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ACC557 Week 9

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ACC557 Week 9 E14-2 E14-3 E14-6 E14-7 P14-5A P14-9A

E14-2An analysis of comparative balance sheets, the current year’s income statement, and
the general ledger accounts of Gagliano Corp. uncovered the following items. Assume all items
involve cash unless there is information to the contrary.

(a) Payment of interest on notes payable.
(b) Exchange of land for patent.
(c) Sale of building at book value.
(d) Payment of dividends.
(e) Depreciation.
(f) Receipt of dividends on investment in stock.
(g) Receipt of interest on notes receivable.
(h) Issuance of capital stock.
(i) Amortization of patent.
(j) Issuance of bonds for land.
(k) Purchase of land.
(l) Conversion of bonds into common stock.
(m) Loss on sale of land.
(n) Retirement of bonds.

E14-3 Rachael Ray Corporation had the following transactions.
1. Sold land (cost $12,000) for $15,000.
2. Issued common stock for $20,000.
3. Recorded depreciation of $17,000.
4. Paid salaries of $9,000.
5. Issued 1,000 shares of $1 par value common stock for equipment worth $8,000.
6. Sold equipment (cost $10,000, accumulated depreciation $7,000) for $1,200.

Instructions
For each transaction above, (a) prepare the journal entry, and (b) indicate how it would affect the
statement of cash flow

E14-6 The three accounts shown below appear in the general ledger of Cesar Corp. during 2008.
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 $5,000. (Hint: Cost of
equipment constructed is reported in the investing activities section as a decrease in cash of
$53,000.)

E14-7 Scully Corporation’s comparative balance sheets are presented below.

Scully Corporation
Comparative Balance Sheets
  2008 2007
Cash   14,300  10,700
Accounts receivable   21,200  23,400
Land   20,000  26,000
Buildings   70,000  70,000
Accumulated depreciation - buildings   (15,000)  (10,000)
 Total   110,500  120,100
 
Accounts payable   12,370  31,100
Common stock   75,000  69,000
Retained earnings   23,130  20,000

 Total   110,500  120,100

Additional information:
1. Net income was $22,630. Dividends declared and paid were $19,500.
2. All other changes in non-current account balances had a direct effect on cash flows, except

the change in accumulated depreciation.The land was sold for $4,900

Instructions
(a) Prepare a statement of cash flows for 2008 using the indirect method.
(b) Compute free cash flow.

P14-5A Grania Company’s income statement contained the condensed information below.
Grania Company
Income Statement
For the Year Ended December 31, 2008
Sales revenue  970,000
Operating expenses, excluding depreciation  624,000
Depreciation expense  60,000
Loss on disposal of plant assets  16,000 700,000
Income before income taxes  270,000
Income tax expense  40,000
Net income  230,000

Grania’s balance sheet contained the comparative data at December 31, shown below.

20082007
Accounts receivable  75,000 60,000
Accounts payable  41,000 28,000
Income taxes payable  11,000 7,000

Accounts payable pertain to operating expenses.

Instructions
Prepare the operating activities section of the statement of cash flows using the indirect method

P14-9A Condensed financial data of Arma Inc. follow.


Arma Inc.
Comparative Balance Sheet 
31-Dec
Assets   2,008  2,007
Cash   90,800  48,400
Accounts receivable   92,800  33,000
Inventories   112,500  102,850
Prepaid expenses   28,400  26,000
Investments   138,000  114,000
Plant assets   270,000  242,500
Accumulated depreciation   (50,000)  (52,000)
Total   682,500  514,750
 
Liabilities and Stockholders' Equity
Accounts payable   112,000  67,300
Accrued expenses payable   16,500  17,000
Bonds payable   110,000  150,000
Common stock   220,000  175,000
Retained earnings   224,000  105,450
Total   682,500  514,750


Arma Inc.
Income Statement
For the Year Ended December 31, 2008
Sales   392,780
Less: 
Cost of goods sold   135,460
Operating expenses, excluding  dep.  12,410
Depreciation expense   46,500
Income taxes   27,280
Interest expense   4,730
Loss on sale of plant assets   7,500  233,880
Net income   158,900

Additional information:
1. New plant assets costing $85,000 were purchased for cash during the year.
2. Old plant assets having an original cost of $57,500 were sold for $1,500 cash.
3. Bonds matured and were paid off at face value for cash.
4. A cash dividend of $40,350 was declared and paid during the year.

Instructions
Prepare a statement of cash flows using the indirect method. 

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