Chapter 12, Problem 16AP

a.

To determine

Calculate the cash flow for the retirement of bond.

Explanation of Solution

Beginning balance in bonds payable account = $800,000

Ending balance in bonds payable account = $600,000

Amount of bonds issued during the year = $100,000

$\begin{array}{l}\text{Amount}\text{for}\text{the}\\ \text{retirement of bond}\end{array}]=\left[\begin{array}{l}\left(\begin{array}{l}\text{Beginning balance}\\ \text{of bonds payable}\end{array}\right)+\left(\begin{array}{l}\text{Bonds issued}\\ \text{during the year}\end{array}\right)\\ -\left(\begin{array}{l}\text{Ending balance}\\ \text{of}\text{bonds payable}\end{array}\right)\end{array}\right]$

$\begin{array}{c}\begin{array}{l}\text{Amount}\text{for}\text{the}\\ \text{retirement of bond}\end{array}]=\left(\$800,000+\$100,000\right)-\$600,000\\ =\$900,000-\$600,000\\ =\$300,000\end{array}$

Conclusion

Therefore, the cash flow for the retirement of bond is $300,000.

b.

To determine

Calculate the cash flow from the issuance of common stock.

Explanation of Solution

Beginning balance in common stock account = $180,000

Ending balance in common stock account = $210,000

$\begin{array}{l}\text{Amount of cash}\text{from the}\\ \text{issuance of}\text{common stock}\end{array}]=\left(\begin{array}{l}\text{Ending balance}\\ \text{of common stock}\end{array}\right)-\left(\begin{array}{l}\text{Beginning balance}\\ \text{of}\text{common}\text{stock}\end{array}\right)$

$\begin{array}{c}\begin{array}{l}\text{Amount of cash}\text{from the}\\ \text{issuance of}\text{common stock}\end{array}]=\left(\$210,000+\$180,000\right)\\ =\$30,000\end{array}$

Conclusion

Therefore, the cash flow from the issuance of common stock is $30,000.

c.

To determine

Calculate the cash flow from the issuance of treasury stock.

Explanation of Solution

Beginning balance in treasury stock account = $5,000

Ending balance in treasury stock account = $20,000

$\begin{array}{l}\text{Amount of cash}\text{from the}\\ \text{issuance of}\text{treasury stock}\end{array}]=\left(\begin{array}{l}\text{Ending balance}\\ \text{of treasury stock}\end{array}\right)-\left(\begin{array}{l}\text{Beginning balance}\\ \text{of}\text{treasury}\text{stock}\end{array}\right)$

$\begin{array}{c}\begin{array}{l}\text{Amount of cash}\text{from the}\\ \text{issuance of}\text{treasury stock}\end{array}]=\left(\$20,000+\$5,000\right)\\ =\$15,000\end{array}$

Conclusion

Therefore, the cash flow from the issuance of treasury stock is $15,000.

d.

To determine

Calculate the cash flow for the payment of dividends.

Explanation of Solution

Beginning balance in retained earnings account = $75,000

Ending balance in retained earnings account = $86,000

Amount of net income during the year = $32,000

$\begin{array}{l}\text{Amount}\text{for}\text{the}\\ \text{payment of dividend}\end{array}]=\left[\begin{array}{l}\left(\text{Beginning balance}\right)+\left(\text{Net income}\right)\\ -\left(\text{Ending balance}\right)\end{array}\right]$

$\begin{array}{c}\begin{array}{l}\text{Amount}\text{for}\text{the}\\ \text{payment of dividend}\end{array}]=\left(\$75,000+\$32,000\right)-\$86,000\\ =\$107,000-\$86,000\\ =\$21,000\end{array}$

Conclusion

Therefore, the cash flow for the payment of dividends is $21,000.

e.

To determine

Prepare the financing activities section of the statement of cash flows for Year 2.

Explanation of Solution

Statement of cash flows: Statement of cash flows reports all the cash transactions which are responsible for inflow and outflow of cash and result of these transactions is reported as ending balance of cash at the end of reported period. Statement of cash flows includes the changes in cash balance due to operating, investing, and financing activities.

Cash flows from financing activities: Cash provided by or used in financing activities is a section of statement of cash flows. It includes raising cash from long-term debt or payment of long-term debt, which is used for business operations.

Cash flows from financing activities

Add: Issuance of common stock

Proceeds from borrowings

Proceeds from sale of treasury stock

Proceeds from issuance of debt

Deduct: Payment of dividend

Repayment of debt

Interest paid

Redemption of debt

Purchase of treasury stock

Net cash provided from or used by financing activities

Table (1)

The financing activities section of the statement of cash flows:

F Company
Statement of Cash Flows (Partial)
Year 2
Details	Amount ($)	Amount ($)
Financing activities:
Amount received from issuance of bond liabilities	100,000
Amount received from issuance of common stock (Refer point b.)	30,000
Less: Amount paid for the bond liabilities (Refer point a.)	(300,000)
Amount paid for purchase of treasury stock (Refer point c.)	(15,000)
Dividend paid (Refer point d.)	(21,000)
Net cash used for financing activities		($206,000)

Table (2)