Managerial Accounting
Managerial Accounting
7th Edition
ISBN: 9781260247886
Author: Wild
Publisher: MCG
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Chapter 12, Problem 1GLP
To determine

Cash Flow Statement:

Cash flow statement gives the information related to the cash inflow and outflow of the company. It gives the information cash inflow and out flow from the operating, investing and financing activities.

Journal Entries:

Adjusting entries are those entries which are made at the end of the period to follow the matching the principal concept of the account.

To prepare: Journal ledger assignment

Expert Solution & Answer
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Explanation of Solution

a.

Retirement of the notes payable

Date Account title and explanation Post ref. Amount ($) Amount ($)
Notes payable 30,000
Cash 30,000
(To record the retirement of notes payable)

Table(1)

  • Notes payable account is the liability account. Here, notes payable has been retired which decreases the liability of the company. So, debit the notes payable account.
  • Cash is the assets account of the company. Here, cash has been paid to retire the notes payable which decrease the assets of the company. So, credit the cash account.

b.

Payment of the dividend

Date Account title and explanation Post ref. Amount ($) Amount ($)
Dividend 90,310
Cash 90,310
(To record the payment of the dividend)

Table(2)

  • Dividend is the expense account for the company. Here, dividend is being paid which increase the expense for the company. So, credit the dividend expense account.
  • Cash is the assets account of the company. Here, cash has been paid for the payment of the dividend which decrease the assets of the company. So, credit the cash account.

c.

Purchase of the equipment

Date Account title and explanation port ref. Amount ($) Amount ($)
Equipment 48,600
Cash 48,600
(to record the purchase of the equipment)

Table(3)

  • Equipment account is the assets account. Here, assets have been purchased which increase the assets of the company. So, debit the equipment assets account.
  • Cash is the assets account. Here cash has been paid to acquire the equipment assets which decrease the assets of the company. So, credit the cash account.
d.

Sale of the equipment

Date Account title and explanation port ref. Amount ($) Amount ($)
Cash 50,600
Profit & loss 2,000
Equipment 48,600
(to record the sale of the equipment)

Table(4)

  • Cash account is the asset account. Here, cash has been received by the company which increases the assets of the company. So, debit the cash account.
  • Profit & loss account is the revenue account. Here, gain of on sale of the equipment is the revenue. So, credit the profit and loss account.

e.

Increase in the account receivable

Date Account title and explanation port ref. Amount ($) Amount ($)
Account receivable 14,000
Sales 14,000
(to record the account receivable)

Table(5)

  • Account receivable account is the assets account. Here, account receivable is increase by sale on credit. So debit the account receivable account.
  • Sales account is the revenue account. Here, sales generate revenue for the company. So, credit the sale account.

Decrease in the prepaid expenses

Date Account title and explanation port ref. Amount ($) Amount ($)
Expense 1,000
Prepaid expense 1,000
(to record the prepaid expenses)

Table(6)

  • Expense is the expense account. Since expense is increasing it reduces the equity. Hence, debit expense account.
  • Prepaid expense is the assets account. Here the prepaid expense is reducing. So, credit the prepaid expense account.

Decrease in the account payable

Date Account title and explanation port ref. Amount ($) Amount ($)
Account payable 5,000
Cash 5,000
(to record the account payable)

Table(7)

  • Account payable is the liability account. Since account payable reduces the equity of the company. Hence, debit the account payable.
  • Cash is the assets account. Since, the cash of the company is reducing. Hence, credit the cash account.

Decrease in the wages payable

Date Account title and explanation port ref. Amount ($) Amount ($)
Wages payable 9,000
Cash 9,000
(to record the wages payable)

Table(8)

  • Wages payable is the liability account. Since wages payable reduces the equity of the company. Hence, debit the wages payable.
  • Cash is the assets account. Since, the cash of the company is reducing. Hence, credit the cash account.

Decrease in the income tax payable

Date Account title and explanation port ref. Amount ($) Amount ($)
Income tax payable 400
Cash 400
(to record the income tax payable)

Table(9)

  • Income tax payable is the liability account. Since, income tax payable is decreasing. Hence, debit the income tax payable account.
  • Cash is the assets account. Since, the cash of the company is reducing. Hence, credit the cash account.

f.

