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Chapter 5: Q13BE. (page 239)

Ames Company reported 2017 net income of \(151,000. During 2017, accounts receivable increased by \)13,000 and accounts payable increased by \(9,500. Depreciation expense was \)44,000. Prepare the cash flows from operating activities section of the statement of cash flows.

Short Answer

Expert verified

The cash flow from operating activities is equal to$191,500.

Step by step solution

01

Definition of Indirect Method of Cashflow

The method in which the cash flow statement is prepared by initially reporting the net income and adjusting to the net income regarding the non-cash expenses and revenue is known as the indirect method of cash flow.

02

Cashflow from Operating Activities

Particular

Amount $

Net income

$151,000

Add or less: adjustments to net income

Increase in accounts receivable

(13,000)

Increase in accounts payable

9,500

Depreciation expenses

44,000

Cash flow from operating activities

$191,500

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Most popular questions from this chapter

What is meant by liquidity? Rank the following assets from one to five in order of liquidity.

(a) Goodwill.

(b) Inventory.

(c) Buildings.

(d) Short-term investments.

(e) Accounts receivable.

E5-8 (L02) (Current vs. Long-term Liabilities) Frederic Chopin Corporation is preparing its December 31, 2017, balance sheet. The following items may be reported as either a current or long-term liability.

1. On December 15, 2017, Chopin declared a cash dividend of \(2.50 per share to stockholders of record on December 31. The dividend is payable on January 15, 2018. Chopin has issued 1,000,000 shares of common stock, of which 50,000 shares are held in treasury.

2. At December 31, bonds payable of \)100,000,000 are outstanding. The bonds pay 12% interest every September 30 and mature in installments of \(25,000,000 every September 30, beginning September 30, 2018.

3. At December 31, 2016, customer advances were \)12,000,000. During 2017, Chopin collected \(30,000,000 of customer advances; advances of \)25,000,000 should be recognized in income.

Instructions For each item above, indicate the dollar amounts to be reported as a current liability and as a long-term liability if any.

In what section of the balance sheet should the following items appear, and what balance sheet terminology would you use?

(a) Treasury stock (recorded at cost).

(b) Checking account at bank.

(c) Land (held as an investment).

(d) Sinking fund.

(e) Unamortized premium on bonds payable.

(f) Copyrights.

(g) Pension fund assets.

(h) Premium on common stock.

(i) Long-term investments (pledged against bank loans payable).

Aero Inc. had the following balance sheet at December 31, 2016.

LANSBURY INC.

BALANCE SHEET

DECEMBER 31, 2016

Cash

\(20,000

Account payable

\)30,000

Accounts receivables

21,200

Bond payable

41,000

Investment

32,000

Common stock

100,000

Plant assets (net)

81,000

Retained earnings

23,200

Land

40,000

\(194,200

\)194,200

During 2017, the following occurred.

1. Aero liquidated its available-for-sale debt investment portfolio at a loss of \(5,000.

2. A tract of land was purchased for \)38,000.

3. An additional \(30,000 in common stock was issued at par.

4. Dividends totaling \)10,000 were declared and paid to stockholders.

5. Net income for 2017 was \(35,000, including \)12,000 in depreciation expense.

6. Land was purchased through the issuance of \(30,000 in additional bonds.

7. At December 31, 2017, Cash was \)70,200, Accounts Receivable was \(42,000, and Accounts Payable was \)40,000.

Instructions

(a) Prepare a statement of cash flows for the year 2017 for Aero.

(b) Prepare the unclassified balance sheet as it would appear at December 31, 2017.

(c) Compute Aero’s free cash flow and current cash debt coverage for 2017.

(d) Use the analysis of Aero to illustrate how information in the balance sheet and statement of cash flows helps the user of the financial statements.

Lowell Company’s December 31, 2017, trial balance includes the following accounts: Inventory \(120,000, Buildings \)207,000, Accumulated Depreciation—Equipment \(19,000, Equipment \)190,000, Land (held for investment) \(46,000, Accumulated Depreciation—Buildings \)45,000, Land \(71,000, and Timberland \)70,000. Prepare the property, plant, and equipment section of the balance sheet
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