11CH 122.00 pointExercise 12-1 Classifying Transactions [LO1]Below are certain events that took place at Hazzard, Inc., last year: Indicate whether the transaction would be classified as Operating, Investing orFinancing activities.a.Paid bills to insurers and utility providers.b.Purchased equipment with cash.c.Paid wages and salaries to employees.d.Paid taxes to the government.e.Loaned money to another entity.f.Sold common stock.g.Paid a cash dividend to stockholders.h.Paid interest to lenders.i.Repaid the principal amount of a debt.j.Paid suppliers for inventory purchases.k.Borrowed money from a creditor.l.Paid cash to repurchase its own stock.m.Collected cash from customers.

22Exercise 12-2 Net Cash Provided by Operating Activities [LO2]2.00 pointFor the just completed year, Strident Company had net income of $84,000. Balances in the companys current asset and current liability accounts at the beginning and end of the year were as follows:Asset account increase during that period the amount of the increase is SUBTRACTED31-DecEnd of YearBeginning of YearCurrent assets:Cash$60,000$80,000Accounts receivable$165,000$190,000Inventory$437,000$360,000Prepaid expenses$12,000$14,000Current liabilities:Accounts payable$370,000$390,000Accrued liabilities$8,000$12,000Income taxes payable$36,000$30,000

The Accumulated Depreciation account had total credits of $50,000 during the year.Required:Using the indirect method, determine the net cash provided by (used in) operating activities for the year.(Amounts to be deducted and negative amounts should be indicated with a minus sign.)Strident CompanyStatement of Cash Flows--Indirect Method (partial)For this Year Ended December 31$84,000Adjustments to convert net income to a cash basis:$50,000$25,000$(77,000)$2,000$(20,000)$(4,000)$6,000$(18,000)Net cash provided by operating activities$66,000

33Exercise 12-3 Calculating Free Cash Flow [LO3]Paisley Company prepared the following statement of cash flows for the current year:Paisley CompanyStatements of Cash Flows--Indirect MethodOperating activities:Net income$40,000Adjustments to convert net income to basis: Depreciation$22,000Increase in accounts receivable$(50,000)Increase in inventory $(35,000)Decrease in prepaid expenses$6,000Increase in accounts payable$60,000Decrease in accrued liabilities $(12,000)Increase in income income taxes payable$5,000$(4,000)Net cash provided by operating activities$36,000Investing activities:Proceeds from the sale of equipment$24,000Loan to Allen Company$(30,000)Additions to plant and equipment$(120,000)

Net cash used for investing activities$(126,000)Financing activities:Increase in bonds payable$80,000Increase in common stock$50,000Cash dividends$(20,000)Net cash provided by financing activities$110,000Net increase in cash$20,000Cash balance, beginning of year$27,000Cash balance, end of year$47,000

Required:Compute Paisley Companys free cash flow for the current year.(Negative amount should be indicated by a minus sign.)

Free cash flow ($104,000)

44Exercise 12-4 Prepare a Statement of Cash Flows; Free Cash Flow [LO1, LO2, LO3]Comparative financial statement data for Holly Company are given below:31-DecThis YearLast YearAssetsCash$4$7Accounts receivable$36$29Inventory$75$61Total current assets$115$97Property, plant, & equipment$210$180Less accumulated depreciation$40$30Net property, plant, & equipment$170$150Total assets$285$247

Liabilities and Stockholders equityAccounts payable$45$39Common stock $90$70Retained earnings$150$138Total liabilities & stockholders' equity $285$247

For this year, the company reported net income as follows:Sales$500Cost of goods sold$300

Gross margin$200Selling & administrative expenses$180

Net income$20

This year Holly declared and paid a cash dividend. There were no sales of plant and equipment during this year. The company did not repurchase any of its own stock this year.

Required:1Using the indirect method, prepare a statement of cash flows for this year.(Amounts to be deducted and negative amounts should be indicated with a minus sign.)Holly CompanyStatement of Cash FlowsFor this Year Ended December 31Operating activities:$20Adjustments to convert net income to a cash basis:$10$(7)$(14)$6$(5)

Net cash provided by operating activities$15

Investigating activities: $(30)

Net cash used in investing activities-30Financing activities:20-8

Net cash used in financing activities12

-3

Cash, December 31 of last year7

Cash, December 31 of this year4

2Compute Hollys free cash flow for this year.(Negative amount should be indicated by a minus sign.)Free cash flow-23

55Exercise 12-5 Prepare a Statement of Cash Flows [LO1, LO2]The following changes took place last year in Herald Companys balance sheet accounts:

