Question: The following data are taken from the records of Saro

The following data are taken from the records of Saro Corporation and subsidiaries for Year 1:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,000
Depreciation, depletion, and amortization . . . . . . . . . . . . . . . . . . . . . . 8,000
Disposals of property, plant, and equipment (book value) for cash . . . 1,000
Deferred income taxes for Year 1 (noncurrent) . . . . . . . . . . . . . . . . . . . 400
Undistributed earnings of unconsolidated affiliates . . . . . . . . . . . . . . 200
Amortization of discount on bonds payable . . . . . . . . . . . . . . . . . . . . . 50
Amortization of premium on bonds payable . . . . . . . . . . . . . . . . . . . . . 60
Decrease in noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500
Cash proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . 300
Increase in accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900
Increase in accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200
Decrease in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 850
Increase in dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300
Decrease in notes payable to banks . . . . . . . . . . . . . . . . . . . . . . . . . . . 400

Required:
a. Determine the amount of cash flows from operations for Year 1 (use the indirect format).
b. For the following items, explain their meaning and implications, if any, in adjusting net income to arrive at cash flows from operations.
(1) Issuance of treasury stock as employee compensation.
(2) Capitalization of interest incurred.
(3) Amount charged to pension expense differing from the amount funded.


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  • CreatedJanuary 22, 2015
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