Exercises 1. Classification of activities Classify each of the following transactions as arising from an operating (O), investing (I), financing (F), or noncash investing/financing (N) activity: ________ a. Received $80,000 from the sale of land ________ b. Received $3,200 from cash sales ________ c. Paid a $5,000 dividend ________ d. Purchased $8,800 of merchandise for cash ________ e. Received $100,000 from the issuance of common stock ________ f. Paid $1,200 of interest on a note payable ________ g. Acquired a new laser printer by paying $650 ________ h. Acquired a $400,000 building by signing a $400,000 mortgage note 2. Indirect calculation of operating cash flows Video Corporation's balance sheet revealed the following account balance information: Account Dec. 31, 20X6 Dec. 31, 20X5 Accounts receivable $52,000 $57,000 Merchandise inventory 75,000 68,000 Accounts payable 21,000 19,500 The accrual-basis net income was $107,000. In computing net income, the company recorded $12,600 of depreciation expense; there were no gains or losses from investing and financing activities. On the basis of the preceding information, calculate Video's cash flows from operating activities by using the indirect method. 3. Indirect calculation of operating cash flows Specialty Services Inc. reported a net income of $110,000 for the year just ended, which includes an $18,000 gain on the sale of long-term investments. The following data were obtained from comparative balance sheets: Oct. 31, 20X2 Oct. 31, 20X1 Trade accounts receivable $245,000 $203,000 Merchandise inventory 230,000 308,000 Accumulated depreciation: equipment 120,000 65,000 Accounts payable 190,000 124,000 Accrued liabilities 38,000 73,000 There were no purchases or disposals of equipment during the year. The long-term investment had a carrying (book) value of $77,000 and was sold for cash on June 15. On the basis of the preceding information, determine the cash provided by operating activities from November 1, 20X1 through October 31, 20X2. The firm uses the indirect method of statement preparation. 4. Overview of direct and indirect methods Evaluate the comments that follow as being true or false. If the comment is false, briefly explain why. a. Both the direct method and the indirect method will produce the same cash flow from operating activities. b. Depreciation expense is added back to net income when the indirect method is used. c. One of the advantages of using the direct method rather than the indirect method is that larger cash flows from financing activities will be reported. d. The cash paid to suppliers is normally disclosed on the statement of cash flows when the indirect method of statement preparation is employed. e. The dollar change in the Merchandise Inventory account appears on the statement of cash flows only when the direct method of statement preparation is used. 5. Statement preparation: Direct method The comparative balance sheets of Village Company follow: VILLAGE COM ...

1. Exercises
1. Classification of activities
Classify each of the following transactions as arising from an o
perating (O), investing (I), financing (F), or noncash investing/f
inancing (N) activity:
________
a. Received $80,000 from the sale of land
________
b. Received $3,200 from cash sales
________
c. Paid a $5,000 dividend
________
d. Purchased $8,800 of merchandise for cash
________
e. Received $100,000 from the issuance of common stock
________
f. Paid $1,200 of interest on a note payable
________
g. Acquired a new laser printer by paying $650
________
h. Acquired a $400,000 building by signing a $400,000 mortgag
e note
2. Indirect calculation of operating cash flows
Video Corporation's balance sheet revealed the following accou
nt balance information:
Account
Dec. 31, 20X6
Dec. 31, 20X5
Accounts receivable
$52,000
$57,000
Merchandise inventory
75,000

2. 68,000
Accounts payable
21,000
19,500
The accrual-
basis net income was $107,000. In computing net income, the co
mpany recorded $12,600 of depreciation expense; there were no
gains or losses from investing and financing activities.
On the basis of the preceding information, calculate Video's cas
h flows from operating activities by using the indirect method.
3. Indirect calculation of operating cash flows
Specialty Services Inc. reported a net income of $110,000 for th
e year just ended, which includes an $18,000 gain on the sale of
long-
term investments. The following data were obtained from compa
rative balance sheets:
Oct. 31, 20X2
Oct. 31, 20X1
Trade accounts receivable
$245,000
$203,000
Merchandise inventory
230,000
308,000
Accumulated depreciation: equipment
120,000
65,000
Accounts payable
190,000
124,000
Accrued liabilities
38,000
73,000
There were no purchases or disposals of equipment during the y
ear. The long-

