MANAGEMENT ACCOUNTING Prepared by: Bryan Galeno
Cashflow Statement – Practice Exercises May 2, 2020
I. True/False Questions;
1. An increase in inventory is classified as a “use” of cash for purposes of constructing the
statement of cash flows.
2. In the statement of cash flows, dividend payments to the company's stockholders are
treated as a “use” rather than as a “source” of cash.
3. Under the indirect method of determining the net cash flow from operating activities on the
statement of cash flows, a gain on the sale of equipment would be added to net income.
4. Under the indirect method of determining the net cash provided by operating activities on
the statement of cash flows, increases in current liabilities such as accounts payable are
added to net income.
5. Under the indirect method of determining the net cash provided by operating activities on
the statement of cash flows, dividends are added to net income.
6. Interest paid on borrowed funds would be included as part of a company's financing
activities on the statement of cash flows.
7. The net cash provided by operating activities on the statement of cash flows would include
interest paid to creditors and dividends paid to the company's own shareholders.
8. A change in deferred taxes is considered to be an operating activity on the statement of
cash flows.
9. Lending money to another company would be classified as a financing activity on the
statement of cash flows.
10. The direct method of preparing the statement of cash flows will usually show a greater total
increase in cash than the indirect method.
II. Problem Solving
1. Swinger Corporation's comparative balance sheet appears below:
Ending Beginning
Balance Balance
Assets:
Current assets: The
Cash and cash equivalents .............................. $ 47,000 $ 31,000
Accounts receivable ........................................ 23,000 22,000
Inventory ......................................................... 66,000 64,000
Total current assets ............................................ 136,000 117,000
Property, plant, and equipment ......................... 356,000 338,000
Less accumulated depreciation ....................... 184,000 161,000
Net property, plant, and equipment .................. 172,000 177,000
Total assets ......................................................... $308,000 $294,000
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable ............................................ $ 17,000 $ 16,000
Accrued wages and salaries payable ............... 32,000 31,000
Accrued income taxes payable ........................ 25,000 27,000
Notes payable.................................................. 11,000 13,000
Total current liabilities ........................................ 85,000 87,000
Long-term debt ................................................... 83,000 80,000
Deferred income taxes ....................................... 38,000 34,000
Total liabilities ..................................................... 206,000 201,000
Stockholders’ equity:
Common stock................................................. 27,000 24,000
Retained earnings............................................ 75,000 69,000
Total stockholders’ equity .................................. 102,000 93,000
Total liabilities and stockholders’ equity ............ $308,000 $294,000
company's net income (loss) for the year was $10,000 and its cash dividends were $4,000.
The total dollar amount of all of the items that would be classified as sources when
compiling a simplified statement of cash flows is:
MANAGEMENT ACCOUNTING Prepared by: Bryan Galeno
Cashflow Statement – Practice Exercises May 2, 2020
2. Illies Corporation's comparative balance sheet appears below:
Ending Beginning
Balance Balance
Assets:
Current assets:
Cash and cash equivalents ............................... $ 40,000 $ 33,000
Accounts receivable ......................................... 19,000 21,000
Inventory .......................................................... 67,000 69,000
Total current assets ............................................. 126,000 123,000
Property, plant, and equipment .......................... 358,000 339,000
Less accumulated depreciation ....................... 156,000 132,000
Net property, plant, and equipment ................... 202,000 207,000
Total assets .......................................................... $328,000 $330,000
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable ............................................. $ 18,000 $ 19,000
Accrued wages and salaries payable ............... 35,000 37,000
Accrued income taxes payable ........................ 23,000 19,000
Notes payable .................................................. 19,000 22,000
Total current liabilities ........................................ 95,000 97,000
Long-term debt.................................................... 82,000 86,000
Deferred income taxes ........................................ 25,000 23,000
Total liabilities ..................................................... 202,000 206,000
Stockholders’ equity:
Common stock ................................................. 23,000 22,000
Retained earnings ............................................ 103,000 102,000
Total stockholders’ equity ................................... 126,000 124,000
Total liabilities and stockholders’ equity ............. $328,000 $330,000
The company's net income (loss) for the year was $5,000 and its cash dividends were
$4,000. The total dollar amount of all of the items that would be classified as uses when
compiling a simplified statement of cash flows is:
