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Horngren'S Financial And Managerial Accounting
Found in: Page 784

Short Answer

Preparing the statement of cash flows—indirect method with non-cash transactions the 2018 income statement and comparative balance sheet of Rolling Hills, Inc. follow:

Additionally, Rolling Hills purchased land of $21,100 by financing it 100% with long-term notes payable during 2018. During the year, there were no sales of land, no retirements of stock, and no treasury stock transactions. A plant asset was disposed of for $0. The cost and the accumulated depreciation of the disposed asset was $13,410. The plant acquisition was for cash.


1. Prepare the 2018 statement of cash flows, formatting operating activities by the indirect method.

2. How will what you learned in this problem help you evaluate an investment?

  1. Net cash from operating activities is $125,100.
  2. Value of new investment during the year is $23,600
See the step by step solution

Step by Step Solution

Step 1: Statement of cash flows using the indirect method


Statement of Cash Flows

For the year ended December 31, 2018

Cash flow from operating activities

Net Income


Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

Depreciation expense


Increase in account receivables ($440,000-$438,900)


Decrease in merchandise inventory ($209,200-$197,500)


Increase in account payable ($35,700-$30,400)


Decrease in accrued liabilities ($28,700-$30,300)


Net cash provided/ (used) in operating activities


Cash Flows From Investing Activities:

Purchase of land


Net cash provided/ (used) in investing activities


Cash Flows From Financing Activities:

Issuance of common stock


Payment of notes payable


Dividend paid


Net cash provided/ (used) in financing activities


Net increase/(Decrease) in cash


Cash Balance, December 31, 2017


Cash Balance, December 31, 2018


Step 2: Schedule of non-cash investing and financing activities


Statement of Cash Flows (Partial)

For the year ended December 31, 2018

Non-cash Investing and financing activities

Acquisition of land by issuing long-term notes payable


Total Non-cash Investing and financing activities


Step 3: Evaluation of the investment  

The value of the purchase of the plant is determined by taking the opening balance i.e., $114,650 and subtracting the cost of the sold plant i.e., $13410 then comparing it to the closing balance of the plant i.e., $124840. Therefore, the difference now will be the purchase of the plant i.e., $23600.

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