3. term investment had a carrying (book) value of $77,000 and was
sold for cash on June 15.
On the basis of the preceding information, determine the cash pr
ovided by operating activities from November 1, 20X1 through
October 31, 20X2. The firm uses the indirect method of stateme
nt preparation.
4. Overview of direct and indirect methods
Evaluate the comments that follow as being true or false. If the
comment is false, briefly explain why.
a.
Both the direct method and the indirect method will produce the
same cash flow from operating activities.
b.
Depreciation expense is added back to net income when the indi
rect method is used.
c.
One of the advantages of using the direct method rather than the
indirect method is that larger cash flows from financing activiti
es will be reported.
d.
The cash paid to suppliers is normally disclosed on the statemen
t of cash flows when the indirect method of statement preparatio
n is employed.
e.
The dollar change in the Merchandise Inventory account appears
on the statement of cash flows only when the direct method of s
tatement preparation is used.
5. Statement preparation: Direct method
The comparative balance sheets of Village Company follow:
VILLAGE COMPANY
Comparative Balance Sheets
December 31, 20X2 and 20X1
Dec. 31, 20X2
Dec. 31, 20X1
Cash

4. $ 5,000
$ 7,000
Accounts receivable (net)
12,000
18,000
Merchandise inventory
35,000
28,000
Property, plant, & equipment
40,000
30,000
Less: Accumulated depreciation
(17,000)
(10,000)
Total assets
$ 75,000
$ 73,000
Accounts payable*
$ 25,000
$ 21,000
Income taxes payable
4,000
1,000
Common stock
24,000
24,000
Retained earnings
22,000
27,000
Total liabilities & stock, equity
$ 75,000
$ 73,000
*Relate to purchases of merchandise
The firm's accrual-
basis income statement revealed the following data: sales, $120,

5. 000; cost of goods sold, $80,000; selling and administrative exp
enses, $25,000; depreciation expense, $7,000; and income taxes,
$3,000. (There was no interest expense.) Dividends declared an
d paid during 20X2 totaled $10,000. Finally, Village purchased
$10,000 of equipment for cash on August 14.
a. Determine the increase or decrease in cash during 20X2.
b. Prepare a statement of cash flows by using the direct method.
6. Equipment transaction and cash flow reporting
The property, plant, and equipment section of ProComp Inc.'s c
omparative balance sheet follows:
Dec. 31, 20X4
Dec. 31, 20X3
Property, plant, & equipment
Land
$ 94,000
$ 94,000
Equipment
652,000
527,000
Less: Accumulated depreciation
(316,000)
(341,000)
New equipment purchased during 20X4 totaled $280,000. The 2
0X4 income statement disclosed equipment depreciation expens
e of $41,000 and a $9,000 loss on the sale of equipment.
a.
Determine the cost and accumulated depreciation of the equipm
ent sold during 20X4.
b. Determine the selling price of the equipment sold.
c.
Show how the sale of equipment would appear on a statement of
cash flows prepared by using the indirect method.
7. Evaluation of cash flows
The following statement of cash flows was prepared for Yellows
tone Company:

6. YELLOWSTONE COMPANY
Statement of Cash Flows
for the Year Ended December 31, 20X2
Cash flows from operating activities
Cash received from customers
$240,000
Less cash payments for:
Purchases of merchandise
$180,000
Selling & administrative expenses
75,000
Interest
20,000
275,000
Net cash used by operating activities
$ (35,000)
Cash flows from investing activities
Sale of equipment
$ 20,000
Sale of vehicles
10,000
Sale of long-term investments
40,000
Net cash provided by investing act
70,000
Cash flows from financing activities
Retirement of long-term debt

