BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

Solutions

Chapter
Section
BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Statement of cash flows—indirect method

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

  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 199,110) (84,320)
Total assets $1,211,760 $901,680
Liabilities and Stockholders' Equity    
Accounts payable $ 205,700 $194,140
Accrued expenses payable 30,600 26,860
Dividends payable 25,500 20,400
Common stock, $1 par 202,000 102,000
Paid-in capital: Excess at 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

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

  1. a. Equipment and land were acquired for cash,
  2. b. There were no disposals of equipment during the year.
  3. c. The investments were sold for $91,800 cash.
  4. d. The common stock was issued for cash.
  5. e. There was a $141,680 credit to Retained Warnings for net income.
  6. f. There was a $102,000 debit to Retained Earnings for cash dividends declared.

Instructions

Prepare a statement of cash flows, using the indirect method of presenting cash flow s from operating activities.

To determine

Statement of cash flows: It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company.

Indirect method: Under this method, the following amounts are to be adjusted from the Net Income to calculate the net cash provided from operating activities.

Cash flows from operating activities: These are the cash produced by the normal business operations.

The below table shows the way of calculation of cash flows from operating activities:

Cash flows from operating activities (Indirect method)
Add: Decrease in current assets
         Increase in current liability
         Depreciation expense and amortization expense
         Loss on sale of plant assets
Deduct: Increase in current assets
              Decrease in current liabilities
              Gain on sale of plant assets
Net cash provided from or used by operating activities

Table (1)

Cash flows from investing activities: Cash provided by or used in investing activities is a section of statement of cash flows. It includes the purchase or sale of equipment or land, or marketable securities, which is used for business operations.

The below table shows the way of calculation of cash flows from investing activities:

Cash flows from investing activities
Add: Proceeds from sale of fixed assets
         Sale of marketable securities / investments
         Interest received
         Dividend received
Deduct: Purchase of fixed assets/long-lived assets
              Purchase of marketable securities
Net cash provided from or used by investing activities

Table (2)

Cash flows from financing activities: Cash provided by or used in financing activities is a section of statement of cash flows. It includes raising cash from long-term debt or payment of long-term debt, which is used for business operations.

The below table shows the way of calculation of cash flows from financing activities:

Cash flows from financing activities
Add: Issuance of common stock
          Proceeds from borrowings
          Proceeds from issuance of debt
          Issuance of bonds payable
Deduct: Payment of dividend
              Repayment of debt
              Interest paid
              Redemption of debt
              Repurchase of stock
Net cash provided from or used by financing activities

Table (3)

To Prepare: A statement of cash flows using the indirect method for presenting cash flows from operating activities.

Explanation

Working note:

Prepare the schedule in the changes of current assets and liabilities.

Schedule in the Change of Current Assets and Liabilities
Details Amount ($) Effect on Operating Activities
Beginning Balance Ending Balance

Increase/

(Decrease)

Accounts receivable 188,190 207,230 19,040 Deduct
Inventories 289,850 298,520 8,670 Deduct
Accounts payable 194,1400 205,700 11,560 Add
Accrued expenses payable 26,860 30,600 3,740 Add

Table (5)

Calculate the amount of depreciation expense:

Amount of depreciation expense =( Ending balance - Beginning balance)=($99,110$84,320)=$14,790

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

In what way is a college degree a form of capital?

Principles of Macroeconomics (MindTap Course List)

What is the purpose of accounting?

College Accounting, Chapters 1-27

BALANCE SHEET Which of the following actions are most likely to directly increase cash as shown on a firm's bal...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

Label the blanks in the column heads as either Debit or Credit.

College Accounting (Book Only): A Career Approach