I. Prepare a statement of cash flow on both a direct and indirect basis 2017 201
ID: 2528834 • Letter: I
Question
I. Prepare a statement of cash flow on both a direct and indirect basis 2017 2016 Assets: Cash Accounts receivable, net Inventory Prepaid expenses Investments Property, plant & equipment Accumulated depreciation Patents 215,000 87,000 74,000 12,000 70,000 750,000 (90,000) 6,000 1,124,000 70,000 55,000 60,000 20,000 80,000 550,000 (70,000) 10,000 775,000 Total Assets Liabilities & Equity Accounts payable Accrued liabilities Taxes payable Long-term Notes Payable Common stock Additional paid in capital Retained earnings 37,000 26,000 18,000 100,000 200,000 336,000 407,000 1,124,000 50,000 40,000 4,000 200,000 286,000 195,000 775,000 Total liabilities and equity Sales Cost of goods sold Gross profit 1,450,000 780,000 670,000 Operating expenses Pre-tax Operating income Gain on sale of investments Gain on sale of equipment Pre-tax income Income taxes Net income 290,000 380,000 6,000 4,000 390,000 78,000 312,000 a. Stock option expense of $50,000 was recognized in 2017 b. Equipment of $210,000 was purchased using $100,000 note payable and cash c. Equipment with cost of $10,000 and book value of $5,000 was sold for $9,000 d. Investments with a cost of $10,000 were sold for $16,000Explanation / Answer
Statement of cash flows for the year ended June 30, 2017 (Indirect method) Cash flow from operating activities Net income 312000 Adjustment for items not affecting cash Depreciation for the year * 25000 Amortization of patents 4000 Gain on sale of investments -6000 Gain on sale of equipment -4000 Adjustment for changes in working capital Increase in accounts receivable -32000 Increase in inventory -14000 Decrease in prepaid expense 8000 Decrease in accounts payable -13000 Decrease in accrued liabilities -14000 Increase in taxes payable 14000 -32000 Net cash flow from operating activities 280000 Cash flow from inesting activities Sale of equipment 9000 Sale of investments 16000 Purchase of equipment -110000 Net cash flow from investing activities -85000 Cash flow from financing activities Cash dividends paid ** -50000 Net cash flow from financing activities -50000 Net cash flow 145000 Cash balance as on July1, 2016 70000 Cash balance as on June 30, 2017 215000 Depreciation expense for the year Accumulated depreciation on January 1, 2017 70000 Less: Depreciation on equipment sold (10,000 - 5,000) -5000 Total Accumulated Depreciation (A) 65000 Accumulated depreciation on December 31, 2017 (B) 90000 Depreciation expense for the year ( B - A ) * 25000 Dvidends paid Retained earnings on January 1, 2017 195000 Plus: Net income for the year 312000 Total 507000 Less: Stock options exercised 50000 Balance 457000 Retained earnings on December 31, 2017 407000 Cash dividends paid ** 50000