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Chapter 14: Q22E (page 778)


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?

Short Answer

Expert verified

Answer

Requirement 1: Cash dividends are $35,000

Requirement 2: Cash receipt from sale of plan assets is $7,000

Step by step solution

01

Calculation of cash dividends

Dividends = Beginning retained earnings + Net income – Net Loss – Ending retained earnings

= $45,000 + $60,000 – $70,000

= $35,000

02

Calculation of the amount of the cash receipt from the sale of plant assets

Cash Received = Cost – Accumulated depreciation + Gain

= $29,000 – $27,000 + $5,000

= $7,000

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Most popular questions from this chapter

Use the Rouse Exercise Equipment data in Exercises E14-23 and E14-24. Rouse plans to purchase a truck for \(23,000 and a forklift for \)125,000 next year. In addition, it plans to pay cash dividends of $3,500. Assuming Rouse plans similar activity for 2019, what would be the amount of free cash flow?

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.

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.

Question: If current liabilities increase, what is the effect on cash? What about a decrease in current liabilities?

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

a. On January 1, 2018, ARC issued no par common stock for \(450,000.

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

  1. For store fixtures, \)53,000
  2. For merchandise inventory, \(340,000
  3. For rent expense on a store building, \)20,000

c. Later in the year, ARC purchased merchandise inventory on account for \(239,000. Before year-end, ARC paid \)139,000 of these accounts payable.

d. During 2018, ARC sold 2,400 units of merchandise inventory for \(275 each. Before year-end, the company collected 85% of this amount. Cost of goods sold for the year was \)250,000, and ending merchandise inventory totaled \(329,000.

e. The store employs three people. The combined annual payroll is \)96,000, of which ARC still owes \(3,000 at year-end.

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

g. Late in 2018, ARC paid cash dividends of $44,000.

h. For store fixtures, ARC 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 ARC’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 ARC’s balance sheet at December 31, 2018.

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