Solutions Chapter 23
Solutions Chapter 23
Solutions Chapter 23
EXERCISE 23.1
EXERCISE 23.3
KRAUSS COMPANY
Partial Statement of Cash Flows
For the Year Ended December 31, 2020
Accumulated Depreciation
167,000 12/31/19
33,000 Depreciation expense
Equipment sold ?
178,000 12/31/20
Retained Earnings
91,000 12/31/19
Dividends declared ? 31,000 Net income
104,000 12/31/20
Dividends Payable
5,000 12/31/19
18,000 Dividends declared
Cash dividends paid ?
8,000 12/31/20
Financing activities include all cash flows involving liabilities and stockholders’
equity other than operating items. Payment of cash dividends is thus a financing activity.
Bonds Payable
46,000 12/31/19
20,000 Issuance of B/P for PP&E
Redemption of B/P ?
49,000 12/31/120
The problem states that there was no amortization of bond
premium or discount; thus, the redemption of bonds payable is
the only change not accounted for.
income. Accordingly, the $315,000 must be added back to income in the operating
activities section because it was deducted in determining earnings, but it was not a
use of cash.
has no effect on cash because the net accounts receivable remain unchanged. An
decreases. Because the net receivable amount is the same before and after the
The $51,000 of bad debt expense does not affect cash but would be added back to
income because it affects the amount of net accounts receivable. The recording of
bad debt expense reduces the net receivable because the allowance account
increases. Although bad debt expense is not usually treated as a separate item to
accounts receivable at the net amount and then making the necessary adjustment
$36,000 ($30,000 + $6,000) are shown as a cash inflow from investing activities.
5. In this case, no cash flow resulted from the lightning damage. The net loss (a
noncash event) must be added back to net income (under the indirect method) as one
of the adjustments to reconcile net income to net cash provided by operating activities.
6. The $75,000 use of cash should be reported as a cash outflow from investing
activities. The $200,000 issuance of common stock and the $425,000 issuance of
the mortgage note, neither of which affects cash, should be reported as noncash
1. Investing and operating Cash provided by the sale of fixed assets, $4,750 as an
net income.
income.
5. Not reported in
statement.
6. Investing and operating Cash provided by the sale of the investment, $10,600 as
net income.
7. Financing and The redemption is reported as cash used by financing
CA 23.6
(a) It is true that selling current assets, such as receivables and notes to factors, will
generate cash flows for the company, but this practice does not cure the systemic
cash problems for the organization. In short, it may be a bad business practice to
liquidate assets, incurring expenses and losses, in order to “window dress” the
The ethical implications are that Brockman creates a short-term cash flow at the
idea creates the deceiving illusion that the company is successfully generating
(b) Barbara Brockman should be told that if she executes her plan, the company may
not survive. While the factoring of receivables and the liquidation of inventory will
indeed generate cash, the actual amount of cash the company receives will be less
than the carrying value of the receivables and the raw materials. In addition, the
company would still have the future expenditure of replenishing its raw materials
As chief accountant for Brockman Guitar, it is your responsibility to work with the
company’s chief financial officer to devise a coherent strategy for improving the
company’s cash flow problems. One strategy may be to downsize the organization