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Chapter 14: Q14-7SE (page 770)

Question: Computing investing and financing cash flows Preston Media Corporation had the following income statement and balance sheet for 2018:

PRESTON MEDIA CORPORATION

Income Statement

Year Ended December 31, 2018

Sales Revenue \(80,000

Depreciation Expense––Plant Assets \)11,000

Other Expenses \(50,000

Net Income \)19,000

Requirements

1. Compute the acquisition of plant assets for Preston Media Corporation during 2018. The business sold no plant assets during the year. Assume the company paid cash for the acquisition of plant assets.

2. Compute the payment of a long-term note payable. During the year, the business issued a $4,400 note payable.

Short Answer

Expert verified

Answer

Requirement (1): cash paid to purchase new plant is $21,000.

Requirement (2): Payment of a long-term note payable is $7,400.

Step by step solution

01

(Requirement 1.) Computation of acquisition of plant assets for Preston Media Corporation during 2018

Particulars

Amount ($)

Plant assets (31st December, 2018)

105,350

Plant assets (31st December, 2017)

(84,350)

Cash paid to purchase new plant

21,000

02

(Requirement 2.) Computation of the payment of a long-term note payable

Particulars

Amount($)

Particulars

Amount($)

Payment

7,400

Opening balance (31/12/2017)

12,000

Closing balance (31/12/2018)

9,000

New issuance

4,400

Total

16,400

Total

16,400

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Most popular questions from this chapter

Preparing operating activities using the direct method Amy’s Learning Center has assembled the following data for the year ended June 30, 2018:

Payments to suppliers $ 115,000

Cash payment for purchase of equipment 39,000

Payments to employees 66,000

Payment of notes payable 34,000

Payment of dividends 7,500

Cash receipt from issuance of stock 22,000

Collections from customers 188,000

Cash receipt from sale of land 58,000

Cash balance, June 30, 2017 41,000 Prepare the operating activities section of the business’s statement of cash flows for the year ended June 30, 2018, using the direct method.

Computing operating activities cash flow—indirect method

The accounting records of CD Sales, Inc. include the following accounts: Account Beginning Balance Ending Balance Cash \( 7,500 \) 6,500 Accounts Receivable 21,000 17,500 Merchandise Inventory 20,000 30,000 Accounts Payable 15,000 19,000 Accumulated Depreciation— Equipment

2,000 Depr. Exp.

56,000 Jul. 1

58,000 Jul. 31

Retained Earnings

Dividends 15,000

63,000 Jul. 1

50,000 Net Inc.

98,000 Jul. 31

Compute CD’s net cash provided by (used for) operating activities during July 2018. Use the indirect method.

Preparing the statement of cash flows—direct method The income statement and additional data of Value Corporation follow:

  1. Collections from customers are \(13,000 more than sales.
  2. Dividend revenue, interest expense, and income tax expense equal their cash amounts.
  3. Payments to suppliers are the sum of cost of goods sold plus advertising expense.
  4. Payments to employees are \)3,000 more than salaries expense.
  5. Cash payment for the acquisition of plant assets is \(102,000.
  6. Cash receipts from sale of land total \)29,000.
  7. Cash receipts from issuance of common stock total \(38,000.
  8. Payment of long-term notes payable is \)10,000.
  9. Payment of dividends is \(9,000.
  10. Cash balance at June 30, 2017, was \)21,000; at June 30, 2018, it was $43,000.
    Prepare Value Corporation’s statement of cash flows for the year ended June 30, 2018. Use the direct method.

Using a spreadsheet to complete the statement of cash flows— indirect method

Companies can use a spreadsheet to complete the statement of cash flows. Each item that follows is recorded in the transaction analysis columns of the spreadsheet.

  1. Net income
  2. Increases in current assets (other than Cash)
  3. Decreases in current liabilities
  4. Cash payment for acquisition of plant assets
  5. Cash receipt from issuance of common stock
  6. Depreciation expense

Identify each as being recorded by a Debit or Credit in the statement of cash flows section of the spreadsheet


Question: Computing cash flows for investing and financing activities Consider the following facts for Java Jolt:

  1. Beginning and ending Retained Earnings are \(45,000 and \)70,000, respectively. Net income for the period is \(60,000.
  2. Beginning and ending Plant Assets are \)124,500 and \(134,500, respectively.
  3. Beginning and ending Accumulated Depreciation—Plant Assets are \)21,500 and \(26,500, respectively.
  4. Depreciation Expense for the period is \)17,000, and acquisitions of new plant assets total \(29,000. Plant assets were sold at a \)5,000 gain. Requirements
  5. How much are cash dividends?
  6. What was the amount of the cash receipt from the sale of plant assets?
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