Chapter 23: Q9BE (page 1373)

Colbert Corporation had the following 2017 income statement.
Revenues $100,000
Expenses 60,000
$ 40,000
In 2017, Colbert had the following activity in selected accounts.
Accounts Receivable Doubtful Accounts 1/1/17 20,000 1,200 1/1/17 Revenues 100,000 1,000 Write-offs Write-offs 1,000 1,840 Bad debt expense 90,000 Collections 12/31/17 29,000 2,040 12/31/17
Prepare Colbert’s cash flows from the operating activities section of the statement of cash flows using
(a) the direct method and
(b) the indirect method.

Expert verified

(a) Cash provided by operating activities is computed as $31,840.

(b) Cash provided by operating activities is computed as $31,840

Step by step solution

Cash flows from operating activities
Cash received from customers	$90,000
Cash Payments for expenses (60,000-1,840)	58,160
Net cash provided by operating activities	$31,840

Cash flows from Operating Activities
Net Income	$40,000
Adjustment to reconcile net income
Increase in net accounts receivables [(29,000-2,040) - (20,000-1,200)]	-8,160
Net cash provided by operating activities	$31,840

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MORTONSON COMPANY STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 2017 (\(000 OMITTED)
Sales revenue		\)3,800
Expenses
Cost of goods sold	\(1,200
Salaries and benefits	725
Heat, light and power	75
Depreciation	80
Property tax	19
Patent amortization	25
Miscellaneous expenses	10
Interest	30	2,164
Income before taxes		1,636
Income tax		818
Net income		818
Retained earnings – Jan 1, 2017		310
		1,128
Stock dividend declared and issued		600
Retained earnings Dec 31, 2017		\)528

MORTONSON COMPANY COMPARATIVE BALANCE SHEETS AS OF DECEMBER 31 (\(000 OMITTED)
Assets	2017	2016
Current assets
Cash	\)333	\(100
U.S treasury notes (available for sale)	10	50
Accounts receivables	780	500
Inventory	720	560
Total current assets	1,843	1,210

Long-term assets
Land	150	70
Building and equipment	910	600
Accumulated depreciation – building and equipment	(200)	(120)
Patent (less: amortization)	105	130
Total long-term assets	965	680
Total assets	\)2,808	\(1,890

Liabilities and stockholder’s equity
Current liabilities
Account payable	\)420	\(330
Income tax payable	40	30
Notes payable	320	320
Total current liabilities	780	680
Long-term note payable	200	200
Total liabilities	980	880
Stockholder’s equity
Common stock	1,300	700
Retained earnings	528	310
Total stockholder’s equity	1,828	1,010
Total liabilities and stockholder’s equity	\)2,808	$1,890