INTERMEDIATE ACCOUNTING
INTERMEDIATE ACCOUNTING
8th Edition
ISBN: 9780078025839
Author: J. David Spiceland
Publisher: McGraw-Hill Education
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Chapter 21, Problem 21.19P
To determine

Statement of cash flows: It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company.

Direct method: The direct method uses the cash basis of accounting for the preparation of the statement of cash flows. It takes into account those revenues and expenses for which cash is either received or paid.

Cash flows from operating activities: Cash flows from operating activity represent the net cash flows from the general operation of the business by comparing the cash receipt and cash payments.

Cash Receipts: It encompasses all the cash receipts from sale of goods and on account receivable.

Cash Payments: It encompasses all the cash payments that are made to suppliers of goods and all expenses that are paid.

The below table shows the way of calculation of cash flows from operating activities:

Cash flows from operating activities (Direct method)
 
Add: Cash receipts.
Cash receipt from customer
 
Less: Cash payments:
To supplier
For operating expenses
Income tax expenses
Net cash provided from or used by operating activities

Table (1)

Cash flows from investing activities: Cash provided by or used in investing activities is a section of statement of cash flows. It includes the purchase or sale of equipment or land, or marketable securities, which is used for business operations.

The below table shows the way of calculation of cash flows from investing activities:

Cash flows from investing activities
 
Add: Proceeds from sale of fixed assets
         Sale of marketable securities / investments
 
Deduct: Purchase of fixed assets/long-lived assets
              Purchase of marketable securities
Net cash provided from or used by investing activities

Table (2)

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.

The below table shows the way of calculation of cash flows from financing activities:

Cash flows from financing activities
 
Add: Issuance of common stock
          Proceeds from borrowings
          Proceeds from issuance of debt
          Issuance of bonds payable
 
Deduct: Payment of dividend
              Repayment of debt
              Interest paid
              Redemption of debt
              Repurchase of stock
Net cash provided from or used by financing activities

Table (3)

T-Account: For all the business transactions, journal entries are passed and are transferred to the respective ledger accounts where it is recorded and summarized in either side of the ‘T’ format.

To Prepare: T-account for balance sheet account of D Company for the year ended December 31, 2016.

Expert Solution
Check Mark

Explanation of Solution

Cash Account: (all amounts are in 000s)

Cash Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Operatingactivities:   December 31, 2016 Operatingactivities:  
  From customers 203   To suppliers of goods 132
  From dividend received 2     To employees 28
          For interest 5
          For income taxes 18
  Investing activities:       Investing activities:  
  Sale of building 7     Purchase of long-term investment 5
          Purchase of equipment 15
  Financing activities:       Financing activities:  
  Sale of bonds payable 25     Payment of dividends 13
          Purchase of treasury stock 8
  Balance 13        

Table (4)

Accounts Receivable:

Accounts Receivable Account
Date Details

Debit

($)

  Date Details

Credit

($)

      December 31, 2016 Decrease in accounts receivable 3
        Balance 3

Table (5)

Inventory:

Inventory Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Increase in inventory 5      
  Balance 5      

Table (6)

Dividend Receivable:

Dividend ReceivableAccount
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Increase in dividend receivable 1      
  Balance 1      

Table (7)

Long-Term Investment:

Long-Term InvestmentAccount
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Increase in long-term investment 5      
  Balance 5      

Table (8)

Land:

Land Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Increase in land 30      
  Balance 30      

Table (9)

Building and Equipment:

Building and Equipment Account
Date Details

Debit

($)

  Date Details

Credit

($)

      December 31, 2016 Decrease in building and equipment 25
December 31, 2016 Purchase of equipment 15   Balance 40

Table (10)

Accumulated Depreciation:

Accumulated Depreciation Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Accumulated depreciation 25      
  Depreciation 30 December 31, 2016 Balance 5

Table (11)

Accounts Payable:

Accounts Payable Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Decrease in accounts payable 7      
  Balance 7      

Table (12)

Salary Payable:

Salary Payable Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Decrease in salary payable 3      
  Balance 3      

Table (13)

Interest Payable:

Interest Payable Account
Date Details

Debit

($)

  Date Details

Credit

($)

      December 31, 2016 Increase in interest payable 2
        Balance 2

Table (14)

Income Tax Payable:

Income Tax PayableAccount
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Decrease in income tax payable 1      
  Balance 1      

Table (15)

Notes Payable:

Notes Payable Account
Date Details

Debit

($)

  Date Details

Credit

($)

      December 31, 2016 Notes payable 30
        Balance 30

Table (16)

Bonds Payable:

Bonds Payable Account
Date Details

Debit

($)

  Date Details

Credit

($)

