INTERMEDIATE ACCOUNTING
INTERMEDIATE ACCOUNTING
8th Edition
ISBN: 9780078025839
Author: J. David Spiceland
Publisher: McGraw-Hill Education
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Chapter 21, Problem 21.21P
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 A 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 414   To suppliers of goods 200
  From investment revenue 3     To employees 78
  From sale of cash equivalents 2     For insurance 3
          For bond interest 21
          For income taxes 35
  Investing activities:       Investing activities:  
  Sale of machine components 17     Purchase of long-term investment 25
          Purchase of land 23
  Financing activities:       Financing activities:  
  Sale of preferred stock 75     Retirement of bonds 60
          Payment of dividends 22
          Purchase of treasury stock 9
  Balance 35        

Table (4)

Accounts Receivable:

Accounts Receivable Account
Date Details

Debit

($)

  Date Details

Credit

($)

      December 31, 2016 Decrease in accounts receivable 4
        Balance 4

Table (5)

Prepaid Insurance:

Prepaid InsuranceAccount
Date Details

Debit

($)

  Date Details

Credit

($)

      December 31, 2016 Decrease in accounts receivable 4
        Balance 4

Table (6)

Inventory:

Inventory Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Increase in inventory 5      
  Balance 5      

Table (7)

Investment Revenue Receivable:

Investment Revenue ReceivableAccount
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Increase in investment revenue receivable 2      
  Balance 2      

Table (8)

Long-Term Investment:

Long-Term Investment Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Increase in long-term investment 31      
  Purchase of long-term investment 6      
  Balance 25      

Table (9)

Land:

Land Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Increase in land 46      
  Balance 46      

Building and Equipment:

Building and Equipment Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Increase in building and equipment 12      
December 31, 2016 Balance 82 December 31, 2016 Machine cost 70

Table (10)

Accumulated Depreciation:

Accumulated Depreciation Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Accumulated depreciation 23      
  Depreciation 35 December 31, 2016 Balance 12

Table (11)

Patent:

Patent Account
Date Details

Debit

($)

  Date Details

Credit

($)

      December 31, 2016 Decrease in patent 2
        Balance 2

Table (12)

Accounts Payable:

Accounts Payable Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Decrease in accounts payable 15      
  Balance 15      

Table (13)

Salaries Payable:

Salaries Payable Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Decrease in salary payable 5      
  Balance 5      

Table (14)

Bond Interest Payable:

Bond Interest Payable Account
Date Details

Debit

($)

  Date Details

Credit

($)

      December 31, 2016 Increase in interest payable 4
        Balance 4

Table (15)

Income Tax Payable:

Income Tax PayableAccount
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Decrease in income tax payable 2      
  Balance 2      

Table (16)

Deferred Tax Liability:

Deferred Tax Liability Account
Date Details

Debit

($)

  Date Details

Credit

($)

      December 31, 2016 Increase in income tax payable 3
        Balance 3

Table (17)

Notes Payable:

Notes Payable Account
Date Details

Debit

($)

  Date Details

Credit

($)

      December 31, 2016 Notes payable 23
        Balance 23

Table (18)

Lease Liability:

Lease Liability Account
Date Details

Debit

($)

  Date Details

Credit

($)

      December 31, 2016 Lease liability 82
        Balance 82

Table (19)

Bonds Payable:

Bonds Payable Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Decrease in Bonds payable 60      
  Balance 60      

Table (20)

Discount on Bonds:

Discount on Bonds Account
Date Details

Debit

($)

  Date Details

Credit

($)

      December 31, 2016 Discount on bond 3
        Balance 3

Table (21)

Common stock:

Common stock Account
Date Details

Debit

($)

  Date Details

Credit

($)

      December 31, 2016 Common stock 20
        Balance 20

Table (22)

Paid-in Capital:

Paid-in Capital Account
Date Details

Debit

($)

  Date Details

Credit

($)

      December 31, 2016 Paid-in capital 10
        Balance 10

Table (23)

Preferred Stock:

Preferred Stock Account
Date Details

Debit

($)

  Date Details

Credit

($)

      December 31, 2016 Preferred stock 75
        Balance 75

Table (24)

Retained Earnings:

Retained Earnings Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016     December 31, 2016 Balance of retained earnings 15
  Payment of cash dividend 22   Balance 67
  Retained earning 30        

Table (25)

