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Questions and Answers of Accounting

Differentiate between investing activities, financing activities, and operating activities.
What are the major sources of cash (inflows) in a statement of cash flows? What are the major uses (outflows) of cash?
Identify and explain the major steps involved in preparing the statement of cash flows.
Identify the following items as (1) operating, (2) investing, or (3) financing activities: purchase of land; payment of dividends; cash sales; and purchase of treasury stock.
Unlike the other major financial statements, the statement of cash flows is not prepared from the adjusted trial balance. From what sources does the information to prepare this statement come, and
Why is it necessary to convert accrual-based net income to a cash basis when preparing a statement of cash flows?
Differentiate between the direct method and the indirect method by discussing each method.
Broussard Company reported net income of $3.5 million in 2010. Depreciation for the year was $520,000; accounts receivable increased $500,000; and accounts payable increased $300,000. Compute net
Collins worth Co. reported sales on an accrual basis of $100,000. If accounts receivable increased $30,000, and the allowance for doubtful accounts increased $9,000 after a write-off of $2,000,
Your roommate is puzzled. During the last year, the company in which she is a stockholder reported a net loss of $675,000, yet its cash increased $321,000 during the same period of time. Explain to
The board of directors of Gifford Corp. declared cash dividends of $260,000 during the current year. If dividends payable was $85,000 at the beginning of the year and $90,000 at the end of the year,
Explain how the amount of cash payments to suppliers is computed under the direct method.
The net income for Letterman Company for 2010 was $320,000. During 2010, depreciation on plant assets was $124,000, amortization of patent was $40,000, and the company incurred a loss on sale of
Each of the following items must be considered in preparing a statement of cash flows for Blackwell Inc. for the year ended December 31, 2010. State where each item is to be shown in the statement,
Classify the following items as (1) operating, (2) investing, (3) financing, or (4) significant noncash investing and financing activities, using the direct method.(a) Cash payments to employees.(b)
Stan Conner and Mark Stein were discussing the presentation format of the statement of cash flows of Bombeck Co. At the bottom of Bombeck’s statement of cash flows was a separate section entitled
During 2010, Simms Company redeemed $2,000,000 of bonds payable for $1,880,000 cash. Indicate how this transaction would be reported on a statement of cash flows, if at all.
What are some of the arguments in favor of using the indirect (reconciliation) method as opposed to the direct method for reporting a statement of cash flows?
Why is it desirable to use a worksheet when preparing a statement of cash flows? Is a worksheet required to prepare a statement of cash flows?
Where can authoritative iGAAP related to the statement of cash flows be found?
Briefly describe some of the similarities and differences between U.S. GAAP and iGAAP with respect to cash flow reporting.
Some believe that iGAAP provides too many choices within its accounting guidance. Is this a possible concern in the area of cash flow reporting? Explain.
What are some of the key obstacles for the FASB and IASB in their convergence project for the statement of cash flows?
Wainwright Corporation had the following activities in 2010.1. Sale of land.............................................................$180,0002. Purchase of
Stansfield Corporation had the following activities in 2010.1. Payment of accounts payable.............................$770,000 2. Issuance of common
Novak Corporation is preparing its 2010 statement of cash flows, using the indirect method. Presented below is a list of items that may affect the statement. Using the code below, indicate how each
Bloom Corporation had the following 2010 income statement. The following accounts increased during 2010: accounts receivable $12,000; inventory $11,000; accounts payable $13,000. Prepare the cash
At January 1, 2010, Eikenberry Inc. had accounts receivable of $72,000. At December 31, 2010, accounts receivable is $54,000. Sales for 2010 total $420,000. Compute Eikenberry’s 2010 cash
Use the information from BE23-4 for Bloom Corporation. Prepare the cash flows from operating activities section of Bloom’s 2010 statement of cash flows using the indirect method.
Moxley Corporation had January 1 and December 31 balances as follows. For 2010, cost of goods sold was $500,000. Compute Moxley's 2010 cash payments tosuppliers.
