Question 1

Use the following company information to calculate its net cash from or used in investing
activities:
(a) Equipment with a carrying amount of $125,000 and an original cost of $220,000 was sold at a
gain of $22,000.
(b) Paid $49,000 cash for a new truck.
(c) Sold land costing $30,000 for $26,000 cash, realizing a $4,000 loss.
(d) Purchased treasury shares for $53,000 cash.
(e) Long-term investments in shares are sold for $41,000 cash, realizing a gain of $3,500.

Cash flows from investing activities:

Cash received from sale of equipment...................... $147,000 (a)
Cash paid for purchase of truck................................ (49,000)
Cash received from sale of land............................... 26,000
Cash received from sale of long-term 41,000
investments...................................................
Net cash from investing activities. $165,000

(a) Carrying amount of equipment...................... $125,000

Gain realized on sale...................... 22,000
Cash received on sale...................... $147,000

Use the following information to calculate the net cash from or used in financing activities for
the Brooks Corporation:
(a) Net profit, $10,000
(b) Issued ordinary shares for $4,000 cash
(c) Paid cash dividend of $3,000 (classify under financing activities)
(d) Paid bond payable, $8,000
(e) Purchased equipment for $12,000 cash

Cash flows from financing activities

Cash received from issuance of ordinary shares...................... $4,000
Cash paid for dividends...................... (3,000)
Cash paid on bonds payable...................... (8,000)
Net cash used in financing activities...................... $(7,000)
Question 2

Use the following calendar-year information to prepare David Company's statement of cash
flows using the direct method. The management wants to classify receipts from interest and payments
for interest as operating activities and payments for dividends as financing activities.

Cash paid to purchase machinery...................... $124,000

Cash paid for merchandise inventory...................... 220,000
Cash paid for operating expenses...................... 280,000
Cash paid for interest......................................... 4,000
Cash received for interest................................. 10,000
Cash proceeds from sale of land....................... 100,000
Cash balance at beginning of year...................... 15,000
Cash balance at end of year............................. 77,000
Cash borrowed 011 a short-term note................................................................ 25.000
Cash dividends paid...................................... 24,000
Cash received from share issuance............................................................ 57,000
Cash collections from customers...................... 522,000
 David Company
Statement of Cash Flows (Direct Method)
For the year ended December 31
Cash flows from operating activities:
Cash received from customers..................................... $522,000
Cash receive for interest............................................... 10,000
Cash paid for merchandise inventory............................ (220,000)
Cash paid for operating expenses.................................. (280,000)
Cash paid for interest...................................................... (4,000)
Net cash from operating activities...................... $28,000
Cash flows from investing activities:
Cash received from sale of land.................................. $100,000
Cash paid to acquire machinery................................... (124,000)
Net cash used in investing activities........................... (24,000)
Cash flows from financing activities:
Cash received on a short-term loan.............................. $25,000
Cash received from share issuance............................... 57,000
Cash dividends paid......................................................... (24,000)
Net cash from financing activities...................... 58,000
Net increase in cash............................................................................... $62,000
Cash balance at beginning of year....................................................... 15,000
Cash balance at end of year.............................................................. $77,000
Question 3

Use the following financial statements and additional information to

(1) prepare a statement of cash flows for the year ended December 31, 2011 using the
indirect method, and (2) compute the company's cash flow on total assets ratio for 2011.
The management wants to classify payments for dividends as financing activities.

Wescott Company
Statements of Financial Position
December 31

2011 2010
Assets:
Cash.......................................................... $ 85,600 $ 65,200
Accounts receivable, net….................... 72,850 56,750
Merchandise inventory.......................... 157,750 144,850
Prepaid expenses................................... 6,080 12,680
Equipment.............................................. 280,600 245,600
Accumulated depreciation-Equipment.. (80,600) (97,600)
Total assets................ $522,280 $427,480
Liabilities
Accounts payable..................................... $ 52,850 $ 45,450
Income tax payable.............................. 15,240 12,240
Notes payable (long term)....................... 59,200 79,200
Total liabilities................ $127,290 $136,890
Equity:
Share Capital………………….............. 200,000 150,000
Share Premium......................................... 53,000 40,000
Retained earnings.................................... 141,990 100,590
Total equity................ $394,990 $290,590
Total liabilities and equity................ $522,280 $427,480

Wescott Company
Income Statement
For Year Ended December 31, 2011

Sales................................................................ $488,000
Cost of goods sold......................................... $(212,540)
Depreciation expense.................................... (43,000)
Other operating expenses.............................. (106,260)
Interest expense.............................................. (6,400) (368,200)
Other gains (losses):
Gain on sale of equipment.................................... 4,700
Profit before tax................ 124,500
Income tax expense................ (41,100)
Net profit............... $ 83,400
Additional Information
a. A $20,000 note payable is retired at its carrying amount in exchange for cash.
b. The only changes affecting retained earnings are net profit and cash dividends paid. Cash
dividends paid is to be classified under financing activities.
c. New equipment is acquired for $120,000 cash.
d. Received cash for the sale of equipment that had cost $85,000, yielding a gain of $4,700.
e. Prepaid expenses relate to Other Expenses on the income statement.
f. All purchases and sales of merchandise inventory are on credit.
(1)
Income Taxes Payable
12,240
Income tax paid 41,100
15,240

Wescott Company
Statement of Cash Flows (Indirect Method)
For Year Ended December 31 , 2011

Cash flows from operating activities:

Profits before taxes $124,500
Adjustments to reconcile profit to net cash from operating
activities:
Increase in accounts receivable...................... (16,100)
Increase in merchandise inventory................ (12,900)
Decrease in prepaid expenses........................ 6,600
Increase in accounts payable………………. 7,400
Depreciation expense...................................... 43,000
Gain on sale of equipment............................... (4,700)
Cash generated from operating activities................ 147,800
Income tax paid................ 38,100
Net cash from operating activities.............................. $109,700
Cash flows from investing activities:
Cash received from sale of equipment..................... 29,700
Cash paid for purchase of equipment....................... (120,000)
Net cash used in investing activities...................... (90,300)
Cash flows from financing activities:
Cash received from share issuance........................ $63,000
Cash paid for retirement of note payable................ (20,000)
Cash paid for cash dividends.................................... (42,000)
 Net cash used in financing activities.............. 1,000
Net increase in cash................ $20,400
Cash balance at beginning of year................ 65,200
Cash balance at end of year................ $85,600

(2) the company's cash flow on total assets ratio for 2011=

$109,700 / ((522,280+427,480) / 2) = 23.1%