Chapter 14: Q5TI (page 761)
Question: Muench, Inc.’s accountant has partially completed the spreadsheet for the statement of cash flows. Fill in the remaining missing information.
Answer
Net increase in cash is $1,250.
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Question: If a company experienced a loss on disposal of long-term assets, how would this be reported in the operating activities section of the statement of cash flows when using the indirect method? Why?
Classic Rare Coins (CRC) was formed on January 1, 2018. Additional data for the year follow:
a. On January 1, 2018, CRC issued no-par common stock for \(525,000.
b. Early in January, CRC made the following cash payments:
1. For store fixtures, \)51,000
2. For merchandise inventory, \(240,000
3. For rent expense on a store building, \)18,000
c. Later in the year, CRC purchased merchandise inventory on account for \(243,000. Before year-end, CRC paid \)153,000 of these accounts payable.
d. During 2018, CRC sold 2,800 units of merchandise inventory for \(325 each. Before year-end, the company collected 95% of this amount. Cost of goods sold for the year was \)290,000, and ending merchandise inventory totaled \(193,000.
e. The store employs three people. The combined annual payroll is \)82,000, of which CRC still owes \(5,000 at year-end.
f. At the end of the year, CRC paid income tax of \)17,000. There were no income taxes payable.
g. Late in 2018, CRC paid cash dividends of $38,000.
h. For store fixtures, CRC uses the straight-line depreciation method, over five years, with zero residual value.
Requirements
1. What is the purpose of the statement of cash flows?
2. Prepare CRC’s income statement for the year ended December 31, 2018. Use the single-step format, with all revenues listed together and all expenses listed together.
3. Prepare CRC’s balance sheet at December 31, 2018.
4. Prepare CRC’s statement of cash flows using the indirect method for the year ended December 31, 2018.
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
Preparing operating activities cash flow—direct method
The accounting records of Four Seasons Parts reveal the following:
Payment of salaries and wages \( 34,000
Net income \) 21,000
Depreciation expense 10,000
Payment of income tax 16,000
Payment of interest 17,000
Collection of dividend revenue 5,000
Payment of dividends 5,000
Payment to suppliers 51,000
Collections from customers 116,000
Compute cash flows from operating activities using the direct method for the year ended December 31, 2018.
Julie Lopez Company expects the following for 2018:
How much free cash flow does Lopez expect for 2018?
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