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Chapter 14: Q14-5SE (page 770)

Question: Computing cash flows from operating activities—indirect method
Winding Road Cellular accountants have assembled the following data for the year ended April 30, 2018:
Cash receipt from sale of land \( 27,000
Net income \) 55,000
Depreciation expense 2,000
Cash purchase of equipment 44,000
Cash payment of dividends 5,800
Decrease in current liabilities 20,000
Cash receipt from issuance of common stock 17,000
Increase in current assets other than cash 27,000
Prepare the operating activities section using the indirect method for Winding Road Cellular’s statement of cash flows for the year ended April 30, 2018.

Short Answer

Expert verified

Answer

Net cash provided by operating activities is $10,000

Step by step solution

01

Cash flow from operating activities- Indirect method

Indirect method starts with net income and adjustments are made to reconcile net income to net cash provided by operating activities.

02

Cash flow from operating activities

Cash flows from operating activities
Net Income		$55,000
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation expense	$2,000
Increase in current assets other than cash	($27,000)
Decrease in current liabilities	($20,000)
Net cash provided by operating activities		$10,000

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Most popular questions from this chapter

Computing operating activities cash flow—indirect method

The accounting records of CD Sales, Inc. include the following accounts: Account Beginning Balance Ending Balance Cash \( 7,500 \) 6,500 Accounts Receivable 21,000 17,500 Merchandise Inventory 20,000 30,000 Accounts Payable 15,000 19,000 Accumulated Depreciation— Equipment

2,000 Depr. Exp.

56,000 Jul. 1

58,000 Jul. 31

Retained Earnings

Dividends 15,000

63,000 Jul. 1

50,000 Net Inc.

98,000 Jul. 31

Compute CD’s net cash provided by (used for) operating activities during July 2018. Use the indirect method.

Computing cash flows for investing and financing activities Consider the following facts for Java Jolt:

Beginning and ending Retained Earnings are \(45,000 and \)70,000, respectively. Net income for the period is \(60,000.
Beginning and ending Plant Assets are \)124,500 and \(134,500, respectively.
Beginning and ending Accumulated Depreciation—Plant Assets are \)21,500 and \(26,500, respectively.
Depreciation Expense for the period is \)17,000, and acquisitions of new plant assets total \(29,000. Plant assets were sold at a \)5,000 gain. Requirements 1. How much are cash dividends? 2. What was the amount of the cash receipt from the sale of plant assets?

Question: Preparing the statement of cash flows—direct method The income statement and additional data of Value Corporation follow:

Collections from customers are \(13,000 more than sales.
Dividend revenue, interest expense, and income tax expense equal their cash amounts.
Payments to suppliers are the sum of cost of goods sold plus advertising expense.
Payments to employees are \)3,000 more than salaries expense.
Cash payment for the acquisition of plant assets is \(102,000.
Cash receipts from sale of land total \)29,000.
Cash receipts from issuance of common stock total \(38,000.
Payment of long-term notes payable is \)10,000.
Payment of dividends is \(9,000.
Cash balance at June 30, 2017, was \)21,000; at June 30, 2018, it was $43,000.

Prepare Value Corporation’s statement of cash flows for the year ended June 30, 2018. Use the direct method.

Preparing the statement of cash flows—direct method The income statement and additional data of Value Corporation follow:

Collections from customers are \(13,000 more than sales.
Dividend revenue, interest expense, and income tax expense equal their cash amounts.
Payments to suppliers are the sum of cost of goods sold plus advertising expense.
Payments to employees are \)3,000 more than salaries expense.
Cash payment for the acquisition of plant assets is \(102,000.
Cash receipts from sale of land total \)29,000.
Cash receipts from issuance of common stock total \(38,000.
Payment of long-term notes payable is \)10,000.
Payment of dividends is \(9,000.
Cash balance at June 30, 2017, was \)21,000; at June 30, 2018, it was $43,000.
Prepare Value Corporation’s statement of cash flows for the year ended June 30, 2018. Use the direct method.

Preparing the direct method statement of cash flows Red Toy Company reported the following comparative balance sheet:

Requirements

1. Compute the collections from customers during 2018 for Red Toy Company. Sales Revenue totaled \(134,000.

2. Compute the payments for inventory during 2018. Cost of Goods Sold was \)79,000.

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