5. In year 1, a tornado completely destroyed a building belonging to Holland Corp.

The building cost

$100,000 and had accumulated depreciation of $48,000 at the time of the loss. Holland received a
cash settlement from the insurance company and reported an extraordinary loss of $21,000. In
Hollands year 1 cash flow statement, the net change reported in the cash flows from investing
activities section should be a
a. $10,000 increase.
b. $21,000 decrease.
c. $31,000 increase.
d. $52,000 decrease.

(c) The building which was destroyed had a book value of $52,000 ($100,000
$48,000). The cash settlement from the insurance company resulted in a loss of
$21,000. Therefore, the cash inflow from this investing activity must be $31,000
as shown below.

24. Metro, Inc. reported net income of $150,000 for year 1. Changes occurred in several balance
sheet accounts during year 1 as follows:
Investment in Videogold, Inc. stock, carried on the equity basis $5,500 increase Accumulated
depreciation, caused by major repair to projection equipment 2,100 decrease Premium on bonds
payable 1,400 decrease Deferred income tax liability (long-term) 1,800 increase In Metros year 1
cash flow statement, the reported net cash provided by operating activities should be
a. $150,400
b. $148,300
c. $144,900
d. $142,800

Items 33 through 36 relate to data to be reported in the statement of cash flows of Debbie Dress
Shops, Inc. based on the following information:
Debbie Dress Shops, Inc. BALANCE SHEETS
December 31 Year 2 Year 1
Assets Current assets:
Cash $ 300,000 $ 200,000
Accounts receivablenet 840,000 580,000
Merchandise inventory 660,000 420,000
Prepaid expenses 100,000 50,000
Total current assets 1,900,000 1,250,000

Long-term investments 80,000

Land, buildings, and fixtures 1,130,000 600,000
Less accumulated depreciation 110,000 50,000
1,020,000
550,000
Total assets $3,000,000 $1,800,000

Equities Current liabilities:

Accounts payable $ 530,000 $ 440,000
Accrued expenses 140,000 130,000
Dividends payable 70,000 T
otal current liabilities 740,000 570,000
Note payabledue year 4 500,000
Stockholders equity:
Common stock 1,200,000 900,000
Retained earnings 560,000 330,000 1,760,000 1,230,000
Total liabilities and stockholders equity $3,000,000 $1,800,000

Debbie Dress Shops, Inc. INCOME STATEMENTS

Year ended December 31 Year 2 Year 1 Net credit sales $6,400,000 $4,000,000 Cost of goods sold
5,000,000 3,200,000 Gross profit 1,400,000 800,000 Expenses (including income taxes) 1,000,000
520,000 Net income $400,000 $280,000 Additional information available included the following:
All accounts receivable and accounts payable are related to trade merchandise. Accounts payable are
recorded net and always are paid to take all of the discount allowed. The allowance for doubtful
accounts at the end of year 2 was the same as at the end of year 1; no receivables were charged
against the allowance during year 2.
The proceeds from the note payable were used to finance a new store building. Capital stock was
sold to provide additional working capital.
33. Cash collected during year 2 from accounts receivable amounted to
a. $5,560,000
b. $5,840,000
c. $6,140,000
d. $6,400,000
34. Cash payments during year 2 on accounts payable to suppliers amounted to
a. $4,670,000
b. $4,910,000
c. $5,000,000
d. $5,150,000
35. Net cash provided by financing activities for year 2 totaled
a. $140,000
b. $300,000
c. $500,000
d. $700,000
36. Net cash used in investing activities during year 2 was
a. $ 80,000
b. $530,000
c. $610,000
d. $660,000