Kevin Sailors, the CEO of Candle Corporation, was discussing the financial statements with the company accountant. Weak cash flows had resulted in the company borrowing a lot of money. Kevin wanted to know why the money borrowed was included as cash inflows in the financing section of the statement of cash flows but the interest paid on the amounts borrowed was not. The accountant replied that the interest paid on loans was an expense included in the calculation of net income, which was in the operating activities section. Kevin then asked why the dividends Candle Corporation paid to stockholders were included as an outflow of cash in the financing section. The accountant then explained that dividends paid, unlike interest paid, were a return to stockholders and not an expense; therefore, they would not be included in net income, nor would they appear in the operating activities section. Kevin replied that he did not care and instructed the accountant to include both the interest paid and the dividends paid in the financing section. The accountant said that such a move would not be proper. Kevin then said to not provide the statement of cash flows at all because too many people would see the weakening operating cash flows. He further stated that investors and creditors who really analyzed the income statements and balance sheets would be able to understand the company without the need for a statement of cash flows spelling out the net changes in cash flows. Why would Kevin want the interest paid to be included in the financing activities section? Why would the accountant state that interest paid should not be included in the financing activities section? Can the statement of cash flows be omitted? What ethical issues are involved? Do you have any additional thoughts?
> Juarez Equipment, Inc., assembled the following data related to its cash transactions for the year ended June 30, 2016: Prepare Juarez Equipment’s statement of cash flows for the year ended June 30, 2016, using the direct method. Juar
> SRS Systems, Inc., had accounts receivable of $27,000 at the beginning of the year and $56,000 at year-end. Revenue for the year totaled $106,000. How much cash did SRS Systems collect from customers? a. $189,000 b. $162,000 c. $77,000 d. $133,000
> This exercise continues our accounting for Sensations Salon, Inc., from Chapter 9. In this exercise, we will account for the declaration and issuance of a cash dividend by Sensations Salon, Inc. On November 5, 2016, Sensations Salon, Inc., declared a $5,
> How would the sale of treasury stock that was acquired three years ago appear in the statement of cash flows (if at all)?
> Oceanview Realty, Inc., has 110,000 shares of $2.00 par common stock outstanding. Oceanview Realty, Inc., declares and distributes a 10 percent stock dividend when the market value of its stock is $8 per share. 1. Journalize Oceanview Realty’s declarati
> What happens with a 2-for-1 stock split? a. Decreases the par value of the stock b. Increases the number of shares of stock issued c. Both a and b d. None of the above
> What kind of account is Treasury Stock? What is its normal balance? Where would it be reported on the financial statements?
> Nemo’s Spas began 2016 with cash of $32,000. During the year, Nemo’s Spas earned service revenue of $610,000 and collected $572,000 from customers. Expenses for the year totaled $449,000, of which Nemo’s Spas paid $417,000 in cash to suppliers and employ
> Which item appears on a statement of cash flows prepared by the indirect method? a. Payment of income tax b. Payment to suppliers c. Collections from customers d. Net income
> Why would a decrease in accounts payable be shown as a decrease in cash when using the indirect method of calculating the cash flows from operating activities?
> Zepher, Inc., prepared the following stockholders’ equity section as of December 31, 2016. Answer the following questions about Zepher, Inc.’s dividends: 1. How much in dividends must Zepher, Inc., declare each year
> What does a 10 percent stock dividend do? a. Increases Common Stock b. Has no effect on total equity c. Decreases Retained Earnings d. All of the above
> What are some of the reasons for issuing a stock dividend?
> Your boss has just asked you to write a short note to one of his clients that had expressed some concerns about the difference between liabilities that are of an unknown amount versus contingent liabilities. The client is in the midst of a lawsuit with a
> Trident Equipment’s accountants assembled the following data for the year ended April 30, 2016. Prepare Trident Equipment’s statement of cash flows for the year ended April 30, 2016, using the indirect method. The ca
> Minot Corporation borrowed $14,000, issued common stock of $11,000, and paid dividends of $16,000. What was Minot Corporation’s net cash provided or used by financing activities? a. $(5,000) b. $16,000 c. $9,000 d. $41,000
> Assuming the indirect method is used, how does an increase in accounts receivable during the year affect the statement of cash flows (if at all)? Why?
