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Exercises: Set B
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Exercises: Set B
E13-1B

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Santee Corporation had the following transactions.

Sold land (cost $15,000) for $18,000.

Issued common stock for $30,000.
Recorded depreciation of $25,000.
Paid salaries of $10,000.
Issued 1,000 shares of $1 par value common stock for equipment worth $9,000.
Sold equipment (cost $10,000, accumulated depreciation $6,000) for $2,000.

Prepare journal entry and
determine effect on cash
flows.

(SO 2)

Instructions
For each transaction above, (a) prepare the journal entry, and (b) indicate how it would
affect the statement of cash flows (indirect method).
E13-2B Linnik Company reported net income of $155,000 for 2011. Linnik also
reported depreciation expense of $20,000 and a loss of $5,000 on the sale of equipment.
The comparative balance sheet shows a decrease in accounts receivable of $10,000 for the
year, a $12,000 increase in accounts payable, and a $5,000 decrease in prepaid expenses.

Prepare the operating
activities section—indirect
method.

(SO 3)

Instructions
Prepare the operating activities section of the statement of cash flows for 2011. Use the
indirect method.
E13-3B The current sections of Powell Inc.’s balance sheets at December 31, 2010 and

2011, are presented here.
Powell’s net income for 2011 was $125,000. Depreciation expense was $15,000.
2011

2010

$105,000
110,000
158,000
27,000

$ 99,000
94,000
177,000
22,000

Total current assets

$400,000

$392,000

Current liabilities
Accrued expenses payable
Accounts payable

$ 15,000
80,000

$

$ 95,000

$ 97,000

Current assets
Cash
Accounts receivable
Inventory
Prepaid expenses

Total current liabilities

Prepare the operating
activities section—indirect
method.

(SO 3)

5,000
92,000

Instructions
Prepare the net cash provided by operating activities section of the company’s statement
of cash flows for the year ended December 31, 2011, using the indirect method.
E13-4B The three accounts shown below appear in the general ledger of Besa Corp.
during 2011.

Prepare partial statement of
cash flows—indirect method.

(SO 3)
Equipment
Date
Jan. 1
July 31
Sept. 2
Nov. 10

Debit
Balance
Purchase of equipment
Cost of equipment constructed
Cost of equipment sold

Credit

Balance

44,000

160,000
240,000
298,000
254,000

Credit

Balance

80,000
58,000

Accumulated Depreciation—Equipment
Date
Jan. 1
Nov. 10
Dec. 31

Debit
Balance
Accumulated depreciation on
equipment sold
Depreciation for year

71,000
30,000
25,000

41,000
66,000


2

chapter 13 Statement of Cash Flows

Retained Earnings
Date
Jan. 1

Aug. 23
Dec. 31

Debit
Balance
Dividends (cash)
Net income

Credit

Balance

47,000

105,000
86,000
133,000

19,000

Instructions
From the postings in the accounts, indicate how the information is reported on a statement of cash flows using the indirect method. The loss on sale of equipment was $6,000.
(Hint: Cost of equipment constructed is reported in the investing activities section as a
decrease in cash of $58,000.)
Prepare statement of cash
flows and compute free
cash flow.

E13-5B

Verde Corporation’s comparative balance sheets are presented below.
VERDE CORPORATION
Comparative Balance Sheets
December 31

(SO 3, 4)

Cash
Accounts receivable
Land
Building
Accumulated depreciation
Total
Accounts payable
Common stock
Retained earnings
Total

2011

2010

$ 19,300
21,200
20,000
70,000
(15,000)

$ 10,000
23,000

26,000
70,000
(10,000)

$115,500

$119,000

$ 17,370
75,000
23,130

$ 30,000
69,000
20,000

$115,500

$119,000

Additional information:
1. Net income was $27,630. Dividends declared and paid were $24,500.
2. All other changes in noncurrent account balances had a direct effect on cash flows,
except the change in accumulated depreciation. The land was sold for $3,900.
Instructions
(a) Prepare a statement of cash flows for 2010 using the indirect method.
(b) Compute free cash flow.
Prepare a statement of cash
flows—indirect method.

E13-6B

Here are comparative balance sheets for Porcelli Company.

(SO 3)
PORCELLI COMPANY
Comparative Balance Sheets
December 31
Assets
Cash
Accounts receivable
Inventories
Land
Equipment
Accumulated depreciation
Total

2011

2010

$ 85,000
85,000
175,000
80,000
250,000
(61,000)

$ 22,000
76,000

189,000
100,000
200,000
(32,000)

$614,000

$555,000


Exercises: Set B

3

Liabilities and Stockholders’ Equity
Accounts payable
Bonds payable
Common stock ($1 par)
Retained earnings
Total

$ 39,000
150,000
226,000
199,000

$ 47,000
200,000
174,000
134,000

$614,000

$555,000

Additional information:
1.
2.
3.
4.
5.

Net income for 2011 was $95,000.
Cash dividends of $30,000 were declared and paid.
Bonds payable amounting to $50,000 were redeemed for cash $50,000.
Common stock was issued for $52,000 cash.
No equipment was sold during 2011.

