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Unformatted text preview: Chapter 5 HW Assignment: E5-8, 9, 12; P5-4, 5, 6, 12, 16, 23 Solutions E5-8 Item Type of Activity Add or Subtract Purchase of plant assets Investing Subtract Increase in accounts payable Operating Add Decrease in accounts receivable Operating Add Payment of long-term debt Financing Subtract Net income Operating Add Depreciation expense Operating Add Payment of dividends Financing Subtract Issuing stock Financing Add Increase in inventory Operating Subtract Decrease in taxes payable Operating Subtract Disposal of plant assets Investing Add E5-9 Net income ($17,000 − $8,000)* $ 9,000 Depreciation expense 1,100 Patent amortization expense 250 Increase in accounts receivable (800) Decrease in inventory 1,200 Decrease in supplies 400 Increase in accounts payable 1,050 Decrease in wages payable (900 ) Net cash flow from operating activities $ 11,300 *The $8,000 includes depreciation and patent expenses. E5-12 Account Balance Adjustment and Reason a. Accounts receivable increased $10,000 Subtract $10,000 from net income because cash collected from customers was $10,000 less than sales for the period. b. Accounts payable increased $7,500 Add $7,500 to net income because inventory was acquired for sale (increase in cost of goods sold and decrease in net income) but was not paid for during the period. c. Inventory decreased $50,000 Add $50,000 to net income because invent- ory was consumed (increase in cost of goods sold and decrease in net income) that was not paid for during the period. Chapter 5 HW Solutions Page 1 d. Notes payable in- creased $100,000 No effect because notes payable result from a financing activity, not an operating activity. e. Equipment de- creased $80,000 No effect because equipment results from an investing activity, not an operating activity. f. Prepaid insurance decreased $22,000 Add $22,000 to net income because insur- ance was consumed (increase in expense and decrease in net income) that was not paid for during the period. g. Wages payable de- creased $8,000 Subtract $8,000 from net income because wages were paid during the period that were not expenses (did not reduce net income) during the period. h. Unearned revenue increased $13,000 Add $13,000 to net income because cash was received during the period for revenues that were not earned (did not increase net in- come) during the period....
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