W1 Assignment – Cash Flow

Chapter One Problems

Please complete the following 5 exercises
below in either Excel or a word document (but must be single document). You
must show your work where appropriate (leaving the calculations within Excel
cells is acceptable). Save the document, and submit it in the appropriate week
using the Assignment Submission button.

Ch
1 Critical Thinking Question 5:

Answer the following
questions:
Why are noncash transactions, such as the exchange of common stock a building,
included on a statement of cash flows? How are these noncash transactions
disclosed?

Chapter
1 Exercise 1:

1. Classification of activities
Classify each of the following transactions as arising from an
operating (O), investing (I), financing (F), or noncash investing/financing (N)
activity.

a. ________ Received
$80,000 from the sale of land.

b. ________ Received $3,200
from cash sales.

c. ________ Paid a $5,000
dividend.

d. ________ Purchased
$8,800 of merchandise for cash.

e. ________ Received
$100,000 from the issuance of common stock.

f. ________ Paid $1,200 of
interest on a note payable.

g. ________ Acquired a new
laser printer by paying $650.

h. ________ Acquired a
$400,000 building by signing a $400,000 mortgage note.

Chapter
1 Exercise 4:

4. Overview of direct and indirect methods

Evaluate the comments
that follow as being True or False. If the comment is false, briefly explain
why.

a. Both the direct and
indirect methods will produce the same cash flow from operating activities.

b. Depreciation expense is
added back to net income when the indirect method is used.

c. One of the advantages of
using the direct method rather than the indirect method is that larger cash
flows from financing activities will be reported.

d. The cash paid to
suppliers is normally disclosed on the statement of cash flows when the
indirect method of statement preparation is employed.

e. The dollar change in the
Merchandise Inventory account appears on the statement of cash flows only when
the direct method of statement preparation is used.

Chapter
1 Exercise 6:

6. Equipment transaction and cash flow
reporting

Property, plant, & equipment	Dec. 31, 19X4	Dec. 31, 19X3
Land	$94,000	$94,000
Equipment	652,000	527,000
Less: Accumulated depreciation	-316,000	-341,000

New equipment purchased during 20×4 totaled $280,000. The 20×4
income statement disclosed equipment depreciation expense of $41,000 and a
$9,000 loss on the sale of equipment.

a. Determine the cost and
accumulated depreciation of the equipment sold during 19X4.

b. Determine the selling
price of the equipment sold.

c. Show how the sale of
equipment would appear on a statement of cash flows prepared by using the
indirect method.

Chapter
1 Problem 3:

3. Cash flow information: Direct and indirect
methods
The comparative year-end balance sheets of Sign Graphics, Inc.,
revealed the following activity in the company’s current accounts:

	19X5	19X4	Increase / Decrease)
Current assets
Cash	$55,400	$35,200	$20,200
Accounts receivable (net)	83,800	88,000	-4,200
Inventory	243,400	233,800	9,600
Prepaid expenses	25,400	24,200	1,200
Current liabilities
Accounts payable	$123,600	$140,600	($17,000)
Taxes payable	43,600	49,200	-5,600
Interest payable	9,000	6,400	2,600
Accrued liabilities	38,800	60,400	-21,600
Note payable	44,000	—	44,000

The accounts payable
were for the purchase of merchandise. Prepaid expenses and accrued liabilities
relate to the firm’s selling and administrative expenses. The company’s
condensed income statement follows.

SIGN GRAPHICS INC.
Income Statement
for the Year Ended December 31, 20×5
Sales							$713,800
Less: Cost of goods sold					323,000
Gross profit						$390,800
Less: Selling & administrative expenses		$186,000
Depreciation expense					17,000
Interest expense					27,000		230,000
Add: gain on sale of land					$160,800
							21,800
Income before taxes					$182,600
Income taxes						36,800
Net income						$145,800

Other data:

1.
Long-term investments were purchased for cash at
a cost of $74,600.

2.
Cash proceeds from the sale of land totaled
$76,200.

3.
Store equipment of $44,000 was purchased by
signing a short-term note payable. Also, a $150,000 telecommunications system
was acquired by issuing 3,000 shares of preferred stock.

4.
A long-term note of $49,400 was repaid.

5.
Twenty thousand shares of common stock were
issued at $5.19 per share.

6.
The company paid cash dividends amounting to
$128,600.

Instructions:

a. Prepare the operating activities
section of the company’s statement of cash flows, assuming use of:

1. The direct method.

2. The indirect method.

b. Prepare the investing
and financing activities sections of the statement of cash flows.