Based on the following information, compute cash flows from financing activities.

$$\begin{array} {lrrrrr} \text{Purchase of short-term investments}& \hspace{10pt}\text{\$\hspace{10pt}500}&\\ \text{Dividends paid }& \hspace{10pt}\text{900}&\\ \text{Interest paid}& \text{300}&\\ \text{Additional short-term borrowing from bank}& \hspace{10pt}\text{950}&\\ \end{array}$$

On April 15, 2011, the board of directors for Auction.com declared a cash dividend of 65 cents per share payable to stockholders of record on May 20. The dividends will be paid on June 14. The company has 100,000 shares of stock outstanding. Prepare any necessary journal entries for each date.

The following information pertains to Satellite Company:

$$\begin{array}{|lrr|} \hline \textbf{Income Statement for 2012}\\ \hline \text{Sales}&&\$85,000\\ \text{Expenses}\\ \hspace{10pt}\text{Cost of goods sold}&\$51,875\\ \hspace{10pt}\text{Depreciation expense}& 8,500\\ \hspace{10pt}\text{Salaries expense}&\underline{\hspace{15pt}12,000}&\underline{\hspace{15pt}72,375}\\ \text{Net income}&&\underline{\underline{\$\hspace{10pt}12,625}}\\\\ \textbf{Partial Balance Sheet}&\textbf{2012}&\textbf{2011}\\ \hline \text{Accounts receivable}&\$10,500&\$12,000\\ \text{Inventory}&14,000&8,000\\ \text{Salaries payable}&1,750&800\\ \hline \end{array}$$

Required:

Present the operating activities section of the statement of cash flows for Satellite Company using the indirect method.

Forrest Company is developing its annual financial statements at December 31, 2013. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized as follows:

$$\begin{array} {|lrr|} \hline &{\hspace{2pt}\textbf{2013}\hspace{10pt}}&{\hspace{2pt}\textbf{2012}\hspace{10pt}}\\ \hline {\textbf{Balance Sheet at December 31}}\\ \text{Cash}\hspace{5pt} \ &\ \text{\$44,000}&\text{\$18,000}\\ \text{Accounts receivable}\hspace{5pt}& \text{26,000}&\text{29,000}\\ \text{Merchandise inventory}\hspace{5pt} & \text{30,000} &\text{36,000}\\ \text{Fixed assets (net)}\hspace{5pt} & \text{\underline{\hspace{15pt}{76,000}}}&\text{\underline{\hspace{15pt}{72,000}}}\\ & \underline{\underline{\$\hspace{5pt}\text{176,000}}}&\underline{\underline{\$\hspace{5pt}\text{155,000}}}\\\\ \text{Accounts payable}\hspace{5pt} \ &\ \text{\$25,000}&\text{\$22,000}\\ \text{Wages payable}\hspace{5pt} & \text{800} &\text{1,000}\\ \text{Note payable, long-term}\hspace{5pt} & \text{38,000} &\text{48,000}\\ \text{Common stock, no par }\hspace{5pt} & \text{80,000} &\text{60,000}\\ \text{Retained earnings}\hspace{5pt} & \text{\underline{\hspace{15pt}{32,200}}}&\text{\underline{\hspace{15pt}{24,000}}}\\ & \underline{\underline{\$\hspace{5pt}\text{176,000}}}&\underline{\underline{\$\hspace{5pt}\text{155,000}}}\\\\ {\textbf{Income Statement for 2013}}\\ \text{Sales}\hspace{5pt} \ &\ \text{\$100,000}&\\ \text{Cost of goods sold}\hspace{5pt} & \text{(61,000)}\\ \text{Expenses}\hspace{5pt} & \text{\underline{\hspace{7pt}{(27,000)}}}\\ \text{Net income}& \underline{\underline{\$\hspace{10pt}\text{12,000}}}\\\\ \hline \end{array}$$

Additional Data:

a. Bought fixed assets for cash, $10,000.

b. Paid$10,000 on the long-term note payable.

c. Sold unissued common stock for $20,000 cash.

d. Declared and paid a$3,800 cash dividend.

e. Incurred expenses that included depreciation, $6,000; wages,$10,000; taxes, $3,000; and other,$8,000.

Required:

1. Prepare a statement of cash flows spreadsheet using the indirect method to report cash flows from operating activities.

2. Prepare the statement of cash flows.

3. Prepare a schedule of noncash investing and financing activities if necessary.

Which of the following items would not appear in the financing section of the statement of cash flows?

a. The repurchase of the company’s own stock.

b. The receipt of dividends.

c. The repayment of debt.

d. The payment of dividends.

