Concept explainers
(Supplement 12B) Preparing a Statement of Cash Flows, Indirect Method: T-Account Approach
Golf Universe is a regional and online golf equipment retailer. The company reported the following for the current year:
- Purchased a long-term investment for cash, $15,000.
- Paid cash dividend. $12,000.
- Sold equipment for $6,000 cash (cost, $21,000; accumulated
depreciation , $15,000). - Issued shares of no-par stock, 500 shares at $12 cash per share.
- Net income was $20,200.
- Depreciation expense was $3,000.
- Its comparative balance sheet is presented below.
Ending Balances | Beginning Balances | |
Cash | $ 19,200 | $ 20,500 |
22,000 | 22,000 | |
Inventory | 75,000 | 68,000 |
Investments | 15,000 | 0 |
Equipment | 93,500 | 114,500 |
Accumulated Depreciation—Equipment | (20,000) | (32,000) |
Total | $204,700 | $193,000 |
Accounts Payable | $ 14,000 | $ 17,000 |
Salaries and Wages Payable | 1,500 | 2,500 |
Income Taxes Payable | 4,500 | 3,000 |
Notes Payable (long-term) | 54,000 | 54,000 |
Common Stock | 106,000 | 100,000 |
24,700 | 16,500 | |
Total | $204,700 | $193,000 |
Required:
- 1. Following Supplement 12B, complete a T-account worksheet to be used to prepare the statement of cash flows for the current year.
- 2. Based on the T-account worksheet, prepare the statement of cash flows for the current year in proper format.
1.
To complete: The T-account worksheet to be used to prepare the statement of cash flows for the current year.
Explanation of Solution
Prepare T-account worksheet.
(A) Changes in Cash Account.
Cash (A) | |||
Operating | |||
(1) Net Income | $20,200 | $7,000 | (3) Inventory |
(2) Depreciation Expense | $3,000 | $3,000 | (4) Accounts Payable |
(6) Income Taxes Payable | $1,500 | $1,000 | (5) Salaries and Wages Payable |
Net cash flow provided by operating activities | $13,700 | ||
Investing | |||
(7) Sale of Equipment | $6,000 | $15,000 | (8) Purchased Investment |
$9,000 | Net cash used in investing activities | ||
Financing | |||
(9) Proceeds from stock issuance | $6,000 | $12,000 | (10) Payment of dividends |
$6,000 | Net cash used in financing activities | ||
Beginning balance | $20,500 | $1,300 | Decrease in cash |
Ending balance | $19,200 |
(B) Changes in Non-Cash Accounts.
Accounts Receivable (A) | |||
Beginning balance | $22,000 | ||
No changes | |||
Ending balance | $22,000 |
Inventory (A) | |||
Beginning balance | $68,000 | ||
(3) Increase | $7,000 | ||
Ending balance | $75,000 |
Equipment (A) | |||
Beginning balance | $114,500 | ||
Purchases | $0 | (3) Disposals | $21,000 |
Ending balance | $93,500 |
Investments (A) | |||
Beginning balance | $0 | ||
(8) Purchases | $15,000 | ||
Ending balance | $15,000 |
Accumulated Depreciation-Equipment (xA) | |||
Beginning balance | $32,000 | ||
(7) Disposals | $15,000 | (2) Depreciation | $3,000 |
Ending balance | $20,000 |
Accounts Payable (L) | |||
Beginning balance | $17,000 | ||
(4) Decrease | $3,000 | ||
Ending balance | $14,000 |
Salaries and Wages Payable (L) | |||
Beginning balance | $2,500 | ||
(5) Increase | $1,000 | ||
Ending balance | $1,500 |
Income Taxes Payable (L) | |||
Beginning balance | $3,000 | ||
(6) Increase | $1,500 | ||
Ending balance | $4,500 |
Notes Payable (long-term) (L) | |||
Beginning balance | $54,000 | ||
Ending balance | $54,000 |
Common Stock (SE) | |||
Beginning balance | $100,000 | ||
Stock repurchased | $0 | (9) Stock issued | $6,000 |
Ending balance | $106,000 |
Retained Earnings (SE) | |||
Beginning balance | $16,500 | ||
(10) Dividends | $6,000 | (1) Net income | $20,200 |
Ending balance | $24,700 |
To prepare: The statement of cash flows of Company GS based on the T-accounts.
Explanation of Solution
Statement of cash flows
Statement of cash flow is a financial statement that shows the cash and cash equivalents of a company for a particular period of time. It shows the net changes in cash, by reporting the sources and uses of cash as a result of operating, investing, and financing activities of a company.
Prepare the statement of cash flows of Company GS for the year ended December 31, under indirect method.
Company GS | ||
Statement of Cash Flows (Indirect Method) | ||
For the year ended December, 31 | ||
Particulars | Amount | Amount |
Cash flows from operating activities: | ||
Net income | $20,200 | |
Add: Depreciation expense | $3,000 | |
Changes in current assets and current liabilities | ||
Add: Increase in income tax payable | $1,500 | |
Less: Increase in inventories | ($7,000) | |
Less: Decrease in accounts payable | ($3,000) | |
Less: Decrease in salaries and wages payable | ($1,000) | |
Net cash flows from operating activities | $13,700 | |
Cash flows from Investing activities: | ||
Sale Proceeds of equipment | $6,000 | |
Purchase of equipment | ($15,000) | |
Net cash used in investing activities | ($9,000) | |
Cash flows from Financing activities: | ||
Cash proceeds from issuance of common stock | $6,000 | |
Dividends paid | ($12,000) | |
Net cash used in financing activities | ($6,000) | |
Net increase in cash | ($1,300) | |
Opening Cash Balance | $20,500 | |
Closing Cash Balance | $19,200 |
Table (1)
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