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Chapter 14: Q14-5RQ (page 768)
Question: Describe the two formats for reporting operating activities on the statement of cash flows.
Answer
The two formats for reporting operating activities on the statement of cash flows are:
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Computing cash flow items—direct method Consider the following facts:
Requirements
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.
Question: Big Island, Inc. began 2018 with cash of \(40,000. During the year, Big Island earned revenue of \)200,000 and collected \(120,000 from customers. Expenses for the year totaled \)160,000, of which Big Island paid \(65,000 in cash to suppliers and \)80,000 in cash to employees. The company received \(2,000 cash for interest revenue and paid \)10,000 for income taxes. Big Island also paid \(35,000 to purchase equipment and a cash dividend of \)15,000 to its stockholders during 2018. Prepare the company’s operating activities section of the statement of cash flows for the year ended December 31, 2018. Use the direct method.
Question: Preparing the statement of cash flows—direct method The income statement and additional data of Value Corporation follow:
Prepare Value Corporation’s statement of cash flows for the year ended June 30, 2018. Use the direct method.
Preparing the statement of cash flows—direct method
Diversion Rare Coins (DRC) was formed on January 1, 2018. Additional data for the year follow:
a. On January 1, 2018, DRC issued no par common stock for \(450,000.
b. Early in January, DRC made the following cash payments:
1. For store fixtures, \)46,000
2. For merchandise inventory, \(310,000
3. For rent expense on a store building, \)18,000
c. Later in the year, DRC purchased merchandise inventory on account for \(238,000. Before year-end, DRC paid \)138,000 of this accounts payable.
d. During 2018, DRC sold 2,700 units of merchandise inventory for \(400 each. Before year-end, the company collected 85% of this amount. Cost of goods sold for the year was \)340,000, and ending merchandise inventory totaled \(208,000.
e. The store employs three people. The combined annual payroll is \)97,000, of which DRC still owes \(6,000 at year-end.
f. At the end of the year, DRC paid income tax of \)18,000. There was no income taxes payable.
g. Late in 2018, DRC paid cash dividends of $35,000.
h. For store fixtures, DRC uses the straight-line depreciation method, over five years, with zero residual value.
Requirements
1. Prepare DRC’s income statement for the year ended December 31, 2018. Use the single-step format, with all revenues listed together and all expenses listed together.
2. Prepare DRC’s balance sheet at December 31, 2018.
3. Prepare DRC’s statement of cash flows for the year ended December 31, 2018. Format cash flows from operating activities by the direct method
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