Exercise 22-1

Example F 1. Sale of common stock

I 2. Sale of land
F 3. Purchase of treasury stock
O 4. Merchandise sales
F 5. Issuance of a long-term note payable
O 6. Purchase of merchandise
F 7. Repayment of note payable
O 8. Employee salaries
I 9. Sale of equipment at a gain
F 10. Issuance of bonds
I 11. Acquisition of bonds of another corporation
O 12. Payment of semiannual interest on bonds payable
F 13. Payment of a cash dividend
I 14. Purchase of building
I 15. Collection of nontrade note receivable (principal amount)
I 16. Loan to another firm
F 17. Retirement of common stock
O 18. Income taxes
F 19. Issuance of a short-term note payable
I 20. Sale of a copyright
Exercise 22-13 Requirement 1

Cash Flows From Investing Activities:

Proceeds from sale of land $ 12

Purchase of Microsoft common stock (160)
Net cash outflows from investing activities $(148)

Requirement 2

Cash Flows From Financing Activities:

Payment for the early extinguishment of

long-term bonds (carrying amount: $97 million) $(102)
Proceeds from the sale of treasury stock (cost: $17 million) 22

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Distribution of cash dividends declared in 2002 (40)
Net cash outflows from financing activities $(120)

2
Exercise 22-16
Investing Activities:
Beilich would report the $600 million investment as a cash outflow among investing
activities in its statement of cash flows.

Operating Activities:
By the indirect method of reporting cash flows from operating activities, Beilich
would subtract from net income the $60 million investment revenue since it didn’t
actually provide cash but would add the $12 million cash dividend. Alternatively, the
company might just subtract the $48 million difference.

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Exercise 22-17

RECONCILIATION OF NET INCOME TO

NET CASH FLOWS FROM OPERATING ACTIVITIES

Net income $50,000

Adjustments for noncash effects:

Depreciation expense 7,000
Increase in inventory (1,500)
Decrease in salaries payable (800)
Decrease in accounts receivable 2,000
Amortization of patent 500
Decrease in bond premium (1,000)
Increase in accounts payable 4,000
Net cash flows from
operating activities $60,200

Exercise 22-24 Indirect Method

Cash Flows from Operating Activities:
Net income $ 86
Adjustments for noncash effects:
Decrease in accounts receivable 12
Decrease in inventory 10
Increase in accounts payable 6
Decrease in salaries payable (6)
Increase in interest payable 5
Depreciation expense 90
Patent amortization expense 5
Extraordinary loss (earthquake damage) 10
Increase in income tax payable 5
Net cash flows from operating activities $223
Exercise 22-26 Indirect Method

Cash Flows From Operating Activities:

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 Net income $192
Adjustments for noncash effects:
Depreciation expense 180
Patent amortization expense 10
Extraordinary gain (early extinguishment of debt) (20)
Decrease in accounts receivable 12
Decrease in inventory 10
Increase in accounts payable 6
Decrease in salaries payable (6)
Increase in interest payable 5
Increase in income tax payable 5
Net cash flows from operating activities $394

Exercise 22-29 1. c
2. a
3. d

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Exercise 22-30 Whoops, Inc.
Spreadsheet for the Statement of Cash Flows

Dec.31 Changes Dec. 31

2002 Debits Credits 2003
Balance Sheet
Assets:
Cash 110 (13) 86 24
Accounts receivable 132 (3) 46 178
Prepaid insurance 3 (4) 4 7
Inventory 175 (5) 110 285
Buildings and equipment 350 (8) 230 (9) 180 400
Less: Acc. depreciation (240) (9) 171 (2) 50 (119)
530 775
Liabilities:
Accounts payable 100 (6) 13 87
Accrued expenses payable 11 (7) 5 6
Notes payable 0 (10) 50 50
Bonds payable 0 (11) 160 160

Shareholders' Equity:
Common stock 400 400
Retained earnings 19 (12) 50 (1) 103 72
530 775

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Exercise 22-30 (continued)

Spreadsheet for the Statement of Cash Flows

(continued)
Dec.31 Changes Dec. 31
2002 Debits Credits 2003
Statement of Cash Flows
Net income (1) 103
Adjustments for noncash effects:
Depreciation expense (2) 50
Increase in accounts receivable (3) 46
Increase in prepaid insurance (4) 4
Increase in inventory (5) 110
Decrease in accounts payable (6) 13
Decrease in accrued expenses (7) 5
Net cash flows (25)

Investing activities:
Purchase of equipment (8) 230
Sale of equipment (9) 9
Net cash flows (221)

Financing activities:
Issuance of note payable (10) 50
Issuance of bonds payable (11) 160
Payment of cash dividends (12) 50
Net cash flows 160
Net decrease in cash (13) 86 (86)
Totals 1,087 1,087

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Exercise 22-30 (concluded)

Whoops, Inc.
Statement of Cash Flows
For year ended December 31, 2003 ($ in millions)

Cash flows from operating activities:

Net income $ 103
Adjustments for noncash effects:
Depreciation expense 50
Increase in accounts receivable (46)
Increase in prepaid insurance (4)
Increase in inventory (110)
Decrease in accounts payable (13)
Decrease in accrued expenses payable (5)
Net cash flows from operating activities $ (25)

Cash flows from investing activities:

Purchase of equipment (230)
Sale of equipment 9
Net cash flows from investing activities (221)

Cash flows from financing activities:

Issuance of note payable 50
Issuance of bonds payable 160
Payment of cash dividends (50)
Net cash flows from financing activities 160

Net decrease in cash (86)

Cash balance, January 1 110

Cash balance, December 31 $ 24

Problem 22-8 (Requirement 2 only)

Indirect Method

Cash Flows From Operating Activities:

Net income $ 88

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 Adjustments for noncash effects:
Increase in accounts receivable (108)
Decrease in inventory 104
Increase in accounts payable 93
Increase in salaries payable 9
Decrease in prepaid insurance 22
Depreciation expense 123
Decrease in bond discount 10
Gain on sale of buildings (11)
Loss on sale of machinery 12
Deferred income tax liability 8

Net cash flows from operating activities $350