CP12-7 (Supplement 12A) Preparing and Interpreting a Statement of Cash Flows wit
ID: 2579519 • Letter: C
Question
CP12-7 (Supplement 12A) Preparing and Interpreting a Statement of Cash Flows with Loss on Disposal (Indirect Method) [LO 12-S1] Soft Touch Company was started several years ago by two golf instructors. The company's comparative balance sheets and income statement are presented below, along with additional information Current Year Previous Balance Sheet at December 31 Cash Accounts Receivable Equipment $13,560 7,750 3,400 12,000 Accumulated Depreciation-Equipment (2,570) (2,400) 2,300 12,900 $26,190 $20,750 Accounts Payable Salaries and Wages Payable Note Payable (long-term) Common Stock Retained Earnings $1,400 1,900 1.450 1,000 12,000 4.400 960 2.900 12,000 8,930 $26,190 $20,750 Income Statement Service Revenue Salaries and Wages Expense Depreciation Expense Loss on Disposal of Equipment Income Tax Expense $74,400 67,500 780 390 1,200 Net Income S 4,530 Additional Data a. Bought new golf clubs for $2,900 cash and sold existing clubs for $1,000 cash. The clubs that were sold had cost $2,000 and had Accumulated Depreciation of $610 at the time of sale b. Borrowed S1,900 cash from the bank during the year. c. Accounts Payable includes only purchases of services made on credit for operating purposes. Because there are no liability accounts relating to income tax, assume that Income Tax Expense was fully paid in cashExplanation / Answer
Soft Touch Company
CASH FLOW STATEMENT FOR THE YEAR ENDED DEC 31
$
$
CASH FLOW FROM OPERATING ACTIVITIES
Adjustments to Reconcile Net Income to
Net Cash provided by Operating Activities:
Net income before tax (4530+1200)
5,730.00
Adjustment For:
Depreciation
780.00
Loss on sale of equipment
390.00
Accounts Receivable
1,100.00
Accounts payable
-500.00
Salaries and Wages payable
-490.00
Cash From Operating Activities Before Taxes
7,010.00
Less: Taxes paid during the year
-1,200.00
NET CASH FROM OPERATING ACTIVITIES (A)
5,810.00
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of Golf club
-2,900.00
Sale of Golf club
1,000.00
NET CASH FROM INVESTING ACTIVITIES (B)
(1,900.00)
CASH FLOW FROM FINANCING ACTIVITIES
Borrowings from Bank
1,900.00
NET CASH FROM FINANCING ACTIVITIES (C)
1,900.00
NET CHANGES IN CASH AND CASH EQUIVALENTS (A+B+C)
5,810.00
ADD: OPENING CASH AND CASH EQUIVALENTS
7,750.00
CLOSING CASH AND CASH EQUIVALENTS
13,560.00
Soft Touch Company
CASH FLOW STATEMENT FOR THE YEAR ENDED DEC 31
$
$
CASH FLOW FROM OPERATING ACTIVITIES
Adjustments to Reconcile Net Income to
Net Cash provided by Operating Activities:
Net income before tax (4530+1200)
5,730.00
Adjustment For:
Depreciation
780.00
Loss on sale of equipment
390.00
Accounts Receivable
1,100.00
Accounts payable
-500.00
Salaries and Wages payable
-490.00
Cash From Operating Activities Before Taxes
7,010.00
Less: Taxes paid during the year
-1,200.00
NET CASH FROM OPERATING ACTIVITIES (A)
5,810.00
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of Golf club
-2,900.00
Sale of Golf club
1,000.00
NET CASH FROM INVESTING ACTIVITIES (B)
(1,900.00)
CASH FLOW FROM FINANCING ACTIVITIES
Borrowings from Bank
1,900.00
NET CASH FROM FINANCING ACTIVITIES (C)
1,900.00
NET CHANGES IN CASH AND CASH EQUIVALENTS (A+B+C)
5,810.00
ADD: OPENING CASH AND CASH EQUIVALENTS
7,750.00
CLOSING CASH AND CASH EQUIVALENTS
13,560.00