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ACC421 Week 4

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ACC421 Week 4 E23-1 E23-4 E23-7 E23-11 E23-12

E23-1 (Classification of Transactions) Springsteen Co. had the following activity in its most recent year of operations.

(a) Pension expense exceeds amount funded.

(b) Redemption of bonds payable.

(c) Sale of building at book value.

(d) Depreciation.

(e) Exchange of equipment for furniture.

(f) Issuance of capital stock.

(g) Amortization of intangible assets.

(h) Purchase of treasury stock.

(i) Issuance of bonds for land.

(j) Payment of dividends.

(k) Increase in interest receivable on notes receivable.

(l) Purchase of equipment.


Classify the items as (1) operating—add to net income; (2) operating—deduct from net income; (3) investing; (4) financing; or (5) significant noncash investing and financing activities. Use the indirect method.

E23-4 The income statement of Rodriquez Company is shown below.

Income Statement
For the Year Ended December 31, 2012
Sales 6,900,000
Cost of goods sold
   Beginning inventory 1,900,000
   Purchases 4,400,000
   Goods available for sale 6,300,000
   Ending inventory 1,600,000
   Cost of goods sold 4,700,000
Gross profit 2,200,000
Operating expenses
   Selling expenses 450,000
   Administrative expenses 700,000 1,150,000
Net income 1,050,000

Additional information:
1. Accounts receivable decreased $310,000 during the year.
2. Prepaid expenses increased $170,000 during the year.
3. Accounts payable to suppliers of merchandise decreased $275,000 during the year.
4. Accrued expenses payable decreased $120,000 during the year.
5. Administrative expenses include depreciation expense of $60,000.


Prepare the operating activities section of the statement of cash flows using the direct method.

E23-7 (Computation of Operating Activities—Direct Method) Presented below are two independent situations.

Situation A:
Chenowith Co. reports revenues of $200,000 and operating expenses of $110,000 in its first year of operations, 2012. Accounts receivable and accounts payable at year-end were $71,000 and $39,000, respectively. Assume that the accounts payable related to operating expenses. Ignore income taxes.

Using the direct method, compute net cash provided (used) by operating activities.

Situation B:
The income statement for Edgebrook Company shows cost of goods sold $310,000 and operating expenses (exclusive of depreciation) $230,000. The comparative balance sheet for the year shows that inventory increased $21,000, prepaid expenses decreased $8,000, accounts payable (related to merchandise) decreased $17,000, and accrued expenses payable increased $11,000.

Compute (a) cash payments to suppliers and (b) cash payments for operating expenses.

E23-11 (SCF—Indirect Method) Condensed financial data of Fairchild Company for 2012 and 2011 are presented below

Cash  1,800 1,100
Receivables  1,750 1,300
Inventory  1,600 1,900
Plant assets  1,900 1,700
Accumulated depreciation  (1,200) (1,170)
Long-term investments (Held-to-maturity)  1,300 1,470
 7,150 6,300
Accounts payable  1,200 800
Accrued liabilities  200 250
Bonds payable  1,400 1,650
Capital stock  1,900 1,700
Retained earnings  2,450 1,900
 7,150 6,300
Sales  6,900
Cost of goods sold  4,700
Gross margin  2,200
Selling and administrative expense  930
Income from operations  1,270
Other revenues and gains 
Gain on sale of investments  80
Income before tax  1,350
Income tax expense  540
Net income  810

Additional information:
During the year, $70 of common stock was issued in exchange for plant assets. No plant assets were sold in 2012. Cash dividends were $260.

Prepare a statement of cash flows using the indirect method.

E23-12 (SCF—Direct Method) Data for Fairchild Company are presented in E23-11.

Prepare a statement of cash flows using the direct method.

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