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Chapter 14: Q14SE (page 773)

Preparing the direct method statement of cash flows Red Toy Company reported the following comparative balance sheet:

Requirements

1. Compute the collections from customers during 2018 for Red Toy Company. Sales Revenue totaled \(134,000.

2. Compute the payments for inventory during 2018. Cost of Goods Sold was \)79,000.

Short Answer

Expert verified

Requirement 1. Collections from customers during 2018 is $123,000

Requirement 2. Payments for inventory during 2018 is $63,000.

Step by step solution

01

Step-by-Step SolutionStep 1: Computation of collections from customers during 2018 for Red Toy Company

Particulars

Amount($)

Particulars

Amount($)

Account Receivables (31st December,2017)

42,000

Account Receivables (31st December,2018)

53,000

Sales revenue

134,000

Cash collected (Balancing figure)

123,000

Total

176,000

Total

176,000

02

Computation of payments for inventory during 2018

Cash paid for inventory = Cost of goods sold – Beginning merchandise inventory + Ending merchandise inventory + Beginning Accounts Payable - Ending Accounts Payable

Cash paid for inventory =$79,000 –$88,000 + $76,000 + $38,000 - $42,000

=$63,000

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Most popular questions from this chapter

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.

Preparing the statement of cash flows-indirect statement This problem continues the Canyon Canoe Company situation from Chapter 13. Canyon Canoe Company's comparative balance sheet is shown below. 2019 amounts are assumed, but include several transactions from prior chapters.

Additional data fellow:

  1. The income statement for 2019 included the following items: Net income, \(417,000. Depreciation expense for the year, \)34,330. Amortization on the bonds payable, \(254.
  2. There were no disposals of property, plant and equipment during this year. All acquistions of PP&E were for cash except the land, which was acquired by issuing preferred stock.
  3. The company issued bonds payable with a face value of \)210,000, receiving cash of \(208,476.
  4. The company distributed 4,000 shares of common stock in a stock dividend when the market value was \)4.50 per share. All other dividends were paid in cash.
  5. The common stock, except for the stock dividend, was issued for cash.
  6. The cash receipt from the note payable in 2019 is considered a financing activity because it does not relate to operations. Requirements Prepare the statement of cash flows for the year ended December 31, 2019, using the indirect method.

Question: What should the net change in cash section of the statement of cash flows always reconcile with?

Question: What accounts on the balance sheet must be evaluated when completing the financing activities section of the statement of cash flows?

Classic Rare Coins (CRC) was formed on January 1, 2018. Additional data for the year follow:

a. On January 1, 2018, CRC issued no-par common stock for \(525,000.

b. Early in January, CRC made the following cash payments:

1. For store fixtures, \)51,000

2. For merchandise inventory, \(240,000

3. For rent expense on a store building, \)18,000

c. Later in the year, CRC purchased merchandise inventory on account for \(243,000. Before year-end, CRC paid \)153,000 of these accounts payable.

d. During 2018, CRC sold 2,800 units of merchandise inventory for \(325 each. Before year-end, the company collected 95% of this amount. Cost of goods sold for the year was \)290,000, and ending merchandise inventory totaled \(193,000.

e. The store employs three people. The combined annual payroll is \)82,000, of which CRC still owes \(5,000 at year-end.

f. At the end of the year, CRC paid income tax of \)17,000. There were no income taxes payable.

g. Late in 2018, CRC paid cash dividends of $38,000.

h. For store fixtures, CRC uses the straight-line depreciation method, over five years, with zero residual value.

Requirements

1. What is the purpose of the statement of cash flows?

2. Prepare CRC’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.

3. Prepare CRC’s balance sheet at December 31, 2018.

4. Prepare CRC’s statement of cash flows using the indirect method for the year ended December 31, 2018.
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