Prepare the cash flows from operating activities section of


Problem 1. Use the following tables to calculate the present value of a $25,000, 7%, 5-year bond that pays $1,750 ($25,000 × 7%) interest annually, if the market rate of interest is 7%

Present Value of $1 at Compound Interest

Periods

5%

6%

7%

10%

1

0.95238

0.94340

0.93458

0.90909

2

0.90703

0.89000

0.87344

0.82645

3

0.86384

0.83962

0.81630

0.75132

4

0.82270

0.79209

0.76290

0.68301

5

0.78353

0.74726

0.71299

0.62092

6

0.74622

0.70496

0.66634

0.56447

7

0.71068

0.66506

0.62275

0.51316

8

0.67684

0.62741

0.58201

0.46651

9

0.64461

0.59190

0.54393

0.42410

10

0.61391

0.55840

0.50835

0.38554

Present Value of Annuity of $1 at Compound Interest

Periods

5%

6%

7%

10%

1

0.95238

0.94340

0.93458

0.90909

2

1.85941

1.83339

1.80802

1.73554

3

2.72325

2.67301

2.62432

2.48685

4

3.54595

3.46511

3.38721

3.16987

5

4.32948

4.21236

4.10020

3.79079

6

5.07569

4.91732

4.76654

4.35526

7

5.78637

5.58238

5.38929

4.86842

8

6.46321

6.20979

5.97130

5.33493

9

7.10782

6.80169

6.51523

5.75902

10

7.72174

7.36009

7.02358

6.14457

Problem 2. Kennedy, Inc. reported the following data:

Net income

$118,000

Depreciation expense

15,000

Loss on disposal of equipment

(10,000)

Gain on sale of building

               20,000

Increase in accounts receivable

7,000

Decrease in accounts payable

(2,000)

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

Problem 3. Complete each of the columns on the table below, indicating in which section each item would be reported on the statement of cash flows (operating, investing, or financing), the amount that would be reported, and whether the item would create an increase or decrease in cash. For item that affect more than one section of the statement, indicate all affected. Assume the indirect method of reporting cash flows from operating activities.

The first item has been completed as an example.


Item

Statement Section

Amount
to Report

+/- Effect
on Cash

Depreciation of $15,000 for the period

Operating

$15,000

Increase

Issuance of common stock for $35,000

 

 

 

Increase in accounts payable of $7,000

 

 

 

Retirement of $100,000 bonds payable at 97

 

 

 

Purchase of long-term investments for $94,500

 

 

 

Dividends declared and paid of $8,300

 

 

 

Increase in prepaid rent of $4,500

 

 

 

Decrease in Inventory of $5,300

 

 

 

Purchase of equipment for $17,600 cash

 

 

 

Sale of land originally costing $134,000 for $130,000

 

 

 

Decrease in taxes payable of $2,100

 

 


Problem 4. On June 30, Jamison Company issued $2,500,000 of 10-year, 8% bonds, dated June 30, for $2,580,000. Present entries to record the following transactions.

(a) Issuance of bonds.
(b) Payment of first semiannual interest on December 31 (record separate entry from premium amortization).
(c) Amortization by straight-line method of bond premium on December 31

Problem 5. Brubeck Co. issued $10,000,000 of 30-year, 8% bonds on May 1 of the current year, with interest payable on May 1 and November 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions for the current year:
May 1 Issued the bonds for cash at their face amount.
Nov. 1 Paid the interest on the bonds.
Dec. 31 Recorded accrued interest for two months

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