Deck 16: Statement of Cash Flows

Question 1

Using the statement of cash flows
You are considering an investment in a new start-up company, Giraffe Inc., an Internet service provider. A review of the company's financial statements reveals a negative retained earnings. In addition, it appears as though the company has been running a negative cash flow from operating activities since the company's inception.
How is the company staying in business under these circumstances Could this be a good investment

Answer 1

In the given case, Giraffe Inc., an internet service provider has been running with a negative cash flow from operating activities since its establishment and its financial statements reveals negative retained earnings.
Newly started companies incur losses in the starting fiscal years till the break-even period. So, till the break-even period retained earnings will be negative. The cash flow from operating activities should be positive. The operating cash flows are positive means all short term sources of finance are utilized to meet all short term obligations. If operating cash flows are negative then the long term sources of finance will be utilized for short term obligations. This effects the company growth and exists in long run. Therefore, Giraffe Inc. is facing highly risk situation and it is not advisable to make investment in the company.

Question 2

Statement of cash flows-direct method
The comparative balance sheet of Canace Products Inc. for December 31, 2016 and 2015, is as follows:

The income statement for the year ended December 31, 2016, is as follows:

Additional data obtained from an examination of the accounts in the ledger for 2016 are as follows:
a. Equipment and land were acquired for cash.
b. There were no disposals of equipment during the year.
c. The investments were sold for $176,000 cash.
d. The common stock was issued for cash.
e. There was a $28,000 debit to Retained Earnings for cash dividends declared.
Instructions
Prepare a statement of cash flows, using the direct method of presenting cash flows from operating activities.

Answer 2

Statement of cash flows - direct method.
The statement of cash flows reports a company's cash inflows and outflows for a period.
The statement of cash flow reports three types of cash flow activities, as follows:
1. Cash flows from operating activities
2. Cash flows from investing activities
3. Cash flows from financing activities
In direct method, the net cash flow from operating activities is calculated as follows.
Cash flow from operating activities Cash received from customers Cash payments for merchandise Cash payments for operating expense Income tax expense is given as $102,800. Since there is no opening and closing balance of income tax payable, it is the cash paid towards income tax.
Investments sold for $176,000
Land purchased during the year $520,000 for cash, per the additional information.
Equipment purchased during the year is $200,000 ($880,000 - $680,000)Cash paid for dividends Cash received through issue of common stock is as follows Canace Products Inc.
Statement of cash flows - direct method
For the year ended December 31, 2016

Question 3

For the current year, Packers Company decided to switch from the indirect method to the direct method for reporting cash flows from operating activities on the statement of cash flows. Will the change cause the amount of net cash flow from operating activities to be larger, smaller, or the same as if the indirect method had been used Explain.

Answer 3

It is given that Packers Company decided to switch from the indirect method to the direct method for reporting cash flows from operating activities on the statement of cash flows.
The cash flow from operating activities reported by indirect method will be same as reported by direct method. This is because under direct method, all cash payments for merchandise, operating expenses will be deducted directly from cash received from customers to ascertain cash flows from operating activities.
Under indirect method, all non-cash expenses are added to net income for the period, non-cash revenues will be deducted from net income for the period and changes in current assets and current liabilities balances will also considered to ascertain the cash flows from operating activities.

Question 4

Cash flows from operating activities-direct method
The income statement for Rhino Company for the current year ended June 30 and balances of selected accounts at the beginning and the end of the year are as follows:

Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the direct method.

Question 5

What are the major advantages of the indirect method of reporting cash flows from operating activities

Question 6

Statement of cash flows-direct method
The comparative balance sheet of Martinez Inc. for December 31, 2016 and 2015, is as follows:

The income statement for the year ended December 31, 2016, is as follows:

Additional data obtained from an examination of the accounts in the ledger for 2016 are as follows:
a. Equipment and land were acquired for cash.
b. There were no disposals of equipment during the year.
c. The investments were sold for $588,000 cash.
d. The common stock was issued for cash.
e. There was a $528,000 debit to Retained Earnings for cash dividends declared.
Instructions
Prepare a statement of cash flows, using the direct method of presenting cash flows from operating activities.

