B PROBLEMSP23-1B (L02,4) (SCF—Indirect Method) The followi.docx

B PROBLEMS
P23-1B (L02,4) (SCF—Indirect Method) The following are
Sanibel Corp.’s comparative balance sheet accounts at Decem-
ber 31, 2017 and 2016, with a column showing the increase
(decrease) from 2016 to 2017.
Additional information:
1. On December 31, 2016, Sanibel acquired 25% of Island
Co.’s common stock for $420,000. On that date, the carrying
value
of Island’s assets and liabilities, which approximated their fair
values, was $1,680,000. Island reported income of $220,000
for the year ended December 31, 2017. No dividend was paid on
Island’s common stock during the year.
2. During 2016, Sanibel loaned $500,000 to POI Co., an
unrelated company. POI made the first semi-annual principal
repay-
ment of $50,000, plus interest at 10%, on December 31, 2016.
POI is current on the loan as of December 31, 2017.
3. On January 2, 2017, Sanibel sold equipment costing
$100,000, with a carrying amount of $31,000, for $20,000 cash.
4. On December 31, 2017, Sanibel entered into a capital lease
for a new factory. The present value of the annual rental pay-
ments is $850,000, which equals the fair value of the building.
Sanibel made the first rental payment of $120,000 when due
on January 2, 2018.

5. Net income for 2017 was $285,000.
6. Sanibel declared and paid cash dividends for 2017 and 2016
as follows.
Instructions
Prepare a statement of cash flows for Sanibel Corp. for the year
ended December 31, 2017, using the indirect method.
(AICPA adapted)
1
COMPARATIVE BALANCE SHEETS
Increase
2017 2016 (Decrease)
Cash $ 650,000 $ 510,000 $ 140,000
Accounts receivable 1,260,000 1,090,000 170,000
Inventory 1,538,000 1,370,000 168,000
Property, plant, and equipment 2,680,000 1,763,000 917,000
Accumulated depreciation (850,000) (760,000) (90,000)
Investment in Island Co. 475,000 420,000 55,000
Loan receivable 350,000 450,000 (100,000)
Total assets $6,103,000 $4,843,000 $1,260,000
Accounts payable $1,080,000 $ 910,000 $ 170,000
Income taxes payable 90,000 75,000 15,000
Dividends payable 100,000 60,000 40,000
Capital lease obligation 850,000 0 850,000
Common stock, $1 par 400,000 400,000 0
Paid-in capital in excess of 2,100,000 2,100,000 0
par—common stock
Retained earnings 1,483,000 1,298,000 185,000

Total liabilities and stockholders’ equity $6,103,000
$4,843,000 $1,260,000
2017 2016
Declared December 15, 2017 December 15, 2016
Paid February 28, 2018 February 28, 2017
Amount $100,000 $60,000
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2 Chapter 23 Statement of Cash Flows
P23-2B (L02,4) (SCF—Indirect Method) The comparative
balance sheets for Queen Corporation show the following
information.
Additional data related to 2017 are as follows.
1. Equipment that had cost $20,000 and was 60% depreciated at
time of disposal was sold for $2,000.
2. $18,000 of the long-term note payable was paid by issuing
common stock.
3. Cash dividends paid were $12,000.
4. On January 1, 2017, the building was completely destroyed
by a hurricane. Insurance proceeds on the building were
$245,000 (net of $22,000 taxes).
5. Investments (available-for-sale) were sold at $2,800 below
their cost. The company has made similar sales and invest-

ments in the past.
6. Cash was paid for the acquisition of equipment.
7. A long-term note for $20,000 was issued for the acquisition
of equipment.
8. Interest of $1,000 and income taxes of $23,600 were paid in
cash.
Instructions
Prepare a statement of cash flows using the indirect method.
Hurricane damage is unusual in that part of the country.
P23-3B (L02,3) (SCF—Direct Method) Seahorse Inns Company
has not yet prepared a formal statement of cash flows for
the 2017 fiscal year. Comparative balance sheets as of
December 31, 2016 and 2017, and a statement of income and
retained earn-
ings for the year ended December 31, 2017, are presented
below.
SEAHORSE INNS COMPANY
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 2017
($000 OMITTED)
Sales $15,200
Expenses
Cost of goods sold $9,200
Salaries and benefi ts 2,250
Heat, light, and power 150
Depreciation 110
Property taxes 24

Patent amortization 60
Miscellaneous expenses 20
Interest 45 11,859
Income before income taxes 3,341
December 31
2017 2016
Cash $ 55,800 $ 19,000
Accounts receivable 56,000 51,000
Inventory 81,600 84,000
Buildings 0 180,000
Equipment 195,000 120,000
Investments 0 42,000
Patents 25,000 30,000
Total assets $413,400 $526,000
Allowance for doubtful accounts $ 5,000 $ 4,500
Accumulated depreciation-buildings 46,000
Accumulated depreciation-equipment 45,000 20,000
Accounts payable 76,000 74,000
Dividends payable 6,000 12,000
Notes payable, short-term 10,000 6,000
Long-term notes payable 50,000 260,000
Common stock 68,000 50,000
Retained earnings 153,400 53,500
Total liabilities and stockholders’ equity $413,400 $526,000

