Solutions for Chapter 23 exercises and problems

Intermediate Accounting

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EXERCISE 23-3 RODRIQUEZ COMPANY Partial Statement of Cash Flows For the Year Ended December 31, 2010 Cash flows from operating activities Net income. ...................................................................... $1,050,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense. .............................................. $ 60,000 Decrease in accounts receivable. .............................. 310,000 Decrease in inventory. .............................................. 300,000 Increase in prepaid expenses. ................................... (170,000) Decrease in accounts payable. .................................. (275,000) Decrease in accrued expenses payable. .................... (120,000 ) 105,000 Net cash provided by operating activities. ............... $1,155,000 EXERCISE 23-8 Cash flows from operating activities Net income $145,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense. ........................................... $39,000 Gain on sale of investment [($200 – $165) X 100]. .................................... (3,500) Decrease in accounts receivable. .......................... 12,000 Income from equity method investment ($27,000 X .30). ............................................... (8,100) 39,400 Net cash provided by operating activities. .................... $185,600
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Other comments: No. 1 is shown as a cash inflow from the issuance of treasury stock and cash outflow for the purchase of treasury stock, both financing activities. No. 2 is shown as a cash inflow from investing activities of $20,000 and the gain of $3,500 is deducted from net income in the operating activities section. No. 3 is a non-cash expense (Bad Debt Expense) in the income statement. Bad debt expense is not handled separately when using the indirect method. It is part of the change in net accounts receivable. No. 4 is a significant non-cash investing and financing activity. No. 6 is an increase in the investment account related to net income which does not increase cash flow. The net income amount must be deducted from net cash flow from operating activities. No. 7 dividend received from equity investment decreases the value of the investment and increases cash. This should be treated as a part of operating cash flows. No. 8 is not shown on a statement of cash flows.
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EXERCISE 23-11 FAIRCHILD COMPANY Statement of Cash Flows For the Year Ended December 31, 2010 (Indirect Method) Cash flows from operating activities Net income. ................................................................................ $ 810 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense ($1,200 – $1,170). .......................... $ 30 Gain on sale of investments. .............................................. (80) Decrease in inventory. ....................................................... 300 Increase in accounts payable. ............................................ 400
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Solutions for Chapter 23 exercises and problems - EXERCISE...

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