,000 Income Taxes Payable at December 31, 2016: 297,000 Income Taxes Payable at December 31, 2017: 522,000 Cash payment = Beg value + tax expense ending value ~ 297,000 ~ 340,000 — 522,000 = 115,000 Page 8 of 34 Problem-08 The current sections of Scoggin Inc.’s balance sheets at December 31, 2016 and 2017, are presented here. Scoggin’s net income for 2017 was $153,000. Depreciation expense was $24,000. Particulars 2017 2016 [CurentAses ———iti‘séSS!;C;*dOO!C CO Cash 105,000. | 99,000 Accounts Receivables 110,000 89,000 Inventory 158,000 172,000 Prepaid Expenses 27,000 22,000 Total Current Assets 400,000 382,000 Current Liabilities “Acerued expenses payable 15,000 5,000 “Accounis payables 85,000 92,000 Find the net cash provided by operating activities using indirect method, Solution ‘Net income 153,000 (© Depreciation 24,000 © increase in AR (21,000) @) decrease in inventory 14,000 | © inerease in P/E @ inciease in AEP 10,000 © decrease in AP (7,000) ‘Net cash provided by operating activities 168,000 Problem-09 Assets 2017 | 2016 Cash 63,000 22,000 ‘Accounis receivable 35,000.” | 76,000 Taventory, 170,000 | 189,000 Land 75,000 | 100,000 ‘Equipment 270,000 | 200,000 ‘Accumulated depreciation equipment (66,000) | (32,000) Page 9 of 34 Total ‘597,000 | 555,000 Liabilities and Stockholders’ Equity 2017 2016 ‘Accounts payable 39,000 | 47,000 Bonds payable 150,000 | 200,000 ‘Common stock (SI par) 216,000 — | 174,000 Retained earnings 192,000 | 134,000 Total 597,000 | 555,000 Additional information: 1. Net income for 2017 was 93,000; 2. Cash dividends of 35,000 were declared and paid. 3. Bonds payable amounting to 50,000 were redeemed for cash 50,000. 4, Common stockewas issued for 42,000 cash, 5. No equipment was sold during 2017, but land was sold at cost Instructions: Prepare a statement of cash flows for 2017 using the indirect method. Solution Net income 93,000 © depreciation 34,000 (© inerease in AR (,000) ©) decrease in inventory 19,000 © decrease in A/P (8,000) ‘A. Net cash flow from operating activities 129,000 © sale of land 25,000 ‘© purchase of equipment (70,000) B. Net cash flow from investing activities 45,000) Share Issue 42,000 ‘© bond repayment (60,000) (© Cash dividend (35,000) €. Net cash flow from financing activities (43,000) Page 10 of 34 Net Cash flow (A+B+C) 41,000 (©) beginning cash 22,000 Ending cash 63,000 Problem-10 Particulars 2023 2022 Cash 15,200 17,700 AR 25,200 22,300 Tnvestment 20,000 16,000 ‘Equipment 60,000 70,000 ‘Ace Dep - Equipment (14,000) (10,000) Total 106,400 116,000 ‘Accounts payable 14,600 11,100 Bonds payable. 10,000 30,000 Common stock 50,000 45,000 Retained earnings 31,800 29,900 Total 106,400 116,000 Additional information: 1. Net income was 18,300, Dividends declared and paid were 16,400. 2. Equipment which cost 10,000 and had accumulated depreciation of 1,200 was sold for 3,300, 3. No noncash investing aud financing activities occuived during 2017. (a) Prepare a statement of cash flows for 2017 using the indirect method (b) Compute free cash flow Page 11 of 34 Solution @ ‘Net income 18,300 © depreciation (14000-10000+1200) 5,200 © increase in AR (2,900) © increase in AP 3500 ©) loss fiom sale of asset (10000-1200-3300) 5500 ‘A. Net cash flow from operating activities 29,600 © sale of equipment 3,300 (© purchase of investment (4,000) B. Net cash flow from investing activities (700) [Shaelsue S| 5,000 © bond repayment (20,000) © Cash dividend (16,400) C. Net cash flow from financing activities (31,400) ‘Net Cash flow (A+B+C) (2,500) © beginning cash 17,700 (Endingcash——<“i‘s*~‘s*é‘“‘“‘éSC‘*YS!C*«*dSSOCY (b) Free Cash Flow =Net Cash Provided by Operating Activities - Capital Expendinites - Cash Dividends = 29,6000 ~ 16,400 = 13,200 Problem-11 ‘Assets 2017 2016 Cash 73,000 22,000 Accounts receivable 85,000 76,000 Inventory 180,000 189,000 Land 75,000 100,000 Equipment 250,000 | 200,000 ‘Accumulated depreciation—equipaieut (66,000) | (42,000) Page 12 of 34 Total 597,000 | 545,000 Liabilities and Stockholders’ Equity 2017. | 2016 ‘Accounis payable 34,000 7,000 Bonds payable 150,000. | 200,000 ‘Common stock (SI par) 214000 | 164,000 Retained earnings 199.000 | 134,000 Total 597,000 | 545,000 Additional information: 1. Net income for 2017 was 135,000. 2. Cash dividends of 70,000 were declared and paid. Bonds payable amounting to 50,000 were redeemed for cash 50,000. ‘Common stock was issued for 50,000 cash, Depreciation expense was 24,000. Sales reveime for the year was 978, 000. a Aw aw Land was Sold at cost, and equipment was purchased for cash, Solution: Net income 135,000 © depreciation 24,000 © inerease in AR (9.000) (© decrease in inventory 9,000 | (2) decrease in A/P NS (13,000) [Link] cash flow from operating activities 146,000 (© sale of land 25,000 (© purchase of equipment (50,000) B. Net cash flow from investing activities (25.000) Share Issue Cy 50,000 (© bond repayment (50,000) Page 13 of 34 © Cash dividend (70,000) C. Net cash flow from financing activities (70,000) Net Cash flow (A+B+C) 51,000 (2 beginning cash 22,000 Ending cash 73,000 Problem-12 On Ist January, 2014 Body Ltd. has a cash balance of Tk. 1,40,000. During the year it reported the following: Cash received from sale of common stock Amortization of goodwill Payment of Dividends Purchase of long-term investment Cash received fiom sale of equipment Net Income (adjusted for all Write offs) Increase of accounts receivable Depreciation Expense Decrease of Accounts Payable Gain on sale of equipment Preliminary expense written off Increase in allowance for Doubtful Debts 4,70,000 20,000 60,000 8,00,000 450,000 1,10,000 90,000 50,000 1,00,000 30,000 40,000 Prepare a cash flow statement using indirect method Page 14 of 34 Solution: ‘Net income 110,000 © depreciation 30,000 (© Amortization of goodwill 20,000 ©) increase in AR (90,000) (©) Increase in allowance for Doubtful Debis, 2,000 © decrease in AP (100,000) © Gain on sale of equipmeat (30,000) A. Net cash flow from operating activities (38,000) © sale of equipment 450,000 © Purchase of Tong-téni investment (600,000) B. Net cash flow from investing activities (330,000) ‘sale of common stock 470,000 | © Payment of Dividend (60,000) C. Net cash flow from financing activities 410,000 ‘Net Cash flow (A*B+C) 22,000 () Deginning cash 140,000 Ending cash 162,000 Note: Preliminary expense written off 40,000 is a non-cash transaction. It has an impact on Net Income. So, it should have been added back to Net Income accordingly. But since Net income 110,000 includes Preliminary expense written off 40,000 so, No need to add it back again. Page 15 of 34 Problem-13 Prepare a Cash Flow Statement using the Given Data (for ABC Ltd. for the year ended Dee 31, 2024): + Net Income: 60,000 © Gross Profit: 200,000 + Beginning Cash 12,000 + Issued common stock: 20,000 © Depreciation Expense: 10,000 ‘© Gain on sale of equipment: 3,000 + Tncrease in Accounts Receivable: 4,000 ‘+ Purchased new equipment: 25,000 + Decrease in Inventory: 2.500 © Repaid long-term loan: 15,000 © Decrease in Acemted