Jan 13, 2018

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?

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ACC
206 Week Assignment

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.

b.
Depreciation
expense is added back to net income when the indirect method is used.

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.

4.
Equipment transaction and cash flow reporting

Dec. 31, 20X4

Dec. 31, 20X3

Property, Plant & Equipment:

Land

$94,000

$94,000

Equipment

652,000

527,000

Less: Accumulated depreciation

-316,000

-341,000

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:

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:

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.


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