In 2010, Elbert Corporation had net cash provided by operating activities of $531,000; net cash used by investing activities of $963,000; and net cash provided by financing activities of $585,000. At
Loveless Corporation had the following 2010 income
Hendrickson Corporation reported net income of $50,000 in 2010. Depreciation expense was $17,000. The following working capital accounts changed.Accounts
In 2010, Wild Corporation reported a net loss of $70,000. Wild’s only net income adjustments were depreciation expense $81,000, and increase in accounts receivable $8,100. Compute Wild’s net
In 2010, Leppard Inc. issued 1,000 shares of $10 par value common stock for land worth $40,000.(a) Prepare Leppard’s journal entry to record the transaction.(b) Indicate the effect the transaction
Indicate in general journal form how the items below would be entered in a worksheet for the preparation of the statement of cash flows.(a) Net income is $317,000.(b) Cash dividends declared and paid
Access the glossary (“Master Glossary”) to answer the following.(a) What are cash equivalents?(b) What are financing activities?(c) What are investing activities?(d) What are operating activities?
Name five cash inflows that would qualify as a “Financing Activity.”
How should cash flows from purchases, sales, and maturities of available-for-sale securities be classified and reported in the statement of cash flows?
Do companies need to disclose information about investing and financing activities that do not affect cash receipts or cash payments? If so, how should such information be disclosed?
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)
Each of the following items must be considered in preparing a statement of cash flows (indirect method) for Grander son Inc. for the year ended December 31, 2010.(a) Plant assets that had cost
The income statement of Rodriquez Company is shown below. Additional information: 1. Accounts receivable decreased $310,000 during the year. 2. Prepaid expenses increased $170,000 during the
Data for the Rodriquez Company are presented in E23-3. Prepare the operating activities section of the statement of cash flows using the direct method.
Norman Company's income statement for the year ended December 31, 2010, contained the following condensed information. Norman's balance sheet contained the following comparative data at December 31.
Data for Norman Company are presented in E23-5. Prepare the operating activities section of the statement of cash flows using the indirect method.
Presented below are two independent situations.Situation A:Cheno with Co. reports revenues of $200,000 and operating expenses of $110,000 in its first year of operations, 2010. Accounts receivable
Messner Co. reported $145,000 of net income for 2010. The accountant, in preparing the statement of cash flows, noted several items occurring during 2010 that might affect cash flows from operating
Wabaunsee Corp. uses the direct method to prepare its statement of cash flows. Waubansee's trial balances at December 31, 2010 and 2009 are as follows. Additional information: 1. Wabaunsee purchased
Following are selected balance sheet accounts of Sander Bros. Corp. at December 31, 2010 and 2009, and the increases or decreases in each account from 2009 to 2010. Also presented is selected income
Condensed financial data of Fairchild Company for 2010 and 2009 are presented below. Additional information: During the year, $70 of common stock was issued in exchange for plant assets. No plant
Data for Fairchild Company are presented in E23-11. Prepare a statement of cash flows using the direct method. (Do not prepare a reconciliation schedule.)
Andrews Inc., a greeting card company, had the following statements prepared as of December 31, 2010. Additional information: 1. Dividends in the amount of $6,000 were declared and paid during
Data for Andrews Inc. are presented in E23-13. Prepare a statement of cash flows using the indirect method.
Presented below are data taken from the records of Morgenstern Company. Additional information: 1. Held-to-maturity securities carried at a cost of $43,000 on December 31, 2009, were sold in 2010 for
The balance sheet data of Wyeth Company at the end of 2010 and 2009 follow. Land was acquired for $30,000 in exchange for common stock, par $30,000, during the year; all equipment purchased was for
Ochoa Inc. had the following condensed balance sheet at the end of operations for 2009. During 2010 the following occurred. 1. A tract of land was purchased for $11,000. 2. Bonds payable in the
The accounts below appear in the ledger of Popovich Company. From the postings in the accounts above, indicate how the information is reported on a statement of cash flows by preparing a partial
Data for Popovich Company are presented in E23-18. Prepare entries in journal form for all adjustments that should be made on a worksheet for a statement of cash flows.
