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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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Balance sheets for Brierwold Corporation follow:

Chapter 14, Problem 53P, Balance sheets for Brierwold Corporation follow: Additional transactions were as follows: a.

 Additional transactions were as follows:

  1. a. Purchased equipment costing $50,000.
  2. b. Sold equipment costing $60,000, with a book value of $25,000, for $40,000.
  3. c. Retired preferred stock at a cost of $110,000. (The premium is debited to Retained Earnings.)
  4. d. Issued 10,000 shares of common stock (par value, $4) for $10 per share.
  5. e. Reported a loss of $15,000 for the year.
  6. f. Purchased land for $50,000.

 Required:

 Prepare a statement of cash flows using the worksheet approach. Use the indirect method to prepare the statement.

To determine

Construct a statement of cash flows with the help of a worksheet.

Explanation

Worksheet:

The chart prepared in a spreadsheet format as a helping tool in accounting is known as worksheet. With the help of worksheet, a cash flow statement can be prepared with less confusion and complexity.

The worksheet for the B Corporation is shown in the table below:

Worksheet: B Corporation
For the year ending
Transactions
ParticularsBeginning Balance ($)Debit ($)Credit ($)Ending Balance ($)
Assets:
Cash100,000(1) 50,000 150,000
Accounts receivable200,000 (2) 20,000180,000
Inventory400,000(3) 10,000 410,000
Plant and equipment700,000(4) 50,000(5) 60,000690,000
Accumulated depreciation(200,000)(5) 35,000(6) 80,000(245,000)
Land100,000(7) 50,000 150,000
    Total assets1,300,000  1,335,000
 
Liabilities and stockholder’s equity:
Accounts payable300,000(8) 50,000 250,000
Mortgage payable- (9) 110,000110,000
Preferred stock100,000(10) 100,000--
Common stock240,000 (11) 40,000280,000
Paid-in capital in excess of par360,000 (11) 60,000420,000
Retained earnings300,000(10) 10,000  
  (12) 15,000 275,000
    Total liabilities and stockholder’s equity1,300,000  1,335,000
  
 Debit ($)Credit ($)
Cash flows from operating activities:  
Net loss (12) 15,000
    Decrease in accounts receivable(2) 20,000 
    Increase in inventory(5) 1,800(3) 10,000
    Decrease in accounts payable (8) 50,000
    Depreciation expense(6) 80,000 
    Gain on sale of equipment (5) 15,000
Cash flows from investing activities:  
    Sale of equipment(5) 40,000 
    Purchase of equipment (4) 50,000
    Purchase of land (7) 50,000
Cash flows from financing activities:  
    Retirement of preferred stock (10) 110,000
    Receipt of mortgage(9) 110,000(11) 36,000
    Issuance of common stock(11) 100,000 
Net increase in cash (1) 50,000

Table (1)

The analysis of transactions is as follows:

(1). Change in cash:

DateAccount Title and Explanation

Debit

($)

Credit

($)

 Cash50,000 
      Net increase in cash 50,000
 (Being the change in cash recorded)  

Table (2)

Increase in accrual cash balance by $50,000 from the beginning to the end of the year is recorded.

(2). Change in accounts receivable:

DateAccount Title and Explanation

Debit

($)

Credit

($)

 Operating cash20,000 
      Accounts receivable 20,000
 (Being the decrease in accounts receivable recorded)  

Table (3)

Decrease in accounts receivable by $20,000 is recognized on the income statement but is not collected. This cash inflow should be adjusted in the net income.

(3) Purchase of inventory:

DateAccount Title and Explanation

Debit

($)

Credit

($)

 Inventory10,000 
      Operating cash 10,000
 (Being the purchase value of inventory are recorded)  

Table (4)

The purchase value of inventory is recorded by debiting the inventory account and crediting the operating cash account.

(4) Purchase value of plant and equipment:

DateAccount Title and Explanation

Debit

($)

Credit

($)

 Plant and equipment50,000 
      Operating cash 50,000
 (Being the purchase value of plant and equipment recorded)  

Table (5)

The purchase value of the equipment which is $50,000 is debited and the operating cash account is credited.

(5). Gain on sale of equipment:

DateAccount Title and Explanation

Debit

($)

Credit

($)

 Cash from investing activities40,000 
 Accumulated depreciation35,000 
      Plant and equipment 60,000
      Gain on sale of equipment 15,000
 (Being the gain on sale of equipment recorded)  

Table (6)

The cash from investing activities records the value at which the equipment is sold which is $40,000. The accumulated depreciation is debited to record the expense. The plant and equipment account is credited to record the original cost of the equipment. The gain value on the sale of equipment is credited.

(6). Accumulated depreciation expense:

DateAccount Title and Explanation

Debit

($)

Credit

($)

 Depreciation expense80,0001 
      Accumulated depreciation 80,000
 (Being the accumulated depreciation recorded)  

Table (7)

The accumulated depreciation of $80,000 is credited to record the depreciation expense.

(7). Value of land:

DateAccount Title and Explanation

Debit

($)

Credit

($)

 Land50,000 
      Operating cash 50,000
 (Being the fair value of land recorded)  

Table (8)

The fair value of the land is recorded by debiting the land account and crediting the operating cash.

(8). Accounts payable:

DateAccount Title and Explanation

Debit

($)

Credit

($)

 Accounts payable50,000 
      Operating cash 50,000
 (Being the decrease in accounts payable recorded)  

Table (9)

The decrease in accounts payable by $50,000 shows that all the purchases were not from cash...

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