Concept explainers
Statement of
• LO4–8
The Diversified Portfolio Corporation provides investment advice to customers. A condensed income statement for the year ended December 31, 2018, appears below:
Service revenue | $900,000 |
Operating expenses | 700,000 |
Income before income taxes | 200,000 |
Income tax expense | 80,000 |
Net income | $120,000 |
The following balance sheet information also is available:
12/31/2018 | 12/31/2017 | |
Cash | $275,000 | $ 70,000 |
Accounts receivable | 120,000 | 100,000 |
Accounts payable (operating expenses) | 70,000 | 60,000 |
Income taxes payable | 10,000 | 15,000 |
In addition, the following transactions took place during the year:
1. Common stock was issued for $100,000 in cash.
2. Long-term investments were sold for $50,000 in cash. The original cost of the investments also was $50,000.
3. $80,000 in cash dividends was paid to shareholders.
4. The company has no outstanding debt, other than those payables listed above.
5. Operating expenses include $30,000 in
Required:
1. Prepare a statement of cash flows for 2018 for the Diversified Portfolio Corporation. Use the direct method for reporting operating activities.
2. Prepare the cash flows from operating activities section of Diversified’s 2018 statement of cash flows using the indirect method.
(1)
Cash flow statement:
This statement reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is reported as ending balance of cash at the end of reported period.
To prepare: A statement of cash flow for D corporation using direct method for reporting operating activities.
Explanation of Solution
Prepare a statement of cash flow for corporation D using direct method.
Corporation D Statement of cash flows for the year ended December 31, 2018 |
||
Particulars | Amount ($) | Amount ($) |
Cash flows from operating activities: | ||
Collections from customers (1) | 880,000 | |
Payment of operating expenses (2) | (6,60,000) | |
Payment of income taxes (3) | (85,000) | |
Net cash flows from operating activities | 135,000 | |
Cash flows from investing activities: | ||
Sale of investments | 50,000 | |
Net cash flows from investing activities | 50,000 | |
Cash flows from financing activities: | ||
Proceeds from issue of common stock | 1,00,000 | |
Payment of dividends | (80,000) | |
Net cash flows from financing activities | 20,000 | |
Increase in cash | 2,05,000 | |
Cash and cash equivalents, January 1 | 70,000 | |
Cash and cash equivalents, December 31 | 275,000 |
(Table 1)
Working notes:
(1)
(3)
(2)
To prepare: The cash flows from operating activities section of Corporation D’s 2018 statement of cash flow for Corporation, under the indirect method.
Explanation of Solution
Prepare the cash flow from operating activities section of Corporation using indirect method:
Corporation D Statement of cash flows For the year ended December 31, 2018 |
|
Particulars | Amount ($) |
Cash flows from operating activities: | |
Net income | 120,000 |
Adjustments for noncash effects: | |
Depreciation expense | 30,000 |
Changes in operating assets and liabilities: | |
Increase in accounts receivable | (20,000) |
Increase in accounts payable | 10,000 |
Decrease in income taxes payable | (5,000) |
Net cash flows from operating activities | 135,000 |
Want to see more full solutions like this?
