Murdock carpet cleaners ended its first month of operations on june

Chapter 3

P3-42 Preparing Adjusting Entries, Financial Statements, and Closing Entries

Murdock Carpet Cleaners ended its first month of operations on June 30, 2014. Monthly financial statements will be prepaid. The unadjusted account balances are as follows.


Murdock Carpet Cleaners Unadjusted Trial Balances June 30, 2014
















Accounts Receivable







Prepaid Rent





















Accounts Payable







Common Stock







Retained Earings







Service Fee Earned







Wage Expense















Chapter 4

M4-26. Calculating Net Cash Flow From Operating Activities (Indirect Method)

The following information was obtained from Galena Company’s comparative balance sheets. Assume that Galena company’s 2013 income statement showeddepreciation expense of $8,000. Gain on the sale of investments of $9,000, and a net income of $45,000. Calculate the net cash flow from operating activities using the indirect method.







Accounts Receivable






Prepaid Rent



Long-Term Investments



Plant assets



Accumulated depreciation



Accounts payable



Income tax payable



Common stock



Retained earnings




M4-29. Classifying Cash Flow Statement Components and Determining Their Effects

The following table presents selected items from a recent cash flow statement of Nordstroms, Inc

  1. For each item, determine whether the amount would be disclosed in the cash flow statement under operating activities, investing activities, or financing activities. (Nordstrom uses the indirect method of reporting.)
  2. For each item, determine whether it will appear as a positive or negative in determining the net increase in cash and cash equivalents.


Increase in accounts receivable



Capital expenditures



Proceeds from long-term borrowings



Increase in deferred income tax net liability



Principal payments on long-term borrowings



Increase in merchandise inventories



Decrease in prepaid expenses and other assets



Proceeds from issuances under stock compensation plans



Increase in accounts payable



Net earnings



Payments for repurchase of common stock



Increase in accrued salaries, wages, and retained benefits



Cash dividends paid



Depreciation and amortization expenses




E4-39. Analyzing Investing and Financing Cash Flows

During 2013, Paxon Corporation’s long-term investments account (at cost) increased $15,000, which was the net result of purchasing stocks costing $80,000 and selling stocks costing $65,000 at a $6,000 loss. Also, it bonds payable account decreased $10,000, the net result of issuing $130,000 of bonds and retiring bonds with a book value of $140,000 at a $9,000 gain. What items and amounts appear in the (a) cash flows from investing activities and (b) cash flows from financing activities sections of its 2013 statement of cash flows?





C4-59. Interpreting the Statement of Cash Flows

The statement of cash flows for Daimler AG follows:


Daimler AG Consolidated Statement of Cash Flows

(Millions of Euros)



Fiscal Year 2011

Profit before income taxes




Depreciation and amortization




Other non-cash expenses and income




Gains (-)/ losses on disposals of assets




Change in operating assets and liabilities








Trade Receivables




Trade payables




Receivables from financial services




Vehicles on operating leases




other operating assets and liabilities




Income tax paid








Cash provided by/(used for) operating activities




Additions to property, plant and equipment




Additions to intangible assets




Proceeds from disposals of property, plant and equipment and intangible assets




Investments in share property




Proceeds from disposals of share property




Acquisitions of marketable debt securities




Proceeds from sales of marketable debt securities












Cash provided by/(used for) investing activities




Change in short-term financing liabilities




Additions to long-term financing liabilities




Repayment of long-term financing liabilities




Dividend paid to sharholders of Daimler AG




Dividends paid to non-controlling interest




Proceeds from issuance of share capital




Acquisitiion of treasury shares




Acquisition of non-controlling interest in subsidiaries








Cash provoded by/(used for) financing activities




Effect of foreign exchange rate changes on cash and cash equivalents








Net increase/(decrease) in cash and cash equivalents




Cash and cash equivalents at the beginning of the period








Cash and cash equivalents at the end of the period






  1. Daimler begins in cash flow statement with net income of € 8,449 million, then adds € 3,375 million for depreciation and amortization. Why is Daimler adding depreciation and amortization to net income in this computation?
  2. Why does Daimler subtract €102 million of gains on disposals of assets in its indirect method cash flows from operating activities? If these gains are all created by disposals of property, plant and equipment and intangible assets, what was the book value of the assets Daimler disposed of during fiscal year 2011?
  3. Daimler shows a negative €2,328 million for inventories in the statement of cash flows. Does this mean that Daimler paid €2,328 million for inventories in 2011? Explain.
  4. Compute Daimler’s free cash flow for 2011. How did the company finance its investing activities?
  5. Daimler reports a cash outflow from operating activities of €696 million, despite reporting net income of €8,449 million. What principal activities account for this difference? Does this raise concerns about the health of Daimler AG?
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