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B EXERCISES

2 E23-1B (Classification of Transactions) Aqua Pools Inc. had the following activity in its most recent year
of operations.
(a) Purchase of delivery truck. (g) Purchase of treasury stock.
(b) Issuance of bonds payable. (h) Gain on sale of equipment.
(c) Sale of investments for no gain or loss. (i) Goodwill impairment.
(d) Amortization of intangible assets. (j) Payment of dividends.
(e) Conversion of bonds into stock. (k) Sale of treasury stock.
(f) Exchange of building for land. (l) Decrease in interest payable on note payable.
Instructions
Classify the items as (1) operating—add to net income; (2) operating—deduct from net income;
(3) investing; (4) financing; or (5) significant noncash investing and financing activities. Use the indirect method.
2 4 E23-2B (Statement Presentation of Transactions—Indirect Method) Each of the following items must
be considered in preparing a statement of cash flows (indirect method) for Duke Enterprises.
(a) During the year, 50,000 shares of preferred stock with a par value of $100 a share were issued for
$101 a share.
(b) During the year, treasury stock costing $123,000 was sold.
(c) Equipment that had cost $70,000 2 years before and was being depreciated on a straight-line basis
over 6 years with a $10,000 estimated scrap value was sold for $25,000.
(d) Goodwill impairment was $500,000.
(e) Warranty-related payments of $83,600 were charged against accrued warranty expenses.
(f) 6-month U.S. Treasury bills were sold for $210,000. The company uses a cash and cash-equivalent
basis for its cash flow statement.
(g) The company issued $600,000 in bonds payable to acquire land.
(h) The company reported net income for the year of $176,000. Depreciation amounted to $69,000, and
a loss of $45,000 was reported on the sale of an equity investment.
Instructions
State where each item is to be shown in the statement of cash flows, if at all.
4 7 E23-3B (Preparation of Operating Activities Section—Indirect Method, Periodic Inventory) The income
statement of Guesser Company is shown below.

GUESSER COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2014
Sales $755,000
Cost of goods sold 543,000
Gross profit 212,000
Operating expenses
Selling expenses $52,000
Administrative expenses 89,000 141,000
Net income $ 71,000

Additional information:
1. Accounts receivable decreased $63,000 during the year.
2. Inventory increased $38,000 during the year.
3. Prepaid expenses increased $12,000 during the year.
4. Accounts payable to increased $25,000 during the year.
5. Accrued expenses payable increased $6,000 during the year.
6. Administrative expenses include depreciation expense of $20,000.
Instructions
Prepare the operating activities section of the statement of cash flows for the year ended December 31,
2014, for Guesser Company, using the indirect method.
4 7 E23-4B (Preparation of Operating Activities Section—Direct Method) Data for Guesser Company are
presented in E23-3B.

1
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2 • Chapter 23 Statement of Cash Flows

Instructions
Prepare the operating activities section of the statement of cash flows using the direct method.

4 7 E23-5B (Preparation of Operating Activities Section—Direct Method) Krayon Company’s income state-
ment for the year ended December 31, 2014, contained the following condensed information.
Revenue from fees $1,604,000
Operating expenses (excluding depreciation) $1,280,000
Depreciation expense 111,000
Gain on sale of equipment (7,000) 1,384,000
Income before income taxes 220,000
Income tax expense 90,000
Net income $ 130,000

Krayon’s balance sheet contained the following comparative data at December 31.
2014 2013
Accounts receivable $169,000 $119,000
Accounts payable 132,000 82,000
Income taxes payable 16,500 25,000
(Accounts payable pertains to operating expenses.)

Instructions
Prepare the operating activities section of the statement of cash flows using the direct method.

4 7 E23-6B (Preparation of Operating Activities Section—Indirect Method) Data for Krayon Company are
presented in E23-5B.

Instructions
Prepare the operating activities section of the statement of cash flows using the indirect method.