> Watkins Enterprises earned net income of $95,000 during the year ended December 31, 2016. On December 15, 2016, Watkins Enterprises declared the annual cash dividend on its 2 percent preferred stock (total par value, $140,000) and a $0.70 per share cash
> What is the term for a company’s own stock that it has issued and repurchased? a. Outstanding stock b. Treasury stock c. Stock dividend d. Issued stock
> What accounts are affected by the declaration and distribution of a stock dividend? What is the effect of a stock dividend on a. Total Stockholders’ Equity? b. Total Assets? c. Total Liabilities? d. Cash?
> Matrix, Inc., reported the following data for 2016: Compute Matrix, Inc.’s net cash provided by operating activities according to the indirect method. Income statement: Net Income $42,000 8,000 Depreciation Expense. Increase in A
> The Fixed Assets account of Hamilton, Inc., shows: Hamilton, Inc., sold fixed assets at an $18,000 gain. How much should Hamilton, Inc., report for the sale? a. Cash flows from investing activities, $18,000 b. Cash flows from investing activities, $68
> When using the indirect method, why are gains on the sale of fixed assets subtracted from net income in the operating activities section of the statement of cash flows? Why are losses on the sale of fixed assets added to net income?
> Christianson, Inc., has two classes of stock, $15 par common and $25 par preferred. Journalize Christianson’s issuance of the following: a. 1,000 shares of common stock for $35 per share b. 2,000 shares of preferred stock for a total of $83,000 Explanat
> Your business has been doing pretty well since you first opened the doors five years ago. You’ve been thinking, for the past six months or so, about expanding the business. There is some property right next door that fits your expansion plans. It would t
> Theodore Company has 12,000 shares of $6 par common stock outstanding, which Theodore Company issued at $10 per share. Theodore Company also has retained earnings of $84,000. How much is Theodore Company’s total stockholders’ equity? a. $ 48,000 b. $ 12
> With which type of stock would dividends in arrears be associated? Why?
> Indicate whether each of the following transactions would result in an operating activity, an investing activity, a financing activity, or a transaction that does not affect cash for a statement of cash flows prepared by the indirect method. DATE A
> Finlay, Inc., earned net income of $63,000 after deducting depreciation expense of $12,000 and all other expenses. Current assets increased by $11,000, and current liabilities decreased by $13,000. Using the indirect method, how much was Finlay, Inc.’s n
> Why is net income a good place to start when attempting to determine the cash flows from operating activities using the indirect method? Why is it not the same as the net cash flow from operating activities?
> At December 31, 2016, Sugarland Company reported the following on its comparative balance sheet, which included 2015 amounts for comparison (adapted, with all amounts in millions except par value per share):c. $29,500 1. How much did Sugarland Company&
> Hallery Corporation has 15,000 shares of 5 percent, $1 par, cumulative preferred stock and 53,000 shares of common stock outstanding. Hallery Corporation declared no dividends in 2016. In 2017, Hallery Corporation declares a total dividend of $31,000. H
> What accounts, if any, are involved in the journal entries to record the events associated with each of the following dates associated with cash dividends? a. Declaration date b. Date of record c. Payment date
> Identify each of the following transactions as one of the following: • Operating activity (O) • Investing activity (I) • Financing activity (F) • Noncash investing and financing activity (NIF) For each item, indicate whether it represents an increase (+
> Which item does not appear on a statement of cash flows prepared by the indirect method? a. Net income b. Gain on sale of land c. Collections from customers d. Depreciation expense
> Find the Columbia Sportswear Company Annual Report located in Appendix A and go to the Consolidated Financial Statements starting on page 663. Now access the 2014 Annual Report for Under Armour, Inc., from the Internet. For instructions on how to access
> A company issued bonds during the year. Would this be reported as a source or use of cash on the statement of cash flows? In which section would it be reported?
> Buckeye, Inc., reported the following on its balance sheet at December 31, 2016: 1. Assume Buckeye, Inc., issued all of its stock during 2016 in one transaction. Journalize the company’s issuance of the stock for cash. 2. Was Buckeye,
> Suppose House and Garden Furniture issued 25,000 shares of its $5 par common stock at $6 per share. Which journal entry correctly records the issuance of this stock? DATE ACCOUNTS POST REF. DR. CR. a. Common Stock 150,000 Cash 125.000 Paid-in Capit
> What accounts are involved in the journal entry to record the issuance of stock at a price above the par value of the stock?