      December 31, 2016 Bonds payable 25
        Balance 25

Table (17)

Discount on Bonds:

Discount on BondsAccount
Date Details

Debit

($)

  Date Details

Credit

($)

      December 31, 2016 Discount on bond 1
        Balance 1

Table (18)

Common stock:

Common stock Account
Date Details

Debit

($)

  Date Details

Credit

($)

      December 31, 2016 Common stock 10
        Balance 10

Table (19)

Paid-in Capital:

Paid-in Capital Account
Date Details

Debit

($)

  Date Details

Credit

($)

      December 31, 2016 Paid-in capital 4
        Balance 4

Table (20)

Retained Earnings:

Retained Earnings Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Balance of retained earnings 2 December 31, 2016    
  Payment of cash dividend 13   Balance 25
  Retained earning 14        

Table (21)

Treasury Stock:

Treasury Stock Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Treasury stock 8      
  Balance 8      

Table (22)

Sales:

Sales Account
Date Details

Debit

($)

  Date Details

Credit

($)

      December 31, 2016 Sales revenue 200
        Balance 200

Table (23)

Dividend Revenue:

Dividend RevenueAccount
Date Details

Debit

($)

  Date Details

Credit

($)

      December 31, 2016 Dividend revenue 3
        Balance 3

Table (24)

Cost of Goods Sold:

Cost of Goods Sold Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Cost of Goods Sold 120      
  Balance 120      

Table (28)

Salaries Expense:

Salaries ExpenseAccount
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Salaries Expense 25      
  Balance 25      

Table (29)

Depreciation Expense:

Depreciation Expense Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Depreciation Expense 5      
  Balance 5      

Table (30)

Bad debt Expense:

Bad debt Expense Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Bad debt Expense 3      
  Balance 3      

Table (31

Interest Expense:

Interest ExpenseAccount
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 InterestExpense 8      
  Balance 8      

Table (32)

Loss on Sale of Building:

Loss on Sale of BuildingAccount
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Loss on sale of building 3      
  Balance 3      

Table (33)

Income Tax Expense:

Income Tax Expense Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Income Tax Expense 17      
  Balance 17      

Table (34)

Net income (income summary):

Net Income (income summary)Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Net income 25      
  Balance 25      

Table (35)

To determine

To Prepare: The statement of cash flows using direct method for D Company for the year ended December 31, 2016.

Expert Solution
Check Mark

Answer to Problem 21.19P

INTERMEDIATE ACCOUNTING, Chapter 21, Problem 21.19P

Figure (1)

Explanation of Solution

Working notes:

Calculate the amount of cash received from customers:

CashreceiptsfromCustomers]=Salesrevenue (+Decrease in Accounts ReceivableORIncrease in Accounts Receivable)=Sales revenue + Decrease in accounts receivables=$200+$3=$203

Calculate the amount of dividend received:

Dividend received=Dividend revenue (+Decrease in Dividend ReceivableORIncrease in Devidend Receivable)=Dividend revenue Increase in accounts receivables=$31=$2

Calculate the amount of cash paid to suppliers:

(Cashpaid to Suppliers)=Cost of Goods Sold (+Decrease in Accounts Payable/Increase in InventoryORIncrease in Accounts Payable /Decrease in Inventory)=(Cost of goods sold + Decrease in accounts payable + Increase in inventory)=$120+$7+$5=$132

Calculate the amount of cash paid to employee expenses:

(Cash paid of salaries)=Salaries expense(+Decrease in salaries payableORIncrease in salaries payable)=Salaries expense + Decrease in salaries payable=$25+$3=$28

Calculate the amount of cash paid for interest expense:

(Cash paid for  interest expenses)=Interest expenses([+Decrease in interest payableORIncrease in interest payable][ Decrease in discount on bonds+Increase in discount on bonds ])=(Interest expenseIncrease in interest payableDecrease in discount on bonds)=$8$2$1=$5

Calculate the amount of cash paid for income taxes:

(Cash paid for Income taxes)=Income tax expense(+Decrease in income tax payableORIncrease in income tax payable)=(Income tax expense +Decrease in income tax payable)=$17+1=$18

Calculate the amount of purchaseof long-term investment:

Ending baalnce    =[( Beginning balance + Purchase)Sales]Purchase of long-term investment}  =[(Ending balance + Sales)Beginning balance]Purchase of long-term investment} = ($15$10)Purchase of long-term investment} = $5

Calculate the amount of proceeds from sale of bonds payable:

Ending balance   =[( Beginning balance + Gain on sale of land)Sales]Sale of bonds payable}=[Ending balanceBeginning balance]Sale of bonds payable}=[$97$70]Sale of bonds payable}=$25

Conclusion

Hence, the opening cash balance is $20 million and closing cash balance is $33 million.

