ACC 206 Week One Problems- Why are non cash transactions, such as the exchange of ….

| November 24, 2016

Week One Problems

ACC 206: Principles of Accounting II

December 15, 2014

1. 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

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

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 if statement preparation is used.

4. a. Determine the cost and accumulated depreciation of the equipment sold during 2014.

Equipment, December 31, 2013 $527,000

New Equipment Purchased 280,000


b. Determine the selling price of the equipment sold

Cost of Equipment Sold 155,000

Accumulated Depreciation of Equipment Sold 89,000

Loss on sale of equipment (9,000)


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

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.

Cash flows from investing activities:

Purchase of long term investment (74,000)

Sale of land 76,200

Net cash provided by investing activities 1,600

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