B Problems 3
SEAHORSE INNS COMPANY
AS OF DECEMBER 31
($000 OMITTED)
Assets 2017 2016
Current assets
Cash $ 129 $ 210
Investments (available-for-sale) 85 50
Accounts receivable, net 2,800 3,100
Inventory 2,860 2,600
Total current assets 5,874 5,960
Long-term assets
Land 540 360
Buildings and equipment 3,200 2,450
Accumulated depreciation (1,070) (960)
Patents, net 140 200
Total long-term assets 2,810 2,050
Total assets $8,684 $8,010
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable $1,239 $2,740

Income taxes payable 240 460
Notes payable 300 0
Total current liabilities 1,779 3,200
Long-term notes payable—due 2016 200 510
Total liabilities 1,979 3,710
Stockholders’ equity
Common stock 1,900 500
Total stockholders’ equity 6,705 4,300
Income taxes 1,336
Net income 2,005
Retained earnings—Jan. 1, 2017 3,800
5,805
Stock dividend declared and issued 1,000
Retained earnings—Dec. 31, 2017 $ 4,805
Instructions
Prepare a statement of cash flows using the direct method.
Changes in accounts receivable and accounts payable relate to
sales
and cost of goods sold. Do not prepare a reconciliation
schedule.
(CMA adapted)

P23-4B (L02,3,4) (SCF—Direct Method) Wizard Company had
available at the end of 2017 the information shown below
and on the next page.
WIZARD COMPANY
AS OF DECEMBER 31, 2017 AND 2016
2017 2016
$ 2,000 $ 12,000
31,500 40,000
95,600 90,000
15,600 26,000
200,000 260,000
650,000 650,000
Cash
Short-term investments
Accounts receivable
Inventory
Prepaid expenses Land
Buildings
Accounts receivable
60,000 50,800

Instructions
Prepare a statement of cash flows for Wizard Company using
the direct method accompanied by a reconciliation schedule.
As-
sume the short-term investments are classified as available-for-
sale.
P23-5B (L02,4) (SCF—Indirect Method) You have completed
the field work in connection with your audit of Clark Corpo-
ration for the year ended December 31, 2017. The balance sheet
accounts at the beginning and end of the year are shown on the
next page.
WIZARD COMPANY
(CONTINUED)
2017 2016
Accumulated depreciation-buildings (75,000) (57,000)
Equipment 346,000 150,000
Accumulated depreciation-equipment (41,000) 0
Patents 68,000 72,000
Total assets $1,370,700 $1,293,800
Income taxes payable 26,800 21,000
Salaries and wages payable –0– 8,000

Notes payable, short-term 25,000 25,000
Bonds payable 600,000 600,000
Discount on bonds payable (36,015) (40,865)
Common stock 110,000 100,000
Paid-in capital in excess of 248,600 216,800
par-common stock
Total liabilities and stockholders’ equity $1,370,700
$1,293,800
WIZARD COMPANY
INCOME STATEMENT AND DIVIDEND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 2017
Sales revenue $1,560,000
Cost of goods sold 976,000
Gross margin 584,000
Operating expenses
Selling expenses $160,800
Administrative expenses 116,100
Depreciation/Amortization expense 63,000
Total operating expenses 339,900
Income from operations 244,100
Other revenues/expenses
Gain on sale of land 21,000
Loss on sale of short-term investment (8,000)
Dividend revenue 4,100
Interest expense (95,350) (78,250)
Income before taxes 165,850
Income tax expense 62,500

Net income 103,350
Dividends to common stockholders (40,000)
To retained earnings $ 63,350
B Problems 5
December 31, December 31, Increase
2017 2016 (Decerase)
Cash $ 99,435 $ 110,700 $ (11,265)
Accounts receivable 424,600 380,900 43,700
Inventory 635,740 576,475 59,265
Prepaid expenses 20,000 12,000 8,000
Investment in subsidiary 200,000 0 200,000
Cash surrender value of life isnurance 16,460 14,850 1,610
Land 100,000 100,000 0
Buidings 525,000 400,000 125,000
Equipment 381,000 290,000 91,000
Patents 86,000 70,000 16,000
Trademarks 25,000 35,000 (10,000)
Bond discount and issue costs 1,165 6,075 (4,910)
Total debits $2,514,400 $1,996,000 $518,400
Accounts payable $ 534,000 $ 508,000 $ 26,000
Income taxes payable 68,000 34,500 33,500
Salaries and wages payable 73,500 12,900 60,600
Allowance for doubtful accounts 25,000 23,000 2,000