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Chapter 21 Solutions

INTERMEDIATE ACCOUNTING

Ch. 21 - Perhaps the most noteworthy item reported on an...Ch. 21 - Prob. 21.12QCh. 21 - Given sales revenue of 200,000, how can it be...Ch. 21 - Prob. 21.14QCh. 21 - When determining the amount of cash paid for...Ch. 21 - Prob. 21.16QCh. 21 - When using the indirect method of determining net...Ch. 21 - Prob. 21.18QCh. 21 - Prob. 21.19QCh. 21 - Where can we find authoritative guidance for the...Ch. 21 - U.S. GAAP designates cash outflows for interest...Ch. 21 - Prob. 21.1BECh. 21 - Prob. 21.2BECh. 21 - Prob. 21.3BECh. 21 - Prob. 21.4BECh. 21 - Prob. 21.5BECh. 21 - Prob. 21.6BECh. 21 - BE 21–7 Installment note LO21–3, LO21–6 On...Ch. 21 - BE 21–8 Sale of land LO21–3, LO21–4, LO21–5 On...Ch. 21 - Investing activities LO215 Carter Containers sold...Ch. 21 - Financing activities LO216 Refer to the situation...Ch. 21 - Prob. 21.11BECh. 21 - Prob. 21.12BECh. 21 - Classification of cash flows LO213 through LO216...Ch. 21 - Determine cash paid to suppliers of merchandise ...Ch. 21 - Determine cash received from customers LO213...Ch. 21 - Prob. 21.4ECh. 21 - Prob. 21.5ECh. 21 - Prob. 21.6ECh. 21 - Determine cash paid for bond interest LO213...Ch. 21 - Determine cash paid for bond interest LO213 For...Ch. 21 - Determine cash paid for income taxes LO213...Ch. 21 - Prob. 21.10ECh. 21 - E21–11 Bonds; statement of cash flow...Ch. 21 - E21–12 Installment note: statement of cash flow...Ch. 21 - Prob. 21.13ECh. 21 - E 21–14 Identifying cash flows from investing...Ch. 21 - E 21–15 Lease; lessee; statement of cash flows...Ch. 21 - Prob. 21.16ECh. 21 - Indirect method; reconciliation of net income to...Ch. 21 - Prob. 21.18ECh. 21 - Prob. 21.19ECh. 21 - Prob. 21.20ECh. 21 - Prob. 21.21ECh. 21 - Indirect method; reconciliation of net income to...Ch. 21 - Prob. 21.23ECh. 21 - Prob. 21.24ECh. 21 - Prob. 21.25ECh. 21 - Prob. 21.26ECh. 21 - Prob. 21.27ECh. 21 - Prob. 21.28ECh. 21 - Prob. 21.29ECh. 21 - Prob. 21.30ECh. 21 - Prob. 21.31ECh. 21 - Prob. 21.32ECh. 21 - Prob. 1CPACh. 21 - Prob. 2CPACh. 21 - Prob. 3CPACh. 21 - Prob. 4CPACh. 21 - Prob. 5CPACh. 21 - Prob. 6CPACh. 21 - Prob. 7CPACh. 21 - Prob. 8CPACh. 21 - Prob. 9CPACh. 21 - Prob. 1CMACh. 21 - Prob. 2CMACh. 21 - Prob. 3CMACh. 21 - Prob. 21.1PCh. 21 - Prob. 21.2PCh. 21 - Prob. 21.3PCh. 21 - Prob. 21.4PCh. 21 - Prob. 21.5PCh. 21 - Prob. 21.6PCh. 21 - Prob. 21.7PCh. 21 - Prob. 21.8PCh. 21 - Prob. 21.9PCh. 21 - Prob. 21.10PCh. 21 - Prob. 21.11PCh. 21 - Prob. 21.12PCh. 21 - Prob. 21.13PCh. 21 - Prob. 21.14PCh. 21 - Prob. 21.15PCh. 21 - Prob. 21.16PCh. 21 - Prob. 21.17PCh. 21 - Prob. 21.18PCh. 21 - Prob. 21.19PCh. 21 - Prob. 21.20PCh. 21 - Prob. 21.21PCh. 21 - Prob. 21.1BYPCh. 21 - Prob. 21.2BYPCh. 21 - Prob. 21.3BYPCh. 21 - Prob. 21.5BYPCh. 21 - Prob. 21.6BYPCh. 21 - Prob. 21.7BYPCh. 21 - Prob. 21.8BYPCh. 21 - Prob. 21.10BYPCh. 21 - Research Case 219 FASB codification; locate and...Ch. 21 - IFRS Case 2110 Statement of cash flows...
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