Instructions
Prepare a statement of cash flows for 2011 using the indirect method.
E13-7B

Medina Corporation’s comparative balance sheets are presented below.
MEDINA CORPORATION
Comparative Balance Sheets
December 31
Cash
Accounts receivable
Investments
Equipment

Accumulated depreciation
Total
Accounts payable
Bonds payable
Common stock
Retained earnings
Total

Prepare statement of cash
flows and compute free cash
flow.

(SO 3, 4)

2011

2010

$ 27,200
24,200
20,000
60,000
(14,000)

$ 17,700
22,300
16,000
70,000
(10,000)

$117,400

$116,000

$ 19,600
10,000
55,000
32,800

$ 11,100
30,000
45,000
29,900

$117,400

$116,000

Additional information:
1. Net income was $34,300. Dividends declared and paid were $31,400.
2. Equipment which cost $10,000 and had accumulated depreciation of $1,200 was sold
for $5,300.
3. All other changes in noncurrent account balances had a direct effect on cash flows,
except the change in accumulated depreciation.
Instructions
(a) Prepare a statement of cash flows for 2011 using the indirect method.
(b) Compute free cash flow.
*E13-8B

Comparative balance sheets for Bautista Company are presented below.

(SO 5)

BAUTISTA COMPANY
Comparative Balance Sheets
December 31
Assets
Cash
Accounts receivable
Inventories
Land
Equipment
Accumulated depreciation
Total

Prepare a worksheet.

2011

2010

$ 43,000
85,000
180,000
70,000
230,000
(66,000)

$ 22,000
76,000

189,000
100,000
200,000
(42,000)

$542,000

$545,000


4

chapter 13 Statement of Cash Flows

Liabilities and Stockholders’ Equity
Accounts payable
Bonds payable
Common stock ($1 par)
Retained earnings
Total

$ 34,000
130,000
194,000
184,000

$ 47,000
200,000
164,000
134,000

$542,000

$545,000

Additional information:
1.
2.
3.
4.
5.
6.

Net income for 2011 was $100,000.
Cash dividends of $50,000 were declared and paid.
Bonds payable amounting to $70,000 were redeemed for cash $70,000.
Common stock was issued for $30,000 cash.
Depreciation expense was $24,000.
Sales for the year were $978,000.

Instructions
Prepare a worksheet for a statement of cash flows for 2011 using the indirect method. Enter
the reconciling items directly on the worksheet, using letters to cross-reference each entry.
Compute cash provided by
operating activities—direct
method.

(SO 6)

*E13-9B Jerre Company completed its first year of operations on December 31, 2011. Its

initial income statement showed that Jerre had revenues of $175,000 and operating
expenses of $88,000. Accounts receivable and accounts payable at year-end were $60,000
and $25,000, respectively. Assume that accounts payable related to operating expenses.
Ignore income taxes.
Instructions
Compute net cash provided by operating activities using the direct method.

Compute cash payments—
direct method.

(SO 6)

*E13-10B The 2008 income statement for McDonald’s Corporation shows cost of goods
sold $5,586.1 million and operating expenses (including depreciation expense of $1,207.8
million) $11,493.4 million. The comparative balance sheet for the year shows that inventory decreased $13.8 million, prepaid expenses decreased $10.4 million, accounts payable
(merchandise suppliers) decreased $3.7 million, and accrued expenses payable decreased
$2.3 million.
Instructions
Using the direct method, compute (a) cash payments to suppliers and (b) cash payments
for operating expenses.

Compute cash flow from
operating activities—direct
method.

(SO 6)

*E13-11B
events.

The 2011 accounting records of Arias Transport reveal these transactions and

Payment of interest
Cash sales
Receipt of dividend revenue
Payment of income taxes
Net income
Payment of accounts payable
for merchandise
Payment for land

$ 12,000
50,000
18,000
8,000
38,000
105,000
74,000

Collection of accounts receivable
Payment of salaries and wages
Depreciation expense
Proceeds from sale of vehicles
Purchase of equipment for cash
Loss on sale of vehicles
Payment of dividends
Payment of operating expenses

$162,000
55,000

16,000
12,000
22,000
3,000
14,000
28,000

Instructions
Prepare the cash flows from operating activities section using the direct method. (Not all
of the items will be used.)
Calculate cash flows—direct
method.

(SO 6)

*E13-12B The following information is taken from the 2011 general ledger of Wisner
Company.


Exercises: Set B

Rent

Rent expense
Prepaid rent, January 1
Prepaid rent, December 31

$ 60,000
5,500
9,000

Salaries

Salaries expense
Salaries payable, January 1
Salaries payable, December 31

$ 50,000
10,000
8,000

Sales

Revenue from sales
Accounts receivable, January 1
Accounts receivable, December 31

$150,000
16,000
9,000

Instructions
In each case, compute the amount that should be reported in the operating activities
section of the statement of cash flows under the direct method.

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