Exercise 23-8 preparing the statement of cash flow notedthe following Rems occur

ID: 2516320 • Letter: E

Question

Exercise 23-8 preparing the statement of cash flow notedthe following Rems occuring during 2017 that might ffet cash flows from common at s200 per share. The acquisitincosof hese shares was $14s per share. There were no unrelized peins r lases recaorded on this investment in 201 ellard Co. reported $145,000 of net income for 2017. The accountant, in perating activities. Ballard purchased 100 shares of treasury stock at a cost of $20 per share. Thesl shares were then resold at $25 per share. Ballard revised its estimate for bad debts. Before 2017 Ballard's bad debe expense was 1% of its net sales. In 2017, this percentage as i creased to 2% Net salesfor 2017 were sooooo, and net accounts receivable decreased by $12,000 during 2017 Baillard issued 500 shares of its $10 par common stock for a patent. The market price of the shares on the date of the transaction was $23 per share. Depreciation expense is $39,000. Ballard Co. holds 40% of the Nirvana Company's common stock as a long-term investment, Nirvana Company reported $27,000 of net income for 2017 Nirvana Company paid a total of $2,000 of cash dividends to all investees in 2017 Ballard declared a 10% stock dividend. One thousand shares of $10 par common stock were distributed. The market price at date of issuance was $20 per share. 1. Prepare a schedule that shows the net cash flow from operating activities using the indirect method. Assume no items other than those listed above affected the computation of 2017 net cash fiow from perating activities. (Show amounts that decrease cash flow with either a-sign e -1s,000 or in parenthesis·g, (15000).) Ballard Co. Statement of Cash Flows (Partial) Adjustments to reconcile net income to Question Attempts: Unlimited

Explanation / Answer

Answer:

Ballard Company

Cash flow statement (partial)

Cash flows from operating activities

$145,000

Net income

Adjustments to reconcile net income

to net cash provided by operating

activities:

Depreciation expense

$39,000

Gain on sale of investment

-5,500

[($200 – $145) X 100]

Decrease in accounts receivable

12,000

Income from equity method investment

-10,800

($27,000 X 0.40)

Dividends from equity method investment

800

35,500

($2,000 X 0.40)

Net cash provided by operating activities

$180,500

Explaination to the answer:

No. 1 is shown as a cash inflow from the issuance of treasury stock and cash outflow for the purchase of treasury stock, both financing activities.

No. 2 is shown as a cash inflow from investing activities of $20,000 and the gain of $5,500 is deducted from net income in the operating activities section.

No. 3 is a noncash expense (Bad Debt Expense) in the income statement. Bad debt expense is not handled separately when using the indirect method. It is part of the change in net accounts receivable.

No. 4 is a significant noncash investing and financing activity.

No. 7 (dividends received) is added to net income. Another alternative is to net the Company’s pro-rata share of the dividend against the income from equity method investment amount reported in the cash flows from operating activities.

No. 8 is not shown on a statement of cash flows.