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AccountingManagerial Accounting: The Cornerstone of Business Decision-Making7th Edition

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Chapter 14, Problem 36E
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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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Problem 1DQ
Problem 2DQ
Problem 3DQ
Problem 4DQ
Problem 5DQ
Problem 6DQ
Problem 7DQ
Problem 8DQ
Problem 9DQ
Problem 10DQ
Problem 11DQ
Problem 12DQ
Problem 13DQ
Problem 14DQ
Problem 1MCQ
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Problem 4MCQ
Problem 5MCQ
Problem 6MCQ
Problem 7MCQ
Problem 8MCQ
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Problem 14MCQ
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Problem 16MCQ
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Problem 18BEA
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Problem 20BEA
Problem 21BEA
Problem 22BEA
Problem 23BEA
Problem 24BEA
Problem 25BEB
Problem 26BEB
Problem 27BEB
Problem 28BEB
Problem 29BEB
Problem 30BEB
Problem 31BEB
Problem 32BEB
Problem 33E
Problem 34E
Problem 35E
Problem 36E
Problem 37E
Problem 38E
Problem 39E
Problem 40E
Problem 41E
Problem 42E
Problem 43E
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Problem 45P
Problem 46P
Problem 47P
Problem 48P
Problem 49P
Problem 50P
Problem 51P
Problem 52P
Problem 53P
Problem 54P
Problem 55P
Problem 56P
Problem 57P
Problem 58C
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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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During the year, Hepworth Company earned a net income of $61,725. Beginning and ending balances for the year for selected accounts are as follows:

Chapter 14, Problem 36E, During the year, Hepworth Company earned a net income of 61,725. Beginning and ending balances for

There were no financing or investing activities for the year. The above balances reflect all of the adjustments needed to adjust net income to operating cash flows.

Required:

  1. 1. Prepare a schedule of operating cash flows using the indirect method.
  2. 2. Suppose that all the data are used in Requirement 1 except that the ending accounts payable and cash balances are not known. Assume also that you know that the operating cash flow for the year was $20,475. What is the ending balance of accounts payable?
  3. 3. CONCEPTUAL CONNECTION Hepworth has an opportunity to buy some equipment that will significantly increase productivity. The equipment costs $25,000. Assuming exactly the same data used for Requirement 1, can Hepworth buy the equipment using this year’s operating cash flows? If not, what would you suggest be done?

1.

To determine

Construct a schedule showing the operating cash flows with the use of indirect method.

Explanation

Cash Flows from Operating Activities:

This category of a cash flow statement shows the operational and profit generating activities in a firm. The operating cash flows increase or decrease the current assets and current liabilities of a firm.

The schedule showing operating cash flows using indirect method is in the table below:

H Company
Schedule for Cash Flow from Operating Activities
For the year ended December 31, 20X1
ParticularsAmount ($)
Cash flows from operating activities: 
Net income61,725
Add/ Less: 
    Increase in accounts receivable1(32,250)
    Increase in inventory2(16,500)
    Increase in prepaid expenses3(3,000)
    Increase in accounts payable410,125
    Decrease in wages payable5(12,000)
    Depreciation expense610,500
        Net cash from operating activities18,600

Table (1)

Therefore, net cash flow from operating activities is $18,600.

Working Note:

1.

Calculation of difference in accounts receivable:

(Difference inAccounts Receivable)=(Ending Accounts Receivable−Beginning Accounts Receivable)=($99,750−$67,500)=$32,250

2.

Calculation of difference in amount of inventories:

(Difference inInventories)=(Ending Inventories−Beginning Inventories)=($52,500−$36,000)=$16,500

3.

Calculation of difference in prepaid expenses:

(Difference inPrepaid Expenses)=(Ending Prepaid Expenses−Beginning Prepaid Expenses)=($30,000−$27,000)=$3,000

4

2.

To determine

Compute the ending balance of accounts payable.

3.

To determine

Explain whether Company H can buy the equipment using the current year operating cash flows. Also, give suggestions if the company is not able to buy the equipment.

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Ch-14 P-1DQCh-14 P-2DQCh-14 P-3DQCh-14 P-4DQCh-14 P-5DQCh-14 P-6DQCh-14 P-7DQCh-14 P-8DQCh-14 P-9DQCh-14 P-10DQ
Ch-14 P-11DQCh-14 P-12DQCh-14 P-13DQCh-14 P-14DQCh-14 P-1MCQCh-14 P-2MCQCh-14 P-3MCQCh-14 P-4MCQCh-14 P-5MCQCh-14 P-6MCQCh-14 P-7MCQCh-14 P-8MCQCh-14 P-9MCQCh-14 P-10MCQCh-14 P-11MCQCh-14 P-12MCQCh-14 P-13MCQCh-14 P-14MCQCh-14 P-15MCQCh-14 P-16MCQCh-14 P-17BEACh-14 P-18BEACh-14 P-19BEACh-14 P-20BEACh-14 P-21BEACh-14 P-22BEACh-14 P-23BEACh-14 P-24BEACh-14 P-25BEBCh-14 P-26BEBCh-14 P-27BEBCh-14 P-28BEBCh-14 P-29BEBCh-14 P-30BEBCh-14 P-31BEBCh-14 P-32BEBCh-14 P-33ECh-14 P-34ECh-14 P-35ECh-14 P-36ECh-14 P-37ECh-14 P-38ECh-14 P-39ECh-14 P-40ECh-14 P-41ECh-14 P-42ECh-14 P-43ECh-14 P-44PCh-14 P-45PCh-14 P-46PCh-14 P-47PCh-14 P-48PCh-14 P-49PCh-14 P-50PCh-14 P-51PCh-14 P-52PCh-14 P-53PCh-14 P-54PCh-14 P-55PCh-14 P-56PCh-14 P-57PCh-14 P-58C

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