Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

Question: (SCF—Indirect Method) Condensed financial data of Pat Metheny Company for 2017 and 2016 are presented below.

PAT METHENY COMPANY

COMPARATIVE BALANCE SHEET

AS OF DECEMBER 31, 2017 AND 2016


2017

2016

Cash

\(1,800

\)1,150

Receivables

1,750

1,300

Inventory

1,600

1,900

Plant assets

1,900

1,700

Accumulated depreciation

(1,200)

(1,170)

Long-term-investment (Held to maturity)

1,300

1,420

\(7,150

\)6,300

Account payable

\(1,200

\)900

Accrued liabilities

200

250

Bond payable

1,400

1,550

Common stock

1,900

1,700

Retained earnings

2,450

1,900

\(7,150

\)6,300

PAT METHENY COMPANY

INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2017

Sales

\(6,900

Cost of goods sold

(4,700)

Gross margin

2,200

Selling and administrative expenses

930

Income from operations

1,270

Other revenue and gains

Gains on sale of investment

80

Income before tax

1,350

Income tax expenses

540

Net income

810

Cash dividend

260

Income retained in business

\)550

Additional information:

During the year, $70 of common stock was issued in exchange for plant assets. No plant assets were sold in 2017.

Instructions

Prepare a statement of cash flows using the indirect method.

Short Answer

Expert verified

Answer

Net changes in the cash balance are$650.

Step by step solution

01

Definition of Statement of Cash Flow

The schedule that provides the summary of all the transactions, including cash payments and receipts, is known as the cash flow statement.

02

Statement of cash flows using the indirect method

Particular

Amount $

Net income

$810

Add/less: adjustments to net income

Depreciation

30

Add/less: Change in the current assets and liabilities

Increase in receivables

(450)

Gain on sale of investment

(80)

Decrease in inventory

300

Increase in accounts payable

300

Decrease in accrued liabilities

(50)

Cash flow from operations (A)

$860

Investing activities:

Purchase of plant assets

(130)

Sale of held to maturity security

200

Cash flow from investing activities (B)

$70

Financing Activity:

Cash dividend

(260)

Redemption of bonds

(150)

Issuance of capital

130

Cash used in financing activities (C)

($280)

The net change in a cash balance

$650

Add: Opening cash balance

$1,150

Closing cash balance (2017 balance)

$1,800

Non-cash significant financing and investing activity

Issue of common stock against the acquisition of plant

$70

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Indicate in general journal form how the items below would be entered in a worksheet for the preparation of the statement of cash flows.

(a) Net income is \(317,000.

(b) Cash dividends declared and paid totaled \)120,000.

(c) Equipment was purchased for \(114,000.

(d) Equipment that originally cost \)40,000 and had accumulated depreciation of \(32,000 was sold for \)10,000.

Under IFRS, significant non-cash transactions:

  1. are classified as operating, if they are related to income items.
  2. are excluded from the statement of cash flows and disclosed in a narrative form or summarized in a separate schedule.
  3. are classified as an investing or financing activity.
  4. are classified as an operating activity, unless they can be specifically identified with financing or investing activities.

Question: (SCF Theory and Analysis of Improper SCF) Teresa Ramirez and Lenny Traylor are examining the following statement of cash flows for Pacific Clothing Store’s first year of operations.


PACIFIC CLOTHING STORE

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED JANUARY 31, 2017

Sources of cash

From sales of merchandise

\(382,000

From sale of common stock

380,000

From sale of investment

120,000

From depreciation

80,000

From issuance of note for truck

30,000

From interest on investments

8,000

Total sources of cash

1,000,000

Uses of cash

For purchase of fixtures and equipment

330,000

For merchandise purchased for resale

253,000

For operating expenses (including depreciation)

170,000

For purchase of investment

95,000

For purchase of truck by issuance of note

30,000

For purchase of treasury stock

10,000

For interest on note

3,000

Total uses of cash

891,000

Net increase in cash

\)109,000

Teresa claims that Pacific’s statement of cash flows is an excellent portrayal of a superb first year, with cash increasing \(109,000. Lenny replies that it was not a superb first year—that the year was an operating failure, the statement was incorrectly presented, and \)109,000 is not the actual increase in cash.

Instructions

(a) With whom do you agree, Teresa or Lenny? Explain your position.

(b) Using the data provided, prepare a statement of cash flows in proper indirect method form. The only noncash items in income are depreciation and the gain from the sale of the investment (purchase and sale are related).

Question: GROUPWORK (Analysis of Transactions’ Effect on SCF) Each of the following items must be considered in preparing a statement of cash flows for Cruz Fashions Inc. for the year ended December 31, 2017.

  1. Fixed assets that had cost \(20,000 6½ years before and were being depreciated on a 10-year basis, with no estimated scrap value, were sold for \)4,750.
  2. During the year, goodwill of \(15,000 was considered impaired and was completely written off to expense.
  3. During the year, 500 shares of common stock with a stated value of \)25 a share were issued for \(32 a share.
  4. The company sustained a net loss for the year of \)2,100. Depreciation amounted to \(2,000 and patent amortization was \)400.
  5. Uncollectible accounts receivable in the amount of \(2,000 were written off against Allowance for Doubtful Accounts.
  6. Investments (available-for-sale) that cost \)12,000 when purchased 4 years earlier were sold for \(10,600.
  7. Bonds payable with a par value of \)24,000 on which there was an unamortized bond premium of $2,000 were redeemed at 101.

Instructions

For each item, state where it is to be shown in the statement and then how you would present the necessary information, including the amount. Consider each item to be independent of the others. Assume that correct entry were made for all transactions as they took place.

Moxley Corporation had January 1 and December 31 balances as follows.

1/1/17 12/31/17

Inventory \(95,000 \)113,000

Accounts payable 61,000 69,000

For 2017, cost of goods sold was $500,000. Compute Moxley’s 2017 cash payments to suppliers.

See all solutions

Recommended explanations on Business Studies Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free