> Icemountain, Inc., experienced an unbroken string of 10 years of growth in net income. Nevertheless, the business is facing bankruptcy. Creditors are calling all of Icemountain’s outstanding loans for immediate payment, and Icemountain, Inc., has no cash
> Financing activities are most closely related to a. long-term assets. b. current assets and current liabilities. c. long-term liabilities and stockholders’ equity. d. net income and dividends.
> A company used cash to pay employees and received cash from performing services. In which section of the statement of cash flows would the cash flows from these activities be reported?
> This exercise shows the similarity and the difference between two ways to acquire plant assets. Case A—Issue stock and buy the assets in separate transactions: Apex, Inc., issued 10,000 shares of its $10 par common stock for cash of $600,000. In a separ
> What are the two basic sources of stockholders’ equity? a. Common stock and preferred stock b. Paid-in capital and retained earnings c. Retained earnings and dividends d. Stock and bonds
> Sherry Talbot, the CEO of Talbot Corporation, was meeting with the company controller to discuss a possible major lease of a new production facility. Talbot Corporation had a large amount of debt, and Sherry was concerned that adding more debt to acquire
> This case focuses on the liabilities of Columbia Sportswear Company. Current liabilities are those obligations that will become due and payable within the next year or operating cycle (whichever is longer), while long-term liabilities are those that are
> Answer these questions about the statement of cash flows: 1. What is the “check figure” for the statement of cash flows? Where do you get this check figure? 2. List the categories of cash flows in order of importance. 3. What is the first dollar amount
> Operating activities are most closely related to: a. long-term assets. b. current assets and current liabilities. c. long-term liabilities and stockholders’ equity. d. net income and dividends.
> A company used cash to build a new factory and received cash when it sold off the machines in the old factory. In which section of the statement of cash flows would the cash flows from these activities be reported?
> Sullivan Corp., issued stock above par on July 31. Answer the following questions about Sullivan Corp. 1. Sullivan Corp., received $6 million for the issuance of its stock. The par value of the Sullivan Corp., stock was only $4.5 million. Was the excess
> Which of the following is a disadvantage of organizing as a corporation? a. Limited ability to raise capital b. Separate legal entity c. Double taxation d. Limited stockholder liability
> The board of directors for Atlantic Corporation met in January to address growing concerns about the declining stock price of the firm. Because the price per share was so low, the board decided that the company would buy back 10 million shares of outstan
> Assume you are a CFO of a company that is attempting to raise additional capital to finance an expansion of its production facility. You are considering either issuing bonds or additional stock. What are some of the differences in the two options?
> In this exercise, we will continue the accounting for Sensations Salon, Inc. Assume that on September 30, 2016, Sensations Salon, Inc., borrowed $6,500 from State Bank, signing a nine-month, 7.5 percent note. The fiscal year-end is December 31. Requirem
> You have been asked by your accounting professor to prepare a paper outlining the importance of the statement of cash flows, the details of what is included in each of the three sections of the statement, and how it provides a link between the income sta
> Transco, Inc., was the largest company in the state specializing in rebuilding automobile transmissions. Every transmission rebuilt by the business was covered by a nine-month warranty. The owner, Don Adams, was meeting with his accountant to go over the
> You just received your year-end financial statements from your CPA. Although receiving the year-end financial package is important every year for your financing institutions and your investors, it is especially important this year because of the potentia
> Describe how the statement of cash flows helps investors and creditors perform each of the following functions: 1. Predict future cash flows 2. Evaluate management decisions 3. Predict the ability to make debt payments to lenders and pay dividends to St
> The three main categories of cash flows reported on a cash flow statement are a. current, long term, and fixed. b. short term, long term, and equity. c. direct, indirect, and hybrid. d. operating, investing, and financing.
