Page 656 - Accounting Principles (A Business Perspective)

16. Analysis using the statement of cash flows

Exercises
Exercise A Indicate how the following data should be reported in a statement of cash flows. A company paid
USD 500,000 cash for land. A building was acquired for USD 2,500,000 by assuming a mortgage on the building.

Exercise B Cost of goods sold in the income statement for the year ended 2010 was USD 260,000. The
balances in Merchandise Inventory and Accounts Payable were:
2010 January 1 2010 December
31
Merchandise inventory $160,000 $180,000
Accounts payable 44,000 36,000
Calculate the amount of cash paid for merchandise for 2010.

Exercise C Fill in the following chart, showing how increases and decreases in these accounts affect the
conversion of accrual basis income to cash basis income:
Add Deduct
Accounts receivable
Merchandise inventory
Prepaid expenses
Accounts payable
Accrued liabilities payable
Exercise D The income statement of a company shows net income of USD 200,000; merchandise inventory on
January 1 was USD 76,500 and on December 31 was USD 94,500; accounts payable for merchandise purchases
were USD 57,000 on January 1 and USD 68,000 on December 31. Compute the cash flows from operating activities
under the indirect method.
Exercise E The operating expenses and taxes (including USD 80,000 of depreciation) of a company for a given
year were USD 600,000. Net income was USD 350,000. Prepaid insurance decreased from USD 18,000 to USD

14,000 during the year, while wages payable increased from USD 22,000 to USD 36,000 during the year. Compute
the cash flows from operating activities under the indirect method.
Exercise F Dividends payable increased by USD 20,000 during a year in which total dividends declared were
USD 120,000. What amount appears for dividends paid in the statement of cash flows?
Exercise G Following are balance sheet data for Quality Merchandise, Inc.:
December 31
2011 2010
Cash $ 47,000 $ 26,000
Accounts receivable, net 141,000 134,000
Merchandise inventory 83,000 102,000
Prepaid expenses 9,000 11,000
Plant assets (net of accumulated depreciation) 235,000 230,000
Accounts payable 122,000 127,000
Accrued liabilities payable 40,000 41,000
Capital stock 300,000 300,000
Retained earnings 53,000 35,000
Assume that the depreciation recorded in 2011 was USD 15,000. Compute the cash spent to purchase plant
assets, assuming no assets were sold or scrapped in 2011.
Exercise H Use the data in the previous exercise. Assume the net income for 2011 was USD 24,000,
depreciation was USD 15,000, and dividends declared and paid were USD 6,000. The company paid interest of

USD 2,000 and income taxes of USD 14,000. Prepare a statement of cash flows—indirect method. Also prepare any
necessary supplemental schedule(s).
Exercise I The following data are from a company's Automobile and the Accumulated Depreciation—
Automobile accounts:

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