Financial accounting
Financial accounting
3rd Edition
ISBN: 9780077506902
Author: David J Spieceland Wayne Thomas Don Herrmann
Publisher: Mcgraw-Hill
Question
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Chapter 11, Problem 11.7BP
To determine

To prepare: The cash flow statement of Incorporation V for the year ended December 31, 2015.

Expert Solution & Answer
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Explanation of Solution

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.

Cash flows from operating activities:

 These refer to the cash received or cash paid in day-to-day operating activities of a company.

Direct method: This method uses the basis of cash for preparing the cash flows of statement.

Cash flows from operating activities: In this direct method, cash flow from operating activities is computed by using all cash receipts and cash payments during the year.

  • Cash Receipts: It encompasses all the cash receipts from sale of goods and on account receivable.
  • Cash Payments: It encompasses all the cash payments that are made to suppliers of goods and all expenses that are paid.

Cash flow from investing activities:

This section of cash flows statement provides information concerning about the purchase and sale of capital assets by the company.

Cash flow from financing activities:

This section of cash flows statement provides information about the cash inflow and outflow as a result of issuance and financing of debt, issue of new stock and payment of dividends.

The cash flow statement of Incorporation V for the year ended December 31, 2015 is as follows:

Incorporation V
 Statement of cash flow- Direct method
 For the year ended December 31, 2015
 $  $
Cash flows from operating activities:
Cash collection:
Cash collection from customer (2) (A) 2,616,000
Cash Payments:
Cash paid to supplier (4) 1,728,000
Cash paid for income tax (5) 84,000
Cash paid for interest (6) 32,900
Operating expenses (3) 612,400
Total Cash Payments (B) 2,457,300
Net cash provided by operating activities (AB) 1,58,700
Cash flows from investing activities:
Sale of land 62,000
Purchase of Investments (95,000)
Net cash used for investing activities (33,000)
Cash used in financing activities:
Issuance of common stock 120,000
Payment of dividends (60,000)
Net cash provided by financing activities         (60,000)
Net increase (decrease) in cash          65,700
Beginning Cash balance 343,800
Ending Cash balance      409,500
Schedule of non-cash transaction:
Purchase of Equipment by issuing notes payable $30,000

Table (1)

The net cash provided by operating activities is calculated by deducting all cash payments incurred in the operating of the business from all cash receipts from the operating activities of the business. Here, cash receipt includes cash receipts from customers. Cash payments include all cash payments made to suppliers and operating activities.

Cash flow from investing activities is calculated by accounting for inflows and outflows of changes in investments and long terms assets.

Cash flow from financing activities is calculated by accounting for inflows and outflows of changes in long term liabilities and stockholders’ equity items.

Working note:

1. Calculate the increase or decreases of current assets and current liabilities:

Schedule in the changes of assets and liabilities
 Details  Amount
2015 2014  Increase/(decrease)
 Accounts receivable 64,000 80,000 -16,000
 Inventory 160,000 145,000 15,000
 Prepaid rent 4,600 7,200 -2,600
 Accounts payable 35,000 98,000 -63,000
 Interest payable 5,100 4,000 1,100
 Income tax payable 25,000 29,000 -4,000

Table (2)

(1)

2. Calculate the amount of cash receipt from customer:

Cashreceiptsfromcustomers}=(Salesrevenue+Decrease in accounts receivable (1))=$2,600,000+$16,000=$2,616,000

(2)

3. Calculate the amount of cash paid for operating expense:

Cash payments for operating expesnes}=Operating expenseDecrease in prepaid expenses (1)=$615,000$2,600=$612,400

(3)

4. Calculate the amount of cash paid to the suppliers:

Cash payments to suppliers}=(Cost of goods sold +Decrease in accounts payable + Increase in inventory)=$1,650,000+$63,000+$15,000=$1,728,000

(4)

5. Calculate the amount income tax expense:

Cash payments for income tax}=Income tax expense + Decrease in income tax payable=$80,000+$4,000 =$84,000

(5)

6. Calculate the amount cash payment for interest expense:

Cash payments for interest}=Interest expenseIncrease in interest payable=$34,000$1,100 =$32,900

(6)

Conclusion

Therefore, the net increases in cash of Incorporation V for the year ended December 31, 2015 is $65,700.

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Chapter 11 Solutions

Financial accounting

Ch. 11 - Describe how we report a gain or loss on the sale...Ch. 11 - Prob. 12RQCh. 11 - Prob. 13RQCh. 11 - Prob. 14RQCh. 11 - Prob. 15RQCh. 11 - Prob. 16RQCh. 11 - Prob. 17RQCh. 11 - Prob. 18RQCh. 11 - Prob. 19RQCh. 11 - 20.Why do we exclude depreciation expense and the...Ch. 11 - Classify each of the following items as an...Ch. 11 - Prob. 11.2BECh. 11 - Prob. 11.3BECh. 11 - Prob. 11.4BECh. 11 - Prob. 11.5BECh. 11 - Prob. 11.6BECh. 11 - Prob. 11.7BECh. 11 - Creative Sound Systems sold investments, land, and...Ch. 11 - Prob. 11.9BECh. 11 - Prob. 11.10BECh. 11 - Prob. 11.11BECh. 11 - Prob. 11.12BECh. 11 - Electronic Superstores inventory increases during...Ch. 11 - Prob. 11.14BECh. 11 - Computer World reports income tax expense of...Ch. 11 - Prob. 11.1ECh. 11 - Prob. 11.2ECh. 11 - Determine proper classification (LO111) Analysis...Ch. 11 - Prob. 11.4ECh. 11 - Prob. 11.5ECh. 11 - Prob. 11.6ECh. 11 - Prob. 11.7ECh. 11 - Prob. 11.8ECh. 11 - Prob. 11.9ECh. 11 - Prob. 11.10ECh. 11 - Prob. 11.11ECh. 11 - Prob. 11.12ECh. 11 - Prob. 11.13ECh. 11 - Prob. 11.14ECh. 11 - The income statement for Electronic Wonders...Ch. 11 - Prob. 11.1APCh. 11 - Prob. 11.2APCh. 11 - Prob. 11.3APCh. 11 - Prob. 11.4APCh. 11 - Prob. 11.5APCh. 11 - Prob. 11.6APCh. 11 - Prob. 11.7APCh. 11 - Prob. 11.8APCh. 11 - Prob. 11.1BPCh. 11 - Prob. 11.2BPCh. 11 - Prob. 11.3BPCh. 11 - Prob. 11.4BPCh. 11 - Prob. 11.5BPCh. 11 - Prob. 11.6BPCh. 11 - Prob. 11.7BPCh. 11 - Prob. 11.8BPCh. 11 - Prob. 11.1APCPCh. 11 - Prob. 11.2APFACh. 11 - Prob. 11.3APFACh. 11 - Prob. 11.4APCACh. 11 - Ethics AP11-5 Aggressive Corporation approaches...Ch. 11 - Prob. 11.6APIRCh. 11 - Prob. 11.7APWCCh. 11 - Prob. 11.8APEM
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