Question 7

Reporting changes in equipment on statement of cash flows
An analysis of the general ledger accounts indicates that office equipment, which cost $202,500 and on which accumulated depreciation totaled $84,375 on the date of sale, was sold for $101,250 during the year. Using this information, indicate the items to be reported on the statement of cash flows.

Question 8

Free cash flow
Sweeter Enterprises Inc. has cash flows from operating activities of $539,000. Cash flows used for investments in property, plant, and equipment totaled $210,000, of which 75% of this investment was used to replace existing capacity.
a. Determine the free cash flow for Sweeter Enterprises Inc.
b. How might a lender use free cash flow to determine whether or not to give Sweeter Enterprises Inc. a loan

Question 9

Effect of transactions on cash flows
State the effect (cash receipt or payment and amount) of each of the following transactions, considered individually, on cash flows:
a. Retired $500,000 of bonds, on which there was $5,000 of unamortized discount, for $525,000.
b. Sold 6,000 shares of $20 par common stock for $30 per share.
c. Sold equipment with a book value of $98,200 for $117,500.
d. Purchased land for $322,000 cash.
e. Purchased a building by paying $75,000 cash and issuing a $62,500 mortgage note payable.
f. Sold a new issue of $300,000 of bonds at 101.
g. Purchased 2,500 shares of $40 par common stock as treasury stock at $50 per share.
h. Paid dividends of $2.00 per share. There were 50,000 shares issued and 10,000 shares of treasury stock.

Question 10

Statement of cash flows Group Project
This activity will require two teams to retrieve cash flow statement information from the Internet. One team is to obtain the most recent year's statement of cash flows for Johnson Johnson , and the other team the most recent year's statement of cash flows for JetBlue Airways Corp.
The statement of cash flows is included as part of the annual report information that is a required disclosure to the Securities and Exchange Commission (SEC). SEC documents can be retrieved using the EdgarScan™ service at www.sec.gov/edgar/searchedgar/companysearch.html.
To obtain annual report information, key in a company name in the appropriate space. EdgarScan will list the reports available to you for the company you've selected. Select the most recent annual report filing, identified as a 10-K or 10-K405. EdgarScan provides an outline of the report, including the separate financial statements. You can double-click the income statement and balance sheet for the selected company into an Excel TM spreadsheet for further analysis.
As a group, compare the two statements of cash flows.
a. How are Johnson Johnson and JetBlue Airways Corp. similar or different regarding cash flows
b. Compute and compare the free cash flow for each company, assuming additions to property, plant, and equipment replace current capacity.

Question 11

Name five common major classes of operating cash receipts or operating cash payments presented on the statement of cash flows when the cash flows from operating activities are reported by the direct method.

Question 12

Free cash flow
The financial statements for Nike, Inc. , are provided in Appendix B at the end of the text.
a. Determine the free cash flow for the most recent fiscal year. Assume that 90% of the additions to property, plant, and equipment were used to maintain productive capacity. Round to the nearest thousand dollars.
b. How might a lender use free cash flow to determine whether or not to give Nike, Inc., a loan
c. Would you feel comfortable giving Nike a loan, based on the free cash flow calculated in (a)

Question 13

A Adjustments to net income-indirect method
Pearl Corporation's accumulated depreciation-furniture account increased by $8,400, while $3,080 of patent amortization was recognized between balance sheet dates. There were no purchases or sales of depreciable or intangible assets during the year. In addition, the income statement showed a loss of $4,480 from the sale of land. Reconcile a net income of $120,400 to net cash flow from operating activities.
B Adjustments to net income-indirect method
Ya Wen Corporation's accumulated depreciation-equipment account increased by $8,750, while $3,250 of patent amortization was recognized between balance sheet dates. There were no purchases or sales of depreciable or intangible assets during the year. In addition, the income statement showed a gain of $18,750 from the sale of investments. Reconcile a net income of $175,000 to net cash flow from operating activities.