Under the indirect method, depreciation expense is added to net income to report cash flows from operating activities. Does depreciation cause an inflow of cash?

Based on the following information, compute cash flows from investing activities.

$$\begin{array} {lrrrrr} \text{Cash collections from customers}& \hspace{10pt}\text{\$\hspace{10pt}550}&\\ \text{Sale of used equipment}& \hspace{10pt}\text{250}&\\ \text{Depreciation expense}& \text{200}&\\ \text{Purchase of short-term investments }& \hspace{10pt}\text{285}&\\ \end{array}$$

Carlyle Golf, Inc., was formed in September of last year. The company designs, contracts for the manufacture of, and markets a line of men’s golf apparel. A portion of the statement of cash flows for Carlyle follows:

$$\begin{array}{c} \hline\\ \hspace{90pt}\textbf{CURRENT YEAR}\hspace{90pt}\\ \\\hline \end{array}$$

$$\begin{array}{lrr} \textbf{Cash flows from operating activities}\\ \text{Net income}&&\$\hspace{5pt}(460,089)\\ \text{Depreciation}&&3,554\\ \text{Noncash compensation (stock)}&&254,464\\ \text{Deposits with suppliers}&&(404,934)\\ \text{Increase in prepaid assets}&&(42,260)\\ \text{Increase in accounts payable }&&81,765\\ \text{Increase in accrued liabilities}&\hspace{40pt}&\underline{\hspace{25pt}24,495}\\ \text{Net cash flows}&&\underline{\underline{\$\hspace{7pt}(543,005)}}\\\\ \hline \end{array}$$

Management expects a solid increase in sales in the near future. To support the increase in sales, it plans to add $2.2 million to inventory. The company did not disclose a sales forecast. At the end of the current year, Carlyle had less than$1,000 in cash. It is not unusual for a new company to experience a loss and negative cash flows during its start-up phase.

Required:

As a financial analyst recently hired by a major investment bank, you have been asked to write a short memo to your supervisor evaluating the problems facing Carlyle. Emphasize typical sources of financing that may or may not be available to support the expansion.

Which of the following would not appear in the investing section of the statement of cash flows?

a. Purchase of inventory.

b. Sale of obsolete equipment used in the factory.

c. Purchase of land for a new office building.

d. All of the above would appear.

XS Supply Company is developing its annual financial statements at December 31, 2011. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized:

$$\begin{array} {|lrr|} \hline &{\hspace{2pt}\textbf{2011}\hspace{10pt}}&{\hspace{2pt}\textbf{2010}\hspace{10pt}}\\ \hline {\textbf{Balance Sheet at December 31}}\\ \text{Cash}\hspace{5pt} \ &\ \text{\$34,000}&\text{\$29,000}\\ \text{Accounts receivable}\hspace{5pt}& \text{35,000}&\text{28,000}\\ \text{Merchandise inventory}\hspace{5pt} & \text{41,000} &\text{38,000}\\ \text{Property and equipment}\hspace{5pt} & \text{121,000} &\text{100,000}\\ \text{Less: Accumulated depreciation}\hspace{5pt} & \text{\underline{\hspace{7pt}{(30,000)}}}&\text{\underline{\hspace{7pt}{(25,000)}}}\\ & \underline{\underline{\$\hspace{5pt}\text{201,000}}}&\underline{\underline{\$\hspace{5pt}\text{170,000}}}\\\\ \text{Accounts payable}\hspace{5pt} \ &\ \text{\$36,000}&\text{\$27,000}\\ \text{Wages payable}\hspace{5pt} & \text{1,200} &\text{1,400}\\ \text{Note payable, long-term}\hspace{5pt} & \text{38,000} &\text{44,000}\\ \text{Contributed capital}\hspace{5pt} & \text{88,600} &\text{72,600}\\ \text{Retained earnings}\hspace{5pt} & \text{\underline{\hspace{15pt}{37,200}}}&\text{\underline{\hspace{15pt}{25,000}}}\\ & \underline{\underline{\$\hspace{5pt}\text{201,000}}}&\underline{\underline{\$\hspace{5pt}\text{170,000}}}\\\\ {\textbf{Income Statement for 2011}}\\ \text{Sales}\hspace{5pt} \ &\ \text{\$120,000}&\\ \text{Cost of goods sold}\hspace{5pt} & \text{1,000}\\ \text{Depreciation expense}\hspace{5pt} & \text{70,000}\\ \text{Other expenses}\hspace{5pt} & \text{\underline{\hspace{15pt}{38,800}}}\\ \text{Net income}& \underline{\underline{\$\hspace{10pt}\text{12,200}}}\\\\ \hline \end{array}$$

Additional Data:

a. Bought equipment for cash, $31,000. Sold equipment with original cost of$10,000, accumulated depreciation of $7,000, for$4,000 cash.

b. Paid $6,000 on the long-term note payable.

c. Issued new shares of stock for$16,000 cash.

d. No dividends were declared or paid.

e. Other expenses included depreciation, $12,000; wages,$13,000; taxes, $6,000; and other,$7,800.

f. Accounts payable includes only inventory purchases made on credit. Because there are no liability accounts relating to taxes or other expenses, assume that these expenses were fully paid in cash.

