Page 657 - Accounting Principles (A Business Perspective)

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Date Automobile Debit Credit Balance
Jan. 1 Balance brought forward 16,000
July 1 Traded for new auto 16,000 -0-
New auto 31,000
Accumulated depreciation - Automobile
Jan. 1 Balance brought forward 12,000
July 1 One-half year's depreciation 2,000 14,000
Auto traded 14,000 -0-
Dec. 31 One-half year's depreciation 4,000 4,000
The old auto was traded for a new one, with the difference in values paid in cash. The income statement for the
year shows a loss on the exchange of autos of USD 1,200.
Indicate the dollar amounts, the descriptions of these amounts, and their exact locations in a statement of cash
flows—indirect method.

Problems
Problem A The income statement and other data of Dunbar Carpet Outlet, Inc., follow:
Dunbar Carpet Outlet, Inc.
Income statement
For the Year Ended 2010 December 31
Sales $920,000
Cost of goods sold 380,000
Gross margin $540,000
Operating expenses (other than depreciation) $140,000
Depreciation expense 40,000 180,000
Net income $360,000
Changes in current assets (other than cash) and current liabilities during the year were:

Increase Decrease
Accounts receivable $20,000
Merchandise inventory $16,000
Prepaid insurance 8,000
Accounts payable 28,000
Accrued liabilities payable 4,000
Depreciation was the only noncash item affecting net income.
a. Prepare a working paper to calculate cash flows from operating activities under the direct method.
b. Prepare the cash flows from operating activities section of the statement of cash flows under the direct
method.
c. Prove that the same cash flows amount will be obtained under the indirect method by preparing the cash flows
from operating activities section of the statement of cash flows under the indirect method. You need not prepare a
working paper.

Problem B The following comparative balance sheets and other data are for Cellular Telephone Sales, Inc.:
Cellular Telephone Sales, Inc.
Comparative balance sheets
2011 December 31 and 2010
2011 2010
Assets
Cash $76,105 $51,000
Accounts receivable, net 26,075 24,250
Merchandise inventory 30,000 35,000
Supplies on hand 1,750 2,550
Prepaid expenses 1,400 1,200
Land 180,000 142,500
Equipment 270,000 300,000
Accumulated depreciation – equipment (75,000) (67,500)
Total assets $510,330 $489,000
Liabilities and stockholders' equity
Accounts payable $ 45,330 $ 76,300
Salaries payable 4,000 2,000

Accounting Principles: A Business Perspective 658 A Global Text