Question 14

If salaries payable was $100,000 at the beginning of the year and $75,000 at the end of the year, should $25,000 decrease be added to or deducted from income to determine the amount of cash flows from operating activities by the indirect method Explain.

Question 15

Reporting changes in equipment on statement of cash flows
An analysis of the general ledger accounts indicates that delivery equipment, which cost $80,000 and on which accumulated depreciation totaled $36,000 on the date of sale, was sold for $37,200 during the year. Using this information, indicate the items to be reported on the statement of cash flows.

Question 16

Free cash flow
Lovato Motors Inc. has cash flows from operating activities of $720,000. Cash flows used for investments in property, plant, and equipment totaled $440,000, of which 85% of this investment was used to replace existing capacity.
Determine the free cash flow for Lovato Motors Inc.

Question 17

Statement of cash flows-indirect method
The comparative balance sheet of Del Ray Enterprises Inc. at December 31, 2016 and 2015, is as follows:

Additional data obtained from the income statement and from an examination of the accounts in the ledger for 2016 are as follows:
a. Net income, $332,000
b. Depreciation reported on the income statement, $83,400
c. Equipment was purchased at a cost of $162,800 and fully depreciated equipment costing $44,800 was discarded, with no salvage realized.
d. The mortgage note payable was not due until 2018 but the terms permitted earlier payment without penalty.
e. 10,000 shares of common stock were issued at $20 for cash.
f. Cash dividends declared and paid, $153,600
Instructions
Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities.

Question 18

Cash flows from operating activities-indirect method
The net income reported on the income statement for the current year was $400,000. Depreciation recorded on store equipment for the year amounted to $16,000. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:

a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method.
b. Briefly explain why net cash flow from operating activities is different than net income.

Question 19

Reporting land transactions on statement of cash flows
On the basis of the details of the following fixed asset account, indicate the items to be reported on the statement of cash flows:

Question 20

Statement of cash flows-indirect method
The comparative balance sheet of Harris Industries Inc. at December 31, 2016 and 2015, is as follows:

An examination of the income statement and the accounting records revealed the following additional information applicable to 2016:
a. Net income, $524,580.
b. Depreciation expense reported on the income statement: buildings, $51,660; machinery and equipment, $22,680.
c. Patent amortization reported on the income statement, $5,040.
d. A building was constructed for $579,600.
e. A mortgage note for $224,000 was issued for cash.
f. 30,000 shares of common stock were issued at $13 in exchange for the bonds payable.
g. Cash dividends declared, $131,040.
Instructions
Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities.

Question 21

A Land transactions on the statement of cash flows
Milo Corporation purchased land for $540,000. Later in the year, the company sold a different piece of land with a book value of $270,000 for $180,000. How are the effects of these transactions reported on the statement of cash flows
B Land transactions on the statement of cash flows
IZ Corporation purchased land for $400,000. Later in the year, the company sold a different piece of land with a book value of $200,000 for $240,000. How are the effects of these transactions reported on the statement of cash flows

Question 22

Reporting stockholders' equity items on statement of cash flows
On the basis of the following stockholders' equity accounts, indicate the items, exclusive of net income, to be reported on the statement of cash flows. There were no unpaid dividends at either the beginning or the end of the year.

