Question

Chapter 13 Statement of Cash Flows 667 ash flow perating ties, $38 EX 13-17 Statement of cash flows--indirect method Obj. 2, 3, 4,5 The comparative balance sheet of Olson-Jones Industries Inc. for December 31, 2012 and 2041, is as follows: Dec 31, 2012 Dec 31, 2011 OIL TEMPLATE 330 205 85 Cash.. $183 $ 14 Accounts receivable (net). 55 Inventories... 117 Land 250 Equipment.... 175 168 Accumulated depreciation equipment. Total assets. $742 Liabilities and Stockholders' Equity Accounts payable (merchandise creditors).... $ 51 5 Dividends payable.... .... Common stock, 51 par.. 125 Paid-in capital in excess of par--common stock .. Retained earnings... 476 Total liabilities and stockholders' equity............. $742 The following additional information is taken from the records: a. Land was sold for $120. b. Equipment was acquired for cash c. There were no disposals of equipment during the year. d. The common stock was issued for cash. e. There was a 562 credit to Retained Earnings for net income. t. There was a $24 debit to Retained Earnings for cash dividends declared. a. Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. b. Was Olson-Jones's net cash flow from operations more or less than net income? Wha is the source of this difference? EX 13-18 Statement of cash flows-indirect method Obj. 2, 3, 4 List the errors you find in the following statement of cash flows. The cash balance at the beginning the year was $240,000. All other amounts are correct, except the cash balance at the end of the yea Shasta Inc. Statement of Cash Flows For the Year Ended December 31, 2019 Cash flows from used for operating activities: Not income

Answer 1

Answer (a):

Olson-Jones Industries Statement of Cash Flows For the year ended December 31, 20Y2 Cash flow from Operating Activities $62 Net Income Adjustments to reconcile net income to net cash Provided (Used for) by Operating Activities: Depreciation Expense-Equipment $26 ($40) ($6) ($18) $14 Gain on sale of land Decrease (increase) in Account Receivables Decrease (Increase) in Merchandise Inventory Increase (decrease) in Accounts payables ($24) Net Cash Provided by (Used for) Operating Activities Cash flow from Investing Activities Cash payment for Acquisition of equipment Cash receipt from sales of land $38 ($30) $120 $90 Net Cash Provided by (Used for) investing activities Cash flow from Financing Activities $60 Cash receipt from issuance of common stock ($19) Cash payment of dividends $41 Net Cash Provided by (Used for) financing activities Net Increase (Decrease) in Cash Cash Balance, December 31, 20Y1 $169 $14 $183 Cash Balance, December 31, 20Y2

Workings:

Depreciation for the year = Accumulated depreciation 20Y2 - Accumulated depreciation 20Y1 = 68 - 42 = $26

Book value of land sold = 330 - 250 = $80

Gain on sale of land = Sale value - book value = 120 - 80 = $40

Purchase of equipment = 205 - 175 = $30

Cash receipt from issue of common stock = (125 + 85) - (80 + 70) = $60

Dividend paid = Dividend declared - dividend payable = 24 - 5 = $19

Answer (b):

Olson-Jones net cash flow from operating activities is $38 which is less than net income of $62.

The source of differences are:

1. Net income included $40 from gain on sale of land.
2. Increase in current assets by (6 + 18=) $24
3. Increase in current liabilities by $14
4. Non cash expense (depreciation) of $26.

​​​​​​​These differences resulted in net decrease of (26 + 14 - 40 - 24=) - $24. Thus although net income was $62, the net cash flow from operating activities is (62 - 24 =) $38.