Chapter 23: Q3E (page 1375)

The income statement of Vince Gill Company is shown below.
VINCE GILL COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2017
Sales revenue $6,900,000
Cost of goods sold
Beginning inventory $1,900,000
Purchases 4,400,000
Goods available for sale 6,300,000
Ending inventory 1,600,000
Cost of goods sold 4,700,000
Gross profit 2,200,000
Operating expenses
Selling expenses 450,000
Administrative expenses 700,000 1,150,000
Net income $1,050,000
Additional information:
1. Accounts receivable decreased $360,000 during the year.
2. Prepaid expenses increased $170,000 during the year.
3. Accounts payable to suppliers of merchandise decreased $275,000 during the year.
4. Accrued expenses payable decreased $100,000 during the year.
5. Administrative expenses include depreciation expense of $60,000.
Instructions
Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2017, for Vince Gill Company, using the indirect method.

Expert verified

The net cash provided by operating activities is computed as $1,225,000

Step by step solution

Depreciation is defined as the accounting process in which the cost of the asset is allocated to the estimated useful life of the asset.

VINCE GILL COMPANY
Partial Statement of Cash Flows
For the year ended December 31, 2017

Cash flows from operating activities
Net Income		$1,050,000
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation Expense	$60,000
Decrease in accounts receivables	360,000
Decrease in inventory ($1,900,000-$1,600,000)	300,000
Increase in Prepaid Expenses	-170,000
Decrease in accounts payable	-275,000
Decrease in accrued expenses payable	-100,000	175,000
Net cash provided by operating activities		$1,225,000

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1. Payment of accounts payable \(770,000.	4. Collection of note receivable \)100,000.
2. Issuance of common stock \(250,000.	5. Issuance of bonds payable \)510,000.
3. Payment of dividends \(350,000.	6. Purchase of treasury stock \)46,000.

	Dec 31, 2017	Dec 31, 2016	Increase or (decrease)
Cash	\(277,900	\)298,000	(\(20,100)
Accounts receivable	469,424	353,000	116,424
Inventory	741,700	610,000	131,700
Prepaid expenses	12,000	8,000	4,000
Investment in subsidiary	110,500	0	110,500
Cash surrender value of life insurance	2,304	1,800	504
Machinery	207,000	190,000	17,000
Buildings	535,200	407,900	127,300
Land	52,500	52,500	0
Patents	69,000	64,000	5,000
Copyrights	40,000	50,000	(10,000)
Bond discount and issue costs	4,502	0	4,502
Total	\)2,522,030	\(2,035,200	\)486,830

Income tax payable	\(90,250	\)79,600	\(10,650
Account payable	299,280	280,000	19,280
Dividend payable	70,000	0	70,000
Bond payable – 8%	125,000	0	125,000
Bond payable – 12%	0	100,000	(100,000)
Allowance for doubtful accounts	35,300	40,000	(4,700)
Accumulated depreciation – building	424,000	400,000	24,000
Accumulated depreciation – machinery	173,000	130,000	43,000
Premium on bond payable	0	2,400	(2,400)
Common stock – no par	1,176,200	1,453,200	(277,000)
Paid-in-capital in excess of par – common stock	109,000	0	109,000
Retained earnings – unappropriated	20,000	(450,000)	470,000
Total	\)2,522,030	\(2,035,200	\)486,830

STATEMENT OF RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 2017
January 1, 2017	Balance (deficit)	(\(450,000)
March 31, 2017	Net income for first quarter of 2017	25,000
April 1, 2017	Transfer from paid-in capital	425,000
	Balance	0
December 31, 2017	Net income for last three quarters of 2017	90,000
	Dividend declared—payable January 21, 2018	(70,000)
	Balance	\)20,000

Comparative Balance Sheet
	2017	2016	Increase (Decrease)
Cash	\(815,000	\)700,000	\(115,000
Accounts receivable	1,128,000	1,168,000	(40,000)
Inventory	1,850,000	1,715,000	135,000
Property, plant and equipment	3,307,000	2,967,000	340,000
Accumulated depreciation	(1,165,000)	(1,040,000)	(125,000)
Investment in Myers Co	310,000	275,000	35,000
Loan receivable	250,000	-	250,000
Total assets	\)6,495,000	\(5,785,000	\)710,000

Account payable	\(1,015,000	\)955,000	\(60,000
Income taxes payable	30,000	50,000	(20,000)
Dividend payable	800,000	100,000	(20,000)
Lease liability	400,000	-	400,000
Common stock, \) 1 par value	500,000	500,000	0
Paid-in-capital in excess of par – common stock	1,500,000	1,500,000	0
Retained earnings	2,970,000	2,680,000	290,000
Total liabilities and stockholders equity	\(6,495,000	\)5,785,000	\(710,000