Question 23

Analysis of statement of cash flows
Dillip Lachgar is the president and majority shareholder of Argon Inc., a small retail store chain. Recently, Dillip submitted a loan application for Argon Inc. to Compound Bank. It called for a $600,000, 9%, 10-year loan to help finance the construction of a building and the purchase of store equipment, costing a total of $750,000. This will enable Argon Inc. to open a store in the town of Compound. Land for this purpose was acquired last year. The bank's loan officer requested a statement of cash flows in addition to the most recent income statement, balance sheet, and retained earnings statement that Dillip had submitted with the loan application.
As a close family friend, Dillip asked you to prepare a statement of cash flows. From the records provided, you prepared the following statement:

After reviewing the statement, Dillip telephoned you and commented, "Are you sure this statement is right" Dillip then raised the following questions:
1. "How can depreciation be a cash flow"
2. "Issuing common stock for the land is listed in a separate schedule. This transaction has nothing to do with cash! Shouldn't this transaction be eliminated from the statement"
3. "How can the gain on the sale of investments be a deduction from net income in determining the cash flow from operating activities"
4. "Why does the bank need this statement anyway They can compute the increase in cash from the balance sheets for the last two years."
After jotting down Dillip's questions, you assured him that this statement was "right." But to alleviate Dillip's concern, you arranged a meeting for the following day.
a. How would you respond to each of Dillip's questions
b. Do you think that the statement of cash flows enhances the chances of Argon Inc. receiving the loan Discuss.

Question 24

Statement of cash flows-direct method applied to PR 16-1A
The comparative balance sheet of Cromme Inc. for December 31, 2016 and 2015, is as follows:

The income statement for the year ended December 31, 2016, is as follows:

Additional data obtained from an examination of the accounts in the ledger for 2016 are as follows:
a. The investments were sold for $280,000 cash.
b. Equipment and land were acquired for cash.
c. There were no disposals of equipment during the year.
d. The common stock was issued for cash.
e. There was a $96,000 debit to Retained Earnings for cash dividends declared.
Instructions
Prepare a statement of cash flows, using the direct method of presenting cash flows from operating activities.

Question 25

Reporting land acquisition for cash and mortgage note on statement of cash flows
On the basis of the details of the following fixed asset account, indicate the items to be reported on the statement of cash flows:

Question 26

A corporation issued $2,000,000 of common stock in exchange for $2,000,000 of fixed assets. Where would this transaction be reported on the statement of cash flows

Question 27

Statement of cash flows-direct method applied to PR 16-1B
The comparative balance sheet of Merrick Equipment Co. for Dec. 31, 2016 and 2015, is:

The income statement for the year ended December 31, 2016, is as follows:

Additional data obtained from an examination of the accounts in the ledger for 2016 are as follows:
a. Equipment and land were acquired for cash.
b. There were no disposals of equipment during the year.
c. The investments were sold for $91,800 cash.
d. The common stock was issued for cash.
e. There was a $102,000 debit to Retained Earnings for cash dividends declared.
Instructions
Prepare a statement of cash flows, using the direct method of presenting cash flows from operating activities.

Question 28

Reporting issuance and retirement of long-term debt
On the basis of the details of the following bonds payable and related discount accounts, indicate the items to be reported in the Financing Activities section of the statement of cash flows, assuming no gain or loss on retiring the bonds:

Question 29

Classifying cash flows
Identify the type of cash flow activity for each of the following events (operating, investing, or financing):
a. Net income
b. Paid cash dividends
c. Issued common stock
d. Issued bonds
e. Redeemed bonds
f. Sold long-term investments
g. Purchased treasury stock
h. Sold equipment
i. Issued preferred stock
j. Purchased buildings
k. Purchased patents

Question 30

A long-term investment in bonds with a cost of $500,000 was sold for $600,000 cash. (a) What was the gain or loss on the sale (b) What was the effect of the transaction on cash flows (c) How should the transaction be reported on the statement of cash flows if cash flows from operating activities are reported by the indirect method

Question 31

Determining net income from net cash flow from operating activities
Curwen Inc. reported net cash flow from operating activities of $357,500 on its statement of cash flows for the year ended December 31, 2016. The following information was reported in the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method:

a. Determine the net income reported by Curwen Inc. for the year ended December 31, 2016.
b. Briefly explain why Curwen's net income is different than net cash flow from operating activities.

