ACCT10002: Tutorial 9 EXERCISES

This tutorial provides exercises relating to the following areas of study:

Components of the Cash Flow Statement Construction of a Cash Flow Statement using
balance sheet and income statements
Reasons for identifying components of cash Direct and Indirect methods of constructing the
flows Cash Flow Statement

The following exercises are required to be completed before coming to the

tutorial:

1. (E11.1)

Wilderness Equipment Ltd had these transactions during 2015:

(a) Purchased a machine for $40 000, giving a long-term note in exchange.
(b) Issued ordinary shares for $62 500 in cash.
(c) Collected $20 000 of accounts receivable.
(d) Declared and paid a cash dividend of $31 250.
(e) Sold a long-term investment with a cost of $20 000 for $20  000 cash.
(f) Convertible notes with a carrying amount of $250 000 were converted to ordinary shares at
$250 000.
(g) Paid $24  000 on accounts payable.

Required:
(a) Analyse the above transactions and indicate whether each transaction resulted in a cash flow from
operating activities, investing activities, financing activities, or was a non-cash investing and
financing activity.

(b) What are the differences between operating, investing and financing activities?

2. (BE11.3)

Cheong’s Chinese Herbs Ltd has Accounts Receivable of $14 000 at 1 July 2015, and $24 000 at 30
June 2016. Sales revenues (all on credit) were $600 000 for 2016. Bad debts written off directly against
Accounts Receivable were $2000 in 2016.

Task: What is the amount of cash receipts from customers in 2016? Construct T accounts to determine
your answer.

3. (BE11.4)

Pete’s Pies Ltd reports operating expenses of $216 000 excluding depreciation expense of $18 000 for
2015. The opening balance for Prepaid Insurance was $13,920 and the closing balance was $6,000.
Accrued Wages had an opening balance of $5,000 and the closing balance of this account was $10,280.

Task: Calculate the cash payments for operating expenses in 2015 by constructing relevant T accounts.

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ACCT 10002: Introductory Financial Accounting
Tutorial 9 – Exercises
4. Cash Flow Statement

(a) List three benefits of the Cash Flow Statement

(b) What does the standard say about the classification of interest and dividends? Refer to AASB107.

5. (PSA11.4)

These are the financial statements of Metro Meats Ltd:

METRO MEATS LTD

Statement of Financial Position
as at 31 December 2015
2015 2014
Assets
Cash $29  000 $15  000
Accounts receivable 28  000 14  000
Inventory 25  000 35  000
Property, plant and equipment 60  000 78  000
Accumulated depreciation (20  000) (24  000)
Total $122  000 $118  000
Liabilities and equity
Accounts payable $ 26  000 $ 25  000
Dividends payable 3  000 —
Income tax payable 5  000 8  000
Debentures payable 27  000 33  000
Share capital 18  000 14  000
Retained earnings 43  000 38  000
Total $122  000 $118  000

METRO MEATS LTD

Statement of Profit or Loss
for the year ended 31 December 2015
Sales $250  000
Cost of sales 210  000
Gross profit 40  000
Selling expenses 18  000
Administrative expenses 6  000
Interest expense 2  000
Profit before income tax 14  000
Income tax expense 4  000
Profit $ 10  000

The following additional data were provided:

1. The entity paid an interim dividend of $2 000 and declared a final dividend.
2. During the year equipment was sold for $8 500 cash. This equipment cost $18 000 originally and
had a carrying amount of $8 500 at the time of sale.
3. All depreciation expense is in the selling expense category.
4. All operating expenses except for depreciation were paid in cash.
Required
Prepare a statement of cash flows using the direct method.
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ACCT 10002: Introductory Financial Accounting
Tutorial 9 – Exercises
The following exercises should be completed prior to the tutorial:

6. (E11.4)

Here is a statement of financial position for Big Bang Balloons Pty Ltd:

BIG BANG BALLOONS PTY LTD

Statement of Financial Position
as at 30 June 2015
2015 2014
Assets
Cash $72 000 $26 400
Accounts receivable 102 000 91 200
Inventories 216  000 226 800
Land 90 000 120 000
Equipment 312 000 240  000
Accumulated depreciation (79 200) (50 400)
Total $712 800 $654 000
Liabilities and equity
Accounts payable $40 800 $56 400
Notes payable (long term) 180  000 240 000
Share capital 256 800 196 800
Retained earnings 235 200 160 800
Total $712 800 $654  000

Additional information:
1. Profit for 2015 was $126  000. Total expenses were $1 047 600 and included cost of sales expense
$633 600, interest paid $18  000, and tax expense $54  000.
2. Cash dividends of $51  600 were declared and paid.
3. Notes payable amounting to $60 000 were redeemed for cash $60 000.
4. Ordinary shares were issued for $60  000 cash.
5. Sales for 2015 were $1 173 600.
6. Land was sold at cost.
Required:

(a) Prepare a statement of cash flows for 2015 using the direct method.

