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Managerial Accounting: The Corners...

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

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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The following balance sheets and income statement were taken from the records of Rosie-Lee Company:

Chapter 14, Problem 50P, The following balance sheets and income statement were taken from the records of Rosie-Lee Company: , example  1

Chapter 14, Problem 50P, The following balance sheets and income statement were taken from the records of Rosie-Lee Company: , example  2

Additional transactions were as follows:

  1. a. Sold equipment costing $21,600, with accumulated depreciation of $16,200, for $3,600.
  2. b. Issued bonds for $90,000 on December 31.
  3. c. Paid cash dividends of $36,000.
  4. d. Retired mortgage of $108,000 on December 31.

Required:

  1. 1. Prepare a schedule of operating cash flows using (a) the indirect method and (b) the direct method.
  2. 2. Prepare a statement of cash flows using the indirect method.

1.

(a).

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:

R-L Company
Schedule for Cash Flow from Operating Activities
For the year ended June 30, 20X2
ParticularsAmount ($)
Cash flows from operating activities: 
Net income122,400
Add/ Less: 
    Increase in accounts receivable1(18,000)
    Increase in accounts payable218,000
    Depreciation expense319,800
    Loss on sale of equipment1,800
        Net cash from operating activities144,000

Table (1)

Therefore, net cash flow from operating activities is $144,000.

Working Note:

1.

Calculation of difference in accounts receivable:

(DifferenceinAccountsReceivable)=(AmountofAccountsReceivableof20X2AmountofAccounts

1.

(b).

To determine

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

2.

To determine

Construct the statement of cash flows with the use of indirect method.

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