Financial Accounting: An Integrated Statements Approach, 2nd Edition

604 Chapter 13 Statement of Cash Flows

State the effect (cash receipt or payment and amount) of each of the following transactions, con-

sidered individually, on cash flows:

a. Sold 5,000 shares of $30 par common stock for $45 per share.

b. Sold equipment with a book value of $42,500 for $41,000.

c. Purchased land for $120,000 cash.

d. Purchased 5,000 shares of $30 par common stock as treasury stock at $50 per

share.

e. Sold a new issue of $100,000 of bonds at 101.

f. Paid dividends of $1.50 per share. There were 30,000 shares issued and 5,000 shares of

treasury stock.

g. Retired $500,000 of bonds, on which there was $2,500 of unamortized discount, for

$501,000.

h. Purchased a building by paying $30,000 cash and issuing a $90,000 mortgage note

payable.

Identify the type of cash flow activity for each of the following events (operating, investing, or

financing):

a. Purchased patents. g. Redeemed bonds.

b. Purchased buildings. h. Paid cash dividends.

c. Purchased treasury stock. i. Sold long-term investments.

d. Sold equipment. j. Issued common stock.

e. Net income. k. Issued bonds.

f. Issued preferred stock.

The following quote was from the notes of a recent annual report of Qwest Communications

International Inc.:

“...in conjunction with our effort to sell certain assets, we determined that the carry-

ing amounts were in excess of our expected sales price, which indicated that our in-

vestments in these assets may have been impaired at that date. In accordance with SFAS

No. 144, the estimated fair value of the impaired assets becomes the new basis for ac-

counting purposes. As such, approximately $122 million in accumulated depreciation

was eliminated against the cost of these impaired assets in connection with the ac-

counting for these impairments.”

What impact would this asset impairment have on Qwest’s statement of cash flows under the

indirect method?

Indicate whether each of the following would be added to or deducted from net income in

determining net cash flow from operating activities by the indirect method:

a. Increase in notes payable due in 90 days to vendors

b. Loss on disposal of fixed assets

c. Decrease in accounts payable

d. Increase in notes receivable due in 90 days from customers

e. Decrease in salaries payable

f. Decrease in prepaid expenses

g. Depreciation of fixed assets

h. Decrease in accounts receivable

i. Amortization of patent

j. Increase in merchandise inventory

k. Gain on retirement of long-term debt

Exercise 13-2

Effect of transactions on cash

flows

Goal 1

b. Cash receipt, $41,000

Exercise 13-3

Classifying cash flows

Goal 1

Exercise 13-4

Cash flows from operating

activities—indirect method

Goal 2

Exercise 13-5

Cash flows from operating

activities—indirect method

Goal 2