Exercise 1 - Tim Latimer Corporation had the following transactions.
1. Sold land (cost $12,000) for $10,000.
2. Issued common stock at par value for $22,000.
3. Recorded depreciation on buildings for $14,000.
4. Paid salaries of $7,000.
5. Issued 1,000 shares of $1 par value common stock for equipment worth $9,000.
6. Sold equipment (cost $10,000, accumulated depreciation $8,000) for $3,200.
For each transaction above, prepare the journal entry.
Exercise 2 - The income statement of Toby Zed Company is presented here.
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Toby Zed Company Income Statement For the Year Ended November 30, 2014
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Sales revenue
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$7,500,000
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Cost of goods sold
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Beginning inventory
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$1,900,000
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Purchases
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4,400,000
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Goods available for sale
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6,300,000
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Ending inventory
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1,400,000
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Total cost of goods sold
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4,900,000
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Gross profit
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2,600,000
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Operating expenses
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1,150,000
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Net income
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$1,450,000
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Additional information:
1. Accounts receivable increased $200,000 during the year, and inventory decreased $500,000.
2. Prepaid expenses increased $175,000 during the year.
3. Accounts payable to suppliers of merchandise decreased $340,000 during the year.
4. Accrued expenses payable decreased $105,000 during the year.
5. Operating expenses include depreciation expense of $85,000.
Prepare the operating activities section of the statement of cash flows for the year ended November 30, 2014, for Toby Zed Company, using the indirect method.
Exercise 3 - The three accounts shown below appear in the general ledger of Chaudry Corp. during 2014.
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Equipment
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Date
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Debit
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Credit
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Balance
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Jan. 1
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Balance
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160,000
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July 31
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Purchase of equipment
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70,000
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230,000
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Sept. 2
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Cost of equipment constructed
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53,000
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283,000
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Nov. 10
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Cost of equipment sold
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49,000
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234,000
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Accumulated Depreciation-Equipment
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Date
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Debit
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Credit
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Balance
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Jan. 1
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Balance
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71,000
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Nov. 10
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Accumulated depreciation on equipment sold
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28,000
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43,000
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Dec. 31
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Depreciation for year
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23,000
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66,000
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Retained Earnings
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Date
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Debit
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Credit
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Balance
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Jan. 1
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Balance
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105,000
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Aug. 23
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Dividends (cash)
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17,000
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88,000
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Dec. 31
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Net income
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67,000
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155,000
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From the postings in the accounts, indicate how the information is reported on a statement of cash flows using the indirect method. The loss on disposal of plant assets was $5,000. (Hint: Cost of equipment constructed is reported in the investing activities section as a decrease in cash of $53,000.)
Exercise 4 - Bracewell Company reported net income of $195,000 for 2014. Bracewell also reported depreciation expense of $40,000 and a gain of $5,000 on disposal of plant assets. The comparative balance sheet shows an increase in accounts receivable of $15,000 for the year, a $17,000 increase in accounts payable, and a $4,000 decrease in prepaid expenses.
Prepare the operating activities section of the statement of cash flows for 2014. Use the indirect method.