Su06Ch23_Solutions

Su06Ch23_Solutions - EXERCISE 23-1(10-15...

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EXERCISE 23-1 (10-15 minutes) (a) Investing activity. (b) Financing activity. (c) Investing activity. (d) Operating—add to net income. (e) Significant noncash investing and financing activity. (f) Financing activity. (g) Operating—add to net income. (h) Financing activity. (i) Significant noncash investing and financing activity. (j) Financing activity. (k) Operating—deduct from net income. (l) Operating—add to net income. EXERCISE 23-2 (20-30 minutes) (a) Plant assets (cost) $20,000 ) Accumulated depreciation ([$20,000 ÷ 10] X 6) 12,000 ) Book value at date of sale 8,000 ) Sale proceeds (5,300 ) Loss on sale $ 2,700 ) 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 $5,300 are reported in the investing section of the statement of cash flows as follows: Sale of plant assets $5,300 (b) Shown in the financing activities section of a statement of cash flows as follows: Sale of common stock $430,000
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EXERCISE 23-2 (Continued) (c) The writeoff of the uncollectible accounts receivable of $27,000 is not reported on the statement of cash flows. The writeoff reduces the Allowance for Doubtful Accounts balance and the Accounts Receivable balance. It does not affect cash flows. (d) The net loss of $50,000 should be reported in the operating activities section of the statement of cash flows. Depreciation of $22,000 is reported in the operating activities section of the statement of cash flows. The gain on sale of land also appears in the operating activities section of the statement of cash flows. The proceeds from the sale of land of $39,000 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 loss $(50,000) Adjustments to reconcile net income to net cash used in operations*: Depreciation 22,000 Gain on sale of land (9,000 ) *Either net cash used or provided depending upon other adjustments. Given only the adjustments in (d), the “net cash used” should be employed. Cash flows from investing activities Sale of land $39,000 (e) The purchase 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. (f) Patent amortization of $20,000 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.
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EXERCISE 23-2 (Continued) (g) The exchange of common stock for an investment in Tabasco is reported as a “noncash investing and financing activity.” It is shown as follows: Noncash investing and financing activities Purchase of investment by issuance of common stock $900,000 (h) The purchase of treasury stock is reported in the financing
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This note was uploaded on 04/06/2008 for the course ACC 302 taught by Professor Ahaha during the Spring '07 term at Central Mich..

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Su06Ch23_Solutions - EXERCISE 23-1(10-15...

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