P1. PXE Company presented the following comparative balance sheets at December 31, 2005 and 2006, and the income statement for the year ended December 31, 2006:
PXE Company
Balance Sheets
December 31, 2006 and 2005

December 31, 2006 December 31, 2005
Assets
Cash $ 12,200 $ 28,200
Accounts receivable 16,000 18,000
Inventory 19,500 22,000
Prepaid rent 200 300
Total current assets $ 47,900 $ 68,500
Land 58,000 30,000
Equipment 65,000 60,000
Accumulated depreciation (11,000) (4,000)
Total assets $159,900 $154,500

Liabilities and stockholders’ equity
Accounts payable $ 13,000 $ 25,000
Salaries payable 2,000 2,500
Interest payable 2,500 4,000
Income tax payable 6,500 3,000
Dividends payable 4,000 0
Total current liabilities $ 28,000 $ 34,500
Long-term notes payable 10,000 40,000
Common stock, $1 par 30,000 28,000
Preferred stock, $4 par 24,000 10,000
Additional paid-in capital 45,000 30,000
Retained earnings 22,900 12,000
Total liabilities and stockholders’ equity $159,900 $154,500

PXE Company
Income Statement
For the Year Ended December 31, 2006

Sales $ 400,000
Cost of goods sold (250,000)
Gross profit $ 150,000
General and administrative expenses $80,000
Salaries expense 31,000
Rent expense 3,600
Depreciation expense 7,000
Total operating expenses (121,600)
Other revenue and expenses:
Gain on sale of land $ 3,000
Interest revenue 300
Interest expense (2,800) 500
Income before income taxes $ 28,900
Income tax expense (8,000)
Net income $ 20,900

Additional information:
a. The company declared dividends in the amount of $10,000 during the year.
b. Additional land and equipment were purchased for cash.
c. Land that had originally cost $9,000 was sold for $12,000 cash.
d. All accounts payable are related to merchandise purchases.
e. The company uses a perpetual LIFO inventory system and uses straight-line depreciation for all depreciable assets.

Required:
1. Prepare the operating activities section of the statement of cash flows using the indirect method.

P2. Salary expense on the books was $43000. Salary payable at the beginning of the year was $11000 and at the end of the year was $12500. How much cash was paid out for salaries?

P3. Rent expense on the books was $15000. Prepaid rent at the beginning of the year was $3000 and at the end of the year was $1250. How much cash was paid out for rent?

P4. Sales revenue on the books was $118000. Accounts receivable at the end of the year was $14000 and accounts receivable at the beginning of the year was $16000. How much cash was received for sales?

P5. Sales revenue on the books was $175000. Unearned revenue at the end of the year was $12000 and unearned revenue at the beginning of the year was $4500. How much cash was received from revenue?

P6. Harp’s Business Machines Inc. reported the following items from its comparative balance sheet for the calendar year 2008:

2008 2007
Inventory $125,000 $100,000
Land 100,000 200,000
Building 570,000 500,000
Equipment 45,000 30,000
Accumulated depreciation (105,000) (50,000)
Notes payable 100,000 150,000
Common stock 300,000 200,000

Additional information for 2008:
1. A piece of land was sold for $65,000, resulting in a $5,000 gain.
2. A smaller section of land was sold for $26,000, resulting in a $14,000 loss.
3. A building was started and completed costing $70,000. All costs were paid in cash.
4. Depreciation expense totaled $55,000 for the year.

Required:
Determine the cash flows from investing activities for Harp’s Business Machines Inc. for 2008.

P7. Checker’s Games Co. reported the following items on its comparative balance sheet for 2008:

2008 2007
Accounts payable $200,000 $175,000
Dividends payable 10,000 0
Notes payable 280,000 240,000
Common stock 315,000 290,000
Additional paid-in capital 120,000 100,000
Land 175,000 150,000
Goodwill 45,000 75,000

Additional information for 2008:
1. A $70,000 note payable was issued for cash.
2. Interest expense totaled $15,000 for the year of which $13,500 was paid in cash.
3. Stock was issued for cash (the transaction involved common stock).
4. A note payable for $30,000 was repaid.
5. Dividends of $50,000 were declared of which $40,000 have been paid.

Required: Prepare the financing section of the cash flow statement in good form for Checker’s Games Co.

P8. On January 1, 2006, ABC Company bought equipment for $12,000 with an estimated useful life of 5 years and no salvage value. ABC uses straight-line depreciation. On January 1, 2008, it was decided that the sum-of-the-years-digits was more appropriate.

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