Scribd
Upload
15 views

Unit 2 Module 3 Chapter Solutions

The document contains solutions to exercises regarding statements of cash flows and financial position. It includes sample statements of cash flows and financial position for various companies with adjustments calculated between accounts over a year. Notes provide additional context for line items and calculations.

Uploaded by

Jim
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
15 views

Unit 2 Module 3 Chapter Solutions

The document contains solutions to exercises regarding statements of cash flows and financial position. It includes sample statements of cash flows and financial position for various companies with adjustments calculated between accounts over a year. Notes provide additional context for line items and calculations.

Uploaded by

Jim
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 6

Unit 2 Module 3 Chapter Solutions

BRIEF EXERCISE 5.13

Investing activities:
Purchase of fair value through other
comprehensive income investments (47,000)

($120,000 - $96,000 + $23,000) = $47,000


Note: The fair value through OCI unrealized loss of $23,000 is not an
operating activity as it does not appear on the income statement,
and so net income need not be adjusted for this non-cash item.

BRIEF EXERCISE 5.18

Proceeds from sale of land and building $176,000


Purchase of land (44,000)
Purchase of equipment (35,000)
Net cash provided by investing activities $ 97,000

EXERCISE 5.14

a. Carmichael Industries Inc.


Statement of Cash Flows
For the Year Ended December 31, 2020
Cash flows from operating activities
Net income $129,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense $27,000
Gain on disposal of land (5,000)
Increase in accounts receivable (50,000)
Increase in inventory (31,000)
Decrease in accounts payable (7,000) (66,000)
Net cash provided by operating activities 63,000
Cash flows from investing activities
Purchase of equipment (60,000)
Proceeds from sale of land* 44,000
Net cash used by investing activities (16,000)
Cash flows used by financing activities
Payment of cash dividends (60,000)
Net cash used by financing activities (60,000)
Net decrease in cash (13,000)
Cash at beginning of year 34,000
Cash at end of year $21,000

Note: During the year, Carmichael retired $50,000 in bonds payable


by issuing common shares.
* ($110,000 - $71,000 + $5,000 gain) = $44,000

b. Carmichael managed to generate sufficient cash from operations


to finance a strong dividend payout ratio of 46.5% ($60,000 divided
by $129,000). The cash generated from the sale of land was used
to purchase equipment. There are some indications that too much
cash is tied up in current assets, from the dramatic increase in both
the accounts receivable and the inventory balances over the year.

PROBLEM 5.2

a.
Montoya Inc.
Statement of Financial Position
December 31, 2020

Assets
Current assets
Cash $ 360,000
FV - NI Investments 121,000
Notes receivable 445,700
Income tax receivable 97,630
Inventory 239,800
Prepaid expenses 87,920
Total current assets 1,352,050

Property, plant, and equipment


Land $ 480,000
Buildings $1,640,000
Less accumulated
depreciation—buildings 270,200 1,369,800
Equipment 1,470,000
Less accumulated
depreciation—equipment 292,000 1,178,000 3,027,800

Goodwill 125,000
Total assets $4,504,850
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable $ 490,000
Notes payable 265,000
Bank loan 177,591
Income tax payable 98,362
Rent payable 45,000
Total current liabilities 1,075,953
PROBLEM 5.2 (CONTINUED)

a. (continued)

Long-term liabilities
Notes payable $1,600,000
Bonds payable, (due 2024) 270,000
Rent payable 480,000 2,350,000
Total liabilities 3,425,953

Shareholders’ equity
Capital shares
Preferred shares; 20,000
shares authorized, 15,000
shares issued 150,000
Common shares; unlimited
shares authorized, 20,000
shares issued 200,000 350,000
Retained earnings 728,897*
Total shareholders’ equity 1,078,897**
Total liabilities and shareholders’ equity $4,504,850

* ($1,078,897 – $350,000)
** ($4,504,850 – $3,425,953)

Note to Instructor: Income tax receivable and payable have not been netted
as taxes could be owed federally and provincially in which case netting is not
allowed. However, if owed to the same taxation authority then could be
netted.

a. In order to allow the reader of the statement of financial position to


assess the timing of the future cash outflows concerning future rentals,
(predictive value) a table illustrating the amount and the timing of the
cash flows for each of the next five years and amounts beyond five
years would be provided in the notes to the financial statements.

PROBLEM 5.8

a. JIA Inc.
Statement of Cash Flows
For the Year Ended December 31, 2020
Cash flows from operating activities
Net income $44,000
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation expense $19,000
Gain on disposal of machinery (7,000)
Gain on disposal of trademarks (10,000)
Increase in accounts receivable
($111,000 – $90,000) (21,000)
Increase in inventory
($107,000 – $82,000) (25,000)
Decrease in accounts payable
($93,000 – $83,000) (10,000) (54,000)
Net cash used by operating activities (10,000)

Cash flows from investing activities


Proceeds from sale of trademarks 20,000
Proceeds from sale of machinery
($18,000 + $7,000) 25,000
Net cash provided by investing activities 45,000

Cash flows from financing activities


Issuance of common shares 12,000
Retirement of long-term debt (15,000)
Payment of cash dividends (14,000)
Net cash used by financing activities (17,000)

Net increase in cash 18,000


Cash at beginning of year 50,500
Cash at end of year $68,500

Note: JIA purchased machinery at a cost of $40,000 in exchange for long-


term debt.
PROBLEM 5.8 (CONTINUED)

b.
JIA Inc.
Statement of Financial Position
December 31, 2020
Assets Liabilities and Shareholders’ Equity
Cash $68,500 Accounts payable $83,000
Accounts receivable 111,000 Long-term debt 110,000 (3)
Inventory 107,000
Machinery (net) 128,000 (1) Common shares 112,000 (4)
Trademarks 10,000 (2) Retained earnings 119,500 (5)
$424,500 $424,500

(1)$125,000 + $40,000 – $19,000 – $18,000


(1) $20,000 – $10,000
(2) $85,000 + $40,000 – $15,000
(3) $100,000 + $12,000
(4) $89,500 + $44,000 – $14,000

You might also like