Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 14: Q29E (page 781)

Question: Computing cash flow items—direct method Consider the following facts:

  1. Beginning and ending Accounts Receivable are \(24,000 and \)20,000, respectively. Credit sales for the period total \(68,000.
  2. Cost of goods sold is \)77,000.
  3. Beginning Merchandise Inventory balance is \(29,000, and ending Merchandise Inventory balance is \)26,000.
  4. Beginning and ending Accounts Payable are \(12,000 and \)16,000, respectively.

Requirements

  1. Compute cash collections from customers.
  2. Compute cash payments for merchandise inventory

Short Answer

Expert verified

Answer

Requirement 1: Cash collection =$72,000

Requirement 2: Cash payment for merchandise inventory =$70,000

Step by step solution

01

Calculation of cash collections from customer

Cash Collection = Opening account receivable + Credit sales for the period – Closing account receivables

=$24,000+$68,000-$20,000

=$72,000

02

Computation of cash payments for merchandise inventory

Cash Payments for inventory = Cost of goods sold – Beginning merchandise inventory + Closing merchandise inventory + Beginning accounts payable – Closing accounts payable

=$77,000 – 29,000+ $26,000 + 12,000 – $16,000

=$70,000

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Question: Big Island, Inc. began 2018 with cash of \(40,000. During the year, Big Island earned revenue of \)200,000 and collected \(120,000 from customers. Expenses for the year totaled \)160,000, of which Big Island paid \(65,000 in cash to suppliers and \)80,000 in cash to employees. The company received \(2,000 cash for interest revenue and paid \)10,000 for income taxes. Big Island also paid \(35,000 to purchase equipment and a cash dividend of \)15,000 to its stockholders during 2018. Prepare the company’s operating activities section of the statement of cash flows for the year ended December 31, 2018. Use 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.

Rouse Exercise Equipment, Inc. reported the following financial statements for 2018:

ROUSE EXERCISE EQUIPMENT, INC.

Income statement

Year ended December 31, 2018

Net sales revenue

\(713,000

Cost of goods sold

342,000

Gross Profit

371,000

Operating expense:

  • Depreciation expense

54,000

  • Other operatin expenses

210,000

Net Income

\)107,000

ROUSE EXERCISE EQUIPMENT, INC.

Comparative Balance sheet

December 31, 2018 and 2017

2018

2017

Assets

Current assets:

Cash

17,000

16,000

Accounts receivable

57,000

46,000

Merchandise inventory

79,000

90,000

Long term assets:

Plant assets

260,500

216,400

Accumulated depreciation-Plant assets

(38,500)

(32,400)

Investments

96,000

73,000

Total assets

\(471,000

\)409,000

Liabilities

Current liabilities

Accounts payable

72,000

71,000

Salaries payable

3,000

5,000

Long-term liabilities

Notes payable

61,000

69,000

Total liabilities

136,000

145,000

Stockholder’s equity

Common stock, no par

45,000

34,000

Retained earnings

290,000

230,000

Total stockholder’s equity

335,000

264,000

Total liabilities and stockholder’s equity

\(471,000

\)409,000

Requirements

1. Compute the amount of Rouse Exercise’s acquisition of plant assets. Assume the acquisition was for cash. Rouse Exercise disposed of plant assets at book value. The cost and accumulated depreciation of the disposed asset was $47,900. No cash was received upon disposal.

2. Compute new borrowing or payment of long-term notes payable, with Rouse

Exercise having only one long-term notes payable transaction during the year.

3. Compute the issuance of common stock with Rouse Exercise having only one

common stock transaction during the year.

4. Compute the payment of cash dividends.

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

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.
See all solutions

Recommended explanations on Business Studies Textbooks

Nature of Business

Read Explanation

Introduction to Business

Read Explanation

Financial Performance

Read Explanation

Managers

Read Explanation

Influences On Business

Read Explanation

Business Case Studies

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free