EXERCISE 23-6

ALISON KRAUSS COMPANY
Partial Statement of Cash Flows
For the Year Ended December 31, 2004
Cash flows from operating activities
Net income		$90,000
Adjustment to reconcile net income
to net cash provided by operating activities:
Depreciation expense	$60,000
Loss on sale of equipment	26,000
Decrease in accounts receivable	17,000
Increase in accounts payable	10,000
Decrease in income taxes payable	(4,500)	108,500
Net cash provided by operating activities		$198,500

EXERCISE 23-14

Brecker Inc.
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2005
Cash flows from operating activities
Net income		$27,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense	$24,000*
Amortization of copyright	4,000
Gain on sale of equipment	(2,000)
Decrease in inventories	20,000
Increase in wages payable	4,000
Increase in accounts payable	6,000
Increase in prepaid rent	(1,000)
Increase in accounts receivable	(11,000)
Decrease in income taxes payable	(2,000)		42,000
Net cash provided by operating activities		69,000
Cash flows from investing activities
Sale of equipment [($20,000 X 30%) + $2,000]	8,000
Purchase of equipment	(44,000)
Purchase of available-for-sale investments	(17,000)
Net cash used by investing activities		(53,000)

Cash flows from financing activities
Principal payment on short-term loan	(2,000)
Principal payment on long-term loan	(9,000)
Dividend payments	(6,000)
Net cash used by financing activities		(17,000)
Net decrease in cash		(1,000)
Cash, January 1, 2005		7,000
Cash, December 31, 2005		$ 6,000

Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$9,400
Income taxes	$8,750
*$35,000 – [$25,000 – ($20,000 X 70%)]

PROBLEM 23-1

Method Man Corp.
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2005
Cash flows from operating activities
Net income			$370,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation	$150,000	[a]
Gain on sale of equipment	(5,000)	[b]
Equity in earnings of Blige Co.	(30,000)	[c]
Decrease in accounts receivable	40,000
Increase in inventories	(135,000)
Increase in accounts payable	60,000
Decrease in income taxes payable	(20,000)		60,000
Net cash provided by operating
activities			430,000
Cash flows from investing activities:
Proceeds from sale of equipment	40,000
Loan to TLC Co.	(300,000)
Principal payment of loan receivable	37,500
Net cash used by investing
activities			(222,500)
Cash flows from financing activities:
Dividends paid	(100,000)
Net cash used by financing
activities			(100,000)
Net increase in cash			107,500
Cash, January 1, 2005			700,000
Cash, December 31, 2005			$807,500

Schedule at bottom of statement of cash flows:
Noncash investing and financing activities:
Issuance of lease obligation for capital lease		$400,000
Explanation of Amounts
(a) Depreciation
Net increase in accumulated
depreciation for the year ended
December 31, 2005		$125,000
Accumulated depreciation on equipment sold:
Cost	$60,000
Carrying value	35,000	25,000
Depreciation for 2005		$150,000
(b) Gain on sale of equipment
Proceeds		$ 40,000
Carrying value		(35,000)
Gain		$ 5,000
(c) Equity in earnings of Blige Co.
Blige’s net income for 2005		$120,000
Method Man’s ownership		25%
Undistributed earnings of Blige Co.		$ 30,000