Chapter 5 Additional Questions

Question 1
The following financial statements and information relate to Rivers Ltd.

RIVERS LTD.
Balance Sheet
September 30, 2023
Increase
Assets 2023 2022 (Decrease)
Cash $ 17,000 $ 22,000 (5,000)
Interest receivable 7,000 4,000 3,000
Accounts receivable 230,000 250,000 (20,000)
Inventory 208,000 218,000 (10,000)
Prepaid rent 8,000 7,200 800
Notes receivable 160,000 160,000 0
Property, plant and equipment 640,000 626,000 14,000
Accumulated amortization (200,000) (145,000) 55,000
$ 1,070,000 $ 1,142,200
Liabilities and shareholders’ equity
Accounts payable $ 135,000 $ 130,000 5,000
Wages payable 15,000 10,200 4,800
Notes payable 30,000 212,000 (182,000)
Common shares 400,000 400,000 0
Retained earnings 490,000 390,000 100,000
$ 1,070,000 $ 1,142,200

RIVERS LTD.
Income Statement
year ended September 30, 2023
Sales $ 2,700,000
Interest income 13,000
Gain on sale of equipment 6,000
2,719,000

Cost of goods sold 1,620,000

Other expenses 507,000
Wage expense 320,000
Amortization expense 64,000
Rent expense 48,000
2,559,000
Net income $ 160,000

Page 1
 Chapter 5 Additional Questions
Additional information:
1. The company purchased equipment for $32,000 cash.
2. The company sold surplus equipment that had a cost of $18,000 and accumulated
amortization of $9,000 for $15,000 cash.
3. Dividends of $60,000 on common shares were declared and paid in cash.

Required
Prepare the cash flow statement for Rivers for the year ended September 30, 2023. Use
the indirect method to present the cash flows from operating activities section of the cash
flow statement.

Page 2
 Chapter 5 Additional Questions

Question 2
The income statement and comparative balance sheets of Master Plumbing Ltd. are
shown below.
MASTER PLUMBING LTD.
Income Statement
For the year ended December 31, 2023
Sales $ 1,420,000
Cost of goods sold (1,110,000)
Gross profit 310,000
Amortization expense (55,000)
Interest expense (22,000)
Operating expenses (178,000)
Income tax expense (19,000)
Net income $ 36,000
MASTER PLUMBING LTD.
Balance Sheet
December 31, 2023
2023 2022
Current assets
Cash $ 71,000 $ 80,000
Accounts receivable 191,000 169,000
Inventory 303,000 324,000
Total current assets 565,000 573,000
Capital assets 640,000 612,000
Accumulated amortization (308,000) (253,000)
Total assets $ 897,000 $ 932,000
Current liabilities
Accounts payable $ 149,000 $ 198,000
Interest payable 41,000 36,000
Income taxes payable 8,000 12,000
Total current liabilities 198,000 246,000
Long-term debt 175,000 200,000
Total liabilities 373,000 446,000
Shareholders’ equity
Common shares 310,000 300,000
Retained earnings 214,000 186,000
Total shareholders’ equity 524,000 486,000
Total liabilities and shareholders’ equity $ 897,000 $ 932,000

Additional information
During 2023, there were no capital asset disposals.

Page 3
 Chapter 5 Additional Questions
During 2023, Master Plumbing declared and paid a common share cash dividend.

Required
Prepare a cash flow statement for the year ended December 31, 2023. Use the indirect
approach to report the operating activities.

Page 4
 Chapter 5 Additional Questions

Question 3

The comparative financial statements of Danny Company Ltd. for the years ending
December 31 are shown below:

2022 2023

Sales $ 1,447,000
Cost of goods sold (1,099,000)
Gross profit 348,000

Loss on disposal of capital asset1 (2,000)

Amortization expense (48,000)
Operating expenses (227,000)
Income tax expense (34,000)
Net income $ 37,000

Cash and equivalents $ 55,000 $ 76,000

Accounts receivable 72,000 66,000
Inventory 197,000 212,000

Capital assets1 512,000 528,000

Accumulated amortization (213,000) (225,000)
$ 623,000 $ 657,000

Accounts payable $ 44,000 $ 41,000

Accrued liabilities 21,000 26,000
Mortgage payable — due 2019 200,000 170,000

Common shares, no-par value 100,000 120,000

Preferred shares, 6%, cumulative, no-par value 50,000 60,000
Retained earnings 208,000 240,000
$ 623,000 $ 657,000
1
During 2023, Danny sold capital assets with a net book value of $44,000 for $42,000.

Required
Prepare a cash flow statement, in proper form, for the year ending December 31, 2023.
Use the indirect approach to report the operating activities.