7. (50,000)
Net increase (decrease) in cash
$ (15,000)
Cash balance, January 1, 20X2
54,000
Cash balance, December 31, 20X2
$ 39,000
Evaluate the nature of the decrease in cash. Does your analysis i
ndicate any potential problems for Yellowstone?
Problems
1.
Transaction analysis: Operating, investing, and financing activit
ies
The management of Maui Corporation desires to know the natur
e of each of the following transactions and events:
1. Collected cash from customers for cash sales.
2. Purchased a short-term investment for cash.
3.
Secured a mortgage note to finance the acquisition of a building
.
4. Issued 10-year bonds for cash.
5. Paid a short-term nonoperating note.
6.
Sold equipment having a book value of $30,000 for $30,000 cas
h.
7. Sold a parcel of land at cost; received a long-term note.
8. Received dividends on a long-term stock investment.
9. Paid income taxes.
10. Issued preferred stock in exchange for a valuable patent.
11. Reacquired treasury stock for cash.
12. Paid previously declared cash dividends.
Instructions

8. a.
Briefly explain the difference between investing and financing a
ctivities and noncash investing/financing activities.
a.
Design a table with the following columnar headings: operating
activity, investing activity, financing activity, and noncash inve
sting/financing activity. Classify the 12 transactions listed by us
ing these headings. For all classifications except noncash invest
ing/financing, indicate whether the transaction causes a cash inf
low (+) or a cash outflow (−).
1. Operating activities: Direct and indirect methods
The 20X5 income statement of Office Products Inc. follows:
OFFICE PRODUCTS INC.
Income Statement
for the Year Ended December 31, 20X5
Net sales
$980,000
Cost of goods sold
Beginning inventory
$235,000
Net purchases
720,000
Goods available for sale
$955,000
Less: Ending inventory
260,000
Cost of goods sold
695,000
Gross profit

9. $285,000
Expenses
Selling & administrative
$149,000
Depreciation
54,000
203,000
$ 82,000
Other revenue (expense)
Interest expense
$ (18,000)
Gain on sale of equipment
26,000
8,000
Income before income taxes
$ 90,000
Income taxes
27,000
Net income
$ 63,000
1.
The following additional information was obtained from the gen
eral ledger and management personnel:
3.
Accounts payable related to the purchases of merchandise decre
ased during 20X5 by $32,800. In contrast, accounts receivable i
ncreased by $23,700.
3.
Prepaid expenses and wages payable increased throughout 20X5

10. by $2,400 and $5,600, respectively.
3.
The balance in the income taxes payable account on January 1 w
as $4,900; the December 31 balance was $4,100.
3.
The company financed a $78,000 equipment purchase by signing
a note payable that is due in 20X8.
Instructions
c.
Prepare the operating activities section of the statement of cash
flows by using the direct method.
c.
Prepare the operating activities section of the statement of cash
flows by using the indirect method.
1. Cash flow information: Direct and indirect methods
The comparative year-
end balance sheets of Sign Graphics Inc. revealed the following
activity in the company's current accounts:
20X5
20X4
Increase
(decrease)
Current assets
Cash
$ 55,400
$ 35,200
$ 20,200
Accounts receivable (net)
83,800
88,000
(4,200)
Inventory
243,400
233,800
9,600

11. Prepaid expenses
25,400
24,200
1,200
Current liabilities
Accounts payable
$ 123,600
$140,600
$(17,000)
Taxes payable
43,600
49,200
(5,600)
Interest payable
9,000
6,400
2,600
Accrued liabilities
38,800
60,400
(21,600)
Note payable
44,000
—
44,000
1.
The accounts payable were for the purchase of merchandise. Pre
paid expenses and accrued liabilities relate to the firm's selling
and administrative expenses. The company's condensed income
statement follows:
SIGN GRAPHICS INC.
Income Statement
for the Year Ended December 31, 20X5
Sales
$713,800