Question 32

A Changes in current operating assets and liabilities-indirect method
Alpenrose Corporation's comparative balance sheet for current assets and liabilities was as follows:

Adjust net income of $207,000 for changes in operating assets and liabilities to arrive at net cash flow from operating activities.
B Changes in current operating assets and liabilities-indirect method
Huluduey Corporation's comparative balance sheet for current assets and liabilities was as follows:

Adjust net income of $160,000 for changes in operating assets and liabilities to arrive at net cash flow from operating activities.

Question 33

Cash flows from operating activities-indirect method
The net income reported on the income statement for the current year was $320,000. Depreciation recorded on equipment and a building amounted to $96,000 for the year. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:

a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method.
b. If the direct method had been used, would the net cash flow from operating activities have been the same Explain.

Question 34

Cash flows from operating activities-indirect method
Selected data derived from the income statement and balance sheet of National Beverage Co. for a recent year are as follows:

a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method for National Beverage Co.
b. Interpret your results in part (a).

Question 35

Ethics and professional conduct in business
Lucas Hunter, president of Simmons Industries Inc., believes that reporting operating cash flow per share on the income statement would be a useful addition to the company's just completed financial statements. The following discussion took place between Lucas Hunter and Simmons' controller, John Jameson, in January, after the close of the fiscal year:
Lucas : I've been reviewing our financial statements for the last year. I am disappointed that our net income per share has dropped by 10% from last year. This won't look good to our shareholders. Is there anything we can do about this
John : What do you mean The past is the past, and the numbers are in. There isn't much that can be done about it. Our financial statements were prepared according to generally accepted accounting principles, and I don't see much leeway for significant change at this point.
Lucas : No, no. I'm not suggesting that we "cook the books." But look at the cash flow from operating activities on the statement of cash flows. The cash flow from operating activities has increased by 20%. This is very good news-and, I might add, useful information. The higher cash flow from operating activities will give our creditors comfort.
John: Well, the cash flow from operating activities is on the statement of cash flows, so I guess users will be able to see the improved cash flow figures there.
Lucas: This is true, but somehow I feel that this information should be given a much higher profile. I don't like this information being "buried" in the statement of cash flows. You know as well as I do that many users will focus on the income statement. Therefore, I think we ought to include an operating cash flow per share number on the face of the income statement-someplace under the earnings per share number. In this way, users will get the complete picture of our operating performance. Yes, our earnings per share dropped this year, but our cash flow from operating activities improved! And all the information is in one place where users can see and compare the figures. What do you think
John: I've never really thought about it like that before. I guess we could put the operating cash flow per share on the income statement, under the earnings per share. Users would really benefit from this disclosure. Thanks for the idea-I'll start working on it.
Lucas: Glad to be of service.
How would you interpret this situation Is John behaving in an ethical and professional manner

Question 36

Statement of cash flows-indirect method
The comparative balance sheet of Whitman Co. at December 31, 2016 and 2015, is as follows:

The noncurrent asset, noncurrent liability, and stockholders' equity accounts for 2016 are as follows:



Instructions
Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities.

Question 37

Cash received from customers-direct method
Sales reported on the income statement were $480,000. The accounts receivable balance increased $54,000 over the year. Determine the amount of cash received from customers.
Sales reported on the income statement were $112,000. The accounts receivable balance decreased $10,500 over the year. Determine the amount of cash received from customers.

