Prepare a Statement of cash flows using the direct method (please show all calcu
ID: 2528968 • Letter: P
Question
Prepare a Statement of cash flows using the direct method (please show all calculations)
2017
2016
Assets:
Cash
200,000
80,000
Accounts receivable, net
87,000
65,000
Inventory
55,000
50,000
Prepaid expenses
12,000
20,000
Property, plant & equipment
700,000
500,000
Accumulated depreciation
(100,000)
(60,000)
Total Assets
954,000
655,000
Liabilities & Equity
Accounts payable
37,000
25,000
Accrued liabilities
26,000
20,000
Taxes payable
15,000
5,000
Long-term Notes Payable
110,000
50,000
Common stock
100,000
100,000
Additional paid in capital
285,000
260,000
Retained earnings
381,000
195,000
Total liabilities and equity
954,000
655,000
Sales
1,200,000
Cost of goods sold
650,000
Gross profit
550,000
Operating expenses
180,000
Pre-tax income
370,000
Income taxes
74,000
Net income
296,000
a. Stock option expense of $25,000 was recognized in 2017
b. Equipment of $200,000 was purchased using $60,000 note payable and cash
2017
2016
Assets:
Cash
200,000
80,000
Accounts receivable, net
87,000
65,000
Inventory
55,000
50,000
Prepaid expenses
12,000
20,000
Property, plant & equipment
700,000
500,000
Accumulated depreciation
(100,000)
(60,000)
Total Assets
954,000
655,000
Liabilities & Equity
Accounts payable
37,000
25,000
Accrued liabilities
26,000
20,000
Taxes payable
15,000
5,000
Long-term Notes Payable
110,000
50,000
Common stock
100,000
100,000
Additional paid in capital
285,000
260,000
Retained earnings
381,000
195,000
Total liabilities and equity
954,000
655,000
Sales
1,200,000
Cost of goods sold
650,000
Gross profit
550,000
Operating expenses
180,000
Pre-tax income
370,000
Income taxes
74,000
Net income
296,000
Explanation / Answer
Solution:
Cash Flow Statement (Direct Method)
Particulars
Amount($)
A.CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers (WN 1)
1,178,000
Cash payments to suppliers (WN 2)
(635,000)
Cash payments for operating expenses (WN 3)
(109,000)
Cash payment for income tax expense (WN 4)
(64,000)
Net cash provided by operating activities
370,000
B.CASH FLOW FROM INVESTING ACTIVITIES
Purchase of equipment for cash (WN 5)
(140,000)
Net cash used in investing activities
( 140,000)
C.CASH FLOW FROM FINANCING ACTIVITIES
Additional paid in capital
25,000
Payment of dividend (WN 6)
(110,000)
Stock option expense
(25,000)
Net cash used in financing activities
(110,000)
Net Increase in cash (A + B+ C)
120,000
Add: Cash at the beginning (or 2016)
80,000
Cash at the end (or 2017)
200,000
Working Notes (WN):
1: Cash received from customers:
=Sales revenue + Accounts Receivable, net 2016 -Accounts Receivable, net 2017
= $ 1,200,000 + $ 65,000- $ 87,000
=$ 1,178,000
2: Cash payments to suppliers:
=Cost of goods sold + Accounts payable 2016 -Accounts Payable 2017 + Inventory 2017 – Inventory 2016 + Prepaid expenses 2017 – Prepaid expenses 2016
=$ 650,000+ $ 25,000-$ 37,000+ $ 55,000- $ 50,000+ $ 12,000 - $ 20,000
=$ 635,000
3: Cash payments for operating expenses:
= Operating expenses- Depreciation - Stock option expense - Increase in accrued liabilities
=$ 180,000- $40,000 - $ 25,000 -$ 6,000
= $ 109,000
4. Income tax payment:
= Tax payable 2016 – Tax payable 2017 + Income tax expense 2017
= $ 5,000 - $ 15,000 + $ 74,000
= $ 64,000
5. Property, plant & equipment Account
Particulars
Debit
Amount ($)
Particulars
Credit
Amount ($)
Beginning Balance
500,000
Purchase:
Note Payable : $ 60,000
Cash: $ 140,000
(Balancing figure)
200,000
Ending Balance
700,000
Total
700,000
Total
700,000
6. Retained Earnings Account
Particulars
Debit
Amount ($)
Particulars
Credit
Amount ($)
Beginning Balance
195,000
Dividend paid
(Balancing figure)
110,000
Net Income (2017)
296,000
Ending Balance
381,000
Total
491,000
Total
491,000
Particulars
Amount($)
A.CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers (WN 1)
1,178,000
Cash payments to suppliers (WN 2)
(635,000)
Cash payments for operating expenses (WN 3)
(109,000)
Cash payment for income tax expense (WN 4)
(64,000)
Net cash provided by operating activities
370,000
B.CASH FLOW FROM INVESTING ACTIVITIES
Purchase of equipment for cash (WN 5)
(140,000)
Net cash used in investing activities
( 140,000)
C.CASH FLOW FROM FINANCING ACTIVITIES
Additional paid in capital
25,000
Payment of dividend (WN 6)
(110,000)
Stock option expense
(25,000)
Net cash used in financing activities
(110,000)
Net Increase in cash (A + B+ C)
120,000
Add: Cash at the beginning (or 2016)
80,000
Cash at the end (or 2017)
200,000