Expenses: 1,500 + Sold old equipment: 8,000 (original cost 12,000, accummlated depreciation 7,000) + Paid dividends: 10,000 ‘+ Increase in, Accounts Payable: 1,000 Solution Section Amount ‘A. Cash Flows from Operating Activities ‘Net Income 60,000 ‘Add: Depreciation 10,000 Less: Gain on sale of equipment 3.000) Change in Working Capital: Tncrease in Accounts Receivable (4,000). + Decrease in Inventory 2,500 + Increase in Accounts Payable 1,000 — Decrease in Accrued Expenses 1,500) Net Cash from Operating Activities 65,000 B. Cash Flows from Investing Activities — Purchase of Equipment (25,000) Page 16 of 34 + Sale of Equipment 8,000 Net Cash Used in Investing 17,000) . Cash Flows from Financing Activities + Issue of Common Stock 20,000 — Repayment of Loan (15,000) — Dividends Paid (10,000) ‘Net Cash Used in Financing 6,000) ‘Net Increase in Cash 43,000 + Beginning Cash Balance 12,000 Ending Cash Balance 55,000 Problem-14 ABC Enterprises has provided the following financial information for the year ended December 31, 2024. You are required to prepare the Cash Flow Statement using the indireet method, showing cash flows fiom Operating, Investing, and Financing activities. Income Statement Details: © Net Profit after Tax: 80,000 ‘+ Depreciation Expense: 15,000 + Amortization of Patent: 2,000 ‘+ Loss on Sale of Machinery: 4,000 Changes in Working Capital: + Accounts Receivable increased by 6,000 «Inventory decreased by 3,000 ‘+ Prepaid Expenses increased by 1,500 + Accounts Payable increased by 4,000 © Outstanding Expenses increased by 2,500 Investing Activities: + Purchased land for 40,000 + Sold machinery for 10,000 (original cost 20,000, accumulated depreciation 6,000) Financing Activities: ‘+ Issued shares for cash: 50,000 Page 17 of 34 Repaid bank loan: 30,000 «Paid dividend: 8,000 Opening Cash Balance: = 20,000 Prepare a Cash Flow Statement for ABC Enterprises for the year ended December 31, 2024 using the indirect method. Solution Particulars ‘Amount ‘A. Cash Flows from Operating Acti Net Profit 80,000 ‘Add: Depreciation 15,000 ‘Add: Amortization of Patent 2,000 ‘Add: Loss on Sale of Machinery 4,000 Changes in Working Capital: ~ Increase in-Aceounts Receivable (6.000) + Decrease in Inventory 3,000 ~ Tnciease in Prepaid Expenses 1,500) + Increase in Accounts Payable 4,000 + Tnerease in Ouistanding Expenses 2,500 ‘Net Cash from Operating Activities 103,000 B. Cash Flows from Investing Activities ~ Purchase of Land (40,000) + Sale of Machinery 10,000 ‘Net Cash Used in Investing 30,000) C. Cash Flows from Financing Activities + Issue of Shares 50,000 — Bank Loan Repaid YN (30,000) — Dividend Paid 8.000) Net Cash from Finaneing 12,000 Page 18 of 34 ‘Net Increase in Cash 85,000 (Opening Cash Balance 20,000. Closing Cash Balanee 105,000 Problem-15 ‘The following income statement and Balance sheet are available for two firms. Firm A paid 5000 as dividend and Firm B paid 35,000 as dividend Finn A Fin B Sales 1000000 1000000 CGS 700000 700000 Gross Profit 300000 300000 Other expense: Selling and Aduiaistialive expense 120000 115000 Depreciation 10000 30000 Interest Expense 20000 3000 Earning Before Tax 150000 150000 Tacomie Tax 75000 75000 ‘Net Income 75000 75000 Changes In Balance sheet (from 31 dec 2011 to 31 December 2012) Firm A. | Firm B Cash 5000, 5000 Cash equivalents =3000 | 53000 ‘Accounts Receivable 40000 [5000 Inventory, 40000 -10000 Property plant and equipment 20000 [70000 Less Accumulated Depreciation

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