UNIVERSITA BOCCONI

Department of Accounting

Accounting and Financial Statement Analysis

30005

REVIEW SESSION N6

CHAPTER 12
Exercise1
Rice Company, a retailer, has provided the following information pertaining to its recent year of
operation:
Net income, $100,000;
Accounts receivable increased $9,000;
Prepaid insurance decreased $3,000;
Depreciation expense was $15,000;
Gain on sale of land, $2,000;
Wages payable decreased $7,000;
Unearned revenue increased $11,000.
Required: How much was Rice's net cash inflow from operating activities?
A.
B.
C.
D.

$89,000
$115,000
$125,000
$111,000

Exercise 2
DJ Company, a manufacturer, has provided the following information pertaining to its recent year
of operation:
Cash flow from operating activities, $272,000;
Accounts payable decreased $21,000;
Prepaid assets increased $15,000;
Depreciation expense was $27,000;
Accounts receivable decreased $21,000;
Loss on sale of a depreciable asset was $16,000;
Wages payable increased $10,000;
Unearned revenue decreased $16,000;
Patent amortization expense was $10,000.
Required: How much was DJ's net income?
A.
B.
C.
D.

$256,000
$210,000
$198,000
$240,000

Exercise 3
Atkins Corporation has provided the following information for the year ended December 31, 2010:
The equipment account balance increased $200,000.
The equipment accumulated depreciation account increased $35,000.
Equipment costing $50,000 was sold during the year resulting in a $10,000 gain.
Depreciation expense on the equipment recorded during the year was $65,000.
Required: Which of the following statements is incorrect with respect to preparation of the statement
of cash flows? Assume that the equipment purchase and sale resulted in cash flows.
A. A $30,000 cash inflow is reported from the equipment sale.
B. Using the indirect method, net income is increased by the $65,000 depreciation expense.
C. Using the indirect method, net income is decreased by the $10,000 gain on the sale of the
equipment.
D. A $60,000 cash inflow is reported from the equipment sale.

Exercise 4
Atkins Corporation has provided the following information for the year ended December 31, 2010:
The equipment account balance increased $200,000.
The equipment accumulated depreciation account increased $35,000.
Equipment costing $50,000 was sold during the year resulting in a $10,000 gain.
Depreciation expense on the equipment recorded during the year was $65,000.
Required: How much was the investing activities cash inflow from the sale of the equipment?
Assume that the equipment purchase and sale resulted in cash flows.
A.
B.
C.
D.

$30,000
$60,000
$40,000
$50,000

Exercise 5
During 2015, Tommy's Toys reported the following: short-term borrowings of $419 million; longterm borrowings of $147 million; long-term debt repayments of $45 million; interest paid, $128
million; treasury shares repurchased $632 million; and exercise of stock options by employees, $2
million.
Required:
a) How much is net cash flow from financing activities during 2015?
b) Is the net cash flow provided by, or used in, the financing activities?

Exercise 6
While preparing a statement of cash flows, you encountered the following transaction: February 1,
2011: Battles Corporation acquired a small office building in exchange for 5,000 shares of its own
common stock; par value $10 per share; market value $15 per share.
Required: Should this transaction be shown on the statement of cash flows? Why or why not?

Exercise 7
Brice Corporation reported the following information:
2010 Income Statement
Sales Revenue
Cost of Goods Sold
Gross Profit
Operating Expenses (included $200,000 depreciation expense)
Pretax Income
Income tax expense
Net Income

$ 8,200,000
6,400,000
1,800,000
1,250,000
550,000
165,000
385,000

Balance Sheet
Accounts Receivable
Inventory
Prepaid Expenses
Accounts Payable
Accrued Liabilities
Income Tax Payable
Unearned Revenue

2010
$800,000
520,000
110,000
340,000
80,000
25,000
100,000

2009
$ 600,000
480,000
120,000
310,000
90,000
40,000
200,000

+200
+40
-10
+30
-10

-15
-100

Required: Compute Brice's cash paid for operating expenses for 2010.

Exercise 8
Sagaworth Inc. reported the following information:
2011 Income Statement
Net Loss
Depreciation Expense
Amortization Expense

($ 380,000)
150,000
25,000

Balance Sheet
Accounts Receivable
Inventory
Prepaid Expenses
Accounts Payable
Accrued Liabilities
Income Tax Payable

2011
$200,000
140,000
40,000
190,000
50,000
10,000

2010
$ 230,000
160,000
30,000
180,000
45,000
20,000

Required: Determine Sagaworth's net cash flow from operating activities for 2011 under the indirect
method.

Exercise 9
Below is the 2011 income statement for the Critters Corporation.
2010 Income Statement
Net Sales
Cost of Goods Sold
Gross Profit on Sales
Various Operating Expenses
Depreciation Expense
Interest Expense
Income tax expense
Net Income

$ 100,000
(40,000)
$ 60,000
$ 25,000
5,000
2,000
4,000

(36,000)
$ 24,000

Additional Information:
Accounts receivable increased by $8,000
Merchandise inventory increased by $4,000
Accounts payable increased by $6,000
Prepaid expenses decreased by $2,000
Accrued liabilities decreased by $5,000
Interest payable increased by $1,000
Required: Prepare the operating activities section of the statement of cash flows using the indirect
method.

Exercise 10
Use the following information to prepare a statement of cash flows for Stable Equipment
Company for the year ended December 31, 2010:
Net income for the year 2010 was $5,000. Accounts receivable decreased $2,000, while inventories
increased $4,000, and accounts payable decreased $7,000. Depreciation expense included in net
income was $8,000.
During the year, a piece of land held for future expansion was sold for its book value of $8,000 and
a new service truck was purchased for $14,000.
The company borrowed $18,000 on a two-year note from the bank. Dividends of $6,000 were paid
in cash. Preferred stock was issued to retire $7,000 of long-term notes payable.
The beginning cash balance was $10,000 and the ending balance was $20,000.

Exercise 11
During two recent years Perez Construction, Inc., disposed of the following plant and equipment:

Plant and equipment (at cost)

Accumulated depreciation on equipment disposed of
Cash received
Gain (loss) on sale

Year 1
$ 75,000
40,385
17,864
(16,751)

Year 2
$13,500
3,773
12,163
2,436

Required:
1. Determine the cash flow from the sale of property for each year that would be reported in the
investing activities section of the cash flow statement.
2. Perez uses the indirect method for the operating activities section of the cash flow statement.
What amounts related to the sales would be added or subtracted in the computation of Net
Cash Flows from Operating Activities for each year?