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ACC 206 Week One Assignment (Updated October 2013)

Week 1 Assignment Week One Problems. Please complete the 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: What is the purpose of the statement of cash flows? What are the three main categories and give examples for each category?

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. ________ Acquired a new laser printer by paying $950. b. ________ Received $70,000 from the issuance of common stock. c. ________ Paid $1,500 of interest on a note payable. d. ________ Purchased $9,800 of merchandise for cash. e. ________ Received $10,200 from cash sales. f. ________ Paid a $15,000 dividend. g. ________ Acquired a $500,000 building by signing a $500,000 mortgage note. h. ________ Received $60,000 from the sale of land.

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. 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. b. Depreciation expense is added back to net income when the indirect method is used. c. The cash paid to suppliers is normally disclosed on the statement of cash flows when the indirect method of statement preparation is employed. d. 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. e. Both the direct and indirect methods will produce the same cash flow from operating activities.

4. Equipment transaction and cash flow reporting Property, plant & equipment

Dec. 31, 20X8

Dec. 31, 20X7







Less: Accumulated depreciation



New equipment purchased during 20x8 totaled $175,000. The 20x8 income statement disclosed equipment depreciation expense of $34,000 and a $2,000 loss on the sale of equipment. a. Determine the cost and accumulated depreciation of the equipment sold during 20X8. 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: 20X8


Increase / Decrease

Current assets Cash Accounts receivable (net) Inventory Prepaid expenses





243,400 25,400

$20,200 -4,200





Current liabilities

Accounts payable







Taxes payable Interest payable



Accrued liabilities



Note payable



2,600 -21,600 44,000

The accounts payable were for the purchase of merchandise. Prepaid expenses and accrued liabilities related 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, 20x5 Sales


Less: Cost of goods sold


Gross profit


Less: Selling & administrative expenses


Depreciation expense


Interest expense


Add: gain on sale of land

222,000 $246,800

18,800 Income before taxes


Income taxes


Net income


Other data: 1. Long-term investments were purchased for cash at a cost of $64,200. 2. Cash proceeds from the sale of land totaled $74,200. 3. Store equipment of $34,000 was purchased by signing a short-term note payable. Also, a $140,000 telecommunications system was acquired by issuing 3,000 shares of preferred stock. 4. A long-term note of $42,200 was repaid. 5. Twenty thousand shares of common stock were issued at $5.19 per share. 6. The company paid cash dividends amounting to $125,000. 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.

Acc 206 week one assignment (updated october 2013)  
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