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Chapter 14: Q14-13RQ (page 769)
Question: What should the net change in cash section of the statement of cash flows always reconcile with?
Answer
The net change in cash section of the statement of cash flows always reconcile with the closing balance of the cash in the balance sheet.
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Preparing the statement of cash flows—indirect method The income statement of Boost Plus, Inc. follows: Gross Profit Net Sales Revenue Cost of Goods Sold Salaries Expense 137,000 94,000 3,000 56,000 \( 54,000 81,000 Depreciation Expense––Plant Assets Net Income Before Income Taxes Income Tax Expense Net Income Total Operating Expenses 27,000 \) 53,000 BOOST PLUS, INC. Income Statement Year Ended September 30, 2018 Operating Expenses: \( 231,000 Additional data follow: a. Acquisition of plant assets is \)124,000. Of this amount, \(108,000 is paid in cash and \)16,000 by signing a note payable. b. Cash receipt from sale of land totals \(20,000. There was no gain or loss. c. Cash receipts from issuance of common stock total \)36,000. d. Payment of notes payable is \(15,000. e. Payment of dividends is \)5,000. f. From the balance sheet: September 30 2018 2017 Cash \( 39,000 \) 13,000 Accounts Receivable 46,000 61,000 Merchandise Inventory 94,000 88,000 Land 82,000 102,000 Plant Assets 214,000 90,000 Accumulated Depreciation (61,000) (34,000) Accounts Payable 32,000 15,000 Accrued Liabilities 12,000 20,000 Notes Payable (long-term) 16,000 15,000 Common Stock, no par 40,000 4,000 Retained Earnings 314,000 266,000 Prepare Boost Plus’s statement of cash flows for the year ended September 30, 2018, using the indirect method. Include a separate section for non-cash investing and financing activities
Preparing a statement of cash flows using the direct method Jelly Bean, Inc. began 2018 with cash of \(58,000. During the year, Jelly Bean earned revenue of \)595,000 and collected \(614,000 from customers. Expenses for the year totaled \)427,000, of which Jelly Bean paid \(212,000 in cash to suppliers and \)205,000 in cash to employees. Jelly Bean also paid \(148,000 to purchase equipment and a cash dividend of \)57,000 to its stockholders during 2018. Prepare the company’s statement of cash flows for the year ended December 31, 2018. Format operating activities by the direct method.
The 2018 income statement and comparative balance sheet of Sweet Valley, Inc. follow:
Additionally, Sweet Valley purchased land of \(20,900 by financing it 100% with long-term notes payable during 2018. During the year, there were no sales of land, no retirements of stock, and no treasury stock transactions. A plant asset was disposed of for \)0. The cost and the accumulated depreciation of the disposed asset was $13,240. Plant asset was acquired for cash.
Requirements
1. Prepare the 2018 statement of cash flows, formatting operating activities by the indirect method.
2. How will what you learned in this problem help you evaluate an investment?
Question: Describing the purposes of the statement of cash flows Financial statements all have a goal.
The statement of cash flows does as well. Describe how the statement of cash flows helps investors and creditors perform each of the following functions:
a. Predict future cash flows.
b. Evaluate management decisions.
c. Predict the ability to make debt payments to lenders and pay dividends to stockholders.
Using a spreadsheet to prepare the statement of cash flows— indirect method The 2018 comparative balance sheet and income statement of Attleboro Group, Inc. follow. Attleboro disposed of a plant asset at book value in 2018.
Prepare the spreadsheet for the 2018 statement of cash flows. Format cash flows from operating activities by the indirect method. A plant asset was disposed of for \(0. The cost and accumulated depreciation of the disposed asset was \)13,600. There were no sales of land, no retirement of common stock, and no treasury stock transactions. Assume plant asset and land acquisitions were for cash.
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