Sale of the inventory on credit

Date Account title and explanation port ref. Amount ($) Amount ($)
Sundry debtor 22,700
Inventory account 22,700
(to record the sale of the inventory)

Table(10)

  • Sundry debtor account is the assets account. Here, debtor of the company is increasing which increase the assets of the company. So, debit the sundry debtor assets account.
  • Inventory is the assets account. Here, the assets of the company are decreasing which decrease the assets of the company. So, credit the inventory account.

Cash flow statement (Direct method)

Cash flow statement Amount ($) Amount ($)
Cash flow from operating activities:
Cash collected from customers 664,000
Cash paid to suppliers (393,300)
Cash paid for other expense (75,000)
Cash paid for income tax (44,290)
Cash flow from operating activities(A) 151,410
Cash flow from investing activities:
Cash received on sale of the equipment 10,000
Cash paid for new equipment (57,600)
Cash flow from investing activities(B) (47,600)
Cash flow from financing activities:
Cash from issuance of share 60,000
cash paid on retirement (30,000)
Cash paid for dividend (90,310)
Cash flow from financing activities(C) (60,310)
Net increase in cash
    ( A )+( B )+( C )
43,500
Cash and cash equivalent, December 31,2016 44,000
Cash and cash equivalent, December 31,2017 87,500

Table(11)

Working notes:

Calculate the cash collected from the customer,

    Cashcollectodfromcustomer=SalesrevenueIncreaseinaccountreceivable =$678,000$14,000 =$664,000

Calculate the cash paid to supplies,

    Cashpaidtosupplies=( Costofthegoodssold+Decreaseinaccountpayable Decreaseininventory ) =$411,000+$5,000$22,700 =$393,300

Calculate the cash paid for other expenses,

    Cashpaidotherexpenses=( OtherexpenseDecreaseinprepaidexpense Decreaseeagespayable ) =$67,000$1,000$9,000 =$57,000

Calculate the cash received on sale of the equipment,

particular Amount (S)
Accumulated depreciation 2016 9,000
Add: Depreciation for the year 58,600
Less: Accumulated depreciation (27,000)
Depreciation on equipment sold 40,600
Original cost of the equipment sold 48,600
Less: Depreciation on equipment (40,600)
Book value of the equipment sold 8,000
Add: Gain on sale 2,000
Cash received on sale of equipment 10,000

Table(12)

Calculate the cash dividend paid:

    Cashdividends=( Retainedearningopeningbalance+Netincome Retainedeariningbalance ) =$24,100+$99,510$33,300 =$90,310

Cash flow statement (indirect method)

Cash flow statement Amount ($) Amount ($)
Cash flow from operating activities:
Net income 99,510
Adjustment for non cash expense
Add: Depreciation 58,600
Less: Gain on sale of the machinery (2,000)
Adjustment for working capital change:
Add: Increase in working capital (4,700)
Net cash flow from operating activities 151,410
Cash flow from investing activities
Cash received on sale of equipment 10,000
Cash paid for acquiring new equipment (57,600)
Cash flow from investing activities (47,600)
Cash flow from financing activities:
Cash from issuance of share 60,000
cash paid on retirement (30,000)
Cash paid for dividend (90,310)
Cash flow from financing activities: (60,310)
Net increase in cash
    ( A )+( B )+( C )
43,500
Cash and cash equivalent, December 31,2016 44,000
Cash and cash equivalent, December 31,2017 87,500

Table(13)

Working note:

Calculate the working capital change

Particular 2017 2016 Increase/decrease
Accounting receivable 63,800 51,000 14,000
Inventory 63,800 86,500 (22,700)
Prepaid expenses 4,400 5,400 (1,000)
Increase(Decrease) in current assets(D) (9,700)
account payable 25,000 30,000 5,000
Wages payable 6,000 15,000 (9,000)
Income tax payable 3,400 3,800 (400)
Increase(decrease) in current liabilities(E) (14,400)
Increase (Decrease) in working capital
    ( D )( E )
4,700

Table(14)

Calculate the cash received on sale of the equipment,

particular Amount (S)
Accumulated depreciation 2016 9,000
Add: Depreciation for the year 58,600
Less: Accumulated depreciation (27,000)
Depreciation on equipment sold 40,600
Original cost of the equipment sold 48,600
Less: Depreciation on equipment (40,600)
Book value of the equipment sold 8,000
Add: Gain on sale 2,000
Cash received on sale of equipment 10,000

