[margieortega]

Can someone tell me if I did this right??

E23-2 (Statement Presentation of Transactions—Indirect Method) 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, 2007.

(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. =Investing Activity


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


(c) Uncollectible accounts receivable in the amount of $27,000 were written off against the Allowance for Doubtful Accounts. =is not shown in statement of cash flows


(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. =Investing Activity


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


(f) Patent amortization for the year was $20,000. =Operating Activity


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


(h) During the year, treasury stock costing $47,000 was purchased. =Financing Activity


Instructions:State where each item is to be shown in the statement of cash flows, if at all.

[morgaine300]

d) Operating. You're confusing the sale itself with the GAIN on the sale. Gains & losses, and depreciation, all go into the operating section. The gain is reflected in the net income figure, but is not part of operations -- it belongs with the sale amount in the investing section -- so we subtract that to adjust it out of the net income amount. Depreciation is also reflected in the net income amount, having been an expense that came out. Depreciation is a non-cash item (i.e. no cash was paid for it), so that also needs removed from net income, by adding it back in. (Deprecation same as (f) for amortization -- same reason.)

g) An exchange is a significant non-cash event, and does not go in any of the sections. (Significant non-cash events are listed separately at the bottom of the statement.)

e) If using "a cash & cash equivalent method" means that cash equivalents are lumped in with cash for the sake of the cash balance, then you would be exchanging cash for a cash equivalent. The entire statement is the change in cash -- i.e. it's not an item to be listed. The three sections are going to net out to the change in cash. If cash equivalents are included in that, then this is true of these treasury bills also. Think of it like exchanging some quarters for some dollar bills. You wouldn't report that. You're simply exchanging something for something else in the same category.

Everything else is correct.