12. Less: Cost of goods sold
323,000
Gross profit
$390,800
Less: Selling & administrative expenses
$186,000
Depreciation expense
17,000
Interest expense
27,000
230,000
Add: Gain on sale of land
$160,800
21,800
Income before taxes
$182,600
Income taxes
36,800
Net income
$145,800
1. Other data:
6. Long-
term investments were purchased for cash at a cost of $74,600.
6. Cash proceeds from the sale of land totaled $76,200.
6.
Store equipment of $44,000 was purchased by signing a short-

13. term note payable. Also, a $150,000 telecommunications system
was acquired by issuing 3,000 shares of preferred stock.
6. A long-term note of $49,400 was repaid.
6.
Twenty thousand shares of common stock were issued at $5.19
per share.
6. The company paid cash dividends amounting to $128,600.
Instructions
f.
Prepare the operating activities section of the company's statem
ent of cash flows, assuming use of
1) the direct method.
2) the indirect method.
f.
Prepare the investing and financing activities sections of the sta
tement of cash flows.
Student Guidance ReportAshford University ACC206Guidance
ReportWeek OneLISTEN TO AUDIO/VIDEO EXPLAINING
THE GUIDANCE REPORTYELLOW INDICATES ACCOUNT
AMOUNTS CHANGEDChange Account to:Based Upon Course
Start DateExercise/
ProblemAccount to
be changedOriginal
AmountJan-FebMar-AprMay-JunJul-AugSept-OctNov-DecCh 1
Ex 2Net income107000$ 109,000$ 111,000$ 113,000$
115,000$ 120,000$ 121,000Depreciation12600$ 13,000$
15,000$ 16,000$ 18,000$ 20,000$ 21,000Accounts payable
21000$ 22,000$ 23,000$ 24,000$ 25,000$ 26,000$
27,000QuestionsYOUR ANSWERS BASED UPON COURSE
START DATENet IncomeAccounts
receivableInventoryAccounts payableDepreciationCash Flow
from Operating ActivitiesAccount to
be changedOriginal
AmountJan-FebMar-AprMay-JunJul-AugSept-OctNov-DecCh 1

14. Ex 3Net Income110000$ 112,000$ 114,000$ 116,000$
117,000$ 118,000$ 120,000Trade accounts receivable
245000$ 246,000$ 248,000$ 249,000$ 250,000$
255,000$ 256,000Merchandise inventory 230000$ 231,000$
232,000$ 232,000$ 235,000$ 240,000$
241,000Accumulated depreciation: equipment 120000$
121,000$ 122,000$ 124,000$ 125,000$ 130,000$
141,000Accounts payable 190000$ 191,000$ 193,000$
194,000$ 195,000$ 200,000$ 201,000Accrued liabilities
38000$ 39,000$ 40,000$ 41,000$ 45,000$ 45,000$
46,000Gain on sale of investments18000$ 18,000$ 18,000$
18,000$ 18,000$ 18,000$ 18,000YOUR ANSWERS BASED
UPON COURSE START DATENet Income Trade accounts
receivable Merchandise inventory Accumulated
depreciation: equipment Accounts payable Accrued
liabilities Gain on sale of investmentsCash Flow from Operating
ActivitiesCh 1 Ex 6Account to
be changedOriginal
AmountJan-FebMar-AprMay-JunJul-AugSept-OctNov-DecDec.
31, 20X4 New equipment purchased280000$ 290,000$
295,000$ 296,000$ 297,000$ 298,000$
299,000Depreciation expense41000$ 42,000$ 43,000$
44,000$ 45,000$ 46,000$ 47,000YOUR ANSWERS BASED
UPON COURSE START DATECost of equipment
soldAccumulated depreciation of sold equipmentSelling price of
equipment soldSale of equipment on cash flow statementCh 1
Pb 2Account to
be changedOriginal
AmountJan-FebMar-AprMay-JunJul-AugSept-OctNov-
DecAccounts payable decreased32800$ 33,800$ 34,800$
35,800$ 36,800$ 37,800$ 38,800Accounts receivable
increased23700$ 24,275$ 24,850$ 25,425$ 26,000$
26,575$ 27,150Prepaid expenses increased2400$ 2,975$
3,550$ 4,125$ 4,700$ 5,275$ 5,850wages payable
increased5600$ 6,175$ 6,750$ 7,325$ 7,900$ 8,475$
9,050Income taxes payable decreased800$ 1,375$ 1,950$