Accumulated depreciation-buildings 248,000 230,000 18,000
Accumulated depreciation-equipment 160,000 103,000 57,000
Long-term notes payable 75,000 75,000 0
Bonds payable 400,000 300,000 100,000
Premium on bonds payable 7,762 0 7,762
Common stock 150,000 125,000 25,000
Paid-in capital in excess of par-common stock 568,000 418,000
150,000
Retained earnings 205,138 166,600 38,538
Total credits $2,514,400 $1,996,000 $518,400
Your working papers from the audit contain the following
information:
1. On November 1, 2017, 25,000 shares of $1 par stock were
sold for $175,000.
2. A patent was purchased for $31,000.
3. During the year, equipment that had a cost basis of $26,400
and on which there was accumulated depreciation of $5,800
was sold for $15,000. No other plant assets were sold during the
year.
4. The 10%, $300,000 40-year bonds were dated and issued on
January 2, 2004. Interest was payable on June 30 and Decem-
ber 31. They were sold originally at 97. These bonds were
retired at 101 plus accrued interest on May 31, 2017.
5. The 6%, $400,000 20-year bonds were dated January 1,
2017, and were sold on May 31 at 102 plus accrued interest.
Inter-
est is payable semiannually on June 30 and December 31.
Expense of issuance was $1,200.
6. Clark Corporation acquired 60% control in Pediatric
Company on January 2, 2017, for $146,000. The income

statement of
Pediatric Company for 2017 shows a net income of $90,000.
7. Extraordinary repairs to buildings of $12,600 were charged
to Accumulated Depreciation—Buildings.
8. Interest paid in 2017 was $31,000 and income taxes paid
were $38,000.
9. Net income for the year totalled $76,538.
Instructions
From the information given, prepare a statement of cash flows
using the indirect method. A worksheet is not necessary, but the
principal computations should be supported by schedules or
general ledger accounts. The company uses straight-line
amortiza-
tion for bond interest.
P23-6B (L02,3,4) (SCF—Indirect Method, and Net Cash Flow
from Operating Activities, Direct Method) Comparative
balance sheet accounts of Easton Inc. are presented below and
on the next page.
EASTON INC.
COMPARATIVE BALANCE SHEET ACCOUNTS
December 31, December 31,
2017 2016
Cash $ 40,500 $ 33,600
Inventory 81,000 85,600

Additional data (ignoring taxes):
1. Net income for the year was $71,400.
2. Cash dividends declared and paid during the year were
$10,000.
3. A 10% stock dividend was declared during the year. $37,500
of retained earnings was capitalized.
4. Investments that cost $24,000 were sold during the year for
$29,500.
5. Equipment that cost $5,400, on which $3,600 of depreciation
had accumulated, was sold for $2,200.
Easton’s 2017 income statement follows (ignoring taxes).
Instructions
(a) Compute net cash flow from operating activities using the
direct method.
(b) Prepare a statement of cash flows using the indirect method.
P23-7B (L02,3,4) (SCF—Direct and Indirect Methods from
Comparative Financial Statements) Cooper Company, a
sports retailer operates several stores and is a publicly traded
company. The comparative balance sheet and income statement
for Cooper as of October 31, 2017, are below. The company is
preparing its statement of cash flows.
EASTON INC.

(CONTINUED)
2017 2016
Investments (available-for-sale) 41,000 65,000
Land 25,000 25,000
Buidings 98,000 76,000
Equipment 60,800 41,000
Total debits $466,800 $422,200
Accumulated depreciation-buildings 26,800 23,200
Salaries and wages payable 6,000 11,600
Paid-in capital in excess of par-common stock 201,000 164,500
Total credits $466,800 $422,200
Sales $855,600
Less: cost of goods sold 538,900
Gross margin 316,700
Less: Operating expenses (includes $13,800 depreciation and
$4,100 bad debts) 251,200
Other: Gain on sale of investments $5,500

Gain on sale of machinery 400 5,900
Net income $ 71,400
COOPER COMPANY
COMPARATIVE BALANCE SHEET
AS OF OCTOBER 31
2017 2016
Current assets
Cash $ 21,500 $ 12,000
Inventory 128,600 109,000
Prepaid expenses 8,000 13,000
Total current assets 220,100 184,000
B Problems 7
Plant assets
Plant assets 575,000 450,000
Accumulated depreciation-plant assets (115,000) (90,000)
Net plant assets 460,000 360,000
Total assets $680,100 $544,000
Current liabilities