Page 5
 Chapter 5 Additional Questions

Question 4
The comparative financial statements of Chen Company Ltd. for the years ending
December 31 are shown below:

2023 2022

Sales $ 1,280,000
Cost of goods sold (780,000)
Gross profit 500,000

Gain on disposal of capital assets 1 4,000

Amortization expense (49,000)
Operating expenses (336,000)
Income tax expense (49,000)
Net income $ 70,000

Cash $ 111,000 $ 105,000

Accounts receivable 83,000 88,000
Inventory 255,000 219,000
Long-term investments 75,000 63,000
Capital assets 1 910,000 880,000
Accumulated amortization (284,000) (255,000)
$ 1,150,000 $ 1,100,000

Accounts payable $ 133,000 $ 144,000

Income taxes payable 21,000 28,000
Long-term debt 45,000 50,000
Preferred shares, no-par value 135,000 150,000
Common shares, no-par value 500,000 450,000
Retained earnings 316,000 278,000
$ 1,150,000 $ 1,100,000
1
During 2023, Chen sold capital assets with a net book value of $136,000 for $140,000.

Required
Prepare a cash flow statement for the year ended December 31, 2023. Use the indirect
approach to report the operating activities.

Page 6
 Chapter 5 Additional Questions

Use the following ‘Required’ for each of the next 4 questions (Q 5-8):
Prepare a cash flow statement for each question using the indirect method.

Question 5:
Nodak Corp.’s balance sheet and income statement are as follows:

Nodak Corp.
Comparative Balance Sheet
As of December 31
2023 2022
Assets
Cash $ 75,425 $ 107,275
Accounts Receivable 91,000 69,475
Merchandise Inventory 383,250 353,500
Prepaid Expenses 7,525 8,750
Equipment 223,300 154,000
Accumulated Amortization (48,475) (61,600)
Total Assets $ 732,025 $ 631,400

Liabilities
Accounts Payable $ 123,375 $ 163,275
Short-term Notes Payable 14,000 8,750
Long-term Notes Payable 131,250 75,250
Total Liabilities $ 268,625 $ 247,275

Shareholders' Equity
Common Shares $ 281,750 $ 218,750
Retained Earnings 181,650 165,375
Total Shareholders' Equity $ 463,400 $ 384,125

Total Liabilities & Shareholders' Equity $ 732,025 $ 631,400

Page 7
 Chapter 5 Additional Questions

Nodak Corp.
Income Statement
For Year Ended December 31, 2023
Sales $ 694,750
Cost of Goods Sold 350,000
Gross Profit $ 344,750
Operating Expenses:
Amortization Expense $ 26,250
Other Expenses 191,100
Total Operating Expenses 217,350
Income from Operations $ 127,400
Loss on Sale of Equipment 7,175
Income before Taxes $ 120,225
Income Taxes 16,975
Net Income $ 103,250

Other information regarding Nodak:

1. All sales are credit sales.
2. All credits to accounts receivable in the period are receipts from customers.
3. Purchases of merchandise are on credit.
4. All debits to accounts payable in the period result from payments for merchandise.
5. The only decrease in income taxes payable is for payment of taxes.
6. The other expenses are paid in advance and are initially debited to Prepaid Expenses.

Additional information regarding Nodak’s activities during 2023:

1. Loss on sale of equipment is $7,175
2. Equipment costing $65,625, with accumulated amortization of $39,375, is sold for
$19,075.
3. Equipment costing $134,925 is purchased by paying cash for $35,000 and signing a
long-term note payable for the balance.
4. Borrowed $5,250 by signing a short-term note payable.
5. Paid $43,925 to reduce a long-term note payable.
6. Issued 3,500 common shares for cash $18 per share.
7. Declared and paid cash dividends of $86,975.

Page 8
 Chapter 5 Additional Questions

Question 6:
Seashell Corporation
Income Statement
For the year ended Dec 31, 2023
Net Sales $ 300,000
Cost of Goods Sold 80,000
Gross Margin $ 220,000
Amortization Expense $ 45,000
Amortization of Intangibles 2,000
Other Expenses 44,000
Interest Expense 3,000
Income Tax Expense 65,000 159,000
Net Income $ 61,000

Seashell Corporation
Balance Sheet
Dec.31, 2022 Dec.31, 2023
Cash $ 16,000 $ 32,000
Accounts Receivable 56,000 52,000
Allowance for Doubtful Accounts (6,000) (5,000)
Other Receivables 3,000 2,000
Inventory 30,000 32,000
Equipment 180,000 177,000
Accumulated Amortization (76,000) (75,000)
Intangibles, net 55,000 53,000
Total Assets $ 258,000 $ 268,000

Accounts Payable $ 50,000 $ 60,000

Income taxes Payable 70,000 50,000
Interest Payable 2,000 1,000
Bonds Payable 32,000 0
Discount on bonds payable (2,000) 0
Common Shares, no par 100,000 110,000
Retained Earnings 6,000 47,000
Total Liabilities and Shareholders' Equity $ 258,000 $ 268,000

Page 9
 Chapter 5 Additional Questions

Additional Information:
1. Dividends of $20,000 were declared and paid in 2023.
2. Equipment costing $66,000 with a book value of $20,000 was sold at book value.
New equipment was also purchased; common shares were issued in partial payment.
3. The bonds were retired at net book value; $500 of bond discount had been amortized
in 2023.

