Charlotte Company\'s net income last year was $99,000. Changes in the company\'s
ID: 2478772 • Letter: C
Question
Charlotte Company's net income last year was $99,000. Changes in the company's balance sheet accounts for the year appear below
The company did not dispose of any property, plant, and equipment, sell any long-term investments, issue any bonds payable, or repurchase any of its own common stock during the year. The company declared and paid a cash dividend $21,000.
Required:
Prepare the operating activities section of the company's statement of cash flows for the year. (Use the indirect method.) (Amounts to be deducted should be indicated with a minus sign. Omit the "$" sign in your response.)
Prepare the investing activities section of the company's statement of cash flows for the year. (Amounts to be deducted should be indicated with a minus sign. Omit the "$" sign in your response.)
Prepare the financing activities section of the company's statement of cash flows for the year. (Amounts to be deducted should be indicated with a minus sign. Omit the "$" sign in your response.)
$
I am unsure if I was working this correctly. Please help! THank you.
Increases(Decreases) Asset and Contra-Asset Accounts: Cash $ 46,800 Accounts receivable $ 37,000 Inventory $ (44,000) Prepaid expenses $ 11,200 Long-term investments $ 55,000 Property, plant and equipment $ 85,000 Accumulated depreciation $ 61,000 Liability and Equity Accounts: Accounts payable $ (44,000) Accrued liabilities $ 34,000 Income taxes payable $ 64,000 Bonds payable $ (75,000) Common stock $ 45,000 Retained earnings $ 78,000
Explanation / Answer
Note:
The net increase in cash is not equal to the increase of $46800 and thre is a difference of $28000.
The Increase or decrease in liabilities must be same as that in assets so that the balance sheet totals become equal in both sides. But the increase or decrease in assets and liabilities & Equity sides of the balance sheet as given in the problem are not same as shown below :
Net increase in the asset
Net Increase in Liabilities & Equities:
The difference is 130000 - 102000 = $28000.
As there is no sale of assset or investments and as there is no other information realted to this $28000, the difference of $28000 has not been incorporated in the cash flow statement which has resulted the net increase in cash as $18800 instead of $46800.
Net profit 99000 Adjustments to convert net income to cash basis: Depreciation 61000 Decrease in inventory 44000 Increase in accrued liabilites 34000 Increase in income tax payable 64000 203000 302000 Increase in accounts receivable 37000 Increase in prepaid expenses 11200 decrease in accounts payable 44000 -92200 Net cash flow from operating activites 209800 Investing Activites: Purchase of long term investments -55000 purchase of plant & equipment -85000 Net cash flow used in investing activities -140000 Financing activites Issue of common stock 45000 Repayment of bonds payable -75000 Payment of dividend -21000 Net cash flow used in financing activites -51000 Net increase in cash 18800