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Chapter 23: Q14Q (page 1372)
Question: Explain how the amount of cash payments to suppliers is computed under the direct method.
Answer
Particular | Amount $ |
Cost of goods sold | xxx |
Add/Less: increase or decrease in inventory | xxx |
Purchases | xxx |
Add/less: increase or decrease in account payable | xxx |
Cash payment to supplier | xxx |
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What are some of the key obstacles for the FASB and IASB within their accounting guidance in the area of cash flow reporting? Explain.
In 2017, Leppard Inc. issued 1,000 shares of \(10 par value common stock for land worth \)40,000.
(a) Prepare Leppard’s journal entry to record the transaction.
(b) Indicate the effect the transaction has on cash.
(c) Indicate how the transaction is reported on the statement of cash flows.
Identify the following items as (1) operating, (2) investing, or (3) financing activities: purchase of land, payment of dividends, cash sales, and purchase of treasury stock.
Why is it necessary to convert accrual-based net income to a cash basis when preparing a statement of cash flows?
Question:Comparative balance sheet accounts of Marcus Inc. are presented below.
MARCUS INC.
COMPARATIVE BALANCE SHEET ACCOUNTS
AS OF DECEMBER 31, 2017 AND 2016
December 31
2017 2016
Debit Accounts
Cash \( 42,000 \) 33,750
Accounts Receivable 70,500 60,000
Inventory 30,000 24,000
Equity investments 22,250 38,500
Machinery 30,000 18,750
Buildings 67,500 56,250
Land 7,500 7,500
\(269,750 \)238,750
Credit Accounts
Allowance for Doubtful Accounts \( 2,250 \) 1,500
Accumulated Depreciation—Machinery 5,625 2,250
Accumulated Depreciation—Buildings 13,500 9,000
Accounts Payable 35,000 24,750
Accrued Payables 3,375 2,625
Long-Term Notes Payable 21,000 31,000
Common Stock, no-par 150,000 125,000
Retained Earnings 39,000 42,625
\(269,750 \)238,750
Additional data (ignoring taxes):
1. Net income for the year was \(42,500.
2. Cash dividends declared and paid during the year were \)21,125.
3. A 20% stock dividend was declared during the year. \(25,000 of retained earnings was capitalized.
4. Equity investments (level of ownership is less than 20%) that cost \)25,000 were sold during the year for \(28,750. No unrealized gains and losses were recorded on these investments in 2017.
5. Machinery that cost \)3,750, on which \(750 of depreciation had accumulated, was sold for \)2,200. Marcus’s 2017 income statement follows (ignoring taxes).
Sales revenue \(540,000
Less: Cost of goods sold 380,000
Gross margin 160,000
Less: Operating expenses (includes \)8,625 depreciation and \(5,400 bad debts) 120,450
Income from operations 39,550
Other: Gain on sale of investments \)3,750
Loss on sale of machinery (800) 2,950
Net income $ 42,500
Instructions
(b) Prepare a statement of cash flows using the indirect method.
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