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Chapter 14: Q19E (page 776)

Computing operating activities cash flow—indirect method
The records of Vintage Color Engraving reveal the following:
Net income \( 36,000
Depreciation expense \) 5,000
Sales revenue 53,000
Decrease in current liabilities 19,000
Loss on sale of land 4,000
Increase in current assets other than cash 10,000
Acquisition of land 35,000
Compute cash flows from operating activities by the indirect method for year ended December 31, 2018.

Short Answer

Expert verified

Net cash provided by operating activities is $16,000.

Step by step solution

01

Step-by-Step SolutionStep 1: 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	Amount	Amount
Net Income		$36,000
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation expense	$5,000
Increase in current assets other than cash	($10,000)
Decrease in current liabilities	($19,000)
Loss on sale of land	$4,000
Net cash provided by operating activities		$16,000

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Most popular questions from this chapter

The comparative balance sheet of Jackson Educational Supply at December 31, 2018, reported the following:

	2018	2017
Current		Assets:
Cash	\( 87,700	\) 23,500
Accounts Receivable	15,300	22,000
Merchandise Inventory	62,600	60,400
Current		Liabilities:
Accounts Payable	28,100	26,100
Accrued Liabilities	10,600	11,300

Jackson’s transactions during 2018 included the following:

Payment of cash dividends \( 16,200

Depreciation expense \) 16,700

Purchase of equipment with cash 54,700

Purchase of building with cash 98,000

Issuance of long-term notes payable to borrow cash 48,000

Net income 57,600

Issuance of common stock for cash 105,000

Requirements

Prepare the statement of cash flows of Jackson Educational Supply for the year ended December 31, 2018. Use the indirect method to report cash flows from operating activities.
Evaluate Jackson’s cash flows for the year. Mention all three categories of cash flows, and give the reason for your evaluation.
If Jackson plans similar activity for 2019, what is its expected free cash flow?

Preparing the statement of cash flows-indirect statement This problem continues the Canyon Canoe Company situation from Chapter 13. Canyon Canoe Company's comparative balance sheet is shown below. 2019 amounts are assumed, but include several transactions from prior chapters.

Additional data fellow:

The income statement for 2019 included the following items: Net income, \(417,000. Depreciation expense for the year, \)34,330. Amortization on the bonds payable, \(254.
There were no disposals of property, plant and equipment during this year. All acquistions of PP&E were for cash except the land, which was acquired by issuing preferred stock.
The company issued bonds payable with a face value of \)210,000, receiving cash of \(208,476.
The company distributed 4,000 shares of common stock in a stock dividend when the market value was \)4.50 per share. All other dividends were paid in cash.
The common stock, except for the stock dividend, was issued for cash.
The cash receipt from the note payable in 2019 is considered a financing activity because it does not relate to operations. Requirements Prepare the statement of cash flows for the year ended December 31, 2019, using the indirect method.

Classifying transactions on the statement of cash flows—indirect method Consider the following transactions:

Identify the category of the statement of cash flows, indirect method, in which each transaction would be reported.

Question: Muench, Inc.’s accountant has partially completed the spreadsheet for the statement of cash flows. Fill in the remaining missing information.

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.

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