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Statement of cash flows—direct method applied to PR 13–1B The comparative balance sheet of Merrick Equipment Co. for Dec. 31, 20Y9 and 20Y8, is: Dec. 31, 20Y9 Dec. 31, 20Y8 Assets Cash $ 70,720 $ 47,940 Accounts receivable (net) 207,230 188,190 Inventories 298,520 289,850 Investments 0 102,000 Land 295,800 0 Equipment 438,600 358,020 Accumulated depreciation—equipment (99,110) (84,320) Total assets $ 1,211,760 $ 901,680 Liabilities and Stockholders' Equity Accounts payable (merchandise creditors).................. $ 205,700 $ 194,140 Accrued expenses payable (operating expenses) 30,600 26,860 Dividends payable 25,500 20,400 Common stock. $1 par 202,000 102,000 Paid-in capital: Excess of issue price over par—common stock 354,000 204,000 Retained earnings 393,960 354,280 Total liabilities and stockholders' equity $ 1,211,760 $ 901,680 The income statement for the year ended December 31,20Y9, is as fallow s: Sales $2,023,898 Cost of goods sold 1,245,476 Gross profit $ 778,422 Operating expenses: Depreciation expense $ 14,790 Other operating expenses 517,299 Total operating expenses 532,089 Operating income $ 246,333 Other expenses: Loss on sale of investments (10,200) Income before income tax $ 236,133 Income tax expense 94,453 Net income $ 141,680 Additional data obtained from an examination of the- accounts in the ledger for 20Y9 are as follows: A. Equipment and land were acquired for cash. B. There were no disposals of equipment during the year. C. The investments were sold for $91,800 cash. D. The common stock was issued for cash. E. There was a $ 102,000 debit to Retained Earnings for cash dividends declared. Instructions Prepare a statement of cash flows, using the direct method of presenting cash flows from operating activities.

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Financial & Managerial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337119207

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Section
BuyFindarrow_forward

Financial & Managerial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337119207
Chapter 13, Problem 13.5BPR
Textbook Problem
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Statement of cash flows—direct method applied to PR 13–1B

The comparative balance sheet of Merrick Equipment Co. for Dec. 31, 20Y9 and 20Y8, is:

  Dec. 31, 20Y9 Dec. 31, 20Y8
Assets      
Cash $ 70,720 $ 47,940
Accounts receivable (net) 207,230   188,190
Inventories 298,520   289,850
Investments 0   102,000
Land 295,800   0
Equipment 438,600   358,020
Accumulated depreciation—equipment (99,110)   (84,320)
Total assets $ 1,211,760 $ 901,680
Liabilities and Stockholders' Equity      
Accounts payable (merchandise creditors).................. $ 205,700 $ 194,140
Accrued expenses payable (operating expenses) 30,600   26,860
Dividends payable 25,500   20,400
Common stock. $1 par 202,000   102,000
Paid-in capital: Excess of issue price over par—common stock 354,000   204,000
Retained earnings 393,960   354,280
Total liabilities and stockholders' equity $ 1,211,760 $ 901,680
The income statement for the year ended December 31,20Y9, is as fallow s:
Sales   $2,023,898
Cost of goods sold   1,245,476
Gross profit   $ 778,422
Operating expenses:    
Depreciation expense $ 14,790  
Other operating expenses 517,299  
Total operating expenses   532,089
Operating income   $ 246,333
Other expenses:    
Loss on sale of investments   (10,200)
Income before income tax   $ 236,133
Income tax expense   94,453
Net income   $ 141,680

Additional data obtained from an examination of the- accounts in the ledger for 20Y9 are as follows:

  • A. Equipment and land were acquired for cash.
  • B. There were no disposals of equipment during the year.
  • C. The investments were sold for $91,800 cash.
  • D. The common stock was issued for cash.
  • E. There was a $ 102,000 debit to Retained Earnings for cash dividends declared.

Instructions

Prepare a statement of cash flows, using the direct method of presenting cash flows from operating activities.

To determine

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.

To prepare: The statement of cash flows using the direct method of presenting cash flows from operating activities.

Explanation of Solution

Working Notes:

Calculate the cash flows from operating activities.

Sales revenue $2,023,898
Less: Increase in accounts receivable (19,040)
Cash receipts from customers $2,004,858

Table (3) (1)

Calculate the cash payments for merchandise.

Cost of goods sold $1,245,476
Less: Increase in accounts payable (11,560)
Add: Increase in inventories 8,670
Cash payments for merchandise $1,242,586

Table (4) (2)

Calculate the cash payment for operating expenses...

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Chapter 13 Solutions

Financial & Managerial Accounting
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Ch. 13 - Classifying cash flows Identify whether each of...Ch. 13 - Adjustments to net incomeindirect method Ripley...Ch. 13 - Changes in current operating assets and...Ch. 13 - Cash flows from operating activitiesindirect...Ch. 13 - Land transactions on the statement of cash flows...Ch. 13 - Common stock transactions on the statement of cash...Ch. 13 - Cash received from customersdirect method Sales...Ch. 13 - Cash payments for merchandisedirect method The...Ch. 13 - Cash flows from operating activitiesnet loss...Ch. 13 - Effect of transactions on cash flows State the...Ch. 13 - Classifying cash flows Identify the type of cash...Ch. 13 - Cash flows from operating activitiesindirect...Ch. 13 - Cash flows from operating activities indirect...Ch. 13 - Cash flows from operating activitiesindirect...Ch. 13 - Cash flows from operating activitiesindirect...Ch. 13 - Reporting changes in equipment on statement of...Ch. 13 - Reporting changes in equipment on statement of...Ch. 13 - Reporting land transactions on statement of cash...Ch. 13 - Determining cash payments to stockholders The...Ch. 13 - Reporting stockholders' equity items on statement...Ch. 13 - Reporting land acquisition for cash and mortgage...Ch. 13 - Reporting issuance and retirement of long-term...Ch. 13 - Determining net income from net cash flow from...Ch. 13 - Cash flows from operating activitiesindirect...Ch. 13 - Statement of cash flowsindirect method The...Ch. 13 - Statement of cash flowsindirect method List the...Ch. 13 - Cash flows from operating activitiesdirect method...Ch. 13 - Determining selected amounts for cash flows from...Ch. 13 - Cash flows from operating activities direct method...Ch. 13 - Cash flows from operating activitiesdirect method...Ch. 13 - Statement of cash flowsindirect method The...Ch. 13 - Statement of cash flowsindirect method The...Ch. 13 - Statement of cash flowsindirect method The...Ch. 13 - Statement of cash flowsdirect method The...Ch. 13 - Statement of cash flows direct method applied to...Ch. 13 - Statement of cash flowsindirect method The...Ch. 13 - Statement of cash flows indirect method The...Ch. 13 - Statement of cash flowsindirect method The...Ch. 13 - Statement of cash flows direct method The...Ch. 13 - Statement of cash flowsdirect method applied to PR...Ch. 13 - Continuing Company AnalysisAmazon, Best Buy, and...Ch. 13 - RadioShack: Free cash flow RadioShack Corporation...Ch. 13 - ATT and Facebook: Free cash flow ATT Inc. is a...Ch. 13 - Priceline: Free cash flow Priceline Group, Inc. is...Ch. 13 - Ethics in Action Head Donuts Inc. is a retailer of...Ch. 13 - Communication Tidewater Inc., a retailer, provided...

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