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Chapter 14: Q19E (page 776)

Computing operating activities cash flow—indirect method

The records of Vintage Color Engraving reveal the following:

Net income \( 36,000

Depreciation expense \) 5,000

Sales revenue 53,000

Decrease in current liabilities 19,000

Loss on sale of land 4,000

Increase in current assets other than cash 10,000

Acquisition of land 35,000

Compute cash flows from operating activities by the indirect method for year ended December 31, 2018.

Short Answer

Expert verified

Net cash provided by operating activities is $16,000.

Step by step solution

01

Step-by-Step SolutionStep 1: Cash flow from operating activities- Indirect method

Indirect method starts with net income and adjustments are made to reconcile net income to net cash provided by operating activities.

02

Cash flow from operating activities

Cash flows from operating activities

Amount

Amount

Net Income

$36,000

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

Depreciation expense

$5,000

Increase in current assets other than cash

($10,000)

Decrease in current liabilities

($19,000)

Loss on sale of land

$4,000

Net cash provided by operating activities

$16,000

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Most popular questions from this chapter

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.

Preparing the direct method statement of cash flows Use the data in Short Exercise S14A-12 and your results. Prepare the business’s complete statement of cash flows for the year ended June 30, 2018, using the direct method for operating 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.

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 1. How much are cash dividends? 2. What was the amount of the cash receipt from the sale of plant assets?

A-One Mobile Homes reported the following in its financial statements for the year Ended December 31, 2018:

2018 2017

Income Statement

Net Sales Revenue \( 25,118 \) 21,893

Cost of Goods Sold 18,074 15,501

Depreciation Expense 271 234

Other Operating Expenses 4,632 4,277

Income Tax Expense 530 482

Net Income \( 1,611 \) 1,399

Balance Sheet

Cash \( 21 \) 19

Accounts Receivable 798 615

Merchandise Inventory 3,483 2,832

Property, Plant, and Equipment, net 4,351 3,437

Accounts Payable 1,547 1,364

Accrued Liabilities 938 851

Long-term Liabilities 477 461

Common Stock, no par 670 443

Retained Earnings 5,021 3,784

Requirements

1. Compute the collections from customers.

2. Compute payments for merchandise inventory.

3. Compute payments of other operating expenses.

4. Compute the acquisitions of property, plant, and equipment (no sales of property during 2018).

5. Compute the amount of borrowing, with A-One paying no long-term liabilities.

6. Compute the cash receipt from issuance of common stock.

7. Compute the payment of cash dividends.
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