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125. Partial balance sheets for abc Company and additional information are provided below.

ABC Company

Partial Balance Sheets

as of December 31

Assets

2006

2005

Equipment

$100,000

$75,000

Accumulated depreciation

(25,000

)

(20,000

)

Shareholders' equity

Common stock, $10 par

180,000

$100,000

Paid-in capital – excess of par

20,000

0

Retained earnings

40,000

30,000

Additional information for 2006:

July 1: Issued 8,000 shares of common stock for cash.

July 1: Purchased new equipment for cash.

December 31: Paid cash dividends of $20,000.

Required:

Prepare the financing activities section of the statement of cash flows for 2006.

Answer:

Cash flows from financing activities:

Issuance of common stock

$100,000

Payment of cash dividends

(20,000

)

Net cash flows from financing activities

$80,000

Learning Objective: 6 Level of Learning: 3

126. The accounting records of Harrison Company provided the data below.

Net loss

$10,000

Depreciation expense

12,000

Increase in salaries payable

1,000

Decrease in accounts receivable

4,000

Increase in inventory

4,800

Amortization of patent

700

Decrease in discount on bonds

500

Required:

Prepare a reconciliation of net income to net cash flows from operating activities.

Answer:

Net loss

$(10,000

)

Adjustments for noncash effects:

Depreciation expense

12,000

Increase in salaries payable

1,000

Decrease in accounts receivable

4,000

Increase in inventory

(4,800

)

Amortization of patent

700

Reduction in discount on bonds

500

Net cash flows from operating activities

$ 3,400

Learning Objective: 4 Level of Learning: 3

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