Ch 1 Critical Thinking Question 5;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?;Chapter 1 Exercise 1;1. 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.;Received $80,000 from the sale of land.;Received $3,200 from cash sales.;Paid a $5,000 dividend.;Purchased $8,800 of merchandise for cash.;Received $100,000 from the issuance of common stock.;Paid $1,200 of interest on a note payable.;Acquired a new laser printer by paying $650.;Acquired a $400,000 building by signing a $400,000 mortgage note.;Chapter 1 Exercise 4;4. Overview of direct and indirect methods;Evaluate the comments that follow as being True or False. If the comment is false, briefly explain why.;Both the direct and indirect methods will produce the same cash flow from operating activities.;Depreciation expense is added back to net income when the indirect method is used.;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.;The cash paid to suppliers is normally disclosed on the statement of cash flows when the indirect method of statement preparation is employed.;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.;Chapter 1 Exercise 6;6. Equipment transaction and cash flow reporting;Property, Plant & Equipment;Dec. 31, 20X4;Dec. 31, 20X3;Land;94,000;94,000;Equipment;652,000;527,000;Less: Accumulated depreciation;316,000;341,000;New equipment purchased during 20 X 4 totaled $280,000. The 20 X 4 income statement disclosed equipment depreciation expense of $41,000 and a $9,000 loss on the sale of equipment.;Determine the cost and accumulated depreciation of the equipment sold during 20X4.;Determine the selling price of the equipment sold.;Show how the sale of equipment would appear on a statement of cash flows prepared by using the indirect method.;Chapter 1 Problem 3;3. 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;20X5;20X4;Increase / Decrease);Current assets;Cash;$55,400;$35,200;$20,200;Accounts receivable (net);83,800;88,000;-4,200;Inventory;243,400;233,800;9,600;Prepaid expenses;25,400;24,200;1,200;Current liabilities;Accounts payable;$123,600;$140,600;($17,000);Taxes payable;43,600;49,200;-5,600;Interest payable;9,000;6,400;2,600;Accrued liabilities;38,800;60,400;-21,600;Note payable;44,000;?;44,000;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.;Income Statement;for the Year Ended December 31, 20?5;Sales;$713,800;Less: Cost of goods sold;323,000;Gross profit;$390,800;Less: Selling & administrative expenses;$186,000;Depreciation expense;17,000;Interest expense;27,000;230,000;Add: gain on sale of land;$160,800;21,800;Income before taxes;$182,600;Income taxes;36,800;Net income;$145,800;Other data;Long-term investments were purchased for cash at a cost of $74,600.;Cash proceeds from the sale of land totaled $76,200.;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.;A long-term note of $49,400 was repaid.;Twenty thousand shares of common stock were issued at $5.19 per share.;The company paid cash dividends amounting to $128,600.;Instructions;Prepare the operating activities section of the company?s statement of cash flows, assuming use of;The direct method.;The indirect method.;Prepare the investing and financing activities sections of the statement of cash flows.
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