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Chapter 23: Q13 (page 1374)

Indicate in general journal form how the items below would be entered in a worksheet for the preparation of the statement of cash flows.

(a) Net income is \(317,000.

(b) Cash dividends declared and paid totaled \)120,000.

(c) Equipment was purchased for \(114,000.

(d) Equipment that originally cost \)40,000 and had accumulated depreciation of \(32,000 was sold for \)10,000.

Short Answer

Expert verified

(a) Operating-net income will be debited and retained earnings will be credited by $317,000, respectively.

(b) Retained earnings will be debited, and Financing-Cash dividends will be credited by $120,000, respectively.

(c) Equipment will be debited and Investing-purchase of equipment will be credited by $114,000, respectively.

(d) Investing – Sale of Equipment will be debited by $10,000, and Accumulated Depreciation- Equipment by $32,000, and Equipmentwill be credited by $40,000 and Operating- Gain on sale of equipment will be credited by $2,000.

Step by step solution

01

:Journal entry to record the net income

Journal

Date

Particulars

Debit ($)

Credit ($)

Operating- Net Income

317,000

Retained Earnings

317,000

(Net income recorded)

02

:Journal entry to record the dividends

Journal

Date

Particulars

Debit ($)

Credit ($)

Retained Earnings

120,000

Financing- Cash dividends

120,000

(Dividends recorded)

03

:Journal entry to record the purchase of equipment

Journal

Date

Particulars

Debit ($)

Credit ($)

Equipment

114,000

Investing – Purchase of equipment

114,000

(Purchase of equipment recorded)

04

Step 4:Journal entry to record the purchase of equipment

Journal

Date

Particulars

Debit ($)

Credit ($)

Investing – Sale of Equipment

10,000

Accumulated Depreciation- Equipment

32,000

Equipment

40,000

Operating- Gain on sale of equipment

2,000

(10,000-(40,000-32,000))

(Sales of equipment recorded)

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Most popular questions from this chapter

Krauss Company’s income statement for the year ended December 31, 2017, contained the following condensed information.

Service revenue \(840,000

Operating expenses (excluding depreciation) \)624,000

Depreciation expense 60,000

Loss on sale of equipment 26,000 710,000

Income before income taxes 130,000

Income tax expense 40,000

Net income \( 90,000

Krauss’s balance sheet contained the following comparative data at December 31.

2017 2016

Accounts receivable \)37,000 $54,000

Accounts payable 41,000 31,000

Income taxes payable 4,000 8,500

(Accounts payable pertains to operating expenses.)

Instructions Prepare the operating activities section of the statement of cash flows using the direct method.

Differentiate between the direct method and the indirect method by discussing each method

Question: (SCF—Direct Method) Los Lobos Corp. uses the direct method to prepare its statement of cash flows. Los Lobos’s trial balances at December 31, 2017 and 2016, are as follows.

Debits
December 31

2017
2016

Cash

\(35,000

\)32,000

Accounts receivables

33,000

30,000

Inventory

31,000

47,000

Property, plant and equipment

100,000

95,000

Unamortized bond discount

4,500

5,000

Cost of goods sold

250,000

380,000

Selling expenses

141,500

172,000

General and administration expenses

137,000

151,300

Interest expenses

4,300

2,600

Income tax expenses

20,400

61,200

\(756,700

\)976,100

Credits
December 31

2017
2016

Allowance for doubtful accounts

\(1,300

\)1,100

Accumulated depreciation – Plant assets

16,500

15,000

Account payable

25,000

15,500

Income tax payable

21,000

29,100

Deferred tax liability

5,300

4,600

8% callable bonds payable

45,000

20,000

Common stock

50,000

40,000

Paid-in-capital in excess of par

9,100

7,500

Retained earnings

44,700

64,600

Sales revenue

538,800

778,700

\(756,700

\)976,100

Additional information:

1. Los Lobos purchased \(5,000 in equipment during 2017.

2. Los Lobos allocated one-third of its depreciation expense to selling expenses and the remainder to general and administrative expenses.

