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4. Required:Place an X in the appropriate columns for each of the following situations.SituationOperatingInvestingFinancingEffect on CashNon-ActivityActivityActivity+ -cashTrans-actiona. Paying off accounts payableb. Issuance of bonds for cashc. Sale of land for cashd. Retirement of common stock with cashe. Acquired land for common stockANS: SituationOperatingInvestingFinancingEffect on CashNon-ActivityActivityActivity+ -cashTrans-actiona. Paying off accounts payableXXb. Issuance of bonds for cashXXc. Sale of land for cashXXd. Retirement of common stock with cashXX e. Acquired land for common stockXX
5. Jones Clothing Store presented the following statement of cash flows for the year ended December 31, 2010.Jones Clothing StoreStatement of Cash FlowsFor the Year Ended December 31, 2010Cash received:a.From sales to customers$200,000b.Interest income10,000c.Loans from banks50,000d.From sale of property, plant, and equipment 100,000e.From issuance of common stock150,000f.From issuance of bonds100,000Total cash received$610,000Cash payments:g.For dividends$ 20,000h.For purchase of stock of another company150,000i.For purchase of equipment200,000j.For acquisition of inventory80,000k.To employees60,000Total cash payments$510,000Net increase in cash$100,000Required:a.Prepare a statement of cash flows in proper form.b.Comment on the major flows of cash.ANS: a.Jones Clothing StoreStatement of Cash FlowsFor the Year Ended December 31, 2010Cash flows from operating activities:Received from sales to customers$ 200,000 Interest income received10,000 Payment for inventory(80,000)Payment to employees(60,000)Net increase from operating activities$ 70,000 Cash flows from investing activities:Received from sale of property, plant, and equipment$ 100,000 Payment for stock of another company(150,000)Payment for purchase of equipment(200,000)Net decrease from investing activities$(250,000)
Cash flows from financing activities:Received from loans from banks$ 50,000 From issuance of common stock150,000 From issuance of bonds100,000 Payment of dividends(20,000)Net increase from financing activities$ 280,000Net increase in cash$ 100,000b.Jones Clothing Store had a major inflow of funds from financing activities of $280,000 and a major outflow of funds for investing activities of $250,000. Operating activities generated a net increase of $70,000.6. The balance sheet for December 31, 2010, December 31, 2009, and the income statement for the year ended December 31, 2010, for Rocket Company follows.Rocket CompanyBalance SheetDecember 31, 2010 and 200920102009AssetsCash$ 25,000 $20,000 Accounts receivable, net60,000 70,000 Inventory80,000 100,000 Land50,000 50,000 Building and equipment130,000* 115,000 Accumulated depreciation(85,000) (70,000)Total assets$ 260,000$285,000Liabilities and Stockholders' EquityAccounts payable$ 30,000 $ 35,000 Income taxes payable4,000 3,000 Wages payable5,000 3,000 Current notes payable50,000** 60,000 Common stock110,000*** 100,000 Retained earnings61,00084,000Total liabilities and stockholders' equity $260,000$285,000* During 2010 cash payments for building and equipment $15,000.
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Generally Accepted Accounting Principles, tangible net worth