(b) Calculate these cash-basis ratios and comment on the cash adequacy indicated by the calculations.
1. current cash debt coverage
2. cash return on sales
3. cash debt coverage.

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ACCT 10002: Introductory Financial Accounting
Tutorial 9 – Exercises
7. (BE11.6)

The T accounts for Equipment and the related Accumulated Depreciation for Lau Pty Ltd at the end of
2015 are shown here:

Equipment Accumulated Depreciation

2015 2015
Op. bal. 225 000 Disposals 33 000 Disposals 9 000 Op. bal. 54 000
Acquisitions 62 400 Clos. bal. 254 400 Clos. bal. 63 000 Depn 18 000
287 400 287 400 72 000 72 000
2016 2016
Op. bal. 254 400 Op. bal. 63 000

In addition, Lau Pty Ltd's income statement reported a gain on the sale of equipment of $4,500.
What amount was reported on the statement of cash flows as ‘cash flow from sale of equipment’?

8. (E11.6)

Christchurch Motors Pty Ltd completed its first year of operations on 30 June 2015. Its income
statement showed that the business had revenues of $170 000 and operating expenses of $80 000
including Bad Debts Expense of $1000. Accounts Receivable and Accounts Payable at year-end were
$43 000 and $33 000, respectively. Assume that accounts payable related to operating expenses. Ignore
income tax. The Allowance for Doubtful Debts is $1000. There has been no direct write-off of accounts
receivable.

Required

Calculate net cash provided by operating activities using the direct method.

9. (E11.7)

The income statement for Colin Ltd shows cost of sales $355 000 and operating expenses (exclusive of
depreciation) $230 000. The statement of financial position for the year shows that inventory increased
$6000, prepaid expenses decreased $6000, accounts payable (inventory suppliers) decreased $8000,
and accrued expenses payable decreased $12 000.

Required

Using the direct method, calculate:

(a) cash payments to suppliers and

(b) cash payments for operating expenses.

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ACCT 10002: Introductory Financial Accounting
Tutorial 9 – Exercises
The following exercise may be discussed during the tutorial:

10. (PSB11.10)

Below is the information relating to Simic and Nikolic Ltd for the year ended 30 June 2016.

SIMIC AND NIKOLIC LTD

Statement of Financial Position
as at 30 June 2016
2016 2015
$’000 $’000
Assets
Current assets
Cash 3 150 1 220
Accounts receivable 1 240 1 100
Allowance for doubtful debts (60) (50)
Inventory 1 520 1 300
Prepaid insurance 60 40
Total current assets 5 910 3 610
Non-current assets
Land 1 630 1 900
Buildings 2 100 1 670
Accumulated depreciation — buildings (540) (500)
Plant and equipment 1 454 1 258
Accumulated depreciation — plant and equipment (440) (610)
Office equipment 430 380
Accumulated depreciation — office equipment (270) (190)
Patents 260 280
Total non-current assets 4 624 4 188
Total assets $10 534 $7 798

Liabilities and equity

Current liabilities
Accounts payable 750 500
Accrued expenses 260 280
Interest payable 100 80
Income tax payable 1 100 1 120
Final dividend payable 600 500
Total current liabilities 2 810 2 480
Non-current liabilities
Borrowings 3 000 2 200
Total liabilities 5 810 4 680
Equity
Share capital
Revaluation surplus 1 400 1 000
General reserve 260 300
Retained earnings 300 200
2 764 1 618
Total equity 4 724 3 118
Total liabilities and equity $10 534 $7 798

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ACCT 10002: Introductory Financial Accounting
Tutorial 9 – Exercises
 SIMIC AND NIKOLIC LTD
Statement of Profit or Loss
for the year ended 30 June 2016
$’000 $’000
Sales revenue 14 126
Gain from sale of land 210
Gain on sale of equipment 230
14 566
Less expenses
Cost of sales 8 876
Bad debts expense 28
Depreciation 250
Insurance expense 140
Interest expense 180
Amortisation patents 20
Other expenses 1 796 11 290
Profit before income tax 3 276
Income tax expense
Current year 1 100
Under-provision from previous year 80 1 180
Profit for the period $ 2 096

Additional information (dollar amounts expressed in full units):

1. Equipment with an original cost of $500 000 was sold during the year.
2. Land with an original value of $600 000 was revalued upwards by $160 000 during the year.
3. A bonus share dividend of $200 000 was paid from the revaluation surplus.
4. An interim dividend was paid during the year.

Required

Prepare a statement of cash flows, using the direct method.

(Hint: This statement of cash flows is more complex, so you will need to reconstruct all the statement
of financial position accounts to solve it.)

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ACCT 10002: Introductory Financial Accounting
Tutorial 9 – Exercises