Chapter 4 Solutions
CONNECT INTERMED.ACCTG (CONNECT+ALEKS)
- Breakdown 3/30/2022 3/30/2021 3/30/2020 Operating Cash Flow 90,480,000.00 91,630,000.00 76,230,000.00 Investing Cash Flow (17,280,000.00) (15,280,000.00) 17,910,000.00 Financing Cash Flow (80,150,000.00) (93,090,000.00) (68,190,000.00) End Cash Position 11,470,000.00 18,420,000.00 32,160,000.00 Changes in Cash (6,950,000.00) (16,740,000.00) 25,950,000.00 Beginning Cash Position 18,420,000.00 32,160,000.00 6,210,000.00 Other Cash Adjustment Outside Change in Cash - 3,000,000.00 - Capital Expenditure (12,280,000.00) (41,630,000.00) (8,620,000.00) Issuance of Capital Stock - - - Issuance of Debt - 1,880,000.00 - Repayment of Debt - (1,880,000.00) - Free Cash Flow 78,200,000.00 50,000,000.00 67,610,000.00 Can you make this indirect method of cash flow into a direct method of cash flow? Please donot provide solution in image format and it should be in step by step format and asaparrow_forwardHello, I need help with finance questions from book Fundamentals of corporate finance ( 11th Canadian Edition) Chapter 2 Q.8 Thank you,8. Calculating OCF (LO3) Fergus Inc. has sales of $39,500, costs of $18,400, depreciation expense of $1,900, and interest expense of $1,400. If the tax rate is 35%, what is the operating cash flow, or OCF?arrow_forwardQuestion 34 Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Harlan Mining Co. for 2022 and 2021 are provided below. BALANCE SHEETS 12/31/22 12/31/21 Cash $408,000 $ 192,000 Accounts receivable 360,000 216,000 Inventory 384,000 480,000 Property, plant and equipment 608,000 960,000 Less accumulated depreciation (320,000) (304,000) 288,000 656,000 $1,440,000 $1,544,000 Accounts payable $ 176,000 $ 96,000 Income taxes payable 352,000 392,000 Bonds payable 360,000 600,000 Common stock 216,000 216,000 Retained earnings 336,000 240,000 $1,440,000 $1,544,000 INCOME STATEMENT For the Year Ended December 31, 2022 Sales revenue $8,400,000 Cost of sales 7,152,000 Gross profit 1,248,000 Selling expenses $600,000…arrow_forward
- Required information Exercise 21-13 (Static) Identifying cash flows from investing activities and financing activities [LO21-5, 21-6] Skip to question [The following information applies to the questions displayed below.] In preparation for developing its statement of cash flows for the year ended December 31, 2024, Rapid Pac, Incorporated, collected the following information: ($ in millions) Fair value of shares issued in a stock dividend $ 65 Payment for the early extinguishment of long-term bonds (book value: $97 million) 102 Proceeds from the sale of treasury stock (cost: $17 million) 22 Gain on sale of land 4 Proceeds from sale of land 12 Purchase of Microsoft common stock 160 Declaration of cash dividends 44 Distribution of cash dividends declared in 2023 40 Exercise 21-13 (Static) Part 2 2. In Rapid Pac’s statement of cash flows, what were net cash inflows (or outflows) from financing activities for 2024? Note: Cash outflows should be indicated…arrow_forwardHello, I need help with finance questions from book Fundamentals of corporate finance ( 11th Canadian Edition) Chapter 2 Q.12 Thank you, 12. Cash Flow to Shareholders (LO3) The 2019 statement of financial position of Roger’s Tennis Shop Inc. showed $740,000 in the common stock account and $5.2 million in the additional retained earnings account. The 2020 statement of financial position showed $815,000 and $5.5 million in the same two accounts, respectively. If the company paid out $490,000 in cash dividends during 2020, what was the cash flow to shareholders for the year?arrow_forwardRequired information Exercise 21-13 (Static) Identifying cash flows from investing activities and financing activities [LO21-5, 21-6] [The following information applies to the questions displayed below.] In preparation for developing its statement of cash flows for the year ended December 31, 2024, Rapid Pac, Incorporated, collected the following information: ($ in millions) Fair value of shares issued in a stock dividend $ 65 Payment for the early extinguishment of long-term bonds (book value: $97 million) 102 Proceeds from the sale of treasury stock (cost: $17 million) 22 Gain on sale of land 4 Proceeds from sale of land 12 Purchase of Microsoft common stock 160 Declaration of cash dividends 44 Distribution of cash dividends declared in 2023 40 Exercise 21-13 (Static) Part 1 Required: 1. In Rapid Pac’s statement of cash flows, what were net cash inflows (or outflows) from investing activities for 2024? Note: Cash outflows should be indicated with a…arrow_forward
