Intermediate Accounting II, ACCT-2322
Chapter 21 Practice Problem Solutions
Exercise 21–1
Example F 1.Sale of common stock
I 2.Sale of land
F 3.Purchase of treasury stock
O 4.Merchandise sales
F 5.Issuance of a long-term note payable
O 6.Purchase of merchandise
F 7.Repayment of note payable
O 8.Employee salaries
I 9.Sale of equipment at a gain
F 10.Issuance of bonds
I 11.Acquisition of bonds of another corporation
O 12.Payment of semiannual interest on bonds payable
F 13.Payment of a cash dividend
I 14.Purchase of building
I 15.Collection of nontrade note receivable (principal amount)
I 16.Loan to another firm
F 17.Retirement of common stock
O 18.Income taxes
F 19.Issuance of a short-term note payable
I 20.Sale of a copyright
Exercise 21–27
RED, INC.
Statement of Cash Flows
For year ended December 31, 2016 ($ in millions)
Cash flows from operating activities:
Cash inflows:
From customers $1,954
Cash outflows:
To suppliers of goods (1,523)
For operating expenses (456)
Net cash flows from operating activities $(25)
Cash flows from investing activities:
Purchase of equipment (230)
Sale of equipment 9
Net cash flows from investing activities (221)
Cash flows from financing activities:
Issuance of note payable 50
Issuance of bonds payable 160
Payment of cash dividends (50)
Net cash flows from financing activities 160
Net decrease in cash (86)
Cash balance, January 1 110
Cash balance, December 31 $ 24
Exercise 21–31
RED, INC.
Spreadsheet for the Statement of Cash Flows
Dec.31ChangesDec. 31
2015DebitsCredits2016
Balance Sheet
Assets:
Cash 110 (13) 86 24
Accounts receivable 132 (3) 46 178
Prepaid insurance 3 (4) 4 7
Inventory 175 (5) 110 285
Buildings and equipment 350 (8) 230 (9) 180 400
Less: Acc. depreciation (240) (9) 171 (2) 50 (119)
530 775
Liabilities:
Accounts payable 100 (6) 13 87
Accrued expenses payable 11 (7) 5 6
Notes payable 0 (10) 50 50
Bonds payable 0 (11) 160 160
Shareholders' Equity:
Common stock 400 400
Retained earnings 19 (12) 50 (1) 103 72
530 775
Exercise 21–31 (continued)
Spreadsheet for the Statement of Cash Flows
(continued)
Dec.31ChangesDec. 31
2015DebitsCredits2016
Statement of Cash Flows
Net income (1) 103
Adjustments for noncash effects:
Depreciation expense (2) 50
Increase in accounts receivable (3) 46
Increase in prepaid insurance (4) 4
Increase in inventory (5) 110
Decrease in accounts payable (6) 13
Decrease in accrued expenses (7) 5
Net cash flows (25)
Investing activities:
Purchase of equipment (8) 230
Sale of equipment (9) 9
Net cash flows (221)
Financing activities:
Issuance of note payable (10) 50
Issuance of bonds payable (11) 160
Payment of cash dividends (12) 50
Net cash flows 160
Net decrease in cash (13) 86 (86)
Totals 1,087 1,087
Exercise 21–31 (concluded)
RED, INC.
Statement of Cash Flows
For year ended December 31, 2016 ($ in millions)
Cash flows from operating activities:
Net income $ 103
Adjustments for noncash effects:
Depreciation expense 50
Changes in operating assets and liabilities:
Increase in accounts receivable (46)
Increase in prepaid insurance (4)
Increase in inventory (110)
Decrease in accounts payable (13)
Decrease in accrued expenses payable (5)
Net cash flows from operating activities $ (25)
Cash flows from investing activities:
Purchase of equipment (230)
Sale of equipment 9
Net cash flows from investing activities (221)
Cash flows from financing activities:
Issuance of note payable 50
Issuance of bonds payable 160
Payment of cash dividends (50)
Net cash flows from financing activities 160
Net decrease in cash (86)
Cash balance, January 1 110
Cash balance, December 31 $ 24