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Chapter 14: Q14SE (page 773)

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.

Short Answer

Expert verified

Requirement 1. Collections from customers during 2018 is $123,000

Requirement 2. Payments for inventory during 2018 is $63,000.

Step by step solution

01

Step-by-Step SolutionStep 1: Computation of collections from customers during 2018 for Red Toy Company

Particulars

Amount($)

Particulars

Amount($)

Account Receivables (31st December,2017)

42,000

Account Receivables (31st December,2018)

53,000

Sales revenue

134,000

Cash collected (Balancing figure)

123,000

Total

176,000

Total

176,000

02

Computation of payments for inventory during 2018

Cash paid for inventory = Cost of goods sold – Beginning merchandise inventory + Ending merchandise inventory + Beginning Accounts Payable - Ending Accounts Payable

Cash paid for inventory =$79,000 –$88,000 + $76,000 + $38,000 - $42,000

=$63,000

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Most popular questions from this chapter

Question: Computing cash flow items—direct method Consider the following facts:

  1. Beginning and ending Accounts Receivable are \(24,000 and \)20,000, respectively. Credit sales for the period total \(68,000.
  2. Cost of goods sold is \)77,000.
  3. Beginning Merchandise Inventory balance is \(29,000, and ending Merchandise Inventory balance is \)26,000.
  4. Beginning and ending Accounts Payable are \(12,000 and \)16,000, respectively.

Requirements

  1. Compute cash collections from customers.
  2. Compute cash payments for merchandise inventory

Identify each item as operating (O), investing (I), financing (F), or non-cash (N).

1. Cash receipt from the sale of equipment

2. Cash payment for salaries

3. Cash receipt from the collection of long-term notes receivable

4. Purchase of equipment in exchange for notes payable

5. Cash receipt from the issuance of common stock

Accountants for Benson, Inc. have assembled the following data for the year ended December 31, 2018:

2018 2017 Current Assets: Cash \( 105,100 \) 18,000 Accounts Receivable 64,400 68,900 Merchandise Inventory 86,000 82,000 Current Liabilities: Accounts Payable 58,000 56,100 Income Tax Payable 14,700 16,900

Transaction Data for 2018:

Issuance of common stock for cash \( 37,000

Payment of notes payable \) 47,100

Depreciation expense 24,000

Payment of cash dividends 53,000

Purchase of equipment with cash 69,000

Issuance of notes payable to borrow cash 68,000

Acquisition of land by issuing long-term notes payable 123,000

Gain on sale of building 4,500

Book value of building sold 61,000

Net income 66,000

Prepare Benson’s statement of cash flows using the indirect method. Include an accompanying schedule of non-cash investing and financing activities

Question: Preparing the statement of cash flows—indirect method Use the Preston Media Corporation data in Short Exercise S14-7 and the results you calculated from the requirements. Prepare Preston Media’s statement of cash flows— indirect method—for the year ended December 31, 2018.

Question: Big Island, Inc. began 2018 with cash of \(40,000. During the year, Big Island earned revenue of \)200,000 and collected \(120,000 from customers. Expenses for the year totaled \)160,000, of which Big Island paid \(65,000 in cash to suppliers and \)80,000 in cash to employees. The company received \(2,000 cash for interest revenue and paid \)10,000 for income taxes. Big Island also paid \(35,000 to purchase equipment and a cash dividend of \)15,000 to its stockholders during 2018. Prepare the company’s operating activities section of the statement of cash flows for the year ended December 31, 2018. Use the direct method.
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