As stated in this chapter, the operating activities section of the statement of cash flows can be prepared using the direct method or the indirect method. Sun Treasures used the direct method to prepare its statement of cash flows. Nike uses the indirect method. The only difference is in the operating activities section. Look at Nike's Consolidated Statements of Cash Flows in Appendix B. The Cash provided by operations section begins with net income and then makes adjustments not affecting cash and changes in certain other accounts. The operating activities section of Sun Treasures' statement of cash flows lists cash receipts and cash payments. Both companies arrive at an amount of cash flow from operating activities.

INSTRUCTIONS

1. Identify the total of cash provided by operations for Nike for the fiscal year 2016.

What basis is used to prepare the statement of cash flows?

Ramel Corporation's unadjusted trial balance and accounting forms are given in the Working Papers.

Instructions:

1. Using the following information, journalize the adjusting entries for the current year ended December 31.

Adjustment Information, December 31

Estimated uncollectible accounts based on aging accounts receivable         $ 11,020.00
Accrued interest income                                                          160.00
Merchandise inventory                                                        581,489.16 
Supplies inventory                                                               620.01
Value of prepaid insurance                                                     4,000.00
Annual depreciation expense-office equipment                                  10,960.00 
Annual depreciation expense-store equipment                                   10,120.00
Accrued interest expense                                                         625.00
Prepaid rent income earned                                                     6,000.00

Use the accounting forms and financial statements from the previous exercise. General journal pages are given in the Working Papers.

1. For the current year, journalize the closing entries using page 13 of a general journal.

Prepare a statement of cash flows for Williams Corporation using the direct method. Use the balance sheet from the previous On Your Own exercise and the information below. A form is given in the Working Papers.

Prepare a statement of cash flows for the current year.

Cash receipts during the year:
    Cash from sales                              $1,226,425.41
    Cash from interest                                  377.00
    Cash from rent                                   13,000.00
    Cash from sale of equipment                      13,200.00
    Cash from issuance of stock                      18,000.00
    Cash from issuance of bonds                      10,000.00
Cash payments during the year:
    Cash for inventory$  805,412.20
    Cash for salaries and wages                     220,147.25
    Cash for insurance                                8,200.00
    Cash for interest                                   915.00
    Cash for taxes                                   28,000.00
    Cash for rent                                    28,210.00
    Cash for other operating expenses                95,214.20 
    Cash for purchase of equipment                   75,000.00 
    Cash for payment of notes payable                 7,500.00
    Cash for payment of dividends                    10,000.00
Cash balance at the beginning of the period       $   6,023.29

JPMorgan Chase (JPM) is one of the oldest and largest financial services companies in the country, tracing its roots back to 1799. According to its website, JPM operates in more than 100 countries, has over 240,000 employees, and has assets of $2.5 trillion.

The recession that began in 2008 had a dramatic impact on financial institutions. One hard-hit area was the housing market. Housing prices plummeted, and many home mortgages were higher than the value of the mortgaged home. A mortgage that has a balance higher than the value of the property mortgaged is called an underwater mortgage. By the end of the first quarter of 2011, approximately 22.7% of all U.S. home mortgages were estimated to be underwater.

With a high percentage of mortgages underwater, mortgage lenders were faced with a greatly increased risk that homeowners would stop making their mortgage payments. Not making payments on a loan when they are due is called defaulting on the loan. When a mortgage is in default, the bank or finance company has the right to take possession of the property. When the bank or finance company takes possession of mortgaged property, it is called a foreclosure.

Foreclosures usually mean a loss for the mortgage holder, who must sell the property at a price less than the amount owed on the property. What is the impact of these foreclosures on the financial statements of the mortgage holder? Remember that GAAP requires a business to estimate the amount of receivables that will not be collected. Mortgages financed by JPM are listed as receivables on its balance sheet. Therefore, JPM must estimate the amount of these receivables that will not be paid in the future. This estimate is recorded in an account titled allowance for Loan Losses.

JPM reported the following balances on its balance sheet:

    2016: Loans,$894,765,000,000; Allowance for loan losses, $13,776,000,000
    2015: Loans,$837,299,000,000; Allowance for loan losses, $13,555,000,000

1. For 2016 and 2015, calculate what percent the allowance account is of the loans and leases account.

Handy Hardware Corporation's unadjusted trial balance and accounting forms are given in the Working Papers.

