Chapter 12: 16E (page 574)
Refer to the information about Sonad Company in Exercise 12-4. Use the direct method to prepare only the cash provided or used by operating activities section of the statement of cash flows for this company.
Net cash provided by operating activities is $452,240
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
Financial data from three competitors in the same industry follow.
A | B | C | D | |
1 | \( thousands | Moore | Sykes | Kritch |
2 | Cash provided (used) by operating activities | \) 70,000 | \( 60,000 | \) (24,000) |
3 | Cash provided (used) by investing activities | |||
4 | Proceeds from sale of operating assets | 26,000 | ||
5 | Purchase of operating assets | (28,000) | (34,000) | |
6 | Cash provided (used) by financing activities | |||
7 | Proceeds from issuance of debt | 23,000 | ||
8 | Repayment of debt | (6,000) | ||
9 | Net increase (decrease) in cash | \( 36,000 | \) 26,000 | \( 25,000 |
10 | ||||
11 | Average total assets | \)790,000 | \(625,000 | \)300,000 |
BTN 12-4 Your friend, Diana Wood, recently completed the second year of her business and just received annual financial statements from her accountant. Wood finds the income statement and balance sheet informative but does not understand the statement of cash flows. She says the first section is especially confusing because it contains a lot of additions and subtractions that do not make sense to her. Wood adds, “The income statement tells me the business is more profitable than last year and that’s most important. If I want to know how cash changes, I can look at comparative balance sheets.”
Required
Write a half-page memorandum to your friend explaining the purpose of the statement of cash flows. Speculate as to why the first section is so confusing and how it might be rectified.
CRUZ, INC.
Income Statement
For Year Ended December 31, 2017
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \(488,000
Cost of goods sold . . . . . . . . . . . . . . . . . . 314,000
Gross profit . . . . . . . . . . . . . . . . . . . . . . . 174,000
Operating expenses
Depreciation expense . . . . . . . . . . . . . \)37,600
Other expenses . . . . . . . . . . . . . . . . . . 89,100 126,700
Income before taxes . . . . . . . . . . . . . . . . 47,300
Income taxes expense . . . . . . . . . . . . . . . 17,300
Net income . . . . . . . . . . . . . . . . . . . . . . . . \( 30,000
CRUZ, INC.
Comparative Balance Sheets
December 31, 2017
2017 2016
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \) 94,800 \( 24,000
Accounts receivable, net . . . . . . . . . . . . . . . . . . . 41,000 51,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,800 95,800
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . 5,400 4,200
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 227,000 175,000
Furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109,000 119,000
Accum. depreciation—Furniture . . . . . . . . . . . . . (17,000) (9,000)
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \)319,000 \(285,000
Liabilities and Equity
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . \) 15,000 \( 21,000
Wages payable . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 5,000
Income taxes payable . . . . . . . . . . . . . . . . . . . . . 1,400 2,600
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 25,400 28,600
Notes payable (long-term) . . . . . . . . . . . . . . . . . 29,000 69,000
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,400 97,600
Equity Common stock, \)5 par value . . . . . . . . . . . . . . . 229,000 179,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 35,600 8,400
Total liabilities and equity . . . . . . . . . . . . . . . . . . \(319,000 \)285,000
Required Use the indirect method to prepare the cash provided or used from operating activities section only of the statement of cash flows for this company.
Satu Company, a merchandiser, recently completed its 2017 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, (5) Other Expenses are cash expenses, and (6) any change in Income Taxes Payable reflects the accrual and cash payment of taxes. The company’s balance sheets and income statement follow.
SATU COMPANY Comparative Balance Sheets December 31, 2017 and 2016 |
| 2017 | 2016 |
Assets: | ||
Cash | \(58,750 | \)28,400 |
Accounts receivables | 20,222 | 25,860 |
Total current assets | 78,972 | 54,260 |
Inventory | 165,667 | 140,320 |
Equipment | 107,750 | 77,500 |
Accumulated depreciation | (46,700) | (31,000) |
Total assets | \(305,689 | \)241,080 |
Liability and equity | ||
Account payable | \(20,372 | \)157,530 |
Income tax payable | 2,100 | 6,100 |
Total current liabilities | 22,472 | 163,630 |
Equity | ||
Common stock, \(5 par value | 40,000 | 25,000 |
Paid-in-capital in excess of par value, common stock | 68,000 | 20,000 |
Retained earnings | 175,217 | 32,450 |
Total liabilities and equity | \)305,689 | \(241,080 |
| SATU COMPANY Income Statement For Year Ended December 31, 2017 |
Sales | \)750,800 | |
Cost of goods sold | 269,200 | |
Gross profit | 481,600 | |
Operating expenses | ||
Depreciation expenses | 15,700 | |
Other expenses | 173,933 | 189,633 |
Income before taxes | 291,967 | |
Income tax expenses | 89,200 | |
Net income | \(202,767 |
Additional Information on Year 2017 Transactions
a. Purchased equipment for \)30,250 cash.
b. Issued 3,000 shares of common stock for \(21 cash per share.
c. Declared and paid \)60,000 of cash dividends.
Required
Prepare a complete statement of cash flows; report its cash inflows and cash outflows from operating activities according to the indirect method
Refer to the information reported about Forten Company in Problem 12-3A.
Required
Prepare a complete statement of cash flows using a spreadsheet as in Exhibit 12A.1; report its operating activities using the indirect method. Identify the debits and credits in the Analysis of Changes columns with letters that correspond to the following list of transactions and events.
a. Net income was \(114,975.
b. Accounts receivable increased.
c. Inventory increased.
d. Prepaid expenses decreased.
e. Accounts payable decreased.
f. Depreciation expense was \)20,750.
g. Sold equipment costing \(46,875, with accumulated depreciation of \)30,125, for \(11,625 cash. This yielded a loss of \)5,125.
h. Purchased equipment costing \(96,375 by paying \)30,000 cash and (i.) by signing a long-term note payable for the balance.
j. Borrowed \(4,000 cash by signing a short-term note payable.
k. Paid \)50,125 cash to reduce the long-term notes payable.
l. Issued 2,500 shares of common stock for \(20 cash per share.
m. Declared and paid cash dividends of \)50,100.
What do you think about this solution?
We value your feedback to improve our textbook solutions.
