Week 4 Exercises

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Exercise 5-13

The major classifications of activities reported in the statement of cash flows are operating, investing, and financing. Classify each of the transactions listed below as:

1. Operating activity-add to net income.
2. Operating activity-deduct from net income.
3. Investing activity.
4. Financing activity.
5. Reported as significant noncash activity

The transactions are as follows.

  
Transactions
 
Classifications of Activities
(a) Issuance of common stock. 
(b) Purchase of land and building. 
(c) Redemption of bonds 
(d) Sale of equipment. 
(e) Depreciation of machinery. 
(f) Amortization of patent. 
(g) Issuance of bonds for plant assets. 
(h) Payment of cash dividends. 
(i) Exchange of furniture for office equipment. 
(j) Purchase of treasury stock. 
(k) Loss on sale of equipment. 
(l) Increase in accounts receivable during the year. 
(m) Decrease in accounts payable during the year. 

Exercise 5-16

A comparative balance sheet for Shabbona Corporation is presented below.

  
December 31
Assets 
2014
 
2013
Cash $ 73,000  $ 22,000 
Accounts receivable 82,000  66,000 
Inventory 180,000  189,000 
Land 71,000  110,000 
Equipment 260,000  200,000 
Accumulated Depreciation-Equipment (69,000) (42,000)
   Total $597,000  $545,000 
Liabilities and Stockholders' Equity      
Accounts payable $ 34,000  $ 47,000 
Bonds payable 150,000  200,000 
Common stock ($1 par) 214,000  164,000 
Retained earnings 199,000  134,000 
   Total $597,000  $545,000 

Additional information:

1. Net income for 2014 was $125,000.
2. Cash dividends of $60,000 were declared and paid.
3. Bonds payable amounting to $50,000 were retired through issuance of common stock.

Warning

 

  
 
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      Issued common stock to retire $
 liquidity. Its financial flexibility is 

Exercise 23-2

Each of the following items must be considered in preparing a statement of cash flows (indirect method) for Turbulent Indigo Inc. for the year ended December 31, 2014. State where each item is to be shown in the statement of cash flows, if at all.

  
Items
  
(a) Plant assets that had cost $20,000 6 years before and were being depreciated on a straight-line basis over 10 years with no estimated scrap value were sold for $5,300. 
     
(b) During the year, 10,000 shares of common stock with a stated value of $10 a share were issued for $43 a share. 
     
(c) Uncollectible accounts receivable in the amount of $27,000 were written off against Allowance for Doubtful Accounts. 
     
(d) The company sustained a net loss for the year of $50,000. Depreciation amounted to $22,000, and a gain of $9,000 was realized on the sale of land for $39,000 cash. 
     
(e) A 3-month U.S. Treasury bill was purchased for $100,000. The company uses a cash and cash-equivalent basis for its cash flow statement. 
     
(f) Patent amortization for the year was $20,000. 
     
(g) The company exchanged common stock for a 70% interest in Tabasco Co. for $900,000. 
     
(h) During the year, treasury stock costing $47,000 was purchased. 

Warning

 

  
 
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