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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 applied to PR 16–18

The Comparative balance sheet of Merrick Equipment Co. for Dec. 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.................... (99,110) (184,320)
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 of 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

The income statement for the year ended December 31. 20Y9, is as follows:

Sales...........................................   $2,023,898
Cost of merchandise sold........................   1,245,476
Gross profit.....................................   $ 778,422
Operating expenses:    
Depreciation expense........................ $ 14,790  
Other operating expenses.................... 517,299  
Total operating expenses..................   532,089
Operating income...............................   $ 246,333
Other expenses:    
Loss on sale of investments...................   (10,200)
Income before income tax.......................   $ 236,133
Income tax expense.............................   94,453
Net income.....................................   $ 141,680

Additional data obtained from an examination of the accounts in the ledger for 20Y9 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 $91,800 cash.

d. The common stock was issued for cash.

e. There was a $102,000 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 $2,023,898
Less: Increase in accounts receivable (19,040)
Cash receipts from customers $2,004,858

Table (3) (1)

Calculate the cash payments for merchandise.

Cost of goods sold $1,245,476
Less: Increase in accounts payable (11,560)
Add: Increase in inventories 8,670
Cash payments for merchandise $1,242,586

Table (4) (2)

Calculate the cash payment for operating expenses...

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