Question

Your anwer is partially correct. Try again. Indicate for each of the following what should be dieclosed on a statement of cash lows (Ondiret mathod), If not disclosed, select "Not shown to net income, select "Add" and for an 8em that isde ($31,000). 2 the em i noncash tranaction that sh om net income, select "Deduct Show financing and investing outflows in parentheses. For example, an answer might be: Deduct $4,700 or Investing There may be more than ane answer for some items. For an tem that is au d be disclosed separately, select "Noncash. Statement of Cash Flows (Indirect Method) Effect on Cash Flows Disclosure Effect on Net Income Shown Deduct 10000 Investing 10000 (a) The deferred tax iabilty increased $10,000. (b) The balance in Investment in Hoyt Co. Stock increased $12,000 as a result of using the equity method. vesting -12000 Add Shown (c) Issuance of a stock dividend increased common stock $40,000 am and paid-in capital $16,000. 1600 Noncash 1600 Add Not Shown Shown Dedudt 3000 ting 55000 (d) Amortiration of bond discount, $1,600 (e) Machinery that cost $100,000 and had accumulated depreciation of $48,000 was sold for $55,000, Add Shown Issued 10,000 shares of common stock ($10 par) with a market price of $15 r share for machinery ser Not Shown Ad Shown Den sng 3000 (a) Amortization of patents, $3,000. 40000 shon () Cash dividends paid, $60.000. Click if you would like to Show Work for this question Open Show Work

Answer 1

Statement of Cash Flows Indirect Method

Particulars

Disclosure

Effect on Net Income

Effect on Cash Flows

Remarks

a

Deferred tax liability increased $ 10,000

Shown

Add

10,000

Not shown

-

As deferred tax liabiltiy has increased,

deferred tax expense also has increased (i.e. debit

in PL) which is non cash expense, we add back to

get to cash profit from book profit

b

The balance in Investment in Hoyt Co Stock increased

Shown

Less

12,000

Not shown

-

Only book profit has increased by $ 12,000 and

$ 12,000 as a result of equity method

not cash profit, therefore we less $ 12,000 to

arrive at cash profit

c

Issuance of Stock dividend increased Common stock

Not shown

Not shown

Not shown

-

There is no movement in cash as stock dividend is merely

$ 40,000 and paid in capital $ 16,000

a book entry. Also, it is not required ot be disclosed separately

d

Amortization of bond discount, $ 1,600

Shown

Add

1,600

Not shown

-

There is a non cash expense of bond amortisation which reduced my book

profit and not cash profit, therefore we add back again

e

Machinery that cost $ 100,000 and had accumulated

depreciation of $ 48,000 was sold for $ 55,000

Shown

Less

3,000

Investing

55,000

Gain on machinery is non cash, therefore deducted from book profit

(only gain on machinery)

to arrive at cash profit

(100,000-48,0000-55,000)

f

Issued 10,000 shares of common stock ($ 10 par) with

Shown

Add

50,000

Not shown

-

We have issued $ 15 worth share for $ 10, therefore $ 5 per share is expense

a market price of $ 15 per share for machinery

(10,000 *5)

to be added back, and no cash has been spent to purchase machinery

g

Amortisation of patents

Shown

Add

3,000

Not shown

-

There is a non cash expense of patent amortisation which reduced my book

profit and not cash profit, therefore we add back again

h

Cash dividends paid

Shown

Less

40000

Financing

40,000

Dividend paid forms part of financing activity and not investing activity