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ACC 206 Week Assignments
Please complete the following 5 exercises below in either Excel or a word document (but must be single
document). You must show your work where appropriate (leaving the calculations within Excel cells is
acceptable). Save the document, and submit it in the appropriate week using the Assignment Submission button.
1. Critical Thinking Question:
Answer the following questions:
Why are noncash transactions, such as the exchange of common stock for a building for example, included on a
statement of cash flows? How are these noncash transactions disclosed?
2. Classification of activities
Classify each of the following transactions as arising from an operating (O), investing (I), financing (F), or
noncash investing/financing (N) activity.
a. ________ Received $80,000 from the sale of land.
b. ________ Received $3,200 from cash sales.
c. ________ Paid a $5,000 dividend.
d. ________ Purchased $8,800 of merchandise for cash.
e. ________ Received $100,000 from the issuance of common stock.
f.
________ Paid $1,200 of interest on a note payable.
g. ________ Acquired a new laser printer by paying $650.
h. ________ Acquired a $400,000 building by signing a $400,000 mortgage note.
3. Overview of direct and indirect methods
Evaluate the comments that follow as being True or False. If the comment is false, briefly explain why.
a. Both the direct and indirect methods will produce the same cash flow from operating activities. (True)
b. Depreciation expense is added back to net income when the indirect method is used. (True)
c. One of the advantages of using the direct method rather than the indirect method is that larger cash flows
from financing activities will be reported.
d. The cash paid to suppliers is normally disclosed on the statement of cash flows when the indirect method
of statement preparation is employed.
e. The dollar change in the Merchandise Inventory account appears on the statement of cash flows only
when the direct method of statement preparation is used.
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4. Equipment transaction and cash flow reporting
Dec. 31,
Dec. 31,
20X4
20X3
$94,000
652,000
-316,000
$94,000
527,000
-341,000
Property, Plant & Equipment:
Land
Equipment
Less: Accumulated depreciation
New equipment purchased during 20×4 totaled $280,000. The 20×4 income statement disclosed equipment
depreciation expense of $41,000 and a $9,000 loss on the sale of equipment.
a. Determine the cost and accumulated depreciation of the equipment sold during 20X4.
b. Determine the selling price of the equipment sold.
c. Show how the sale of equipment would appear on a statement of cash flows prepared by using the indirect
method.
5. Cash flow information: Direct and indirect methods
The comparative year-end balance sheets of Sign Graphics, Inc., revealed the following activity in the
company’s current accounts:
Increase /
20X5
20X4
Current assets
Cash
Accounts receivable (net)
Inventory
Prepaid expenses
$55,400
83,800
243,400
25,400
$35,200
88,000
233,800
24,200
$20,200
-4,200
9,600
1,200
Current liabilities
Accounts payable
Taxes payable
Interest payable
Accrued liabilities
Note payable
$123,600
43,600
9,000
38,800
44,000
$140,600
49,200
6,400
60,400
—
($17,000)
-5,600
2,600
-21,600
44,000
Decrease)
The accounts payable were for the purchase of merchandise. Prepaid expenses and accrued liabilities relate to the
firm’s selling and administrative expenses. The company’s condensed income statement follows.
SIGN GRAPHICS INC.
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Income Statement
for the Year Ended December 31, 20×5
Sales
Less: Cost of goods sold
Gross profit
Less: Selling & administrative expenses
Depreciation expense
Interest expense
$713,800
323,000
$390,800
$186,000
17,000
27,000
Add: gain on sale of land
Income before taxes
Income taxes
Net income
230,000
$160,800
21,800
$182,600
36,800
$145,800
Other data:
1. Long-term investments were purchased for cash at a cost of $74,600.
2. Cash proceeds from the sale of land totaled $76,200.
3. Store equipment of $44,000 was purchased by signing a short-term note payable. Also, a $150,000
telecommunications system was acquired by issuing 3,000 shares of preferred stock.
4. A long-term note of $49,400 was repaid.
5. Twenty thousand shares of common stock were issued at $5.19 per share.
6. The company paid cash dividends amounting to $128,600.
Instructions:
a. Prepare the operating activities section of the company’s statement of cash flows, assuming use of:
1. The direct method.
2. The indirect method.
b. Prepare the investing and financing activities sections of the statement of cash flows.
