Chapter 13

Cash flows statement

 Bertucci Company had net income of $184,000 in 2017. Depreciation expense for the year is
$55,000. During the year, Accounts Receivable increased $7,000 and Prepaid Expenses
decreased $1,000. The company also sold equipment at a loss of $2,000.

Instructions
Calculate net cash flows from operating activities using the indirect method.

Solution 157 (5 min.)

Net Income $184,000
Add: Depreciation 55,000
Loss on disposal of equipment 2,000
Decrease in Prepaid Expenses 1,000
Deduct: Increase in Accounts Receivable (7,000)
Net cash flows from operating activities $235,000

 During 2017, Baxter Company sold a building with a book value of $145,000 for proceeds of
$162,000. The company also sold long-term investments for proceeds of $35,000. The company
purchased land and a new building for $320,000 by signing a non-current note payable. No other
transactions impacted non-current asset accounts during 2017.

Instructions
Compute net cash flows from investing activities.

Net cash flows from investing = $162,000 + $35,000 = $197,000

 Mover Company issued ordinary shares for proceeds of €24,000 during 2017. The company paid
dividends of €2,000. The company also issued a non-current note payable for €30,000 in
exchange for equipment during the year. The company sold treasury shares that had a cost of
€2,000 for €4,000.

Instructions
Compute net cash flows from financing activities.

Solution 159 (3 min.)

Net cash flows from financing activities = €24,000 - €2,000 + €4,000 = €26,000

 At January 1, 2017, Bergman Enterprises reported a balance in the Equipment account of

$45,000. During the year the company purchased equipment with a cost of $60,000 and sold
equipment with a book value of $30,000. The company reported a loss on the disposal of
equipment of $6,000. Assume the indirect method is used.

Instructions:
Determine what amount will be reported in (a) the operating activities section and (b) the investing
activities section with regard to the purchase and sale of equipment.

(a) Loss on Disposal of Equipment, $6,000

(b) Proceeds from the Sale of Equipment, $24,000 ($30,000 – $6,000)
Purchase of Equipment, ($60,000)
  Dutton Company prepared the tabulation below at December 31, 2017.

Net Income........................................................................................................................... $255,000

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation expense, $25,000.................................................................................. _________

Decrease in accounts receivable, $40,000................................................................. _________

Increase in inventory, $12,000................................................................................... _________

Decrease in accounts payable, $8,600....................................................................... _________

Increase in income taxes payable, $1,500................................................................. _________

Loss on disposal of land, $5,000................................................................................ _________

Net cash provided by operating activities................................................................... _________

Instructions
Show how each item should be reported in the statement of cash flows. Use parentheses for deductions.

Net Income........................................................................................................................... $255,000

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense................................................................................................. 25,000
Decrease in accounts receivable................................................................................ 40,000
Increase in inventory.................................................................................................. (12,000)
Decrease in accounts payable................................................................................... (8,600)
Increase in income taxes payable.............................................................................. 1,500
Loss on disposal of land............................................................................................. 5,000
Net cash provided (used) by operating activities.............................................. $305,900
  A comparative statement of financial position for Mann Company appears below:
MANN COMPANY
Comparative Statement of Financial Position
Dec. 31, 2017 Dec. 31, 2016
Assets
Equipment € 60,000 €32,000
Accumulated depreciation—equipment (20,000) (14,000)
Long-term investments -0- 18,000
Prepaid expenses 6,000 9,000
Inventory 25,000 18,000
Accounts receivable 18,000 14,000
Cash 33,000 10,000
Total assets €122,000 €87,000

Equity and Liabilities

Share capital-ordinary € 40,000 €23,000
Retained earnings 28,000 10,000
Bonds payable 37,000 47,000
Accounts payable 17,000 7,000
Total equity and liabilities €122,000 €87,000

Ex. 173 (Cont.)

Additional information:
1. Net income for the year ending December 31, 2017 was €33,000.
2. Cash dividends of €15,000 were declared and paid during the year.
3. Long-term investments that had a cost of €18,000 were sold for €14,000.
4. Sales for 2017 were €120,000.

Instructions
Prepare a statement of cash flows for the year ended December 31, 2017, using the indirect method.

MANN COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2017

Cash flows from operating activities

Net income ............................................................................................. €33,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation expense ................................................................... € 6,000
Loss on disposal of long-term investments.................................... 4,000
Increase in accounts receivable ................................................... (4,000)
Decrease in prepaid expenses ..................................................... 3,000
Increase in inventories .................................................................. (7,000)
Increase in accounts payable ....................................................... 10,000 12,000
Net cash provided by operating activities ..................................... 45,000
Cash flows from investing activities
Sale of long-term investments ................................................................ 14,000
Purchase of equipment .......................................................................... (28,000)
Net cash used by investing activities ............................................ (14,000)
Cash flows from financing activities
Issuance of ordinary shares ................................................................... 17,000
Retirement of bonds payable ................................................................. (10,000)
Payment of cash dividends .................................................................... (15,000)
 Net cash used by financing activities ............................................ (8,000
Net increase in cash ........................................................................................ 23,000
Cash at beginning of period ............................................................................. 10,000
Cash at end of period ....................................................................................... €33,000