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Problem 1
To compare statement of cash flow reporting under the direct and indirect methods, enter a check mark to indicate which items are used with each method.
Cash Flows
Statement of Cash Flows Method
(and related changes)
Direct
Indirect
1.
Salaries payable increase or decrease
2.
Payments to employees
3.
Cash collections from customers
4.
Prepaid rent increase or decrease
Payments to suppliers
Inventory increase or decrease
7.
Utilities payable, increase or decrease
8.
Depreciation expense
9.
Net income
10.
Cash flows from operating activities
11.
Cash flows from investing activities
12.
Cash flows from financing activities
13.
Net increase or decrease in cash during the period
Problem 2
A company completed its income statement and balance sheet for the year and provided the following information:
Income Statement
Service Revenue $55,000
Expenses:
Salaries 42,500
Rent 7,200
Depreciation 6,800
Amortization of copyrights 1,000
Total Expenses 57,500
Net loss $(2,500)
Partial
Balance Sheet
Current Year
Prior Year
Accounts receivable $ 7,000 $16,000
Salaries Payable 14,000 7,200
Prepaid rent 6,200 2,400
In addition, the company bought a small piece of equipment costing $6,500.
Required:
- Prepare the operating activities section of the statement of cash flows using the indirect method.
- Explain why the company was able to report positive operating cash flow despite having a net loss for the year.
Problem 3
For the most recent accounting year, a company reported the following operating and cash activities:
|
Investments in other companies |
(8,628) |
|
Increase in inventories |
(2,685) |
|
Depreciation and amortization |
35,254 |
|
Long-term debt repayment |
(165,243) |
|
28,961 |
|
|
Proceeds from issuance of common stock |
13,485 |
|
Proceeds from sale of property and equipment |
3,590 |
|
Payment of dividends |
(6,255) |
|
Proceeds from long-term debt issuance |
61,785 |
|
Purchases of property and equipment |
(25,400) |
|
Decrease in accounts receivable |
5,291 |
|
Decrease in accounts payable |
(8,466) |
Requirements:
- Prepare the operating, investing and financing sections of the cash flow statement.
- Explain the major sources and uses of cash for the year.
Problem 4
The balance sheet and income statement for a company are provided below, along with selected additional financial information.
| Current Year | Prior Year | |||
| Balance Sheet | ||||
|
Cash |
79,250 |
73,840 |
||
|
Accounts Receivable |
18,820 |
24,185 |
||
|
Merchandise Inventory |
15,354 |
6,976 |
||
|
Property and equipment |
285,735 |
175,000 |
||
|
Accumulated Depreciation |
(89,000) |
(72,630) |
||
|
Total Assets |
310,159 |
207,371 |
||
|
Accounts Payable |
8,500 |
18,200 |
||
|
Wages |
3,208 |
2,194 |
||
|
Notes payable, long-term |
72,840 |
86,100 |
||
|
Contributed capital |
84,255 |
65,980 |
||
|
Retained earnings |
141,356 |
34,897 |
||
|
Total Liabilities and Stockholders’ Equity |
||||
| Income Statement | ||||
|
Sales |
284,955 |
|||
|
Cost of goods sold |
91,357 |
|||
|
32,187 |
||||
|
Depreciation expense |
16,370 |
|||
|
Other Expense |
22,358 |
|||
|
122,683 |
Additional data:
a)
Purchased equipment for cash $110,735
b)
Paid $13,260 on a long-term loan
c)
Issued new shares of stock for $18,275 cash
d)
Dividends of $16,224 were declared and paid.
Required:
Prepare a statement of cash flows for the year using the indirect method.
