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Each of the following items must be considered in preparing a statement of cash flows (indirect method) for Turbulent Indigo Inc. for the year ended December 31, 2017 State where each item is to be shown in the statement of cash flows, if at all. Items
(a) Plant assets that had cost $20,000 6 years before and were being depreciated on a straight-line basis over 10 years with no estimated scrap value were sold for $5,300.
(b) During the year, 10,000 shares of common stock with a stated value of $10 a share were issued for $43 a share
(c) Uncollectible accounts receivable in the amount of $27,000 were written off against Allowance for Doubtful Accounts.
(d) The company sustained a net loss for the year of $50,000. Depreciation amounted to $22,000, and a gain of $9,000 was realized on the sale of land for $39,000 cash.
(e) A 3-month U.S. Treasury bill was purchased for $100,000. The company uses a cash and cash equivalent basis for its cash flow statement.
(f) Patent amortization for the year was $20,000
(g) The company exchanged common stock for a 70% interest in Tabasco Co. for $900,000.
(h) During the year, treasury stock costing $47,000 was purchased

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Answer:

(a) Plant assets that had cost $20,000 6 years before and were being depreciated on a straight-line basis over 10 years with no estimated scrap value were sold for $5,300.

  • increases cash flows from investing activities

(b) During the year, 10,000 shares of common stock with a stated value of $10 a share were issued for $43 a share

  • increases cash flows from financing activities

(c) Uncollectible accounts receivable in the amount of $27,000 were written off against Allowance for Doubtful Accounts.

  • this corresponds to bad debt expense which is included in the income statement

(d) The company sustained a net loss for the year of $50,000. Depreciation amounted to $22,000, and a gain of $9,000 was realized on the sale of land for $39,000 cash.

  • the net loss and the gain on the sale of land decreases the cash flows from operating activities, while the depreciation expense increases it.
  • the $39,000 received will increase cash flow from investing activities

(e) A 3-month U.S. Treasury bill was purchased for $100,000. The company uses a cash and cash equivalent basis for its cash flow statement.

  • not included in teh cash flow statements

(f) Patent amortization for the year was $20,000

  • increases cash flow from operating activities (in a similar way than depreciation)

(g) The company exchanged common stock for a 70% interest in Tabasco Co. for $900,000.

  • this is a non-cash financing and investing activity

(h) During the year, treasury stock costing $47,000 was purchased

  • decreases cash flow from financing activities

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