4 7 E23-7B (Computation of Operating Activities—Direct Method) Presented below are two independent
situations.
Situation A:
Overtop Inc. reports revenues of $2,605,000 and operating expenses of $1,950,000 in its first year of oper-
ations, 2014. Accounts receivable and accounts payable at year-end were $140,000 and $321,000, respec-
tively. Assume that the accounts payable related to operating expenses. Ignore income taxes.

Instructions
Using the direct method, compute net cash provided by operating activities.
Situation B:
The income statement for Prince Corp. shows cost of goods sold $940,000 and operating expenses (exclu-
sive of depreciation) $523,000. The comparative balance sheet for the year shows that inventory decreased
$96,900, prepaid expenses decreased $12,000, accounts payable (related to merchandise) increased $64,900,
and accrued expenses payable increased $25,000.

Instructions
Compute (a) cash payments to suppliers and (b) cash payments for operating expenses.

4 7 E23-8B (Schedule of Net Cash Flow from Operating Activities—Indirect Method) Terra Land Com-
pany reported $540,000 of net income for 2014. The accountant, in preparing the statement of cash flows,
noted several items occurring during 2014 that might affect cash flows from operating activities.
1. Terra declared a $1.50 cash dividend. Ten thousand shares of $1 par common stock were outstand-
ing at the date of record.
2. Terra revised its estimate for warranty expense. Before 2014, Terra’s warranty expense was 0.5%
of its net sales. In 2014, this percentage was increased to 0.7%. Net sales for 2014 were $5,850,000,
and the accrued warranty expense increased by $89,000 during 2012.
3. Terra sold 500 shares of treasury stock for $43 per share. The shares were originally purchased for
$38 per share.
4. Depreciation expense is $156,000.
5. Terra issued 2,000 shares of its $1 par common stock for a building. The market value of the shares
on the date of the transaction was $42 per share.
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B Exercises • 3

6. Terra holds 30% of Windy Company’s common stock as a long-term investment. Windy Company
reported $96,000 of net income and paid dividends of $35,000 for 2014.
7. Terra purchased 500 shares of Microsoft common at $110 per share and classified the investment
as available-for-sale. The market price increased to $115 per share by the end of the year.

Instructions
Prepare a schedule that shows the net cash flow from operating activities using the indirect method.
Assume no items other than those listed above affected the computation of 2014 net cash flow from
operating activities.
3 7 E23-9B (SCF—Direct Method) Zurg Corp. uses the direct method to prepare its statement of cash flows.
Zurg’s trial balances at December 31, 2014 and 2013, are as follows.

December 31
2014 2013
Debits
Cash $ 84,000 $ 5,000
Accounts receivable 270,000 298,000
Inventory 187,000 171,000
Property, plant, & equipment 690,000 592,100
Cost of goods sold 1,205,000 1,080,000
Selling expenses 181,500 106,000
General and administrative expenses 285,000 189,500
Interest expense 8,500 10,200
Income tax expense 170,300 161,800
$3,081,300 $2,613,600
Credits
Allowance for doubtful accounts $ 9,600 $ 8,100
Accumulated depreciation 80,500 65,000
Trade accounts payable 95,000 118,500
Income taxes payable 21,000 8,600
Deferred income taxes 54,200 45,600
Unamortized bond premium 4,500 5,000
10% convertible bonds payable 100,000 100,000
Common stock 110,000 100,000
Additional paid-in capital 75,000 56,000
Retained earnings 425,700 318,300
Sales 2,105,800 1,788,500
$3,081,300 $2,613,600

Additional information:
1. Zurg purchased a major piece of equipment for $97,900 during 2014.
2. Zurg allocated one-half of its depreciation expense to cost of goods sold and the remainder to gen-
eral and administrative expenses.
3. Bad debt expense for 2014 was $10,000 and is included in general and administrative expenses.

Instructions
Determine what amounts Zurg should report in its statement of cash flows for the year ended December
31, 2014, for the following items.
(a) Cash collected from customers. (d) Cash paid for income taxes.
(b) Cash paid to suppliers. (e) Cash paid for general and administrative expenses.
(c) Cash paid for interest.

