Question

Refer to the information reported about Golden Corporation in Problem 12-6A.

Required

Prepare a complete statement of cash flows using a spreadsheet as in Exhibit 12A.1; report operating activities under 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 \(136,000.

b. Accounts receivable increased.

c. Inventory increased.

d. Accounts payable increased.

e. Income taxes payable increased.

f. Depreciation expense was \)54,000.

g. Purchased equipment for \(36,000 cash.

h. Issued 12,000 shares at \)5 cash per share.

i. Declared and paid $89,000 of cash dividends.

Short answer

Debit and credit column of the analysis of change totals$481,000.

Step-by-step solution

Definition of Cash Flow from Operation

Cash flow from operation refers to all those cash inflows and outflows due to regular business operations like cash inflow from sales of products and cash paid to the vendor for the acquisition of inventory.

Analysis of changes and statement of cash flow

particular		Analysis of changes
	2016	Debit	Credit	2017
Debits of the balance sheet:
Cash	$107,000			$164,000
Accounts receivable	71,000	$12,000		83,000
Inventory	526,000	75,000		601,000
Equipment	299,000	36,000		335,000
	$1,003,000			$1,183,000
Credits of the balance sheet:
Accumulated depreciation – equipment	104,000		54,000	158,000
Account payable	71,000		16,000	87,000
Income tax payable	25,000		3,000	28,000
Common stock, $5 par value	568,000		24,000	592,000
Paid-in-capital in excess of par – common stock	160,000		36,000	196,000
Retained earnings	75,000	89,000	136,000	122,000
	$1,003,000			$1,183,000
Cash flow statement
Operating activities
Net income	$136,000
Depreciation expenses	54,000
Increase in accounts receivable		12,000
Increase in inventory		75,000
Increase in accounts payable	16,000
increase in income tax payable	3,000
Investing activities
Purchased equipment		36,000
Financing activities
Common stock issued	60,000
Cash dividend paid		89,000
	$481,000	$481,000

Explanation regarding the debit and credit of amounts in the cash flow statement

In the statement of cash flow section, if any adjustment results in cash inflow in the business, it should be debited or added to the net income.

And if adjustment results in an outflow of cash in the business, then it should be credited.