Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

SOLUTION TO EXERCISE 13-8

1. (b)
   1. (1) Recorded depreciation expense, $7,000, was not used because it is a noncash charge to income. It is an expense which did not require a cash payment. (The cash outlay occurs at the date that payment is made for the related depreciable assets.)
   2. (2) Amortized patents, $1,000, was not used because it is a noncash charge against income. It is an expense which did not require a cash outlay this period. (The cash outlay occurs at the date that cash payment is made for the related intangible assets.)
   3. (3) Accrued salaries, $800, was not used because it relates to an expense recognized this period for which the related cash payment is being deferred until next period.
   4. (4) Acquired a computer in exchange for stock, $10,000, was not used because this is a noncash financing and investing activity.

TIP: If the indirect method was used: (1) the depreciation of $7,000 and the amortization of $1,000 would be added to net income, (2) an increase in the Salaries Payable account of $800 (due to the accrued salaries) would also be added to net income, and (3) the $3,300 gain on sale of investment would be deducted from net income in the process of reconciling net income to net cash provided from operations.

TIP: An additional schedule reconciling net income ...