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5.
Cash
flow information: Direct and indirect methods
The comparative year-end balance sheets of USA Graphics, Inc., revealed the following activity in the company’s current accounts:
|
20X8 |
20X7 |
Increase / Decrease) |
|
|
Current assets |
|||
| Cash |
$55,400 |
$35,200 |
$20,200 |
|
Accounts receivable (net) |
83,800 |
88,000 |
-4,200 |
|
Inventory |
243,400 |
233,800 |
9,600 |
|
Prepaid expenses |
25,400 |
24,200 |
1,200 |
|
Current liabilities |
|||
|
Accounts payable |
$123,600 |
$140,600 |
($17,000) |
|
Taxes payable |
43,600 |
49,200 |
-5,600 |
|
Interest payable |
9,000 |
6,400 |
2,600 |
|
Accrued liabilities |
38,800 |
60,400 |
-21,600 |
|
Note payable |
44,000 |
— |
The accounts payable were for the purchase of merchandise. Prepaid expenses and accrued liabilities relate to the firm’s selling and administrative expenses. The company’s condensed income statement follows:
|
USA GRAPHICS INC. |
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|
Income Statement |
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|
for the Year Ended December 31, 20X8 |
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|
|
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|
Sales |
$691,800 |
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|
Less: Cost of goods sold |
223,000 |
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|
Gross profit |
$468,800 |
||||||||||||||||||||||||||||||||
|
Less: Selling & administrative expenses |
$177,000 |
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|
Depreciation expense |
18,000 |
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|
Interest expense |
27,000 |
222,000 |
|||||||||||||||||||||||||||||||
|
Add: gain on sale of land |
$246,800 |
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|
18,800 |
|||||||||||||||||||||||||||||||||
|
Income before taxes |
$265,600 |
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|
Income taxes |
38,300 |
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|
Net income |
$227,300 |
Other data:
1. Long-term investments were purchased for cash at a cost of $64,200.
2. Cash proceeds from the sale of land totaled $74,200.
3. Store equipment of $34,000 was purchased by signing a short-term note payable. Also, a $140,000 telecommunications system was acquired by issuing 3,000 shares of preferred stock.
4. A long-term note of $42,200 was repaid.
5. Twenty thousand shares of common stock were issued at $5.19 per share.
6. The company paid cash dividends amounting to $125,000.
Instructions:
a. Prepare the operating activities section of the company’s statement of cash flows, assuming use of:
1. The direct method.
2. The indirect method.
b. Prepare the investing and financing activities sections of the statement of cash flows.
