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Chapter 14: Q28E (page 781)

Question: 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.

Short Answer

Expert verified

Answer

Net cash provided by operating activities is $76,000.

Step by step solution

01

Cash flow from operating activities

Cash flows from operating activities

Receipts:

Collection from customers

$246,000

Collection of dividend revenue

$7,000

Payments:

To suppliers

($116,000)

To employees

($51,000)

For income tax

($7,500)

For Interest

($2,500)

Net cash provided by operating activities

$76,000

02

Statement of cash flows- direct method


Value Corporation.

Statement of cash flows

Year ended 31st December, 2018

Cash flows from operating activities

$76,000

Cash flows from investing activities

Cash purchase of plant

($102,000)

Cash receipts from sale of land

$29,000

Net cash used for investing activities

($73,000)

Cash flows from financing activities

Cash receipts from issuance of common stock

$38,000

Cash payment of note payable

($10,000)

Cash payment of dividend

($9,000)

Net cash provided by financing activities

$19,000

Net Increase/(Decrease) in cash

$22,000

Cash balance, December 31, 2017

$21,000

Cash balance, December 31, 2018

$43,000

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Most popular questions from this chapter

Question: Classifying items on the indirect statement of cash flows

Destiny Corporation is preparing its statement of cash flows by the indirect method. Destiny has the following items for you to consider in preparing the statement:

a. Increase in accounts payable

b. Payment of dividends

c. Decrease in accrued liabilities

d. Issuance of common stock

e. Gain on sale of building

f. Loss on sale of land

g. Depreciation expense

h. Increase in merchandise inventory

i. Decrease in accounts receivable

j. Purchase of equipment

Identify each item as a(n): • Operating activity—addition to net income (O+) or subtraction from net income (O-) • Investing activity—cash inflow (I+) or cash outflow (I-) • Financing activity—cash inflow (F+) or cash outflow (F-) • Activity that is not used to prepare the indirect statement of cash flows (N)

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

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


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?

Using a spreadsheet to prepare the statement of cash flows—indirect method Use the Boost Plus, Inc. data in Exercise E14-21 to prepare the spreadsheet for the 2018 statement of cash flows. Format cash flows from operating activities by the indirect method.
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