Asset and Contra-Asset AccountsLiabilities and Equity AccountsCash$20 IAccounts payable$20IAccounts receivable$10 DAccrued liabilities$10DInventory$30 IIncome taxes payable$15 IPrepaid expenses$5 DBonds payable$20 DLong-term investments$30 DCommon stock$40 IProperty, plant, and equipment$120IRetained earnings$40 IAccumulated depreciation$40 ID = Decrease; I = Increase.Long-term investments that had cost the company $50 were sold during the year for $45, and land that had cost $30 was sold for $70. In addition, the company declared and paid $35 in cash dividends during the year. Besides the sale of land, no other sales or retirements of plant and equipment took place during the year. Herald did not issue any bonds during the year or repurchase any of its own stock.The companys income statement for the year follows:Sales$600Cost of goods sold250

Grss Marging350Selling & administrative expenses280

Net operating income70The companys beginning cash balance was $100 and its ending balance was $120.Required:1Using the indirect method, determine the net cash provided by / used in operating activities for the year.(Amounts to be deducted and negative amounts should be indicated with a minus sign.)Herald CompanyStatement of Cash Flows (partial)Operating activities:Net income$75Adjustments to convert net income to cash basis:Depreciation$40Decrease in accounts receivable$10increase in inventory$(30)decrease in prepaid expense$5increase in accounts payable$20Decrease in accrued liabilities$(10)Increase in income taxes payable$15Loss on sale of long-term investments$5Gain on sale of land$(40)$15Net cash provided by operating activities$90

2Using the information in (1) above, prepare a statement of cash flows for the year.(Amounts to be deducted and negative amounts should be indicated with a minus sign.)Herald CompanyStatement of Cash Flows (partial)Operating activities:Net cash provided by operating activities$90Investing activities:Proceeds from sale of long-term investments$45Proceeds from sale of land$70Additions to long-term investments$(20)Additions to property, plant & equipment$(150)Net cash used in investing activities$(55)Financing activities:Retirement of bonds payable$(20)Issuance of common stock$40Cash dividends$(35)Net cash used in financing activities$(15)Net increase in cash$20Cash balance, beginning$100Cash balance, ending$120

662.00 pointExercise 12-6 Net Cash Provided by Operating Activities [LO2]Changes in various accounts and gains and losses on the sale of assets during the year for Weston Company are given below:

ItemAmount Accounts receivable$70,000decrease Inventory$110,000increase Prepaid expenses$3,000decrease Accounts payable$40,000decrease Accrued liabilities$9,000increase Income taxes payable$15,000increase Sale of equipment$8,000gain Sale of long-term investments$12,000loss

Required:For each item, indicate whether the dollar amount should be added to or deducted from net income under the indirect method when computing the net cash provided by operating activities for the year.ItemAmountEffectAccounts receivable$70,000Inventory$110,000Prepaid expenses$3,000Accounts payable$40,000Accrued liabilities$9,000Income taxes payable$15,000Sale of equipment$8,000Sale of long-term investments$12,000

7Problem 12-8A Prepare a Statement of Cash Flows [LO1, LO2]A comparative balance sheet and income statement for Eaton Company follow:

Eaton CompanyEaton CompanyComparative Balance SheetIncome StatementDecember 31, 2011 and 2010For the Year Ended December 31, 2011Sales$750AssetsCost of goods sold450Cash$4$11Gross margin300Accounts receivable310230Selling and administrative expenses223Inventory160195Net operating income77Prepaid expenses86Nonoperating items:Total current assets482442Gain on sale of investments$5Property, plant, and equipment500420Loss on sale of equipment-23Less accumulated depreciation8570Income before taxes80Net property, plant, and equipment415350Income taxes24Long-term investments3138Net income$56Total assets$928$830Liabilities and Stockholders' equityAccounts payable$300$225Accrued liabilities7080Income taxes payable7163Total current liabilities441368Bonds payable195170Total liabilities636538Common stock160200Retained earnings13292Total stockholders equity292292Total liabilities and stockholders' equity$928$830

During 2011, Eaton sold some equipment for $18 that had cost $30 and on which there was accumulated depreciation of $10. In addition, the company sold long-term investments for $12 that had cost $7 when purchased several years ago. A cash dividend was paid during 2011 and the company, repurchased $40 of its own stock. Eaton did not retire any bonds during 2011.

Required:1Using the indirect method, determine the net cash for operating activities for 2011.(Negative amount should be entered with a minus sign.)

