Statement of Cash Flows
Exercises
1. Determine if each activity would be shown as an operating, financing, or investing
activity in the statement of cash flows.
a. Purchase of 5%, $4,000,000
bonds
b. Sale of land for 650,000
c. Payment of $4,500 for advertising
2. Would each of the following activities be found in the operating, financing, or investing
section of the statement of cash flows?
a. Payment of $3,500 interest on bonds payable
b. Receipt of $5,200 dividends from equity securities
c. Issuance of a $5,000 note payable to bank for cash
3. Determine if each transaction would be shown in the operating, financing, or investing
section of the statement of cash flows.
a. Payment for insurance for $15,000 for the upcoming year
b. Issuance of 5,000 shares of common stock
c. Sale of old equipment for $1,200
4. Using the following beginning and ending operating account balances, determine if each
change would be a positive or negative adjustment to net income to arrive at net cash
flows from operating activities under the indirect method.
Increase Positive or negative
Dec. 31 Jan. 1 (Decrease) adjustment?
Accounts receivable $6,210 $4,450 $ 1,760
Merchandise inventory 9,900 10,880 (980)
Supplies 3,200 3,000 200
Accounts payable 10,100 7,800 2,300
Interest payable 1,600 3,200 (1,600)
5. All American’s sales for the 2015 fiscal year totaled $92,000. The company’s income
statement included the following expenses: income tax expense, $8,000; wages
expense, $40,000; and cost of merchandise sold, $10,000. The balance sheet shows the
following changes in account balances: increase in accounts receivable, $4,000; increase
in merchandise inventory, $8,600; decrease in accounts payable, $7,500; decrease in
wages payable, $4,000; and increase in income taxes payable, $2,000. Calculate the
following:
a. Cash receipts from customers
b. Cash payments for merchandise
c. Cash payments for income taxes
d. Cash payments for wages
6. Allen Ales’ income statement for 2015 shows sales of $97,000 and the following
expenses: interest expense, $2,000; utilities expense, $9,500; income tax expense,
$7,700; and cost of merchandise sold, $16,500. The balance sheet gives the following
changes in account balances: decrease in accounts receivable, $2,000; decrease in
merchandise inventory, $7,100; increase in accounts payable, $3,000; decrease in
utilities payable, $1,300; and decrease in income taxes payable, $4,000. Calculate the
a. Cash receipts from customers
b. Cash payments for merchandise
c. Cash payments for utilities
d. Cash payments for income taxes
7. For 2015, RPC Corporation’s income statement shows sales of $51,000 and the following
expenses: legal expense, $4,000; interest expense, $1,500; income tax expense, $7,500;
cost of merchandise sold, $10,900; and wages expense, $6,800. The balance sheet
shows the following changes in account balances: decrease in accounts receivable,
$1,950; increase in legal expenses payable, $3,100; decrease in wages payable, $4,100;
increase in accounts payable, $5,500; decrease in merchandise inventory, $3,300; and
increase in income taxes payable, $1,100. Calculate the following:
a. Cash receipts from customers
b. Cash payments for merchandise
c. Cash payments for wages
d. Cash payments for income taxes
e. Cash payments for legal expenses
8. Use the information below to prepare the operating section of the statement of cash
flows using the direct method.
Cash sales $450,000
Cash payments to suppliers 109,300
Cash payments to employees 95,780
Cash payments for income taxes 46,700
Cash receipts for accounts receivable 120,000
Cash payments for utilities 27,400
9. Prepare the operating section of the statement of cash flows under the indirect method
using the income statement below. During the year, the accounts payable also increased
by $1,200 and accounts receivable decreased by $2,200.
ABC Corporation
Income Statement
For the Year Ended December 31, 2015
Sales revenue $182,100
Cost of merchandise sold 90,400
Gross profit $ 91,700
Operating expenses:
Salaries expense $41,300
Advertising expense 1,500
Depreciation expense 6,250
Amortization expense 2,240
Total operating expenses $ 51,290
Income from operations $ 40,410
Other income and expenses:
Rent revenue $15,300
Gain on sale of equipment 2,200 $ 17,500
Net income $ 57,910
10. Use the income statement below to prepare the statement of cash flows using the
indirect method. During the year, the company also had a $750 decrease in accounts
payable, a $200 increase in supplies, and a $1,000 decrease in accounts receivable. The
company issued $4,000,000 of 10% bonds at face value and paid $14,000 in dividends to
shareholders. ABC Corporation received $10,000 in cash for the investments sold. The
cash balance at the beginning of the year was $460,900.
ABC Corporation
Income Statement
For the Year Ended December 31, 2015
Sales revenue $122,300
Cost of merchandise sold 25,700
Gross profit $ 96,600
Operating expenses:
Salaries expense $35,000
Insurance expense 4,800
Depreciation expense 7,700
Amortization expense 1,200
Total operating expenses 48,700
Income from operations $ 47,900
Other income and expenses:
Rent revenue $10,000
Loss on investments 2,200 $ 7,800
Net income $ 55,700