Question 38

Statement of cash flows-indirect method
The comparative balance sheet of Pelican Joe Industries Inc. for December 31, 2016 and 2015, is as follows:

The following additional information is taken from the records:
1. Land was sold for $125.
2. Equipment was acquired for cash.
3. There were no disposals of equipment during the year.
4. The common stock was issued for cash.
5. There was a $325 credit to Retained Earnings for net income.
6. There was an $100 debit to Retained Earnings for cash dividends declared.
a. Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities.
b. Was Pelican Joe Industries Inc. net cash flow from operations more or less than net income What is the source of this difference

Question 39

What is the principal disadvantage of the direct method of reporting cash flows from operating activities

Question 40

Statement of cash flows-indirect method
The comparative balance sheet of Coulson, Inc. at December 31, 2016 and 2015, is as follows:

The noncurrent asset, noncurrent liability, and stockholders' equity accounts for 2016 are as follows:


Instructions
Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities.

Question 41

Cash flows from operating activities-indirect method
The income statement disclosed the following items for 2016:

Balances of the current assets and current liability accounts changed between December 31, 2015, and December 31, 2016, as follows:

a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method.
b. Briefly explain why net cash flows from operating activities is different than net income.

Question 42

Statement of cash flows-indirect method
List the errors you find in the following statement of cash flows. The cash balance at the beginning of the year was $240,000. All other amounts are correct, except the cash balance at the end of the year.

Question 43

Cash flows from operating activities-net loss
On its income statement for a recent year, United Continental Holdings, Inc. , the parent company of United Airlines, reported a net loss of $723 million from operations. On its statement of cash flows, it reported $935 million of cash flows from operating activities.
Explain this apparent contradiction between the loss and the positive cash flows.

Question 44

Analysis of cash flow from operations
The Commercial Division of Tidewater Inc. provided the following information on its cash flow from operations:

The manager of the Commercial Division provided the accompanying memo with this report:
From: Senior Vice President, Commercial Division
I am pleased to report that we had earnings of $945,000 over the last period. This resulted in a return on invested capital of 8%, which is near our targets for this division. I have been aggressive in building the revenue volume in the division. As a result, I am happy to report that we have increased the number of new credit card customers as a result of an aggressive marketing campaign. In addition, we have found some excellent merchandise opportunities. Some of our suppliers have made some of their apparel merchandise available at a deep discount. We have purchased as much of these goods as possible in order to improve profitability. I'm also happy to report that our vendor payment problems have improved. We are nearly caught up on our overdue payables balances.
Comment on the senior vice president's memo in light of the cash flow information.

Question 45

Cash payments for merchandise-direct method
The cost of merchandise sold reported on the income statement was $770,000. The accounts payable balance decreased $44,000, and the inventory balance decreased by $66,000 over the year. Determine the amount of cash paid for merchandise.

Question 46

Cash flows from operating activities-direct method
The cash flows from operating activities are reported by the direct method on the statement of cash flows. Determine the following:
a. If sales for the current year were $753,500 and accounts receivable decreased by $48,400 during the year, what was the amount of cash received from customers
b. If income tax expense for the current year was $50,600 and income tax payable decreased by $5,500 during the year, what was the amount of cash payments for income taxes
c. Briefly explain why the cash received from customers in (a) is different than sales.

Question 47

A Classifying cash flows
Identify whether each of the following would be reported as an operating, investing, or financing activity on the statement of cash flows:
a. Repurchase of common stock
b. Cash received from customers
c. Payment of accounts payable
d. Retirement of bonds payable
e. Purchase of equipment
f. Purchase of inventory for cash
B Classifying cash flows
Identify whether each of the following would be reported as an operating, investing, or financing activity on the statement of cash flows:
a. Purchase of investments
b. Disposal of equipment
c. Payment for selling expenses
d. Collection of accounts receivable
e. Cash sales
f. Issuance of bonds payable

Question 48

A retail business, using the accrual method of accounting, owed merchandise creditors (accounts payable) $320,000 at the beginning of the year and $350,000 at the end of the year. How would the $30,000 increase be used to adjust net income in determining the amount of cash flows from operating activities by the indirect method Explain.

