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The comparative balance sheet of Yellow Dog Enterprises Inc. at December 31, 20Y8 and 20Y7, is as follows: Additional data obtained from the income statement and from an examination of the accounts in the ledger for 20Y8 are as follows: a. Net income, $190,000. b. Depreciation reported on the income statement, $115,000. c. Equipment was purchased at a cost of $395,000, and fully depreciated equipment costing $75,000 was discarded, with no salvage realized. d. The mortgage note payable was not due for six years, but the terms permitted earlier payment without penalty. e. 40,000 shares of common stock were issued at $15 for cash. f. Cash dividends declared and paid, $50,000. Instructions Prepare a statement of cash flows, using the indirect method.

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 16, Problem 2PA
Textbook Problem
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The comparative balance sheet of Yellow Dog Enterprises Inc. at December 31, 20Y8 and 20Y7, is as follows:

Chapter 16, Problem 2PA, The comparative balance sheet of Yellow Dog Enterprises Inc. at December 31, 20Y8 and 20Y7, is as , example  1

Chapter 16, Problem 2PA, The comparative balance sheet of Yellow Dog Enterprises Inc. at December 31, 20Y8 and 20Y7, is as , example  2

Additional data obtained from the income statement and from an examination of the accounts in the ledger for 20Y8 are as follows:

  1.     a.          Net income, $190,000.
  2.     b.          Depreciation reported on the income statement, $115,000.
  3.     c.          Equipment was purchased at a cost of $395,000, and fully depreciated equipment costing $75,000 was discarded, with no salvage realized.
  4.     d.          The mortgage note payable was not due for six years, but the terms permitted earlier payment without penalty.
  5.     e.          40,000 shares of common stock were issued at $15 for cash.
  6.      f.          Cash dividends declared and paid, $50,000.

Instructions

Prepare a statement of cash flows, using the indirect method.

To determine

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

Explanation of Solution

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 (2)

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 (3)

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...

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Chapter 16 Solutions

Financial Accounting
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