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Chapter 23: Q8BE (page 1373)

In 2017, Elbert Corporation had net cash provided by operating activities of \(531,000, net cash used by investing activities of \)963,000, and net cash provided by financing activities of \(585,000. At January 1, 2017, the cash balance was \)333,000. Compute December 31, 2017, cash

Short Answer

Expert verified

The cash balance on December 31, 2017, is computed as $486,000.

Step by step solution

01

Computation of Increase in accounts payable and increase in inventory

Operating activities are defined as the daily activities of the company which involve the production and selling of goods.

02

Computation of cash balance as on December 31,2017

Particulars

Amount ($)

Net cash provided by operating activities

$531,000

Net cash used for investing activities

-963,000

Net cash provided by financing activities

585,000

Net Increase in cash

$153,000

Cash, January 1, 2017

333,000

Cash, December 31, 2017

$486,000

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Most popular questions from this chapter

Where can authoritative IFRS related to the statement of cash flows be found?

Of what use is the statement of cash flows?

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.

Question: (SCF Theory and Analysis of Improper SCF) Teresa Ramirez and Lenny Traylor are examining the following statement of cash flows for Pacific Clothing Store’s first year of operations.


PACIFIC CLOTHING STORE

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED JANUARY 31, 2017

Sources of cash

From sales of merchandise

\(382,000

From sale of common stock

380,000

From sale of investment

120,000

From depreciation

80,000

From issuance of note for truck

30,000

From interest on investments

8,000

Total sources of cash

1,000,000

Uses of cash

For purchase of fixtures and equipment

330,000

For merchandise purchased for resale

253,000

For operating expenses (including depreciation)

170,000

For purchase of investment

95,000

For purchase of truck by issuance of note

30,000

For purchase of treasury stock

10,000

For interest on note

3,000

Total uses of cash

891,000

Net increase in cash

\)109,000

Teresa claims that Pacific’s statement of cash flows is an excellent portrayal of a superb first year, with cash increasing \(109,000. Lenny replies that it was not a superb first year—that the year was an operating failure, the statement was incorrectly presented, and \)109,000 is not the actual increase in cash.

Instructions

(a) With whom do you agree, Teresa or Lenny? Explain your position.

(b) Using the data provided, prepare a statement of cash flows in proper indirect method form. The only noncash items in income are depreciation and the gain from the sale of the investment (purchase and sale are related).

Dingel Corporation has contracted with you to prepare a statement of cash flows. The controller has provided the following information.

December 31

2017

2016

Buildings

\( –0–

\)29,750

Equipment

45,000

20,000

Patents

5,000

6,250

Investments

–0–

3,000

Inventory

12,000

9,000

Accounts receivable

12,250

10,000

Cash

33,500

13,000

\(107,750

\)91,000

Share capital—ordinary

\( 43,000

\)33,000

Retained earnings

20,750

6,000

Allowance for doubtful accounts

3,000

4,500

Accumulated depreciation on equipment

2,000

4,500

Accumulated depreciation on buildings

–0–

6,000

Accounts payable

5,000

3,000

Dividends payable

–0–

5,000

Long-term notes payable

31,000

25,000

Notes payable, short-term (non-trade)

3,000

4,000

\(107,750

\)91,000

Additional data related to 2017 are as follows.

  1. Equipment that had cost \(11,000 and was 40% depreciated at the time of disposal was sold for \)2,500.
  2. \(10,000 of the long-term notes payable was paid by issuing ordinary shares.
  3. Cash dividends paid were \)5,000.
  4. On January 1, 2017, the building was completely destroyed by a flood. Insurance proceeds on the building were \(32,000.
  5. Equity investments (non-trading) were sold at \)1,700 above their cost.
  6. Cash was paid for the acquisition of equipment.
  7. A long-term note for \(16,000 was issued for the acquisition of equipment.
  8. Interest of \)2,000 and income taxes of $6,500 were paid in cash.

Instructions Prepare a statement of cash flows using the indirect method.
See all solutions

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