Use the information below for Barton Shipping Corp. for 2017 and 2018 to answer the following question:
Retained earnings, December 31, 2017 $300,000
Retained earnings, December 31, 2018 345,000
Dividends payable, December 31, 2017 19,000
Dividends payable, December 31, 2018 29,000
Net income—2018 150,000
How much cash did Barton Shipping pay for dividends during 2018?
a. $95,000
b. $105,000
c. $115,000
d. $140,000
2.
Which of the following statements is false?
a. Cash equivalents are included in cash on the balance sheet and on the statement of cash flows.
b. Investments in cash equivalents and investments in stock have the same economic effect—assets increase and decrease by the same amount.
c. An investment is a cash equivalent if it is convertible into a known amount of cash and has an original maturity of three months or less when purchased.
d. Investments in stock are reported as a financing activity on the statement of cash flows.
3.
Below is information for Dakota Corp. for 2017 and 2018:
Bonds payable, December 31, 2017 $500,000
Bonds payable, December 31, 2018 800,000
Loss on bond retirement—2018 15,000
Interest expense on bonds—2018 45,000
At the end of 2018, Dakota issued bonds at par value for $800,000 cash. The proceeds from these bonds were used to retire the $500,000 bond issue outstanding at the end of 2018 (before their maturity date). All interest expense was paid in cash during 2018.
The following statements describe how Dakota reported the cash flow effects of the items described above on its 2018 statement of cash flows. The indirect method is used to prepare the Operating Activities section. Which of the following has been reported incorrectly by Dakota?
a. Proceeds of $800,000 from the issuance of bonds were reported as a cash inflow in the Financing Activities section.
b. The loss on bond retirement of $15,000 was added to net income in the Operating Activities section.
c. Payments of $500,000 for the bond retirement were reported as a cash outflow in the Investing Activities section.
d. Interest expense of $45,000 was not reported separately because it is included in net income in the Operating Activities section.