The transactions below took place during the year 2010. 1. Convertible bonds payable with a par value of $300,000 were exchanged for unissued common stock with a par value of $300,000. The market
Below is the comparative balance sheet for Lowenstein Corporation. Dividends in the amount of $10,000 were declared and paid in 2010. From this information, prepare a worksheet for a statement of
The following is Sullivan Corp.'s comparative balance sheet accounts at December 31, 2010 and 2009, with a column showing the increase (decrease) from 2009 to 2010.Additional information:1. On
The comparative balance sheets for Hinckley Corporation show the following information. Additional data related to 2010 are as follows. 1. Equipment that had cost $11,000 and was 40% depreciated at
Dingel Corporation has contracted with you to prepare a statement of cash flows. The controller has provided the following information. Additional data related to 2010 are as follows. 1. Equipment
Teresa Ramirez and Lenny Traylor are examining the following statement of cash flows for Pacific Clothing Store’s first year of operations. Teresa claims that Pacific’s statement of cash flows is
Ashley Company is a young and growing producer of electronic measuring instruments and technical equipment. You have been retained by Ashley to advise it in the preparation of a statement of cash
Each of the following items must be considered in preparing a statement of cash flows for Cruz Fashions Inc. for the year ended December 31, 2010.1. Fixed assets that had cost $20,000 61⁄2 years
GAAP requires the statement of cash flows be presented when financial statements are prepared.(a) Explain the purposes of the statement of cash flows.(b) List and describe the three categories of
Brockman Guitar Company is in the business of manufacturing top-quality, steel-string folk guitars. In recent years the company has experienced working capital problems resulting from the procurement
The financial statements of P&G are presented in Appendix 5B or can be accessed at the book’s companion website, www.wiley.com/college/kieso.Refer to P&G’s financial statements and the
Go to the book’s companion website and use information found there to answer the following questions related to The Coca-Cola Company and PepsiCo, Inc.(a) What method of computing net cash provided
As part of the year-end accounting process for your company, you are preparing the statement of cash flows according to GAAP. One of your team a finance major, believes the statement should be
What may be included under the heading of “cash”?
In what accounts should the following items be classified?(a) Coins and currency.(b) U.S. Treasury (government) bonds.(c) Certificate of deposit.(d) Cash in a bank that is in receivership.(e) NSF
Define a “compensating balance.” How should a compensating balance be reported?
Springsteen Inc. reported in a recent annual report “Restricted cash for debt redemption.” What section of the balance sheet would report this item?
What are the reasons that a company gives trade discounts? Why are trade discounts not recorded in the accounts like cash discounts?
What are two methods of recording accounts receivable transactions when a cash discount situation is involved? Which is more theoretically correct? Which is used in practice more of the time? Why?
What are the basic problems that occur in the valuation of accounts receivable?
What the theoretical justification of the allowance method is as contrasted with the direct write-off method of accounting for bad debts?
Indicate how well the percentage-of-sales method and the aging method accomplish the objectives of the allowance method of accounting for bad debts.
Of what merit is the contention that the allowance method lacks the objectivity of the direct write-off method? Discuss in terms of accounting’s measurement function.
What is the normal procedure for handling the collection of accounts receivable previously written off using the direct write-off method the allowance method?
What is “imputed interest”? In what situations is it necessary to impute an interest rate for notes receivable? What are the considerations in imputing an appropriate interest rate?
Indicate three reasons why a company might sell its receivables to another company.
When is the financial components approach to recording the transfers of receivables used? When should a transfer of receivables be recorded as a sale?
Horizon Outfitters Company includes in its trial balance for December 31 an item for Accounts Receivable $789,000.This balance consists of the following items:Due from regular
What is the accounts receivable turnover ratio, and what type of information does it provide?
Where can authoritative iGAAP guidance be found related to cash and receivables?
Briefly describe some of the similarities and differences between U.S. GAAP and iGAAP with respect to the accounting for cash and receivables.
Simonies Company, which uses iGAAP, has a note receivable with a carrying value of $30,000 at December 31, 2010. On January 2, 2011, the borrower declares bankruptcy, and Simonis estimates that only
Distinguish among the following: (1) a general checking account, (2) an imprest bank account, and (3) a lockbox account.
What are the general rules for measuring and recognizing gain or loss by both the debtor and the creditor in an impairment?
What is meant by impairment of a loan? Under what circumstances should a creditor recognize an impaired loan?
Explain how the accounting for bad debts can be used for earnings management.
Because of calamitous earthquake losses, Bernstein Company, one of your client’s oldest and largest customers, suddenly and unexpectedly became bankrupt. Approximately 30% of your client’s total
On January 1, 2010, Lombard Co. sells property for which it had paid $690,000 to Sergeant Company, receiving in return Sergeant’s zero-interest-bearing note for $1,000,000 payable in 5 years. What
What is the fair value option? Where do companies that elect the fair value option report unrealized holding gains and losses?
Moon Hardware is planning to factor some of its receivables. The cash received will be used to pay for inventory purchases. The factor has indicated that it will require “recourse” on the sold
Kraft Enterprises owns the following assets at December 31, 2010. What amount should be reported ascash?

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