ch23 - SOLUTIONS TO B EXERCISES E23-1B (1015 minutes) (a)...

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SOLUTIONS TO B EXERCISES E23-1B (10–15 minutes) (a) (3) Investing activity. (b) (4) Financing activity. (c) (3) Investing activity. (d) (1) Operating—add to net income. (e) (5) Significant noncash investing and financing activity. (f) (5) Significant noncash investing and financing activity. (g) (1) Operating—add to net income. (h) (2) Operating—deduct from net income. (i) (1) Operating—add to net income. (j) (4) Financing activity. (k) (4) Financing activity. (l) (1) Operating—add to net income. 23-1
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E23-2B (20–30 minutes) (a) Shown in the financing activities section of a statement of cash flows as follows: Sale of preferred stock $5,050,000 (b) The sale of treasury stock is reported in the financing activities section of the statement of cash flows. (c) Plant assets (cost) $70,000 ) Accumulated depreciation [($60,000 ÷ 6) X 2] 20,000 ) Book value at date of sale 50,000 ) Sale proceeds (25,000 ) Loss on sale $25,000 ) The loss on sale of plant assets is reported in the operating activities section of the statement of cash flows. It is added to net income to arrive at net cash provided by operating activities. The sale proceeds of $25,000 are reported in the investing section of the statement of cash flows as follows: Sale of plant assets $25,000 (d) The goodwill impairment is reported in the operating activities section of the statement of cash flows. It is added to net income in arriving at net cash provided by operating activities. (e) The warranty payments affect the accrued warranty expense liability. Changes in this account are reported in the operating activities section of the statement of cash flows. Since the payment reduces the liability, the effect is a deduction from net income in arriving at net cash provided by operating activities. (f) The sale of the U.S. Treasury bill is not reported in the statement of cash flows. This instrument is considered a cash equivalent and therefore cash and cash equivalents have not changed as a result of this transaction. 23-2
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(g) The issuance of a bond to acquire land is reported as a “Noncash investing and financing activity.” It is shown as follows: Noncash investing and financing activities Purchase of land by issuance of bonds $600,000 (h) The net income of $176,000 should be reported in the operating activities section of the statement of cash flows. Depreciation of $69,000 is reported in the operating activities section of the statement of cash flows. The loss on sale of the equity investment also appears in the operating activities section of the statement of cash flows. The proceeds from the sale of the equity investment are reported in the investing activities section of the statement of cash flows. These four items might be reported as follows: Cash flows from operating activities Net income $176,000 Adjustments to reconcile net income to net cash provided by operations*: Depreciation $69,000 Loss on sale of investments 45,000 *Either net cash used or provided depending upon other adjustments. Given only the adjustments in (d), the “net cash provided” should be
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ch23 - SOLUTIONS TO B EXERCISES E23-1B (1015 minutes) (a)...

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