- Q 23.21: Last year, Alpha Corporation spent $250,000 to repurchase 15,000 shares of its own outstanding common stock. The company also paid $40,000 in interest on a construction loan that it had obtained from its bank. How should these transactions be reflected on Alpha’s annual statement of cash flows, and why? A : The two transactions should be reported in separate sections of the statement because one involves long-term assets while the other involves long-term liability. Specifically, Alpha should record a $250,000 cash outflow in the investing section and a $40,000 cash outflow in the financing section. B : The two transactions should be reported in separate sections of the statement because one involves a change in equity while the other involves a change in income. Specifically, Alpha should record a $250,000 cash outflow in the financing section and a $40,000 cash outflow in the operating section. C : Both transactions should be reported in the…arrow_forwardTB Problem 21-167 (Algo) The Murdock Corporation reported the following balance sheet data for 2021 and 2020: 2021 2020 Cash $ 96,245 $ 33,155 Available-for-sale debt securities (not cash equivalents) 24,000 102,000 Accounts receivable 97,000 83,550 Inventory 182,000 160,300 Prepaid insurance 3,030 3,700 Land, buildings, and equipment 1,284,000 1,142,000 Accumulated depreciation (627,000 ) (589,000 ) Total assets $ 1,059,275 $ 935,705 Accounts payable $ 91,640 $ 165,670 Salaries payable 26,800 33,000 Notes payable (current) 40,300 92,000 Bonds payable 217,000 0 Common stock 300,000 300,000 Retained earnings 383,535 345,035 Total liabilities and shareholders' equity $ 1,059,275 $ 935,705 Additional information for 2021: (1) Sold available-for-sale debt securities costing…arrow_forwardTB Problem 21-167 (Algo) The Murdock Corporation reported the following balance sheet data for 2021 and 2020: 2021 2020 Cash $ 96,245 $ 33,155 Available-for-sale debt securities (not cash equivalents) 24,000 102,000 Accounts receivable 97,000 83,550 Inventory 182,000 160,300 Prepaid insurance 3,030 3,700 Land, buildings, and equipment 1,284,000 1,142,000 Accumulated depreciation (627,000 ) (589,000 ) Total assets $ 1,059,275 $ 935,705 Accounts payable $ 91,640 $ 165,670 Salaries payable 26,800 33,000 Notes payable (current) 40,300 92,000 Bonds payable 217,000 0 Common stock 300,000 300,000 Retained earnings 383,535 345,035 Total liabilities and shareholders' equity $ 1,059,275 $ 935,705 Additional information for 2021: (1) Sold available-for-sale debt securities costing…arrow_forward
- hw6 q1 Consider the following balance sheet and income statement for Mmm Good Foods Incorporated (the company that operates Tasty Fried Chicken and Pizza Party), in condensed form, including some information from the cash flow statement: (amounts are in millions) Mmm Good Foods Incorporated Balance Sheet 2019 Cash and short-term Investments $ 719 Accounts receivable 385 Inventory 51 Other current assets 447 Long-lived assets 4,086 Total assets $ 5,688 Current liabilities $ 1,444 Total liabilities 11,164 Noncontrolling interest Shareholders’ equity (5,476) Total liabilities and equity $ 5,688 Income Statement Sales $ 6,516 Cost of sales 3,573 Gross margin $ 2,943 Earnings before interest and taxes $ 1,640 Interest 322 Taxes 339 Income from discontinued operations 610 Net income $ 1,589 Share price $ 78 Earnings per share 5.61 Number of outstanding shares (millions) 356.5 Cash Flows Cash flow from operations $ 1,219…arrow_forwardQuestion 21 In preparing Titan Inc.'s statement of cash flows for the year ended December 31, 2021, the following amounts were available: Collect note receivable $615,000 Issue bonds payable 639,000 Purchase treasury stock 300,000 What amount should be reported on Titan, Inc.'s statement of cash flows for investing activities? $339,000 $315,000 $615,000 $1,254,000arrow_forwardKlp.6 Using the data in the table, calculate the operating cash flow for Cyberdyne. Round your answer to the nearest dollar (no decimals). Cyberdyne Systems Selected Financial Information Net Income $1,215 Depreciation 400 Interest 550 Tax Rate 0.30 Operating cash flow = $arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Financial & Managerial AccountingAccountingISBN:9781337119207Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage LearningCorporate Financial AccountingAccountingISBN:9781305653535Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning
- Corporate Financial AccountingAccountingISBN:9781337398169Author:Carl Warren, Jeff JonesPublisher:Cengage LearningFundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning