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;
• 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 as follows.
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.
(a)
Concept introduction:
Cash flow statements: It shows the inflow and outflow of cash along with the reasons, during a particular period of time. All the cash transactions are categorized in three types of activities i.e., operating, investing and financing activities.
To show:
The t-shape accounts for all the items.
Explanation of Solution
T-shape accounts for non-cash items:
Accounts Receivable | |||
Particulars | $ (debit) | Particulars | $ (credit) |
Beginning Bal | 22,000 | ||
Increase | 0 | ||
Ending Balance | 22,000 |
Inventory | |||
Particulars | $ (debit) | Particulars | $ (credit) |
Beginning Bal | 68,000 | ||
Increase | 7,000 | ||
Ending Balance | 75,000 |
Investment | |||
Particulars | $ (debit) | Particulars | $ (credit) |
Beginning Bal | 0 | ||
Purchased | 15,000 | ||
Ending Balance | 15,000 |
Equipment | |||
Particulars | $ (debit) | Particulars | $ (credit) |
Beginning Bal | 114,500 | ||
Disposal | 21,000 | ||
Ending Balance | 93,500 |
Accumulated Depreciation | |||
Particulars | $ (debit) | Particulars | $ (credit) |
Beginning Bal | 32,000 | ||
Decrease | 12,000 | ||
Ending Balance | 20,000 |
Accounts Payable | |||
Particulars | $ (debit) | Particulars | $ (credit) |
Beginning Bal | 17,000 | ||
Decrease | 3,000 | ||
Ending Balance | 14,000 |
Salaries and Wages Payable | |||
Particulars | $ (debit) | Particulars | $ (credit) |
Beginning Bal | 2,500 | ||
Decrease | 1,500 | ||
Ending Balance | 1,000 |
Income Tax Payable | |||
Particulars | $ (debit) | Particulars | $ (credit) |
Beginning Bal | 3,000 | ||
Decrease | 1,500 | ||
Ending Balance | 4,500 |
Notes Payable (long-term) | |||
Particulars | $ (debit) | Particulars | $ (credit) |
Beginning Bal | 54,000 | ||
Increase | 0 | ||
Ending Balance | 54,000 |
Common Stock | |||
Particulars | $ (debit) | Particulars | $ (credit) |
Beginning Bal | 100,000 | ||
Decrease | 6,000 | ||
Ending Balance | 106,000 |
Retained Earnings | |||
Particulars | $ (debit) | Particulars | $ (credit) |
Beginning Bal | 16,500 | ||
Dividend | 12,000 | Net Income | 20,200 |
Ending Balance | 24,700 |
T-shape accounts for cash account:
Particulars | $ (debit) | Particulars | $ (credit) |
Operating Activities | |||
Net Income | 20,200 | Inventory | 7,000 |
Depreciation Expense | 3,000 | Accounts Payable | 3,000 |
Income tax payable | 1,500 | Salaries and Wages Payable | 1,000 |
Net Cash flow from operating 13,700 | |||
Investing Activities | |||
Sold Equipment | 6,000 | Purchased Investments | 15,000 |
Net cash used by Investing | 9,000 | ||
Financing | |||
Proceed from issue of stock | 6,000 | Paid Dividends | 12,000 |
Net Cash used by Financing Activities | 6,000 | ||
Net decrease in cash | 1,300 | ||
Beginning Cash | 20,500 | ||
Ending cash | 19,200 |
(b)
Concept introduction:
Cash flow statements: It shows the inflow and outflow of cash along with the reasons, during a particular period of time. All the cash transactions are categorized in three types of activities i.e., operating, investing and financing activities.
To prepare:
The cash flow statement.
Explanation of Solution
Particulars | $ |
Operating Activities: | |
Net Income | 20,200 |
Depreciation | 3,000 |
Cashflow from operating activities before working capital changes | 23,200 |
(-) Increase in inventory | (7,000) |
(-) Decrease in Accounts Payable | (3,000) |
(-) Decrease in Wages and Salaries Payable | (1,000) |
(+) Increase in Income tax payable | 1,500 |
Cashflow from operating activities | 13,700 |
Investing Activities: | |
(+) Cash proceeds from sale of equipment | 6,000 |
(-) Purchase of investments | (15,000) |
Cashflow used in investing activities | (9,000) |
Financing Activities: | |
Proceeds from issue of stock | 6,000 |
(-) Paid dividends | (12,000) |
Cashflow used in financing activities | (6,000) |
Net decrease in cash | (1,300) |
Beginning Cash | 20,500) |
Ending Cash | 19,200 |
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Chapter 12 Solutions
Loose-leaf For Managerial Accounting
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