Chapter 23: Q6E (page 1376)
Data for Krauss Company are presented in E23-5.
Instructions
Prepare the operating activities section of the statement of cash flows using the indirect method.
The net cash provided by operating activities is computed as $198,500.
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Data for Brecker Inc. are presented in E23-13. Instructions Prepare a statement of cash flows using the indirect method.
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).
The income statement of Vince Gill Company is shown below.
VINCE GILL COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2017
Sales revenue \(6,900,000
Cost of goods sold
Beginning inventory \)1,900,000
Purchases 4,400,000
Goods available for sale 6,300,000
Ending inventory 1,600,000
Cost of goods sold 4,700,000
Gross profit 2,200,000
Operating expenses
Selling expenses 450,000
Administrative expenses 700,000 1,150,000
Net income \(1,050,000
Additional information:
1. Accounts receivable decreased \)360,000 during the year.
2. Prepaid expenses increased \(170,000 during the year.
3. Accounts payable to suppliers of merchandise decreased \)275,000 during the year.
4. Accrued expenses payable decreased \(100,000 during the year.
5. Administrative expenses include depreciation expense of \)60,000.
Instructions
Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2017, for Vince Gill Company, using the indirect method.
Following are selected statement of financial position accounts of Sander Bros. Corp. at December 31, 2017 and 2016, and the increases or decreases in each account from 2016 to 2017. Also presented is selected income statement information for the year ended December 31, 2017, and additional information.
Selected statement of financial position accounts
2017 | 2016 | Increase (Decrease) | |
Assets | |||
Property, plant, and equipment | \(277,000 | \)247,000 | \(30,000 |
Accumulated depreciation | (178,000) | (167,000) | (11,000) |
Accounts receivable | 34,000 | 24,000 | 10,000 |
Equity and liabilities | |||
Share capital—ordinary, \)1 par | \( 22,000 | \) 19,000 | \( 3,000 |
Share premium—ordinary | 9,000 | 3,000 | 6,000 |
Retained earnings | 104,000 | 91,000 | 13,000 |
Bonds payable | 49,000 | 46,000 | 3,000 |
Dividends payable | 8,000 | 5,000 | 3,000 |
| Selected income statement information for the year ended December 31, 2017 | |||
Sales revenue | \)155,000 | ||
Depreciation | 38,000 | ||
Gain on sale of equipment | 14,500 | ||
Net income | 31,000 | ||
Additional information:
There was no amortization of bond discount or premium.
Instructions Determine the category (operating, investing, or financing) and the amount that should be reported in the statement of cash flows for the following items.
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.
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