15. 2,525$ 3,100$ 3,675$ 4,250YOUR ANSWERS BASED
UPON COURSE START DATEDirect MethodCash
collectedLess cash paid for:Inventory Selling &
administrative Interest expense Income taxes Net cash
provided by operating activitiesIndirect MethodNet
incomeAccounts payable decreasedAccounts receivable
increasedPrepaid expenses increasedwages payable
increasedInventoryIncome taxes payable decreased
Depreciation Gain on sale of equipment Net cash provided by
operating activitiesCH 1 Pb 3 Account to
be changedOriginal
AmountJan-FebMar-AprMay-JunJul-AugSept-OctNov-
DecAccounts receivable (net) 83800$ 84,800$ 85,800$
86,800$ 87,800$ 88,800$ 89,800Inventory 243400$
244,400$ 245,400$ 246,400$ 247,400$ 248,400$
249,400Accounts payable 123600$ 124,600$ 125,600$
126,600$ 127,600$ 128,600$ 129,600Taxes payable 43600$
44,600$ 45,600$ 46,600$ 47,600$ 43,600$ 43,600Sales
713800$ 718,000$ 723,000$ 728,000$ 733,000$
738,000$ 748,000Net income 145800$ 150,000$ 155,000$
160,000$ 165,000$ 170,000$ 180,000Long tem investments
purchased74600$ 75,600$ 76,600$ 77,600$ 78,600$
79,600$ 80,600Sale of land cash proceeds76200$ 77,200$
78,200$ 79,200$ 80,200$ 81,200$ 82,200Store equipment
purchased - short term note44000$ 45,000$ 46,000$
47,000$ 48,000$ 49,000$ 50,000Purchased equipment issue
3000 pref shares150000$ 151,000$ 152,000$ 153,000$
154,000$ 155,000$ 156,000Long term note repaid49400$
49,900$ 50,400$ 50,900$ 51,400$ 51,900$
52,400Common stock issued -
shares20000205002100021500220002250023000YOUR
ANSWERS BASED UPON COURSE START DATEPrepare the
operating activities section of the statement of cash flows by
using the direct method.Cash collectedLess cash paid
for:Inventory Selling & administrative Interest expense
Income taxes Net cash provided by operating activitiesPrepare

16. the operating activities section of the statement of cash flows by
using the indirect method.Net incomeAccounts receivable
InventoryPrepaid expenses Accounts payable Taxes
payable Interest payable Accrued liabilities Gain on
sale of landDepreciationNet cash provided by operating
activitiesPrepare the investing and financing activities sections
of the statement of cash flows.Cash flows from investing
activitiesPurchase of long-term investmentsProceeds from sale
of landNet cash provided by investing act.Cash flows from
financing activitiesRepayment of long-term noteIssuance of
common stock*Dividends paidNet cash used by financing
activities* 20,000 shares X $5.19 = $103,800Note: The store
equipment and telecommunications system transactions would
be reported as noncash investing/ financing
activities../../cpabi_000/Documents/ACC205%20Chapters/Produ
ced%20videos/Guidance%20Report/Guidance%20Report.mp4