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Managerial Accounting: The Corners...

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

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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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The following balance sheets were taken from the records of Blalock Company:

Chapter 14, Problem 56P, The following balance sheets were taken from the records of Blalock Company: Additional transactions

 Additional transactions were as follows:

  1. a. Sold equipment costing $12,000, with accumulated depreciation of $9,000, for $2,000.
  2. b. Retired bonds at a price of $60,000 on December 31.
  3. c. Earned net income for the year of $68,000; paid cash dividends of $20,000.

 Required:

Prepare a statement of cash flows using the indirect method.

To determine

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

Explanation

Cash Flow Statement:

Cash flow statement is a financial statement prepared to provide information about the sources and uses of cash in a firm. In this statement, the activities increasing cash are referred as cash inflows and the activities that decrease cash are referred as cash outflows.

The statement of cash flows for B Company for 20X2 using indirect method is shown below:

B Company
Statement of Cash Flows
For the year ended December 31, 20X2
ParticularsAmount ($)Amount ($)
Cash flows from operating activities:  
Net income68,000 
Add/ Less:  
    Increase in accounts receivable1(10,000) 
    Increase in accounts payable210,000 
    Depreciation expense311,000 
    Loss on sale of equipment41,000 
        Net cash from operating activities 80,000
Cash flows from investing activities:  
    Sale of equipment2,000 
    Purchase of investments(30,000) 
    Purchase of equipment5(17,000) 
    Purchase of land6(10,000) 
         Net cash from investing activities (55,000)
Cash flows from financing activities:
    Receipt of mortgage50,000 
    Retirement of bonds(60,000) 
    Retirement of preferred stock(20,000) 
    Payment of dividends(20,000) 
    Issuance of common stock760,000 
        Net cash from financing activities 10,000
Net increase in cash 35,000

Table (1)

Therefore, there is a net increase in cash of $35,000.

Working Note:

1.

Calculation of difference in accounts receivable:

(DifferenceinAccountsReceivable)=(AmountofAccountsReceivableof20X2AmountofAccountsReceivableof20X1)=($80,000$70,000)=$10,000

2.

Calculation of difference in accounts payable:

(DifferenceinAccountsPayable)=(AmountofAccountsPayableof20X2AmountofAccountsPayableof20X1)=($50,000$40,000)=$10,000

3.

Calculation of depreciation expense:

DepreciationExpense=(EndingValueofAccumulatedDepreciationBeginningValueofAccumulatedDepreciation+AccumulatedDepreciationforAssetSold)=($32,000$30,000+$9,000)=$11,000

4

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