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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

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

Statement of cash flows—direct method

The comparative balance sheet of Canace Products Inc. for December 31,20Y6 and 20Y5, Is as follows:

  Dec. 31, 20Y6 Dec. 31, 20Y5
Assets    
Cash.......................................................... $ 643,400 $ 679,400
Accounts receivable (net)....................................... 566,800 547,400
Inventories.................................................... 1,011,000 982,800
Investments................................................... 0 240,000
Land.......................................................... 520,000 0
Equipment............................................ 880,000 680,000
Accumulated depreciation...................................... (244,400) (200,400)
Total assets................................................. 53,376,800 52,929,200
Liabilities and Stockholders' Equity    
Accounts payable.............................................. $ 771,800 5,748,400
Accrued expenses payable...................................... 63,400 70,800
Dividends payable.............................................. 8,800 6,400
Common stock, $2 par.......................................... $6,000 32,000
Paid-in capital: Excess of issue price over par—common stock..... 408,000 192,000
Retained earnings.............................................. 2,068,800 1,879,600
Total liabilities and stockholders' equity....................... 53,376,800 52,929,200

The income .statement for the- year ended December 31. 20Y6, is as follows:

Sales............................................   $5,980,000
Cost of merchandise sold.........................   2,452,000
Gross profit......................................   $3,528,000
Operating expenses:    
Depreciation expense...................... $ 44,000  
Other operating expenses..................... 3,100,000  
Total operating expenses................... 3,144,000
Operating income....................................... $ 384,000
Other expense:    
Loss on sale of investments...........................   (64,000)
Income before income tax............................... 320,000
Income tax expense......................................   102,800
Net income............................................. $ 217,200

Additional data obtained from an examination of the accounts in the ledger for 20Y6 are as follows:

a. Equipment and land were acquired for cash.

b. There were no disposals of equipment during the year.

c. The investments were sold for $176,000 cash.

d. The common stock was issued for cash.

e. Tile re was a $28,000 debit to Retained Earnings for cash dividends declared.

Instructions

Prepare a statement of cash flows, using the direct method of presenting cash flows from operating activities.

To determine

Statement of cash flows

Statement of cash flow is a financial statement that shows the cash and cash equivalents of a company for a particular period of time. It shows the net changes in cash, by reporting the sources and uses of cash as a result of operating, investing, and financing activities of a company.

To prepare: The statement of cash flows using the direct method of presenting cash flows from operating activities.

Explanation

Working Notes:

Calculate the cash flows from operating activities.

Sales revenue $5,980,000
Less: Increase in accounts receivable (19,400)
Cash receipts from customers $5,960,600

Table (2) (1)

Calculate the cash payments for merchandise.

Cost of merchandise sold $2,452,000
Less: Increase in accounts payable (23,400)
Add: Increase in inventory 28,200
Cash payments for merchandise $2,456,800

Table (3) (2)

Calculate the cash payment for operating expenses...

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