Treasury Stock:

Treasury Stock Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Treasury stock 9      
  Balance 9      

Table (26)

Sales:

Sales Account
Date Details

Debit

($)

  Date Details

Credit

($)

      December 31, 2016 Sales revenue 410
        Balance 410

Table (27)

Investment Revenue:

Investment Revenue Account
Date Details

Debit

($)

  Date Details

Credit

($)

      December 31, 2016

Investment

revenue

11
        Balance 11

Table (28)

Gain on Sale of Treasury Bills:

Gain on Sale of Treasury Bills Account
Date Details

Debit

($)

  Date Details

Credit

($)

      December 31, 2016 Gain on sale of treasury bill 2
        Balance 2

Table (29)

Cost of Goods Sold:

Cost of Goods Sold Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Cost of Goods Sold 180      
  Balance 180      

Table (30)

Salaries Expense:

Salaries Expense Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Salaries Expense 73      
  Balance 73      

Table (31)

Depreciation Expense:

Depreciation Expense Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Depreciation Expense 12      
  Balance 12      

Table (32)

Patent Amortization Expense:

Patent Amortization ExpenseAccount
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Patent amortization expense 2      
  Balance 2      

Table (33)

Insurance Expense:

Insurance Expense Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Insurance expense 7      
  Balance 7      

Table (34)

Bond Interest Expense:

Bond Interest ExpenseAccount
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Bond Interest Expense 28      
  Balance 28      

Table (35)

Income Tax Expense:

Income Tax Expense Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Income Tax Expense 36      
  Balance 36      

Table (36)

Loss on Machine Damage:

Loss on Machine Damage Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Loss on machine damage 18      
  Balance 18      

Table (37)

Net income (income summary):

Net Income (income summary)Account
Date Details

Debit

($)

  Date Details

Credit

($)

December 31, 2016 Net income 67      
  Balance 67      

Table (38)

To determine

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

Expert Solution
Check Mark

Answer to Problem 21.21P

INTERMEDIATE ACCOUNTING, Chapter 21, Problem 21.21P

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=$410+$4=$414

Calculate the amount of investment revenue:

Cashreceiptsfrominvestment]=Investmentrevenue (A's company share of net income[+Decrease in investment revenue receivableORIncrease in investment revenue receivable])=(Investment revenueA's company share of net income Increase in accounts receivables)=$11$6$2=$3

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)=$180+$15+$5=$200

Calculate the amount of cash paid to employees:

Cash paid for salaries]=Salaries expense(+Decrease in salaries payableORIncrease in salaries payable)=Salaries expense + Decrease in salaries payable=73$5=$78

Calculate the amount of cash paid for insurance:

(Cash paid for insurance)=Insurance expense(Decrease in prepaid insuranceOR+Increase in prepaid insurance)=Insurance expenseDecrease in prepaid insurance=$7$4=$3

Calculate the amount of cash paid for bond interest:

Cash paid forBond interest]=Bond interest expense(+Decrease in bonds interest payable/Increase in discount on bondORIncrease in bonds interest payable/Decrease in discount on bond)=(Bond interest expenseIncrease in bonds interest payableDecrease in discount on bond)=$28$4$3=$21

Calculate the amount of cash paid for income taxes:

Cash paid forIncome taxes]=Income tax expense(+Decrease in income taxpayable/Decrease deferred tax liabilityORIncrease in income tax payable/Increase in deferred tax liability)=(Income tax expense +Decrease in income tax payableIncrese in income tax liability)=$36+$2$3=$35

Calculate the amount of retirement of bonds payable:

Retirement of bonds payable = (Bonds payable in 2015Bonds payable in 2016)=$275$215=$60

Calculate the amount of cash dividend:

Step 1: Calculate the amount of totaldividend.

Retained earning in 2016 = (Retained earning in 2015 + Net incomeDividends)$242=$227+$67DividendDividend=$227+$67$242=$294$242=$52

Step 2: Calculate the amount of stock dividend.

Stock dividend = {Number of stock dividend  shares × Par value of share}=4 million shares ×$7.5=$30shares

Step 3: Calculate the amount of cash dividend:

Dividend paid = Cash dividendStock dividend=$52$30=$22

Conclusion

The statement of cash flows of Company S shows opening balance of cash flows in the year 2015 as $81million and the closing balance of cash in the year 2016 as $116 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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