CASH FLOW STATEMENTS

Exercise I: Analyze these transactions using T-accounts. Then create a cash flow statement by analyzing the Cash account, or by using the indirect method.

1. Johnson Corporation issued 100,000 shares of $1 par common stock and received cash of $100,000.

2. Johnson Corporation purchased equipment for $20,000, paying cash.

3. Johnson earned revenue of $30,000, one half in cash, the other half on account.

4. Johnson incurred expenses of $20,000, paying one-half in cash; the rest was on account.

5. Depreciation is $1,000 on the equipment.

6. The accounts were closed (you can move the net income to Retained Earnings).

7. Johnson declared and paid a dividend of $3000 in cash to stockholders.

 

Exercise I--Second Year...after Exercise I, the balances of the accounts are:

Account DR CR
Cash 82000  
A/R 15000  
Equipment 20000  
Accum. Depr.   1000
A/P   10000
Common Stk   100000
Retained Earnings   6000
Totals 100,000 100,000

Transactions in second year:

1. Issued 50,000 shares of $1 par stock at $1 per share.

2. Revenue earned was $40,000; $30,000 was received in cash; the rest on account.

3. Expenses were $20,000; all $20,000 was paid in cash.

4. Collections on account were $12,000 in cash.

5. Purchased $5,000 of equipment for cash.

6. Paid cash of $4,000 on account.

7. Depreciation is recorded--$1,000.

 

Exercise II: Wilson Corporation...same instructions as previous exercise

1. Wilson Corporation issued 100,000 shares of $1 par common stock and received cash of $100,000.

2. Wilson Corporation purchased equipment for $20,000, paying cash.

3. Wilson issued $25,000 of bonds at par for cash.

4. Wilson purchased Land for cash, $15,000.

5. Wilson earned revenue of $60,000, one half in cash, the other half on account.

6. Wilson incurred expenses of $30,000, paying one-half in cash; the rest was on account.

7. Depreciation is $1,000 on the equipment.

8. Wilson sold $5,000 of the Land for $8,000 cash, making a $3,000 gain.

9. The accounts were closed (you can move the net income to Retained Earnings).

10. Wilson declared and paid a dividend of $3,000 in cash to stockholders.

 

Exercise III--I changed two transactions slightly--transactions 4 and 8:

1. Wilson Corporation issued 100,000 shares of $1 par common stock and received cash of $100,000.

2. Wilson Corporation purchased equipment for $20,000, paying cash.

3. Wilson issued $25,000 of bonds at par for cash.

4. Wilson purchased Land for and signed a Note Payable for the entire amount of $15,000.

5. Wilson earned revenue of $60,000, one half in cash, the other half on account.

6. Wilson incurred expenses of $30,000, paying one-half in cash; the rest was on account.

7. Depreciation is $1,000 on the equipment.

8. Wilson sold $5,000 of the Land for $4,000 cash, making a $1,000 loss.

9. The accounts were closed (you can move the net income to Retained Earnings).

10. Wilson declared and paid a dividend of $3,000 in cash to stockholders.