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—direct method applied to PR–1A

The comparative balance sheet of Navaria Inc. for December 31, 20Y3 and 20Y2, is as follows:

  Dec 31, 20Y3 Dec 31, 20Y2
Assets    
Cash ......................................................... $ 155,000 $ 150,000
Accounts receivable (net) 450,000 400, 000
 Inventories 770,000 750,000
Investments............................................... 0 100,000
Land....................................... 500,000  
Equipment................................................... 1,400,000 1,200,000
Accumulated depreciation—equipment........................ (600,000) (500,000)
$2,675,000 $2,100,00
Liabilities and Stockholders' Equity
Accounts payable............................................. $ 340,000 $ 300,000
Accrued expenses payable.................................... 45,000 50,000
Dividends payable............................................. 30,000 25,000
Common stock. $4 par......................................... 700,000 600,000
Paid-in capital: Excess of issue price over par—common stock 200,000 175,000
Retained earnings............................................. 1,360,000 950,000
Total liabilities and stockholders' equity...................... $2,675,000 $2,100,000

The income statement for the year ended December 31, 20Y3, is as follows:

Sales...........................................   $3,000,000
Cost of merchandise sold.........................   1,400,000
Gross profit......................................   $1,600,000
Operating expenses:    
Depreciation expense........................ $ 100,000  
Other operating expenses.................... 950,000  
Total operating expenses................   1,050,000
Operating income..............................   $ 550,000
Other income:    
Gain on sale of investments..................   75,000
Income before income tax.......................   $ 625,000
Income tax expense.............................   125,000
Net income......................................   $ 500,000

Additional data obtained from an examination of the accounts in the ledger for 20Y3 are as follows:

a. The investments were sold for $175,000 cash.

b. Equipment and land were acquired for cash.

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

d. The common stock was issued for cash.

e. There was a $90,000 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 $3,000,000
Less: Increase in accounts receivable (50,000)
Cash receipts from customers $2,950,000

Table (2) (1)

Calculate the cash payments for merchandise.

Cost of merchandise sold $1,400,000
Less: Increase in accounts payable (40,000)
Add: Increase in inventory 20,000
Cash payments for merchandise $1,380,000

Table (3) (2)

Calculate the cash payment for operating expenses...

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

What are the major elements of SWOT analysis?

Foundations of Business (MindTap Course List)

What is the purpose of a work sheet?

College Accounting (Book Only): A Career Approach

What costs are entered on the job cost sheet?

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

Would you rather have a savings account that pays 5% interest compounded semiannually or one that pays 5% inter...

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

Diagrammatically represent pure economic rent.

Economics (MindTap Course List)