Accounts payable $ 90,000 $ 86,000
Salaries and wages payable 23,600 28,400
Interest payable 11,000 9,200
Total current liabiltities 124,600 123,600
Total liabilities 249,600 203,600
Stockholders’ equity
Common stock 105,000 100,000
Paid-in capital in excess of 229,000 196,000
par-common stock
Total stockholders’ equity 430,500 340,400
COOPER COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED OCTOBER 31, 2017
Sales $1,600,800
Cost of goods sold 980,200
Gross profi t 620,600
Expenses
Salaries and wages expense 346,100
Interest expense 11,000
Depreciation expense 25,000
Other expenses 12,900
Total expenses 395,000

Operating income 225,600
Income tax expense 73,600
Net income $ 152,000
The following is additional information concerning Cooper’s
transactions during the year ended October 31, 2017.
1. All sales during the year were made on account.
2. All merchandise was purchased on account, comprising the
total accounts payable account.
3. Plant assets costing $75,000 were purchased by paying
$50,000 in cash and issuing 3,000 shares of stock.
4. The “other expenses” are related to prepaid items.
5. All income taxes incurred during the year were paid during
the year.
6. In order to supplement its cash, Cooper issued 2,000 shares
of common stock for $13,000.
7. Cash dividends of $99,900 were declared and paid at the end
of the fiscal year.
Instructions
(a) Compare and contrast the direct method and the indirect
method for reporting cash flows from operating activities.
(b) Prepare a statement of cash flows for Cooper Company for
the year ended October 31, 2017, using the direct method.
Be sure to support the statement with appropriate calculations.
(A reconciliation of net income to net cash provided is
not required.)
(c) Using the indirect method, calculate only the net cash flow
from operating activities for Cooper Company for the year
ended October 31, 2017.

P23-8B (L03,6,8) (SCF—Direct and Indirect Methods)
Comparative balance sheet accounts of Hamblin Company are
impresented below.
Additional data:
1. Equipment that cost $20,000 and was 40% depreciated was
sold in 2017.
2. Cash dividends were declared and paid during the year.
3. Common stock was issued in exchange for land.
4. Investments that cost $25,000 were sold during the year.
5. There were no write-offs of uncollectible accounts during
the year.
Hamblin’s 2017 income statement is as follows.
Instructions
(a) Compute net cash provided by operating activities under the
direct method.
(b) Prepare a statement of cash flows using the indirect method.
HAMBLIN COMPANY
AS OF DECEMBER 31

2017 2016
Debit Balances
Cash $ 60,000 $ 71,500
Investments (available-for-sale) 30,000 55,000
Inventory 118,000 84,000
Land 50,000 15,000
Buidings 160,000 160,000
Equipment 60,000 41,500
Total assets $630,000 $563,000
Totals
Credit Balances
Accumulated depreciation-buildings 40,000 32,000
Accumulated depreciation -equipment 24,000 18,500
Income taxes payable 13,000 8,000
Common stock 295,000 236,500
Totals $630,000 $563,000
Sales $750,000
Less: Cost of goods sold 480,000
Gross profi t 270,000
Less: Operating expenses (includes depreciation expense and
bad debt expense) 145,000

Other revenues and expenses
Gain on sale of investments $7,000
Loss on sale of equipment (4,000) 3,000
Income before taxes 128,000
Income taxes 52,000
Net income 76,000
B Problems 9
P23-9B (L02,4) (Indirect SCF) Thompson Corporation has
contracted with you to prepare a statement of cash flows. The
controller has provided the following information.
2017 2016
Cash $ 39,500 $ 18,000
Investments (available-for-sale) 0 15,000
Inventory 46,000 30,000
Buildings 0 45,000
Equipment 46,000 15,000
Patents 8,000 10,000
Totals $190,500 $179,000

Accumulated depreciation-buildings 0 15,000
Dividends payable 6,000 0
Notes payable, short-term, nontrade 6,000 5,000
Totals $190,500 $179,000
Additional data related to 2017 are as follows.
1. Equipment that had cost $5,000 and was 20% depreciated at
time of disposal was sold for $2,000.
2. $13,000 of the long-term note payable was paid by issuing
common stock.
3. Cash dividends paid were $10,000.
4. On January 1, 2017, the building was completely destroyed
by a typhoon. Insurance proceeds on the building were
$42,000 (net of $8,000 taxes).
5. Investments (available-for-sale) were sold at $3,000 below
their cost. The company has made similar sales and invest-
ments in the past.
6. Cash and long-term note for $10,000 were given for the
acquisition of equipment.
7. Interest of $3,000 and income taxes of $9,000 were paid in
cash.
Instructions
(a) Use the indirect method to analyze the above information
and prepare a statement of cash flows for Thompson.

Typhoon damage is unusual in that part of the country.
(b) What would you expect to observe in the operating,
investing, and financing sections of a statement of cash flows
of:
(1) A severely financially troubled firm?
(2) A recently formed firm that is experiencing rapid growth?

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