Answer the following questions on a separate Microsoft Word or Excel document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both.
Exercises
Question 1. Cushenberry Corporation had the following transactions.
1. Sold land (cost $12,000) for $15,000.
2. Issued common stock at par for $20,000.
3. Recorded depreciation on buildings for $17,000.
4. Paid salaries of $9,000.
5. Issued 1,000 shares of $1 par value common stock for equipment worth $8,000.
6. Sold equipment (cost $10,000, accumulated depreciation $7,000) for $1,200.
Instructions
For each transaction above, (a) prepare the journal entry, and (b) indicate how it would affect the statement of cash flows using the indirect method.
Question 2: Gutierrez Company reported net income of $225,000 for 2015. Gutierrez also reported depreciation expense of $45,000 and a loss of $5,000 on the disposal of equipment. The comparative balance sheet shows a decrease in accounts receivable of $15,000 for the year, a $17,000 increase in accounts payable, and a $4,000 decrease in prepaid expenses.
Instructions
Prepare the operating activities section of the statement of cash flows for 2015. Use the indirect method.
Question 3: Presented below are the financial statements of Nosker Company.
NOSKER COMPANY
Comparative Balance Sheets
December 31
|
Assets
|
2015
|
2014
|
|
Cash
|
$ 38.000
|
$ 20,000
|
|
Accounts receivable
|
30.000
|
14,000
|
|
Inventory
|
27,000
|
20,000
|
|
Equipment
|
60,000
|
78,000
|
|
Accumulated depreciation-equipment
|
(29,000)
|
(24,000)
|
|
Total
|
$126,000
|
$108,000
|
|
Liabilities and Stockholders' Equity
|
|
|
|
Accounts payable
|
$ 24,000
|
$ 15.000
|
|
Income taxes payable
|
7.000
|
8,000
|
|
Bonds payable
|
27,000
|
33.000
|
|
Common stock
|
18,000
|
14,000
|
|
Retained earnings
|
50,000
|
38,000
|
|
Total
|
$126,000
|
$108,000
|
NOSKER COMPANY
Income Statement
For the Year Ended December 31, 2015
|
Sales revenue
|
$242,000
|
|
Cost of goods sold
|
175,000
|
|
Gross profit
|
67,000
|
|
Operating expenses
|
24,000
|
|
Income from operations
|
43,000
|
|
Interest expense
|
3,000
|
|
Income before income taxes
|
40,000
|
|
Income tax expense
|
8,000
|
|
Net income
|
$ 32,000
|
Additional data:
1. Dividends declared and paid were $20,000.
2. During the year equipment was sold for $8,500 cash. This equipment cost $18,000 originally and had a book value of $8,500 at the time of sale.
3. All depreciation expense, $14,500, is in the operating expenses.
4. All sales and purchases are on account.
Instructions
a) Prepare a statement of cash flows using the indirect method.
b) Compute free cash flow.