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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

The partner in charge of the Kappeler Corporation audit comes by your desk and leaves a letter he has started to the CEO and a copy of the cash flow statement for the year ended December 31, 2017. Because he must leave on an emergency, he asks you to finish the letter by explaining: (1) the disparity between net income and cash flow, (2) the importance of operating cash flow, (3) the renewable source(s) of cash flow, and (4) possible suggestions to improve the cash position.

Date

President Kappeler, CEO

Kappeler Corporation

125 Wall Street

Middleton, Kansas 67458

Dear Mr. Kappeler:

I have good news and bad news about the financial statements for the year ended December 31, 2017. The good news is that net income of $100,000 is close to what we predicted in the strategic plan last year, indicating strong performance this year. The bad news is that the cash balance is seriously low. Enclosed is the Statement of Cash Flows, which best illustrates how both of these situations occurred simultaneously . . .

Instructions

Complete the letter to the CEO, including the four components requested by your boss.

Using the information in BE5-14, determine Martinez’s free cash flow, assuming that it reported net cash provided by operating activities of \(400,000.

BE5-14 (L05) Martinez Corporation engaged in the following cash transactions during 2017.

Sale of land and building \)191,000

Purchase of treasury stock 40,000

Purchase of land 37,000

Payment of cash dividend 95,000

Purchase of equipment 53,000

Issuance of common stock 147,000

Retirement of bonds 100,000

Compute the net cash provided (used) by investing activities.

What is working capital? How does working capital relate to the operating cycle?

Each of the following items must be considered in preparing a statement of cash flows. Indicate where each item is to be reported in the statement, if at all. Assume that net income is reported as \(90,000.

(a) Accounts receivable increased from \)34,000 to \(39,000 from the beginning to the end of the year.

(b) During the year, 10,000 shares of preferred stock with a par value of \)100 per share were issued at \(115 per share.

(c) Depreciation expense amounted to \)14,000, and bond premium amortization amounted to \(5,000.

(d) Land increased from \)10,000 to $30,000.

Hawthorn Corporation’s adjusted trial balance contained the following accounts at December 31, 2017: Retained Earnings \(120,000, Common Stock \)750,000, Bonds Payable \(100,000, Paid-in Capital in Excess of Par—Common Stock \)200,000, Goodwill \(55,000, Accumulated Other Comprehensive Loss \)150,000, and Noncontrolling Interest $35,000. Prepare the stockholders’ equity section of the balance sheet.
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