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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.

Short Answer

Expert verified

The net cash provided by operating activities is computed as $198,500.

Step by step solution

01

Definition of Indirect method

The indirect method of cash flow statement is defined as the method of preparing the statement of cash flow which starts from net income and it uses increases and decreases in balance sheet line items to modify the operating section of the cash flow.

02

Preparation statement of cash flow (partial)

KRAUSS COMPANY
Partial Statement of Cash Flows
For the year ended December 31, 2017

Net Income

$90,000

Adjustment to reconcile net income to net cash provided by operating activities:

Depreciation expense

$60,000

Loss on sale of equipment

26,000

Decrease in accounts receivable

17,000

Increase in accounts payable

10,000

Decrease in income tax payable

-4,500

108,500

Net cash provided by operating activities

$198,500

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Most popular questions from this chapter

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 Storeโ€™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 Pacificโ€™s statement of cash flows is an excellent portrayal of a superb first year, with cash increasing \(109,000. Lenny replies that it was not a superb first yearโ€”that the year was an operating failure, the statement was incorrectly presented, and \)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 capitalโ€”ordinary, \)1 par

\( 22,000

\) 19,000

\( 3,000

Share premiumโ€”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:

  1. During 2017, equipment costing \(45,000 was sold for cash.
  2. Accounts receivable relate to sales of merchandise.
  3. During 2017, \)25,000 of bonds payable were issued in exchange for property, plant, and equipment.

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.

  1. Payments for purchase of property, plant, and equipment.
  2. Proceeds from the sale of equipment.
  3. Cash dividends paid.
  4. Redemption of bonds payable.

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 Moxleyโ€™s 2017 cash payments to suppliers.

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