ADMS 3595 Lecture Notes - Lecture 3: Purch Group, Accounts Payable, Retained Earnings
ADMS 3595 Solutions to Self Practice Questions
1
EXERCISE 22-2
(a) 1. Operating activities:
Cash received from customers
Sales revenue
$295,000
Less: Increase in accounts receivable
(10,000)
Cash received from customers
$285,000
2. The approach is to prepare a T-account for property, plant, and equipment.
Property, Plant & Equipment
12/31/16
147,000
Equipment from exchange of B/P
20,000
Paid for purchase of PP&E
?
45,000
Equipment sold
12/31/17
177,000
Payments = $177,000 + $45,000 – $147,000 – $20,000
= $55,000
The purchase of property, plant, and equipment is an investing activity. Note that the
acquisition of property, plant, and equipment in exchange for bonds payable would be
disclosed as a non-cash investing and financing activity and the details of this exchange
would be provided in a note to the financial statements.
3. The approach is to set up a T-account for accumulated depreciation.
Accumulated Depreciation
67,000
12/31/16
33,000
Depreciation expense
Equipment sold
?
78,000
12/31/17
Accumulated depreciation on equipment sold = $67,000 + $33,000 – $78,000 =
$22,000
The entry to reflect the sale of equipment is:
Cash (proceeds from sale of equipment)
($45,000 + $14,500 – $22,000)
37,500
(force)
Accumulated Depreciation
22,000
(above)
Property, Plant, and Equipment
45,000
(given)
Gain on Disposal of Equipment
14,500
(given)
The proceeds from the sale of equipment of $37,500 are reported as investing
activities inflow.
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ADMS 3595 Solutions to Self Practice Questions
2
4. The cash dividends paid can be determined by analyzing T-accounts for retained
earnings and dividends payable.
Retained Earnings
91,000
12/31/16
Dividends declared
?
31,000
Net income
104,000
12/31/17
Dividends declared = $91,000 + $31,000 – $104,000
= $18,000
Dividends Payable
5,000
12/31/16
18,000
Dividends declared
Cash dividends paid
?
8,000
12/31/17
Cash dividends paid = $5,000 + $18,000 – $8,000
= $15,000
Because of the choice made by Pavicevic Ltd., the cash paid for dividends will appear
in the operating activities as a cash outflow of $15,000.
5. The redemption of bonds payable amount is determined by setting up a T-account.
Bonds Payable
146,000
12/31/16
20,000
Issuance of B/P for PP&E
Redemption of B/P
?
149,000
12/31/17
The problem states that the bonds were issued at par and so the redemption of bonds
payable is the only change not accounted for.
Redemption of bonds payable = $146,000 + $20,000 – $149,000
= $17,000
Financing activities include all cash flows involving non-operating liabilities and
shareholders’ equity items. Therefore, redemption of bonds payable is considered a
financing activity outflow.
6. The approach is to set up a T-account for FV-NI Investments.
FV-NI Investments
12/31/16
49,000
17,000
Investments sold
3,000
Unrealized loss
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