2 8 E23-10B (Classification of Transactions) Following are selected balance sheet accounts of BioLazer Corp.
at December 31, 2014 and 2013, and the increases or decreases in each account from 2013 to 2014. Also
presented is selected income statement information for the year ended December 31, 2014, and additional
information.
Increase
Selected balance sheet accounts 2014 2013 (Decrease)
Assets
Accounts receivable $154,000 $120,000 $34,000
Property, plant, and equipment 631,000 581,000 50,000
Accumulated depreciation (141,000) (106,000) (35,000)
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4 • Chapter 23 Statement of Cash Flows

Increase
Selected balance sheet accounts 2014 2013 (Decrease)
Liabilities and stockholders’ equity
Bonds payable $ 95,000 $100,000 $ (5,000)
Dividends payable –0– 10,000 (10,000)
Common stock, $1 par 60,000 50,000 10,000
Additional paid-in capital 25,000 20,000 5,000
Retained earnings 340,000 261,000 79,000
Selected income statement information for the year ended December 31, 2014
Sales revenue $932,000
Depreciation 54,000
Loss on sale of equipment 8,000
Net income 90,000
Additional information:
1. During 2014, equipment costing $30,000 was sold for cash.
2. Accounts receivable relate to sales of merchandise.
3. During 2014, $15,000 of bonds payable were converted to common stock. There was no amortiza-
tion of bond discount or premium.
Instructions
Determine the category (operating, investing, or financing) and the amount that should be reported in
the statement of cash flows for the following items.
(a) Payments for purchase of property, plant, and equipment.
(b) Proceeds from the sale of equipment.
(c) Cash dividends paid.
(d) Proceeds from bonds payable.
3 4 E23-11B (SCF—Indirect Method) Condensed financial data of Fulton Corp. for 2014 and 2013 are pre-
sented below.
FULTON CORP.
COMPARATIVE BALANCE SHEET
AS OF DECEMBER 31
2014 2013
Cash $ 800 $ 600
Investments –0– 200
Receivables 2,250 2,100
Inventory 1,600 1,200
Plant assets 1,600 1,200
Accumulated depreciation (600) (455)
$5,650 $4,845
Accounts payable $ 750 $1,200
Accrued liabilities 330 520
Bonds payable 800 1,000
Capital stock 1,500 1,400
Retained earnings 2,270 725
$5,650 $4,845

FULTON CORP.
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2014
Sales $15,200
Cost of goods sold 10,400
Gross margin 4,800
Selling and administrative expense 1,205
Income from operations 3,595
Other revenues and gains
Loss on sale of investments 50
Income before income tax 3,545
Income tax expense 1,400
Net income 2,145
Cash dividends 600
Income retained in business $ 1,545
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B Exercises • 5

Additional information:
During the year, $100 of common stock was issued in exchange for land. No plant assets were sold in
2014.

Instructions
Prepare a statement of cash flows using the indirect method.

3 E23-12B (SCF—Direct Method) Data for Fulton Corp. are presented in E23-11B.

Instructions
Prepare a statement of cash flows using the direct method. (Do not prepare a reconciliation schedule.)

3 E23-13B (SCF—Direct Method) Jackson Ski Haus had the following statements prepared as of Decem-
ber 31, 2014.

JACKSON SKI HAUS

COMPARATIVE BALANCE SHEET
AS OF DECEMBER 31
2014 2013
Cash $ 2,500 $ 4,000
Accounts receivable 103,000 97,000
Short-term investments (Available-for-sale) 96,000 121,000
Inventories 91,000 54,000
Prepaid insurance 4,000 6,000
Ski equipment 89,000 43,000
Accumulated depr.—equipment (23,500) (18,000)
Trademarks 79,000 83,000
Total assets $441,000 $390,000
Accounts payable $ 92,200 $ 75,000
Income taxes payable 21,800 15,700
Wages payable 4,000 9,000
Short-term loans payable to bank 23,500 –0–
Long-term loans payable 75,000 125,000
Common stock, $1 par 100,000 100,000
Additional paid-in capital 20,000 20,000
Retained earnings 104,500 45,300
Total liabilities & equity $441,000 $390,000

