why are noncash transactions such as the exchange of common stock a building 320241

Aug 29, 2021 | Uncategorized

Ch 1 Critical Thinking Question 5:

Answer the following questions:

Why are noncash transactions, such as the exchange of common stock a building, included on a statement of cash flows? How are these noncash transactions disclosed?

Chapter 1 Exercise 1:

1. Classification of activities

Classify each of the following transactions as arising from an operating (O), investing (I), financing (F), or noncash investing/financing (N) activity.

  1. ________ Received $80,000 from the sale of land.
  2. ________ Received $3,200 from cash sales.
  3. ________ Paid a $5,000 dividend.
  4. ________ Purchased $8,800 of merchandise for cash.
  5. ________ Received $100,000 from the issuance of common stock.
  6. ________ Paid $1,200 of interest on a note payable.
  7. ________ Acquired a new laser printer by paying $650.
  8. ________ Acquired a $400,000 building by signing a $400,000 mortgage note.

Chapter 1 Exercise 4:

4. Overview of direct and indirect methods

Evaluate the comments that follow as being True or False. If the comment is false, briefly explain why.

  1. Both the direct and indirect methods will produce the same cash flow from operating activities.
  2. Depreciation expense is added back to net income when the indirect method is used.
  3. One of the advantages of using the direct method rather than the indirect method is that larger cash flows from financing activities will be reported.
  4. The cash paid to suppliers is normally disclosed on the statement of cash flows when the indirect method of statement preparation is employed.
  5. The dollar change in the Merchandise Inventory account appears on the statement of cash flows only when the direct method of statement preparation is used.

Chapter 1 Exercise 6:

6. Equipment transaction and cash flow reporting

Property, plant, & equipment Dec. 31, 20X4 Dec. 31, 20X3
Land $94,000 $94,000
Equipment 652,000 527,000
Less: Accumulated depreciation 316,000 341,000

New equipment purchased during 20×4 totaled $280,000. The 20×4 income statement disclosed equipment depreciation expense of $41,000 and a $9,000 loss on the sale of equipment.

  1. Determine the cost and accumulated depreciation of the equipment sold during 20X4.
  2. Determine the selling price of the equipment sold.
  3. Show how the sale of equipment would appear on a statement of cash flows prepared by using the indirect method.

Chapter 1 Problem 3:

3. Cash flow information: Direct and indirect methods

The comparative year end balance sheets of Sign Graphics, Inc., revealed the following activity in the company’s current accounts:

20X5 20X4 Increase / Decrease)
Current assets
Cash $55,400 $35,200 $20,200
Accounts receivable (net) 83,800 88,000 4,200
Inventory 243,400 233,800 9,600
Prepaid expenses 25,400 24,200 1,200
Current liabilities
Accounts payable $123,600 $140,600 ($17,000)
Taxes payable 43,600 49,200 5,600
Interest payable 9,000 6,400 2,600
Accrued liabilities 38,800 60,400 21,600
Note payable 44,000 — 44,000

The accounts payable were for the purchase of merchandise. Prepaid expenses and accrued liabilities relate to the firm’s selling and administrative expenses. The company’s condensed income statement follows.

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