> Find the Columbia Sportswear Company Annual Report located in Appendix A and go to the Consolidated Statements of Cash Flows on page 666. Now access the 2014 Annual Report for Under Armour, Inc., from the Internet. For instructions on how to access the r
> This case focuses on the cash flows of Columbia Sportswear. Recall that inflows and outflows of cash are classified as operating activities, investing activities, or financing activities. The statement of cash flows presents cash flows from each of these
> Design Incorporated experienced a downturn in December sales. To make matters worse, many of the recent sales were on account; because many customers were not paying on their accounts, the ending balance of Accounts Receivable at December 31 was higher t
> What are some of the reasons why a statement of cash flows may be important to users of financial statements?
> In this problem, we continue our accounting for Fitness Equipment Doctor, Inc., from Chapter 10. We will assume Fitness Equipment Doctor, Inc., is now in its second year of operations. Assume the comparative balance sheet for Fitness Equipment Doctor, In
> Let’s look at Dick’s Sporting Goods (Dick’s) some more. Think about Dick’s. How much cash does Dick’s have? What are the sources and uses of Dick’s cash? Return to Dick’s Annual Report and look at Dick’s financial statements (see the Continuing Financial
> This exercise continues the accounting for Sensations Salon, Inc., from the Continuing Exercise in Chapter 10. Assume Sensations Salon, Inc., had the following comparative balance sheet at the end of 2017, its second year of operations. Requirement
> This continues the Fitness Equipment Doctor, Inc., example from the Continuing Problem in Chapter 8. Fitness Equipment Doctor, Inc., purchased some of its long-term assets during 2016 using long-term debt. The following table summarizes the nature of thi
> Haskins Supply, Inc., supplies industrial tools to local businesses. Haskins Supply’s November 30, 2016 Balance Sheet appears as: During the month of December 2016, Haskins Supply, Inc., had the following transactions: Requirements 1. Open four-
> You just got off the telephone with one of your clients who wants to start a new business as a corporation. His question to you was concerning the different types of stock that can be issued to the potential stockholders of this new corporation. You had
> Popovich Computers, Inc., reported the following statement of stockholders’ equity for the year ended September 30, 2016. Requirements 1. What is the par value of the company’s common stock? 2. At what price per sha
> The balance sheet of Avery Hardware, Inc., at December 31, 2015, reported 700,000 shares of $3 par common stock authorized with 95,000 shares issued and outstanding. Paid-in Capital in Excess of Par—Common had a balance of $320,000. Ret
> Ralston Sports Corporation completed the following selected transactions during 2016: Requirements 1. Record the transactions in the journal Jan 6 Declared a cash dividend on the 10,000 shares of $3.00, no-par preferred stock outstanding. Declare
> Zeranski Consulting, Inc., has 12,000 shares of $5.00, no-par preferred stock and 60,000 shares of no-par common stock outstanding for 2014–2016. Zeranski declared and paid the following dividends during a three-year period: 2014, $23,000; 2015, $115,000
> Cascade Inn, Inc., included the following stockholders’ equity on its year-end balance sheet at December 31, 2016: Requirements 1. Identify the different issues of stock Cascade Inn, Inc., has outstanding. 2. Give the two entries to
> You are the chief operating officer (COO) of a small public corporation. The company just completed its fiscal year, and the annual meeting is just a few weeks away. Your company has had a pretty good year, despite the rough economic climate your industr
> Cutter Furniture, Inc., was organized in 2015. At December 31, 2015, Cutter Furniture, Inc.’s balance sheet reported the following stockholders’ equity: Requirement Answer the following questions and make journal en
> Partners Roberto and Salina wish to avoid the unlimited personal liability of the partnership form of business, so they are incorporating the company as R & S Enterprises, Inc. The charter from the state of Texas authorizes the corporation to issue 2
> Laferty Wholesale, Inc., reported the following statement of stockholders’ equity for the year ended September 30, 2016: Requirements 1. What is the par value of the company’s common stock? 2. At what price per shar
> The balance sheet of Johnson Supply, Inc., at December 31, 2015, reported 800,000 shares of $2 par common stock authorized with 116,000 shares issued and outstanding. Paid-in Capital in Excess of Par—Common had a balance of $300,000. Re
