Question: Hoffman Engineering Company is a young and growing producer of

Hoffman Engineering Company is a young and growing producer of pre-stressed concrete manufacturing equipment. You have been retained by the company to advise it in the preparation of a statement of cash flows. Hoffman uses the direct method in reporting net cash flows from operating activities. You have obtained the following information concerning certain events and transactions for the company during the year ended December 31, 2014:
a. The board of directors declared a $200,000 cash dividend on December 15, 2014, payable on January 15, 2015, to stockholders of record on January 5, 2015.
b. On August 27, 2014, Hoffman purchased $500,000 of its common stock on the open market.
c. Depreciation expense of $50,000 was included in the income statement.
d. The amount of net income for the year was $800,000, which included an extraordinary loss of $75,000 (see next item).
e. On June 1, 2014, a tornado caused an uninsured inventory loss of $75,000 ($115,385 loss, less tax benefit of $40,385). This extraordinary loss was included in the determination of net income (as indicated in item d).
f. Uncollectible accounts receivable of $20,000 were written off against the allowance for uncollectible accounts. Also, $35,000 of bad debts expense was included in net income; the same amount was added to the allowance for uncollectible accounts.
g. On August 1, 2014, a building and some land were purchased for $500,000. Hoffman gave in payment $100,000 cash, $150,000 market value of its unissued common stock, and a $250,000 mortgage note.
h. Hoffman realized a $5,500 gain on the sale of a machine. The machine originally cost $60,000, of which $25,000 was undepreciated at the time of the sale.

Write a brief explanation of how each of the items above should be disclosed in Hoffman’s statement of cash flows for 2014. If any item is neither an inflow nor an outflow of cash, explain why it is not and indicate how the item should be disclosed, if at all, in Hoffman’s statement of cash flows.

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  • CreatedSeptember 10, 2014
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