Required:

1. Prepare the statement of cash flows for the year ended December 31, 2011, using the indirect method.

2. Evaluate the statement of cash flows.

To compare statement of cash flows reporting under the direct and indirect methods, enter check marks to indicate which items are used with each method.

What are the typical cash inflows from operating activities? What are the typical cash outflows from operating activities?

Alpha Company’s accountants have just completed the income statement and balance sheet for the year and have provided the following information (dollars in thousands):

$$\begin{array}{c} \hline \hspace{50pt}\textbf{INCOME STATEMENT}\hspace{50pt}\\ \hline \end{array}$$

$$\begin{array}{lrr} \text{Sales revenue}&&\$20,800\\ \text{Expenses}\\ \hspace{10pt}\text{Cost of goods sold}&\$9,030\\ \hspace{10pt}\text{Depreciation expense}&{\hspace{10pt}2,900}\\ \hspace{10pt}\text{Salaries expense}&4,070\\ \hspace{10pt}\text{Rent expense }&{\hspace{10pt}2,800}\\ \hspace{10pt}\text{Insurance expense}&900\\ \hspace{10pt}\text{Utilities expense }&{\hspace{10pt}720}\\ \hspace{10pt}\text{Interest expense on bonds}&600\\ \hspace{10pt}\text{Loss on sale of investments}&\underline{\hspace{20pt}650}&\underline{\hspace{10pt}21,670}\\ \text{Net loss}&&\underline{\underline{\$\hspace{12pt}(870)}}\\\\ \hline \end{array}$$

$$\begin{array}{c} \hline \hspace{1pt}\textbf{SELECTED BALANCE SHEET ACCOUNTS}\hspace{1pt}\\ \hline \end{array}$$

$$\begin{array} {lrr} &{\hspace{15pt}\text{2012}\hspace{15pt}}&{\hspace{15pt}\text{2013}\hspace{15pt}}\\ \hline \textbf{}\\ \text{Merchandise inventory}\hspace{5pt} \ &\ \text{\$65}&\text{\$84}\\ \text{Accounts Receivables}\hspace{5pt}& \text{530}&\text{440}\\ \text{Accounts payable}\hspace{5pt} & \text{212}&\text{245}\\ \text{Salaries payable}\hspace{5pt} & \text{23} &\text{31}\\ \text{Rent payable}\hspace{5pt} & \text{8} &\text{4}\\ \text{Prepaid rent}\hspace{5pt} & \text{7}&\text{4}\\ \text{Prepaid insurance}\hspace{5pt} & \text{7} &\text{17}\\ \hline \end{array}$$

Other Data:

The company issued $20,000, 8 percent bonds payable during the year.

Required:

1. Prepare the cash flows from operating activities section of the statement of cash flows using the direct method.

2. Prepare the cash flows from operating activities section of the statement of cash flows using the indirect method.

Rocky Mountain Chocolate Factory manufactures an extensive line of premium chocolate candies for sale at its franchised and company-owned stores in malls throughout the United States. Its balance sheet for the first quarter of a recent year is presented along with an analysis of selected accounts and transactions:

$$\begin{array}{c } \hspace{60pt}\textbf{ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.}\\ \hspace{60pt}\textbf{Balance Sheets}\\ \end{array}\\$$