Page 10
 Chapter 5 Additional Questions

Question 7:
Martin Inc.’s balance sheet and income statement are as follows:
Martin Inc
Balance Sheet
Dec 31, 2023 Dec 31, 2022
Cash $ 20,500 $ 2,200
Accounts Receivable 96,000 52,000
Short-term Investments 70,000 0
Merchandise Inventory 75,000 80,000
Prepaid Insurance 16,000 21,000
Land 288,000 213,000
Buildings & Equipment 2,542,000 554,000
Accumulated Amortization (186,500) (170,800)
Total Assets $ 2,921,000 $ 751,400

Liabilities
Accounts Payable $ 48,000 $ 56,000
Salaries Payable $ 4,100 $ 3,000
Income Tax Payable 31,000 33,000
Long-term Notes Payable 2,000,000 0
Bonds Payable 120,000 130,000
Discount on Bonds Payable (1,000) (5,000)
Total Liabilities $ 2,202,100 $ 217,000

Shareholders' Equity
Common Shares $ 140,000 $ 100,000
Retained Earnings 578,900 434,400
Total Shareholders' Equity $ 718,900 $ 534,400

Total Liabilities & Shareholders' Equity $ 2,921,000 $ 751,400

Page 11
 Chapter 5 Additional Questions
Martin Inc
Income Statement
For the year ended Dec. 31, 2023
Sales $1,112,000
Cost of Goods Sold (763,000)
Gross Profit $349,000

Operating Expenses:
Amortization Expense $21,500
Salaries Expense 113,100
Bond Interest Expense 13,000
Insurance Expense 11,000
Total Operating Expenses (158,600)
Income from Operations $190,400
Gain on Sale of Land $25,000
Loss on Sale of Equipment (1,900)
Income before Taxes $213,500
Income Taxes (54,000)
Net Income $159,500

Additional Information:
1. A portion of company land, costing $35,000, was sold.
2. Additional property was purchased for cash.
3. Equipment was sold for cash. The original cost was $12,000, with a net book value of
$6,200.
4. On December 30, 2023, new equipment was acquired by issuing an 8%, 5-year, $2
million note payable.
5. The common shares of Rico Corp were purchased as a short-term investment.
6. On January 1, 2023, $10,000 of bonds was retired at maturity.
7. Martin Inc. issued 10% stock dividend (10,000 shares) and subsequently sold 30,000
shares. The market price was $1 per common share on the dates of both transactions.

Page 12
 Chapter 5 Additional Questions

Question 8
The following is Bison Corporation’s comparative balance sheet for 2023 and 2022.
Dec 31, 2023 Dec. 31, 2022
Cash $ 800,000 $ 700,000
Accounts Receivable 1,128,000 1,168,000
Inventories 1,850,000 1,715,000
Property, Plant, Equipment 3,307,000 2,967,000
Accumulated Amortization (1,165,000) (1,040,000)
Loan Receivable 270,000 0
Total Assets $ 6,190,000 $ 5,510,000

Accounts Payable $ 1,015,000 $ 955,000

Income Taxes Payable 30,000 50,000
Dividends Payable 80,000 90,000
Capital Lease Obligation 400,000 0
Common Shares, no-par, 500,000 shares 2,000,000 2,000,000
Retained Earnings 2,665,000 2,415,000
Total Liabilities & Shareholders' Equity $ 6,190,000 $ 5,510,000

Additional information:
1. During 2023, Bison loaned $300,000 to Sion Company, an unrelated company. Sion
made the first semiannual principle repayment of $30,000, plus interest at 10%, on
October 1, 2023.
2. On January 2, 2023, Bison sold equipment costing $60,000, with a carrying value of
$35,000, for $40,000 cash.
3. On December 31, 2023, Bison entered into a capital lease for an office building. The
present value of the annual rental payments is $400,000, which equals the fair value
of the building. Bison made the first rental payment of $60,000 when due on January
2, 2024.
4. Bison’s net income for 2023 was $330,000.
5. Bison declared and paid cash dividends for 2023 and 2022 as follows:
2023 2022
Declared Dec. 15, 2023 Dec. 15, 2022
Paid Feb. 28, 2024 Feb. 28, 2023
Amount $ 80,000 $ 90,000

Page 13