Net cash provided by operating activities$104.002Using the information in (1) above, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for 2011.(Amounts to be deducted and negative amounts should be indicated with a minus sign.)Asset account increase during that period the amount of the increase is SUBTRACTEDEaton CompanyStatement of Cash FlowsFor the Year Ended December 31, 2011Operating activities:$56Adjustments to convert net income to cash basis:Depreciation$25Increase in accounts receivable-80Decrease in inventory35Increase in prepaid expenses-2Increase in accounts payable75Decrease in accrued liabilities-10Increase in income taxes payable8Gain on sale of investments-5Loss on sale of equipment248

Net cash provided by operating activities104Investing activities:Proceeds from sale of long-term investments12Proceeds from sale of equipment18Increase in property, plant and equipment-110

Net cash used in investing activities-80Financing activities:Issuance of bonds payable85Decrease in common stock-40Cash dividends-16

Net cash used in financing activities-31

-7Cash balance, January 1, 201111

Cash balance, December 31, 2011$4

88Problem 12-10A Classification of Transactions [LO1]Below are several transactions that took place in Mohawk Company last year, identify the nature of activity and also indicate the direction of cash flow.TransactionActivityCash Inflow / Outflowa.Bonds were retired by paying the principal amount due.b.Interest was paid to a lender.c.Income taxes were paid to the government.d.A long-term loan was made to a supplier.e.Cash dividends were declared and paid.f.Common stock was sold for cash to investors.g.Equipment was sold for cash.h.Paid wages to employees.i.Collected cash from customers.j.Paid cash to repurchase its own stock.k.Bought equipment for cash.l.Paid suppliers for inventory purchases.

994.00 pointProblem 12-11A Prepare a Statement of Cash Flows [LO1, LO2]A comparative balance sheet and an income statement for Blankley Company are presented below:

Blankley CompanyComparative Balance Sheet(dollars in millions)Ending BalanceBeginning BalanceAssetsCurrent assets:Cash and cash equivalents$39$81Accounts receivable640588Inventory650610Total current assets$1,329$1,279Property,plant, and equipment1,5051,484Less accumulated depreciation770651Net property, plant, and equipment735833Total assets$2,064$2,112Liabilities and Stockholders' equityCurrent liabilities:Accounts payable$260$160Accrued liabilities180170Income taxes payable7772Total current liabilities517402Bonds payable415600Total liabilities9321,002Stockholders' equity:Common stock145145Retained earnings987965Total stockholders' equity1,1321,110Total liabilities and stockholders' equity$2,064$2,112

Blankley CompanyIncome Statement(dollars in millions)Sales$3,700Cost of goods sold2,540Gross margin1,160Selling and administrative expenses880Net operating income280 Nonoperating items: Gain on sale of equipment2 Income before taxes282 Income taxes112 Net income$170

Blankley also provided the following information:1The company sold equipment that had an original cost of $12 million and accumulated depreciation of $7 million. The cash proceeds from the sale were $7 million. The gain on the sale was $2 million.2The company did not issue any new bonds during the year.3The company paid a cash dividend during the year.4The company did not complete any common stock transactions during the year.Required:1Using the indirect method, prepare a statement of cash flows for the year.(Enter your answers in millions not in dollars. Amounts to be deducted and negative amounts should be indicated with a minus sign.)

Strident CompanyStatement of Cash Flows--Indirect Method (partial)For this Year Ended December 31Operating activities:$$170Adjustments to convert net income to a cash basis:$126-52-40100105-2$147Net cash provided by operating activities$317

Investing activities:Increase in property, plant & equipment-33Proceeds from sale of equipment7

Net cash used in investing activities-26

Financing activities:-185-148

Net cash ised in financing activities-333

-42Cash balance, beginning of year81

Cash balance, end of year$39

Sheet5ExampleNet income $145,000 Accum. Depre. $72,00031-DecEnd of YearBeginning YearCurrent assets:Cash$95,000$80,000Accounts receivable$200,000$195,000Inventory$650,000$665,000Prepaid expense$17,000$21,000Current liabilities:Accounts payable$440,000$425,000Accrued liabilities $16,000$22,000Incme tax payable$42,000$44,000

Net income $84,000 Accum. Depre. $50,00031-DecEnd of YearBeginning YearCurrent assets:Cash$60,000$80,000Accounts receivable$165,000$190,000Inventory$437,000$360,000Prepaid expense$12,000$14,000Current liabilities:Accounts payable$370,000$390,000Accrued liabilities $8,000$12,000Incme tax payable$36,000$30,000