JACKSON SKI HAUS

INCOME STATEMENT
FOR THE YEAR ENDING DECEMBER 31, 2014
Sales $540,200
Cost of goods sold 302,000
Gross margin 238,200
Operating expenses 94,000
Operating income 144,200
Interest expense $20,500
Loss on sale of equipment 4,000 24,500
Income before income tax 119,700
Income tax expense 40,500
Net income $ 79,200

Additional information:
1. Dividends in the amount of $20,000 were declared and paid during 2014.
2. Depreciation expense and amortization expense are included in operating expenses.
3. Equipment that had a cost of $25,000 and was 20% depreciated was sold during 2014.

Instructions
Prepare a statement of cash flows using the direct method. (Do not prepare a reconciliation schedule.)
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6 • Chapter 23 Statement of Cash Flows

3 E23-14B (SCF—Indirect Method) Data for Jackson Ski Haus are presented in E23-13B.

Instructions
Prepare a statement of cash flows using the indirect method.
3 E23-15B (SCF—Indirect Method) Presented below are data taken from the records of Natural Homes
Company.

December 31, December 31,

2014 2013
Cash $ 15,000 $ 5,000
Current assets other than cash 105,000 129,000
Long-term investments 60,000 50,000
Plant assets 330,000 351,000
$510,000 $535,000
Accumulated depreciation $ 88,000 $102,000
Current liabilities 65,000 73,000
Bonds payable 50,000 100,000
Capital stock 173,000 153,000
Retained earnings 134,000 107,000
$510,000 $535,000

Additional information:
1. Held-to-maturity securities carried at a cost of $25,000 on December 31, 2013, were sold in 2014 for
$30,000. The gain (not extraordinary) was incorrectly charged directly to Retained Earnings.
2. Fully depreciated plant assets that cost $57,000 were sold during 2014 for $2,000. The gain (not ex-
traordinary) was incorrectly charged directly to Retained Earnings.
3. Net income as reported on the income statement for the year was $40,000.
4. Dividends paid amounted to $20,000.
5. Depreciation charged for the year was $43,000.

Instructions
Prepare a statement of cash flows for the year 2014 using the indirect method.
2 4 E23-16B (Cash Provided by Operating, Investing, and Financing Activities) The balance sheet data of
Wheels ‘n Tires, Inc. at the end of 2014 and 2013 follow.
5
2014 2013
Cash $ 7,500 $ 10,000
Accounts receivable (net) 82,000 87,500
Merchandise inventory 86,000 81,000
Prepaid expenses 9,000 12,000
Equipment 170,000 145,000
Accumulated depreciation—equipment (45,000) (36,000)
Land 30,000 50,000
Total assets $339,500 $349,500
Accounts payable $ 44,500 $ 58,000
Accrued expenses 11,000 9,000
Notes payable—bank, short-term –0– 50,000
Bonds payable 20,000 –0–
Common stock, $1 par 181,000 160,000
Retained earnings 83,000 72,500
Total liabilities and shareholders’ equity $339,500 $349,500

Equipment was purchased for $21,000 in exchange for common stock, par $21,000, during the year; all
other equipment purchased was for cash. Land was sold for $31,500. Cash dividends of $7,000 were
declared and paid during the year.

Instructions
Compute net cash provided (used) by:
(a) operating activities.
(b) investing activities.
(c) financing activities.
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B Exercises • 7

3 E23-17B (SCF—Indirect Method and Balance Sheet) Ryan Inc. had the following condensed balance
sheet at the end of operations for 2013.

RYAN INC.
BALANCE SHEET
DECEMBER 31, 2013
Cash $ 23,700 Current liabilities $ 87,600
Current assets other than cash 143,900 Notes payable 45,500
Investments 50,000 Preferred stock 60,000
Plant assets (net) 119,500 Capital stock 120,000
Land 25,000 Retained earnings 49,000
$362,100 $362,100

During 2014 the following occurred.