Question 49

Fully depreciated equipment costing $50,000 was discarded. What was the effect of the transaction on cash flows if (a) $15,000 cash is received for the equipment, (b) no cash is received for the equipment

Question 50

Cash paid for merchandise purchases
The cost of merchandise sold for Kohl's Corporation for a recent year was $11,625 million The balance sheet showed the following current account balances (in millions):

Determine the amount of cash payments for merchandise.

Question 51

Statement of cash flows-indirect method
The comparative balance sheet of Cromme Inc. for December 31, 2016 and 2015, is shown as follows:

Additional data obtained from an examination of the accounts in the ledger for 2016 are as follows:
a. The investments were sold for $280,000 cash.
b. Equipment and land were acquired for cash.
c. There were no disposals of equipment during the year.
d. The common stock was issued for cash.
e. There was a $199,540 credit to Retained Earnings for net income.
f. There was a $96,000 debit to Retained Earnings for cash dividends declared.
Instructions
Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities.

Question 52

Cash flows from operating activities-indirect method
Indicate whether each of the following would be added to or deducted from net income in determining net cash flow from operating activities by the indirect method:
a. Decrease in merchandise inventory
b. Increase in accounts receivable
c. Increase in accounts payable
d. Loss on retirement of long-term debt
e. Depreciation of fixed assets
f. Decrease in notes receivable due in 60 days from customers
g. Increase in salaries payable
h. Decrease in prepaid expenses
i. Amortization of patent
j. Increase in notes payable due in 120 days to vendors
k. Gain on disposal of fixed assets

Question 53

Determining cash payments to stockholders
The board of directors declared cash dividends totaling $585,000 during the current year. The comparative balance sheet indicates dividends payable of $167,625 at the beginning of the year and $146,250 at the end of the year. What was the amount of cash payments to stockholders during the year

Question 54

Determining selected amounts for cash flows from operating activities-direct method
Selected data taken from the accounting records of Ginis Inc. for the current year ended December 31 are as follows:

During the current year, the cost of merchandise sold was $1,031,550, and the operating expenses other than depreciation were $179,400. The direct method is used for presenting the cash flows from operating activities on the statement of cash flows.
Determine the amount reported on the statement of cash flows for (a) cash payments for merchandise and (b) cash payments for operating expenses.

Question 55

Statement of cash flows-indirect method
The comparative balance sheet of Merrick Equipment Co. for December 31, 2016 and 2015, is as follows:

Additional data obtained from an examination of the accounts in the ledger for 2016 are as follows:
a. Equipment and land were acquired for cash.
b. There were no disposals of equipment during the year.
c. The investments were sold for $91,800 cash.
d. The common stock was issued for cash.
e. There was a $141,680 credit to Retained Earnings for net income.
f. There was a $102,000 debit to Retained Earnings for cash dividends declared.
Instructions
Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities.

Question 56

A Cash flows from operating activities-indirect method
Pettygrove Inc. reported the following data:

Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method.
B Cash flows from operating activities-indirect method
Staley Inc. reported the following data:

Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method.

Question 57

Free cash flow
McMahon Inc. reported the following on the company's statement of cash flows in 2016 and 2015:

Seventy percent of the net cash flow used for investing activities was used to replace existing capacity.
a. Determine McMahon's free cash flow for both years.
b. Has McMahon's free cash flow improved or declined from 2015 to 2016
Free cash flow
Dillin Inc. reported the following on the company's statement of cash flows in 2016 and 2015:

Eighty percent of the net cash flow used for investing activities was used to replace existing capacity.
a. Determine Dillin's free cash flow for both years.
b. Has Dillin's free cash flow improved or declined from 2015 to 2016

Question 58

Cash flows from operating activities-direct method
The income statement of Booker T Industries Inc. for the current year ended June 30 is as follows:

Changes in the balances of selected accounts from the beginning to the end of the current year are as follows:

a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the direct method.
b. What does the direct method show about a company's cash flows from operating activities that is not shown using the indirect method