Financial Accounting: In an Economic Context

PROBLEMS

P14-1

Placing transactions on the statement of cash flows

The following events occurred during 2012 for Frames Unlimited:

1. Purchased inventory for $60,000 in cash.
2. Recorded $40,000 in insurance expense for the portion of an insurance policy acquired in 2011 that expired during 2012.
3. Paid $40,000 for rental space that the company will not use until 2013.
4. Sold land with a cost of $80,000 for $94,000 cash.
5. Paid $90,000 on a long-term note. Included in the $90,000 is $15,000 in interest, $9,000 of which was accrued in 2011.
6. Recorded bad debt expense in the amount of $30,000 (allowance method).
7. 7. Reissued 5,000 shares of treasury stock for $30 per share. The stock was acquired at $18 per share.
8. Declared and issued a stock dividend. Ten thousand shares of common stock ($10 par value) were issued with a fair market value of $25 per share at the time.
9. Issued $500,000 face value bonds for cash at a total discount of $25,000.
10. Purchased a building for $100,000 in cash, $50,000 in common stock, and a note with a present value of $217,000.
11. Recorded $35,000 in sales to customers on account.

Frames Unlimited is in the process of preparing a statement of cash flows under the direct method.

REQUIRED:

Use a chart like the one in this problem to indicate the following:

a. The section of the statement of cash flows in which each transaction should be listed. Use the following terms:

(1) Operating—for operating activities

(2) Investing—for investing activities

(3) Financing—for financing ...