3. Bad debt expense for 2017 was \)5,000, and write-offs of uncollectible accounts totalled $4,800.

Instructions

Determine what amounts Los Lobos should report in its statement of cash flows for the year ended December 31, 2017, for the following items.

(a) Cash collected from customer

(d) Cash paid for income tax

(b) Cash paid to suppliers

(e) Cash paid for selling expenses

(c) Cash paid for interest

Question: GROUPWORK (Analysis of Transactions’ Effect on SCF) Each of the following items must be considered in preparing a statement of cash flows for Cruz Fashions Inc. for the year ended December 31, 2017.

  1. Fixed assets that had cost \(20,000 6½ years before and were being depreciated on a 10-year basis, with no estimated scrap value, were sold for \)4,750.
  2. During the year, goodwill of \(15,000 was considered impaired and was completely written off to expense.
  3. During the year, 500 shares of common stock with a stated value of \)25 a share were issued for \(32 a share.
  4. The company sustained a net loss for the year of \)2,100. Depreciation amounted to \(2,000 and patent amortization was \)400.
  5. Uncollectible accounts receivable in the amount of \(2,000 were written off against Allowance for Doubtful Accounts.
  6. Investments (available-for-sale) that cost \)12,000 when purchased 4 years earlier were sold for \(10,600.
  7. Bonds payable with a par value of \)24,000 on which there was an unamortized bond premium of $2,000 were redeemed at 101.

Instructions

For each item, state where it is to be shown in the statement and then how you would present the necessary information, including the amount. Consider each item to be independent of the others. Assume that correct entry were made for all transactions as they took place.

Chapman Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company. The comparative balance sheet and income statement for Chapman as of May 31, 2017, are as follows. The company is preparing its statement of cash flows.

CHAPMAN COMPANY

COMPARATIVE BALANCE SHEET

AS OF MAY 31

2017 2016

Current assets Cash \( 28,250 \) 20,000

Accounts receivable 75,000 58,000

Inventory 220,000 250,000

Prepaid expenses 9,000 7,000

Total current assets 332,250 335,000

Plant assets

Plant assets 600,000 502,000

Less: Accumulated depreciation—plant assets 150,000 125,000

Net plant assets 450,000 377,000

Total assets \(782,250 \)712,000

Current liabilities

Accounts payable \(123,000 \)115,000

Salaries and wages payable 47,250 72,000

Interest payable 27,000 25,000

Total current liabilities 197,250 212,000

Long-term debt

Bonds payable 70,000 100,000

Total liabilities 267,250 312,000

Stockholders’ equity

Common stock, \(10 par 370,000 280,000

Retained earnings 145,000 120,000

Total stockholders’ equity 515,000 400,000

Total liabilities and stockholders’ equity \)782,250 \(712,000

CHAPMAN COMPANY

INCOME STATEMENT

FOR THE YEAR ENDED MAY 31, 2017

Sales revenue \)1,255,250

Cost of goods sold 722,000

Gross profit 533,250

Expenses Salaries and wages expense 252,100

Interest expense 75,000

Depreciation expense 25,000

Other expenses 8,150

Total expenses 360,250

Operating income 173,000

Income tax expense 43,000

Net income \( 130,000

The following is additional information concerning Chapman’s transactions during the year ended May 31, 2017.

1. All sales during the year were made on account.

2. All merchandise was purchased on account, comprising the total accounts payable account.

3. Plant assets costing \)98,000 were purchased by paying \(28,000 in cash and issuing 7,000 shares of stock.

4. The “other expenses” are related to prepaid items.

5. All income taxes incurred during the year were paid during the year.

6. In order to supplement its cash, Chapman issued 2,000 shares of common stock at par value.

7. Cash dividends of \)105,000 were declared and paid at the end of the fiscal year.

Instructions

(a) Compare and contrast the direct method and the indirect method for reporting cash flows from operating activities.

(b) Prepare a statement of cash flows for Chapman Company for the year ended May 31, 2017, using the direct method. Be sure to support the statement with appropriate calculations. (A reconciliation of net income to net cash provided is not required.)

(c) Using the indirect method, calculate only the net cash flow from operating activities for Chapman Company for the year ended May 31, 2017.
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