> Cho Sporting Goods, Inc., completed the following selected transactions during 2016: Requirements 1. Record the transactions in the journal. Jan 6 Declared a cash dividend on the 8,000 shares of $4, no-par preferred stock outstanding. Declared a
> Kommeri Consulting, Inc., has 9,000 shares of $6.00, no-par preferred stock and 60,000 shares of no-par common stock outstanding for 2014–2016. Kommeri Consulting, Inc., declared and paid the following dividends during a three-year period: 2014, $22,000;
> The Davenport Hotel, Inc., included the following stockholders’ equity on its year-end balance sheet at December 31, 2016. Requirements 1. Identify the different issues of stock that the Davenport Hotel, Inc., has outstanding. 2. Giv
> Gamma Corporation was organized in 2015. At December 31, 2015, Gamma Corporation’s balance sheet reported the following stockholders’ equity: Requirement Answer the following questions and make journal entries as ne
> Partners Vladimir and Thao wish to avoid the unlimited personal liability of the partnership form of business, so they are incorporating the company as V & T Fabrication, Inc. The charter from the state of Texas authorizes the corporation to issue 30
> Assume that Pugliese Industrial Supply, Inc., has the following data: Requirements 1. Calculate Pugliese Industrial Supply’s return on equity for 2016. 2. Comment on Pugliese Industrial Supply’s performance during 2
> Match the following terms with the correct definition. a. Common stock b. Paid-in capital c. Dividends d. Legal capital e. Outstanding stock f. Par value g. Preferred stock h. Retained earnings i. Treasury stock j. Stockholders’ equity _______ 1. Paid-
> Universal Communications, Inc., began 2016 with 340,000 shares of $1 par common stock issued and outstanding. Beginning Paid-in Capital in Excess of Par—Common was $590,000, and Retained Earnings was $750,000. In June 2016, Universal Communications, Inc.
> At December 31, 2015, Gentili Corp. reported the following stockholders’ equity. During 2016, Gentili completed these transactions and events in this order: a. Sold 1,200 shares of treasury stock for $39 per share; the cost of these
> Patterson Manufacturing Co. has the following selected account balances at September 30, 2016. Requirements 1. Prepare the stockholders’ equity section of the company’s balance sheet. Common Stock, no par with
> Backcountry Outftters, Inc., had the following stockholders’ equity on November 30: On December 10, Backcountry Outftters purchased 8,000 shares of treasury stock at $6 per share. Requirements 1. Journalize the purchase of the treas
> To prepare the statement of cash flows, accountants for Kim & Associates, Inc., summarized 2016 activity in the Cash account as: Requirement 1. Prepare the statement of cash flows of Kim & Associates, Inc., for the year ended De
> Journalize the following transactions of All Sports, Inc., a chain of sports stores: Mar 4 Issued 22,000 shares of no-par common stock at $8 per share. May 22 Purchased 900 shares of treasury stock at $10 per share. Sep 22 Sold 500 shares of treasu
> Use the Linderman Garden Supply, Inc., data from P11-39B. The cash amounts for Interest Revenue, Salaries Expense, Interest Expense, and Income Tax Expense are the same as the accrual amounts for these items. Requirements 1. Prepare the 2016 statement
> Consider each of the following transactions separately from every other transaction: a. Issuance of 60,000 shares of $5 par common at $14 b. Purchase of 1,000 shares of treasury stock (par value at $3) at $8 per share c. Issuance of a 20 percent stock d
> The accounting records for Best Way Lumber, Inc., for the year ended November 30, 2016, contain the following information: a. Purchase of fixed assets, $88,400 b. Proceeds from issuance of common stock, $12,000 c. Payment of dividends, $45,400 d. Collec
> Global Travel, Inc., had the following stockholders’ equity at August 31: On September 30, Global Travel, Inc., split its common stock 5-for-1. Requirements 1. Make any necessary entry to record the stock split. 2. Prepare the stock
> Which characteristic of a corporation is considered to be an advantage? a. Limited stockholder liability b. Indefinite life c. Ease of transferring ownership d. All of the above
> The 2016 comparative balance sheet and income statement of Linderman Garden Supply, Inc., follow: Linderman Garden Supply, Inc., had no noncash investing and financing transactions during 2016. During the year, Linderman Garden Supply, Inc., made no s
> Akaman Auto, Inc., is authorized to issue 600,000,000 shares of $10 par common stock. The company issued 70,000 shares at $12 per share, and all 70,000 shares are outstanding. When the market price of common stock was $22 per share, Akaman Auto, Inc., de