Table(15)

Calculate the cash dividend paid,

    Cashdividends=( Retainedearningopeningbalance+Netincome Retainedeariningbalance ) =$24,100+$99,510$33,300 =$90,310

Reconciliation of the cash flow from direct and indirect method

Cash flow statement(Indirect method) Amount ($) Amount ($)
Cash flow from operating activities:
Net income 99,510
Adjustment for non cash expense
Add: Depreciation 58,600
Less: Gain on sale of the machinery (2,000)
Adjustment for working capital change:
Add: Increase in working capital (4,700)
Net cash flow from operating activities 151,410
Cash flow statement (Direct method)
Cash flow from operating activities:
Cash collected from customers 664,000
Cash paid to suppliers (393,300)
Cash paid for other expense (75,000)
Cash paid for income tax (44,290)
Cash flow from operating activities 151,410

Table(16)

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Chapter 12 Solutions

Managerial Accounting

Ch. 12 - Prob. 6DQCh. 12 - Prob. 7DQCh. 12 - Prob. 8DQCh. 12 - Prob. 9DQCh. 12 - Prob. 10DQCh. 12 - Prob. 11DQCh. 12 - Prob. 12DQCh. 12 - Prob. 13DQCh. 12 - Prob. 14DQCh. 12 - Prob. 15DQCh. 12 - Prob. 1QSCh. 12 - Prob. 2QSCh. 12 - Prob. 3QSCh. 12 - Prob. 4QSCh. 12 - Prob. 5QSCh. 12 - Prob. 6QSCh. 12 - Prob. 7QSCh. 12 - Prob. 8QSCh. 12 - Prob. 9QSCh. 12 - Prob. 10QSCh. 12 - Prob. 11QSCh. 12 - Prob. 12QSCh. 12 - Prob. 13QSCh. 12 - Prob. 14QSCh. 12 - Prob. 15QSCh. 12 - Prob. 16QSCh. 12 - Prob. 17QSCh. 12 - Prob. 18QSCh. 12 - Prob. 19QSCh. 12 - Prob. 20QSCh. 12 - Prob. 21QSCh. 12 - Prob. 22QSCh. 12 - Prob. 23QSCh. 12 - Prob. 24QSCh. 12 - Prob. 25QSCh. 12 - Prob. 26QSCh. 12 - Prob. 27QSCh. 12 - Prob. 1ECh. 12 - Prob. 2ECh. 12 - Prob. 3ECh. 12 - Prob. 4ECh. 12 - Prob. 5ECh. 12 - Prob. 6ECh. 12 - Prob. 7ECh. 12 - Prob. 8ECh. 12 - Prob. 9ECh. 12 - Exercise Reconstructed entries For each of the...Ch. 12 - Prob. 11ECh. 12 - Prob. 12ECh. 12 - Prob. 13ECh. 12 - Prob. 14ECh. 12 - Prob. 15ECh. 12 - Prob. 16ECh. 12 - Direct: Preparing statement of cash flows Refer to...Ch. 12 - Prob. 18ECh. 12 - Prob. 19ECh. 12 - Prob. 20ECh. 12 - Prob. 1PSACh. 12 - Prob. 2PSACh. 12 - Prob. 3PSACh. 12 - Prob. 4PSACh. 12 - Prob. 5PSACh. 12 - Prob. 6PSACh. 12 - Prob. 7PSACh. 12 - Prob. 8PSACh. 12 - Prob. 1PSBCh. 12 - Prob. 2PSBCh. 12 - Prob. 3PSBCh. 12 - Prob. 4PSBCh. 12 - Prob. 5PSBCh. 12 - Prob. 6PSBCh. 12 - Prob. 7PSBCh. 12 - Prob. 8PSBCh. 12 - Prob. 12SPCh. 12 - Prob. 1GLPCh. 12 - Prob. 2GLPCh. 12 - Prob. 3GLPCh. 12 - Prob. 1AACh. 12 - Prob. 2AACh. 12 - Prob. 3AACh. 12 - Prob. 1BTNCh. 12 - Prob. 2BTNCh. 12 - Prob. 3BTNCh. 12 - Prob. 4BTNCh. 12 - Prob. 5BTNCh. 12 - Prob. 6BTNCh. 12 - Prob. 7BTN
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