ACC 206 Week 1 Assignment: Chapter One Problems

 Please complete the following 5 exercises below in either Excel or a word document (but must be single document). You must show your work where appropriate (leaving the calculations within Excel cells is acceptable). Save the document, and submit it in the appropriate week using the Assignment Submission button.


Ch 1 Critical Thinking Question 5:

Answer the following questions:Why are noncash transactions, such as the exchange of common stock for a building for example, included on a statement of cash flows? How are these noncash transactions disclosed?


Chapter 1 Exercise 1:

1. Classification of activitiesClassify each of the following transactions as arising from an operating (O), investing (I), financing (F), or noncash investing/financing (N) activity.

  1. ________ Received $80,000 from the sale of land.
  2. ________ Received $3,200 from cash sales.
  3. ________ Paid a $5,000 dividend.
  4. ________ Purchased $8,800 of merchandise for cash.
  5. ________ Received $100,000 from the issuance of common stock.
  6. ________ Paid $ 1,200

    of interest on a note payable.

  7. ________ Acquired a new laser printer by paying $650.
  8. ________ Acquired a $400,000 building by signing a $400,000 mortgage note.


Chapter 1 Exercise 4:

4. Overview of direct and indirect methods

Evaluate the comments that follow as being True or False. If the comment is false, briefly explain why.

  1. Both the direct and indirect methods will produce the same cash flow from operating activities.
  2. Depreciation expense

    is added back to net income when the indirect method is used.

  3. One of the advantages of using the direct method rather than the indirect method is that larger cash flows from financing activities will be reported.
  4. The cash paid to suppliers is normally disclosed on the statement of cash flows when the indirect method of statement preparation is employed.
  5. The dollar change in the Merchandise Inventory

    account appears on the statement of cash flows only when the direct method of statement preparation is used.


Chapter 1 Exercise 6:



transaction and cash flow reporting




Dec. 31,

20X4 Dec. 31, 20X3
Property, Plant & Equipment:




652,000 5


Less: Accumulated depreciation -316,000 -341,000


New equipment purchased during 20×4 totaled $280,000. The 20×4 income statement disclosed equipment depreciation expense of $41,000 and a $


loss on the sale of equipment.

  1. Determine the cost and accumulated depreciation of the equipment sold during 20X4.
  2. Determine the selling price of the equipment sold.
  3. Show how the sale of equipment would appear on a statement of cash flows prepared by using the indirect method.


Chapter 1 Problem 3:



flow information: Direct and indirect methodsThe comparative year-end balance sheets of Sign Graphics, Inc., revealed the following activity in the company’s current accounts:




















20X5 Increase / Decrease)
Current assets
$55,400 $35,200 $20,200
Accounts receivable (net) 83,800 88,000 -4,200
243,400 233,800 9,600
Prepaid expenses 25,400 24,200
Current liabilities
Accounts payable $123,600 $140,600 ($


Taxes payable 43,600 49,200 -5,600
Interest payable 6,400 2,600
Accrued liabilities 38,800 60,400 -21,600
Note payable 44,000

The accounts payable were for the purchase of merchandise. Prepaid expenses and accrued liabilities relate to the firm’s selling and administrative expenses. The company’s condensed income statement follows.












Depreciation expense    17,000   
















Income Statement

for the Year Ended December 31, 20×5



Less: Cost of goods sold


Gross profit


Less: Selling & administrative expenses


     Interest expense


Add: gain on sale of land



Income before taxes


Income taxes


Net income



Other data:

  1. Long-term investments were purchased for cash at a cost of $74,600.
  2. Cash proceeds from the sale of land totaled $76,200.
  3. Store equipment of $44,000 was purchased by signing a short-term note payable. Also, a $150,000 telecommunications system was acquired by issuing 3,000 shares of preferred stock.
  4. A long-term note of $49,400 was repaid.
  5. Twenty thousand shares of common stock were issued at $5.19 per share.
  6. The company paid cash dividends amounting to $128,600.



  1. Prepare the operating activities section of the company’s statement of cash flows, assuming use of:
  2. The direct method.
  3. The indirect method.


  1. Prepare the investing and financing activities sections of the statement of cash flows.
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