ACC 206 Week 1 Assignment, Chapter 1 Exercises



ACC 206 Week 1 Assignment

1.Critical Thinking Question:

Answer the following questions:
Why are non-cash transactions, such as the exchange of common stock for a building for example, included on a statement of cash flows? How are these non-cash transactions disclosed?

2. Classification of activities

Classify each of the following transactions as arising from an operating (O), investing (I), financing (F), or non-cash 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  




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.

  1. Determine the cost and accumulated depreciation of the equipment sold during 20X4.
  2. Determine the selling price of the equipment sold.
  3. 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:

Prepare the operating activities section of the company’s statement of cash flows, assuming use of:

a. the direct method.

b. The indirect method.

b.  Prepare the investing and financing activities sections of the statement of cash flows.