Instructions:

1. Using the following information, journalize the adjusting entries for the current year ended December 31.

Adjustment Information, December 31

Estimated uncollectible accounts based on aging accounts receivable         $ 13,832.96 
Accrued interest income                                                          630.00 
Merchandise inventory                                                        162,569.00
Supplies inventory                                                             3,695.00
Value of prepaid insurance                                                     8,360.00
Annual depreciation expense equipment                                         13,034.00 
Accrued interest expense                                                         600.00 
Prepaid rent income earned                                                     4,000.00

Prepare a statement of cash flows for Travel Lite Corporation using the direct method. Use the balance sheet from the previous Work Together exercise and the information below. A form is given in the Working Papers.

Prepare a statement of cash flows for the current year.

Cash balance at the beginning of the period     $39,522.51
Cash receipts during the year:
    Cash from sales$598,236.31 
    Cash from interest                               635.21 
    Cash from rent                                 4,000.00
    Cash from sale of equipment                    1,200.00
    Cash from issuance of stock                   17,500.00
    Cash from issuance of bonds                   10,000.00
Cash payments during the year:
    Cash for inventory                          $375,623.54 
    Cash for salaries and wages                   85,807.14
    Cash for insurance                             4,254.35
    Cash for interest                              1,587.35
    Cash for taxes                                12,885.00
    Cash for rent                                 16,248.65 
    Cash for other operating expenses             95,412.88
    Cash for purchase of equipment                10,549.00 
    Cash for payment of notes payable              2,500.00
    Cash for payment of dividends                 21,200.00

Ramel Corporation's unadjusted trial balance and accounting forms are given in the Working Papers.

Instructions:

1. Using the following information, journalize the adjusting entries for the current year ended December 31.

Adjustment Information, December 31

Estimated uncollectible accounts based on aging accounts receivable         $ 11,020.00
Accrued interest income                                                          160.00
Merchandise inventory                                                        581,489.16 
Supplies inventory                                                               620.01
Value of prepaid insurance                                                     4,000.00
Annual depreciation expense-office equipment                                  10,960.00 
Annual depreciation expense-store equipment                                   10,120.00
Accrued interest expense                                                         625.00
Prepaid rent income earned                                                     6,000.00

As a class, identify a local business or government agency that has an information technology department. Choose a student to contact that organization to arrange an interview with a member of that department and two or three class representatives.

Prepare a statement of cash flows for Travel Lite Corporation using the direct method. Use the balance sheet from the previous Work Together exercise and the information below. A form is given in the Working Papers.

Prepare a statement of cash flows for the current year.

Cash balance at the beginning of the period     $39,522.51
Cash receipts during the year:
    Cash from sales$598,236.31 
    Cash from interest                               635.21 
    Cash from rent                                 4,000.00
    Cash from sale of equipment                    1,200.00
    Cash from issuance of stock                   17,500.00
    Cash from issuance of bonds                   10,000.00
Cash payments during the year:
    Cash for inventory                          $375,623.54 
    Cash for salaries and wages                   85,807.14
    Cash for insurance                             4,254.35
    Cash for interest                              1,587.35
    Cash for taxes                                12,885.00
    Cash for rent                                 16,248.65 
    Cash for other operating expenses             95,412.88
    Cash for purchase of equipment                10,549.00 
    Cash for payment of notes payable              2,500.00
    Cash for payment of dividends                 21,200.00

As a class, identify a local business or government agency that has an information technology department. Choose a student to contact that organization to arrange an interview with a member of that department and two or three class representatives.

What basis is used to prepare the statement of cash flows?

Prepare a statement of cash flows for Williams Corporation using the direct method. Use the balance sheet from the previous On Your Own exercise and the information below. A form is given in the Working Papers.

Prepare a statement of cash flows for the current year.

Cash receipts during the year:
    Cash from sales                              $1,226,425.41
    Cash from interest                                  377.00
    Cash from rent                                   13,000.00
    Cash from sale of equipment                      13,200.00
    Cash from issuance of stock                      18,000.00
    Cash from issuance of bonds                      10,000.00
Cash payments during the year:
    Cash for inventory$  805,412.20
    Cash for salaries and wages                     220,147.25
    Cash for insurance                                8,200.00
    Cash for interest                                   915.00
    Cash for taxes                                   28,000.00
    Cash for rent                                    28,210.00
    Cash for other operating expenses                95,214.20 
    Cash for purchase of equipment                   75,000.00 
    Cash for payment of notes payable                 7,500.00
    Cash for payment of dividends                    10,000.00
Cash balance at the beginning of the period       $   6,023.29