$$\begin{array} {lrr} \textbf{Assets}&{\hspace{2pt}\textbf{ May 31 (Unaudited)}\hspace{2pt}}&{\hspace{2pt}\textbf{February 29}\hspace{2pt}}\\ \hline \textbf{Current assets}\\ \text{Cash and cash equivalents}\hspace{5pt} \ &\ \text{\$921,505}&\text{\$528,787}\\ \text{Accounts and notes receivable—trade, less allowance for}\\ \hspace{10pt}\text{doubtful accounts of \$43,196 at May 31 and \$28,196}\\ \hspace{15pt}\text{at February 29}\hspace{5pt}&\ \text{1,602,582}&\text{ 1,463,901}\\ \text{Inventories}\hspace{5pt} & \text{2,748,788}&\text{2,504,908}\\ \text{Deferred tax asset}\hspace{5pt} & \text{ 59,219}&\text{ 59,219}\\ \text{Other}\hspace{5pt}& \underline{\hspace{23pt}\text{581,508}}&\underline{\hspace{23pt}\text{224,001}}\\ \text{Total current assets}\hspace{5pt}& \underline{\hspace{15pt}\text{5,913,602}}&\underline{\hspace{15pt}\text{4,780,816}}\\ \textbf{Property and equipment—at cost}\hspace{5pt} & \text{14,010,796}&\text{ 12,929,675}\\ \text{Less accumulated depreciation and amortization}\hspace{5pt}& \underline{\hspace{7pt}\text{−2,744,388}}&\underline{\hspace{7pt}\text{−2,468,084}}\\ & \underline{\hspace{10pt}\text{11,266,408}}&\underline{\hspace{11pt}\text{10,461,591}}\\ \textbf{Other assets}\\ \text{Notes and accounts receivable due after one year}\hspace{5pt} & \text{100,206}&\text{111,588}\\ \text{Goodwill and other intangibles, net of accumulated}\\ \hspace{10pt}\text{amortization of \$259,641 at May 31 and \$253,740 at Feb. 29}\hspace{5pt}&\ \text{330,359}&\text{336,260}\\ \text{Other}\hspace{5pt}& \underline{\hspace{23pt}\text{574,130}}&\underline{\hspace{23pt}\text{624,185}}\\ & \underline{\hspace{15pt}\text{1,004,695}}&\underline{\hspace{15pt}\text{1,072,033}}\\ &\underline{\underline{\hspace{5pt}\text{\$18,184,705}}}&\underline{\underline{\hspace{5pt}\text{\$16,314,440}}}\\ \textbf{Liabilities and Equity}\\ \textbf{Current liabilities}\\ \text{Short-term debt}\hspace{5pt} & \text{\$0}&\text{\$1,000,000}\\ \text{Current maturities of long-term debt}\hspace{5pt} & \text{429,562} &\text{134,538}\\ \text{Accounts payable—trade}\hspace{5pt} & \text{1,279,455} &\text{998,520}\\ \text{Accrued liabilities}\hspace{5pt} & \text{714,473} &\text{550,386}\\ \text{Income taxes payable}\hspace{5pt}& \underline{\hspace{28pt}\text{11,198}}&\underline{\hspace{28pt}\text{54,229}}\\ \text{Total current liabilities}\hspace{5pt} & \text{2,434,688} &\text{2,737,673}\\ \text{Long-term debt, less current maturities}\hspace{5pt} & \text{4,193,290} &\text{2,183,877}\\ \text{Deferred income taxes}\hspace{5pt} & \text{275,508} &\text{275,508}\\ \textbf{Stockholders’ Equity}\\ \text{Common stock—authorized 7,250,000 shares, \$.03 par value; }\\ \hspace{10pt}\text{issued 3,034,302 shares at May 31 and at Feb. 29}\hspace{5pt}&\ \text{91,029}&\text{91,029}\\ \text{Additional paid-in capital}\hspace{5pt}&\ \text{9,703,985}&\text{9,703,985}\\ \text{Retained earnings}\hspace{5pt}& \underline{\hspace{15pt}\text{2,502,104}}&\underline{\hspace{15pt}\text{2,338,267}}\\ & \text{12,297,118}&\text{12,133,281}\\ \text{Less common stock held in treasury, at cost—129,153 shares}\\ \hspace{10pt}\text{at May 31 and at February 29}\hspace{5pt}& \underline{\hspace{15pt}\text{1,015,899}}&\underline{\hspace{15pt}\text{1,015,899}}\\ & \underline{\hspace{10pt}\text{11,281,219}}&\underline{\hspace{11pt}\text{11,117,382 }}\\ &\underline{\underline{\hspace{5pt}\text{\$18,184,705}}}&\underline{\underline{\hspace{5pt}\text{\$16,314,440}}}\\ \end{array}$$

Analysis of Selected Accounts and Transactions:

a. Net income was $163,837. Notes and accounts receivable due after one year relate to operations.

b. Depreciation and amortization totaled$282,205.

c. No “other” noncurrent assets (which relate to investing activities) were purchased this period.

d. No property, plant, and equipment were sold during the period. No goodwill was acquired or sold.

e. Proceeds from issuance of long-term debt were $4,659,466, and principal payments were$2,355,029. (Combine the current maturities with the long-term debt in your analysis.)

f. No dividends were declared or paid.

g. Ignore the “deferred tax asset” and “deferred income taxes” accounts.

Required:

Prepare a statement of cash flows using the indirect method for the year.