SOLUTIONS

CHAPTER 1

Quick Exercise 1 -1 Solution

You probably noted the following features:

     The title is the Statement of Cash Flows.

     The statement is comparative.

     There are three major sections of the statement: operating, investing, and financing.

     There are cash inflows and cash outflows presented in each section.

     The use of the change in cash to reconcile the beginning and ending balance sheet cash amounts.

     The operations section presented uses the direct method.

Quick Exercise 1-2 Solution

Individual answers will vary.

Quick Exercise 1-3 Solution

Classifications are based on the summary lists found in the chapter. An explanation of the reasons for using these classifications is addressed in subsequent chapters.

Investing outflows

Financing inflow

Noncash item, shown on the schedule of noncash activities

Investing outflow

Operating inflow

Operating outflow

Financing outflow

Investing inflow

Quick Exercise 1 -4 Solutions

  1. Interest paid is $225,000.

    Start with the $240,000 expense and subtract the $15,000 accrual increase. If what you owe increases, you did not pay this amount in cash this period.

  2. Direct method

    $260,000 is shown as a cash outflow for wages

    The wage expense of $280,000 is reduced by the $20,000 increase in wages payable (an amount you did not pay this year).

    Indirect method

    Add the $20,000 increase in accrued wages to the net income. There is more expense than cash outflow, thus making income smaller than operating cash ...

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