FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
5th Edition
ISBN: 9781260847826
Author: SPICELAND
Publisher: INTER MCG
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Chapter 11, Problem 7PA
To determine

Prepare the cash flow statement of Incorporation V for the year ended December 31, 2021.

Expert Solution & Answer
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Explanation of Solution

Statement of cash flows: 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. Statement of cash flows includes the changes in cash balance due to operating, investing, and financing activities. Operating activities include cash inflows and outflows from business operations. Investing activities includes cash inflows and cash outflows from purchase and sale of land or equipment, or investments. Financing activities includes cash inflows and outflows from issuance of common stock and debt, payment of debt and dividends.

Direct method: Under direct method, cash receipts from customers (cash inflows) and cash payments to suppliers (cash outflows) are reported under the operating activities.

Prepare the cash flow statement of Incorporation V for the year ended December 31, 2021.

Incorporation V
 Statement of cash flow- Direct method
 For the year ended December 31, 2021
 ParticularsAmount ($)Amount ($)
Cash flows from operating activities:
Cash collection:
Cash collection from customer (2) (A)3,614,000
Cash Payments:
Cash paid to supplier (4)(2,426,000)
Cash paid for income tax (5)(57,000)
Cash paid for interest (6)(25,000)
Operating expenses (3)(9,65,200)
Total Cash Payments (B)(3,473,200)
Net cash provided by operating activities (AB)140,800
Cash flows from investing activities:
Sale of land31,000
Purchase of Investments(115,000)
Net cash used for investing activities(84,000)
Cash used in financing activities:
Payment of dividends(30,000)
Net cash provided by financing activities(30,000)
Net increase (decrease) in cash 26,800
Beginning Cash balance227,800
Ending Cash balance254,600
Schedule of non-cash transaction:
Purchase of Equipment by issuing notes payable$70,000

Table (1)

Working note:

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

Schedule in the changes of assets and liabilities
DetailsAmount
20212020Increase/
(decrease)
 Accounts receivable92,000 70,00022,000
 Inventory1,05,0001,45,000(40,000)
 Prepaid rent14,400 7,2007,200
 Accounts payable75,000 91,000(16,000)
 Interest payable7,00012,000(5,000)
 Income tax payable16,000 15,0001,000

Table (2)

(1)

2. Calculate the amount of cash receipt from customer:

Cashreceiptsfromcustomers}=(SalesrevenueIncrease in accounts receivable (1))=$3,636,000$22,000=$3,614,000 (2)

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

Cash payments for operating expesnes}=Operating expense+Increase in prepaid expenses (1)=$958,000+$7,200=$965,200 (3)

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

Cash payments to suppliers}=(Cost of goods sold +Decrease in accounts payable (1)  Decrease in inventory (1))=($2,450,000+$16,000)$40,000=$2,426,000 (4)

5. Calculate the amount income tax expense:

Cash payments for income tax}=Income tax expenseIncrease in income tax payable (1)=$58,000$1,000 =$57,000 (5)

6. Calculate the amount cash payment for interest expense:

Cash payments for interest}=Interest expense+Decrease in interest payable (1)=$20,000+$5,000 =$25,000 (6)

Conclusion

Therefore, the net increase in cash of Incorporation V for the year ended December 31, 2021 is $26,800.

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Chapter 11 Solutions

FINANCIAL ACCOUNTING

Ch. 11 - Prob. 11SSQCh. 11 - Prob. 12SSQCh. 11 - Prob. 13SSQCh. 11 - Prob. 14SSQCh. 11 - Prob. 15SSQCh. 11 - Applying Excel #11-1 A company reports net income...Ch. 11 - Prob. 2AECh. 11 - Prob. 1RQCh. 11 - Prob. 2RQCh. 11 - Prob. 3RQCh. 11 - 4. Why is it necessary to use an income statement,...Ch. 11 - Prob. 5RQCh. 11 - Prob. 6RQCh. 11 - Prob. 7RQCh. 11 - Prob. 8RQCh. 11 - Prob. 9RQCh. 11 - Prob. 10RQCh. 11 - Prob. 11RQCh. 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 - Prob. 20RQCh. 11 - BE11-1 Classify each of the following items as an...Ch. 11 - BE11-2 The following selected transactions occur...Ch. 11 - BE11-3 Place the following items in the correct...Ch. 11 - BE11-4 Laser World reports net income of $650,000....Ch. 11 - BE11-5 Macrosoft Company reports net income of...Ch. 11 - BE11-6 Hi-Tech, Inc., reports net income of $70...Ch. 11 - BE11-7 Engineering Wonders reports net income of...Ch. 11 - BE11-8 Creative Sound Systems sold investments,...Ch. 11 - Prob. 9BECh. 11 - BE11-10 Technologies Worldwide purchased land for...Ch. 11 - Prob. 11BECh. 11 - Prob. 12BECh. 11 - BE11-13 A-2-Z Design Services engaged in the...Ch. 11 - Prob. 14BECh. 11 - Prob. 15BECh. 11 - Prob. 16BECh. 11 - Prob. 17BECh. 11 - Prob. 18BECh. 11 - Prob. 19BECh. 11 - Prob. 20BECh. 11 - Prob. 1ECh. 11 - Prob. 2ECh. 11 - E11-3 Analysis of an income statement, balance...Ch. 11 - E11-4 Wi-Fi, Inc., has the following selected...Ch. 11 - Prob. 5ECh. 11 - Prob. 6ECh. 11 - Prob. 7ECh. 11 - Prob. 8ECh. 11 - E11-9 Software Distributors reports net income of...Ch. 11 - Prob. 10ECh. 11 - Prob. 11ECh. 11 - Prob. 12ECh. 11 - Prob. 13ECh. 11 - Prob. 14ECh. 11 - Prob. 15ECh. 11 - Calculate operating activities—direct method...Ch. 11 - Prob. 17ECh. 11 - Prob. 18ECh. 11 - Prob. 19ECh. 11 - Prob. 20ECh. 11 - Prob. 1PACh. 11 - Prob. 2PACh. 11 - Prob. 3PACh. 11 - Prob. 4PACh. 11 - Prob. 5PACh. 11 - Prob. 6PACh. 11 - Prob. 7PACh. 11 - Prob. 8PACh. 11 - Prob. 1PBCh. 11 - Prob. 2PBCh. 11 - Prob. 3PBCh. 11 - Prob. 4PBCh. 11 - Prob. 5PBCh. 11 - Prob. 6PBCh. 11 - Prob. 7PBCh. 11 - Prepare an income statement using operating cash...Ch. 11 - Great Adventures (This is a continuation of the...Ch. 11 - Prob. 2APCh. 11 - Prob. 3APCh. 11 - Prob. 4APCh. 11 - Prob. 5APCh. 11 - Prob. 7APCh. 11 - Prob. 8AP
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