1.
To show: The
1.
Explanation of Solution
Prepare journal entries.
Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.
Date | Account title / Explanation | Post ref. | Debit | Credit |
Amount | Amount | |||
Cash | $200 | |||
Accounts receivable | $100 | |||
Sales revenue | $300 | |||
( To record the sales revenue) |
Table (1)
- Cash is an asset account and it has increased the value of assets by $200. Hence, it is debited.
- Account receivable is an asset account and it has increased the value of assets by $100. Hence, it is debited.
- Sales revenue is a component of stock holders’ equity and it increases the stock holders’ equity by $300. Hence, it is credited.
Date | Account title / Explanation | Post ref. | Debit | Credit |
Amount | Amount | |||
Cost of goods sold | $125 | |||
Inventory | $125 | |||
( To record the value of inventories transferred to production) |
Table (2)
- Cost of goods sold is an expense account and a component of stockholders’ equityand it decreases the stock holders’ equity by $125. Hence, it is debited.
- Inventory is an asset account and it decreases the value of assets by $125. Hence, it is credited.
Date | Account title / Explanation | Post ref. | Debit | Credit |
Amount | Amount | |||
Salaries and wagesexpense | $30 | |||
Cash | $30 | |||
( To record the salary and wage expense being paid ) |
Table (3)
- Salary and wage expense is a component of stockholders’ equityand it decreases the stock holders’ equity by $30. Hence, it is debited.
- Cash is an asset account and it decreases the value of assets by $30. Hence, it is credited.
Date | Account title / Explanation | Post ref. | Debit | Credit |
Amount | Amount | |||
Cash | $40 | |||
Salaries and wagespayable | $40 | |||
( To record the salaries and wages expense payable ) |
Table (4)
- Cash is an asset account and it increases the value of assets by $40. Hence, it is debited.
- Salary and wage payable is a liabilityand, which will be paid in future. Hence, it is credited by $40.
2.
the amount that should be reported as net cash flow from operating activities.
2.
Answer to Problem 5E
There has been a $170 increase in cash that must be reported as net cash flow from operating activities.
Explanation of Solution
Cash flows from operating activities: These refer to the cash received or cash paid in day-to-day operating activities of a company.
Determine the amount of total operating
Determine the amount net cash flow from operating activities.
3.
The amount that should be reported as net income.
3.
Answer to Problem 5E
Thereported amount of net income is $105.
Explanation of Solution
Net income: Net income is the excess amount of revenue which arises after deducting all the expenses of a company. In simple terms, it is the difference between total revenue and total expenses of the company.
Determine the amount of total revenues and total expense.
Determine the amount of net income.
4.
To show: how the indirect method would convert net income to net cash flow from operating activities.
4.
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.
Cash flows from operating activities: These refer to the cash received or cash paid in day-to-day operating activities of a company.
Company | |
Statement of Cash Flows – Indirect Method | |
For the year ended December 31, | |
Particulars | Amount |
Cash flow from operating activities: | |
Net Income | $105 |
Add: Increase in salary and wage payable | $40 |
Add: Decrease in inventory | $125 |
Less: Increase in accounts receivable | ($100) |
Net cash flow from operating activities | $170 |
Table (4)
5.
To explain: the general rule about converting net income to operating cash flows is revealed in requirement 4.
5.
Explanation of Solution
Cash flows from operating activities: These refer to the cash received or cash paid in day-to-day operating activities of a company.
Net income: Net income is the excess amount of revenue which arises after deducting all the expenses of a company. In simple terms, it is the difference between total revenue and total expenses of the company.
As per requirement 4, the general rule states that add the items, when there is a decrease in current assets (inventories) and an increase in current liabilities (salary and wage payable) and subtract increase in current assets (accounts receivables)from net income to convert it into cash flows from operating activities.
Want to see more full solutions like this?
Chapter 12 Solutions
Fundamentals Of Financial Accounting
- Which item is added to net income when computing cash flows from operating activities? a. Gain on the disposal of property, plant, and equipment b. Increase in wages payable c. Increase in inventory d. Increase in prepaid rent Use the following information for Multiple-Choice Questions 11-9 and 11-10: Cornett Company reported the following information: cash received from the issuance of common stock, $150,000; cash received from the sale of equipment, $14,800; cash paid to purchase an investment, $20,000; cash paid to retire a note payable, $50,000; and cash collected from sales to customers, $225,000.arrow_forwardTo demonstrate the difference between cash account activity and accrual basis profits (net income), note the amount each transaction affects cash and the amount each transaction affects net income. A. issued stock for cash $20,000 B. purchased supplies inventory on account $1,800 C. paid employee salaries; assume it was current days expenses $950 D. paid note payment to bank (principal only) $1,200 E. collected balance on accounts receivable $4,750arrow_forwardProvide journal entries to record each of the following transactions. For each, also identify: *the appropriate section of the statement of cash flows, and **whether the transaction represents a source of cash (S), a use of cash (U), or neither (N). A. reacquired $30,000 treasury stock B. purchased inventory for $20,000 C. issued common stock of $40,000 at par D. purchased land for $25,000 E. collected $22,000 from customers for accounts receivable F. paid $33,000 principal payment toward note payable to bankarrow_forward
- The following balance sheets and income statement were taken from the records of Rosie-Lee Company: Additional transactions were as follows: a. Sold equipment costing 21,600, with accumulated depreciation of 16,200, for 3,600. b. Issued bonds for 90,000 on December 31. c. Paid cash dividends of 36,000. d. Retired mortgage of 108,000 on December 31. Required: 1. Prepare a schedule of operating cash flows using (a) the indirect method and (b) the direct method. 2. Prepare a statement of cash flows using the indirect method.arrow_forwardJarem Company showed 189,000 in prepaid rent on December 31, 20X1. On December 31, 20X2, the balance in the prepaid rent account was 226,800. Rent expense for 20X2 was 472,500. Required: 1. What amount of cash was paid for rent in 20X2? 2. CONCEPTUAL CONNECTION What adjustment in prepaid expenses is needed if the indirect method is used to prepare Jarems statement of cash flows?arrow_forwardFinancial data for Otto Company follow: a. Compute the ratio of cash to monthly cash expenses. b. Interpret the results computed in (a).arrow_forward
- The financial statements for Romeo and Company follow. Assume that the additional investment and the withdrawals were in the form of cash. Required Prepare a statement of cash flows for the year ended December 31, 2018. Check Figure Net cash flows from operating activities, 172,000arrow_forwardThompson Company sold a piece of equipment that had an original cost of 22,000 and a carrying value of 10,000 for 13,000 in cash. How would this information be reported on a statement of cash flows prepared using the indirect method?arrow_forward
- Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
- Financial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage LearningFinancial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage LearningManagerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning