E23-1 (Classification of Transactions) Springsteen Co. had the following activity in its most recent year of operations.
(a) Pension expense exceeds amount funded. (e) Exchange of equipment for furniture.
(b) Redemption of bonds payable. (f) Issuance of capital stock.
(c) Sale of building at book value. (g) Amortization of intangible assets.
(d) Depreciation. (h) Purchase of treasury stock. (i) Issuance of bonds for land. (k) Increase in interest receivable on notes receivable.
(j) Payment of dividends. (l) Purchase of equipment.
Classify the items as (1) operating—add to net income; (2) operating—deduct from net income; (3) investing;
(4) financing; or (5) significant noncash investing and financing activities. Use the indirect method
Prepare the operating activities section of the statement of cash flows using the direct method.
FOR THE YEAR ENDED DECEMBER 31, 2010
Cost of goods sold
Beginning inventory $1,900,000
Goods available for sale 6,300,000
Ending inventory 1,600,000
Cost of goods sold 4,700,000
Gross profit 2,200,000
Selling expenses 450,000
Administrative expenses 700,000 1,150,000
Net income $1,050,000
1. Accounts receivable decreased $310,000 during the year.
2. Prepaid expenses increased $170,000 during the year.
3. Accounts payable to suppliers of merchandise decreased $275,000 during the year.
4. Accrued expenses payable decreased $120,000 during the year.
5. Administrative expenses include depreciation expense of $60,000.
E23-7 (Computation of Operating Activities—Direct Method) Presented below are two independent
Chenowith Co. reports revenues of $200,000 and operating expenses of $110,000 in its first year of operations, 2010. Accounts receivable and accounts payable at year-end were $71,000 and $39,000, respectively. Assume that the accounts payable related to operating expenses. Ignore income taxes.
Using the direct method, compute net cash provided (used) by operating activities.
The income statement for Edgebrook Company shows cost of goods sold $310,000 and operating expenses (exclusive of depreciation) $230,000. The comparative balance sheet for the year shows that inventory increased $21,000, prepaid expenses decreased $8,000, accounts payable (related to merchandise) decreased $17,000, and accrued expenses payable increased $11,000.
Compute (a) cash payments to suppliers and (b) cash payments for operating expenses.
E23-11 (SCF—Indirect Method) Condensed financial data of Fairchild Company for 2010 and 2009 are presented below.
COMPARATIVE BALANCE SHEET
AS OF DECEMBER 31, 2010 AND 2009
Cash $1,800 $1,100
Receivables 1,750 1,300
Inventory 1,600 1,900
Plant assets 1,900 1,700
Accumulated depreciation (1,200) (1,170)
Long-term investments (Held-to-maturity) 1,300 1,470
Accounts payable $1,200 $ 800
Accrued liabilities 200 250
Bonds payable 1,400 1,650
Capital stock 1,900 1,700
Retained earnings 2,450 1,900
FOR THE YEAR ENDED DECEMBER 31, 2010
Cost of goods sold 4,700
Gross margin 2,200
Selling and administrative expense 930
Income from operations 1,270
Other revenues and gains
Gain on sale of investments 80
Income before tax 1,350
Income tax expense 540
Net income $ 810
During the year, $70 of common stock was issued in exchange for plant assets. No plant assets were sold
in 2010. Cash dividends
Prepare a statement of cash flows using the indirect method.
E23-12 (SCF—Direct Method) Data for Fairchild Company are presented in E23-11.
Prepare a statement of cash flows using the direct method. (Do not prepare a reconciliation schedule.)
E24-1 (Post-Balance-Sheet Events) Keystone Corporation issued its financial statements for the year ended December 31, 2010, on March 10, 2011. The following events took place early in 2011.
(a) On January 10, 10,000 shares of $5 par value common stock were issued at $66 per share.
(b) On March 1, Keystone determined after negotiations with the Internal Revenue Service that income taxes payable for 2010 should be $1,320,000. At December 31, 2010, income taxes payable were recorded at $1,100,000.
Discuss how the preceding post-balance-sheet events should be reflected in the 2010 financial statements.