1. Land was purchased for $29,000.
2. Notes payable in the amount of $45,500 were paid.
3. An additional $10,000 in capital stock was issued for $23,500.
4. Dividends totaling $12,500 were paid to stockholders.
5. Net income was $49,600 after allowing depreciation of $21,800.
6. Plant assets were purchased through the issuance of $50,000 in bonds.
7. Both current assets (other than cash) and current liabilities remained at the same amount.

Instructions
(a) Prepare a statement of cash flows for 2014 using the indirect method.
(b) Prepare the condensed balance sheet for Ryan Inc. as it would appear at December 31, 2014.

3 8 E23-18B (Partial SCF—Indirect Method) The accounts below appear in the ledger of Harvey
Company.

Retained Earnings Dr. Cr. Bal.

Jan. 1, 2014 Credit Balance $140,000
Dec. 1 Declare and pay dividends $40,000 100,000
Dec. 31 Net Income for 2012 $82,600 182,600
Machinery Dr. Cr. Bal.
Jan. 1, 2014 Debit Balance $740,000
Mar. 31 Purchase of Machinery $156,000 896,000
Sept. 25 Machinery Sold $202,000 694,000
Accumulated Depreciation—
Machinery Dr. Cr. Bal.
Jan. 1, 2014 Credit Balance $264,000
June 18 Extraordinary Repairs $56,000 208,000
Sept. 25 Accum. Depreciation on
Machinery Sold 60,000 148,000
Dec. 31 Depreciation for 2012 $82,500 230,500

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 gain on sale of equip-
ment (September 25) was $36,600.

9 E23-19B (Worksheet Analysis of Selected Accounts) Data for Harvey Company are presented in
E23-18B.

Instructions
Prepare entries in journal form for all adjustments that should be made on a worksheet for a statement
of cash flows.
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8 • Chapter 23 Statement of Cash Flows

9 E23-20B (Worksheet Analysis of Selected Transactions) The transactions below took place during the
year 2014.
1. Convertible bonds payable with a carrying and par value of $500,000 were exchanged for unis-
sued common stock with a par value of $100,000.
2. The net income for the year was $1,250,000.
3. Depreciation charged on the building and equipment was $491,000.
4. Five delivery vehicles were traded in on the purchase of a fork lift and the following entry was
made.
Equipment 63,000
Accum. Depreciation—Delivery Vehicles 45,000
Delivery Vehicles 50,000
Cash 40,000
Gain on Disposal of Plant Assets 18,000
The Gain on Disposal of Plant Assets was credited to current operations as ordinary income.
5. Dividends in the amount of $200,000 declared in 2013 were paid during the current year. In addi-
tion, dividends of $100,000 were declared and paid during the current year.

Instructions
Show by journal entries the adjustments that would be made on a worksheet for a statement of cash flows.
9 E23-21B (Worksheet Preparation) Below is the comparative balance sheet for Unoboc Industries.
Dec. 31, Dec. 31,
2014 2013
Cash $ 9,500 $ 11,000
Short-term investments 35,000 50,000
Accounts receivable 71,000 80,000
Allowance for doubtful accounts (4,000) (5,000)
Inventories 61,800 41,000
Prepaid insurance –0– 2,000
Land 40,000 20,000
Buildings 140,000 140,000
Accumulated depreciation—buildings (20,000) (15,000)
Equipment 63,000 35,000
Accumulated depreciation—equipment (23,000) (11,100)
Trademarks 25,000 –0–
$398,300 $347,900

Dec. 31, Dec. 31,

2014 2013
Accounts payable $ 46,500 $ 36,000
Short-term notes payable 15,000 10,000
Accrued payables 5,000 10,000
Mortgage payable 65,000 70,000
Capital stock 63,000 58,000
Additional paid-in capital 156,000 134,000
Retained earnings 47,800 29,900
$398,300 $347,900

Dividends in the amount of $30,000 were declared and paid in 2014.

Instructions
From this information, prepare a worksheet for a statement of cash flows. Make reasonable assumptions
as appropriate. The short-term investments are considered available-for-sale, and no unrealized gains or
losses have occurred on these securities.