Managerial Accounting
Managerial Accounting
7th Edition
ISBN: 9781260247886
Author: Wild
Publisher: MCG
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Chapter 12, Problem 3GLP
To determine

Cash Flow Statement:

Cash flow statement gives the information related to the cash inflow and outflow of the company. It gives the information cash inflow and out flow from the operating, investing and financing activities.

Journal Entries:

Adjusting entries are those entries which are made at the end of the period to follow the matching the principal concept of the account.

To Determine: Journal entries and cash flow statement

Expert Solution & Answer
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Explanation of Solution

Purchase of the equipment

Date

Account title and explanation

post ref.

Amount

($)

Amount

($)

Equipment

36,000

Cash

36,000

(to record the purchase of the equipment)

Table (1)

  • Equipment account is the assets account. Here, assets have been purchased which increase the assets of the company. So, debit the equipment assets account.
  • Cash is the assets account. Here cash has been paid to acquire the equipment assets which decrease the assets of the company. So, credt the cash account.

Issue of share

Date
Account title and explanation
post ref.
Amount($)
Amount($)

Cash

60,000


Common stock


60,000

(to record issue of the common stock)



Table (2)

  • Cash is assets account of the company. Here, cash of the company is increased which increase the assets of the company. So, debit the cash account.
  • Common stock is the liability account. Here, common stock increases the debt of the company. So, credit the common stock account.

Declared and payment of the dividends

Date
Account title and explanation
post ref.
Amount($)
Amount($)

Dividends

89,000


Cash


89,000

(to record the payment of the dividend)



Table (3)

  • A dividend is the expense account which increased the debt of the company. Hence, debit dividend account.
  • Cash is the assets account. Here cash reduces the debts of the company. So credit the cash account.

Increase in the account receivable

Date
Account title and explanation
post ref.
Amount($)
Amount($)

Account receivable

14,000


Sales


14,000

(to record the account receivable)



Table (4)

  • Account receivable account is the assets account. Here, account receivable is increase by sale on credit. So debit the account receivable account.
  • Sales account is the revenue account. Here, sales generate revenue for the company. So, credit the sale account.

Purchase the inventory by cash

Date
Account title and explanation
post ref.
Amount($)
Amount($)

Inventory account

440


Cash


440

(to record the purchase of the inventory)



Table (5)

  • Inventory is the assets account. Here, the inventory of the company is decreasing which decreases the asset of the company. So, debit the inventory account.
  • Cash is the asset account. Here, cash of the company is decreasing which decrease the asset value of the company. So credit the assets account.

Increase in the account payable

Date
Account title and explanation
post ref.
Amount($)
Amount($)

Purchase

16,000


Account payable


16,000

(to record the account payable)



Table (6)

  • Purchase is the expense account. Here, something is purchase due to which purchase expense is increased. So, debit the purchase account.
  • Account payable is the liability account. Here, account payable is increased. So, credit the account payable account.

Increase in the income tax payable

Date
Account title and explanation
post ref.
Amount($)
Amount($)

Retained earning

3,000


Income tax payable


3,000

(to record the income tax payable)



Table (7)

  • Retained earnings belong to the share holders which reduces the wealth of the share. Hence, debit the retained earnings account.
  • Income tax payable is the liability account. Here, the income tax payable is increasing which increases the liabilities of the company. So, credit the income tax payable account.

Cash flow statement (Indirect method)

Cash flow statement

For the year December 31,2017

Particulars

Amount

($)

Cash flow from operating activities:

Net income

136,000

Adjustment for non cash expenses

Add: Depreciation expense

54,000

Adjustment for working capital changes:

Less: Increase in net working capital

(68,000)

Net cash flow from operating activities(A)

122,000

Cash paid from acquiring new equipment

(36,000)

Cash flow from investing activities(B)

(36,000)

Cash from issuance of shares

60,000

cash paid for dividends

(89,000)

Cash flow from financing activities(C)

(29,000)

Net increase in cash (A)+(B)+(C)

(57,000)

Cash and cash equivalent December 31,2016

107,000

Cash and cash equivalent December 31,2017

164,000

Table (8)

Working note:

Calculate the increase/decrease in the net working capital

Particulars
2017(X)
2016(Y)
Increase/decreaseManagerial Accounting, Chapter 12, Problem 3GLP
Account receivable
83,000
71,000
12,000
Inventory
601,000
526,000
75,000
Increase/decrease in current assets(D)


87,000
Accounts payable
87,000
71,000
16,000
Income tax payable
28,000
25,000
3,000
Increase/decrease in current liabilities(E)



Increase/decrease in working capital(D)-(E)


68,000

Table (9)

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Chapter 12 Solutions

Managerial Accounting

Ch. 12 - Prob. 6DQCh. 12 - Prob. 7DQCh. 12 - Prob. 8DQCh. 12 - Prob. 9DQCh. 12 - Prob. 10DQCh. 12 - Prob. 11DQCh. 12 - Prob. 12DQCh. 12 - Prob. 13DQCh. 12 - Prob. 14DQCh. 12 - Prob. 15DQCh. 12 - Prob. 1QSCh. 12 - Prob. 2QSCh. 12 - Prob. 3QSCh. 12 - Prob. 4QSCh. 12 - Prob. 5QSCh. 12 - Prob. 6QSCh. 12 - Prob. 7QSCh. 12 - Prob. 8QSCh. 12 - Prob. 9QSCh. 12 - Prob. 10QSCh. 12 - Prob. 11QSCh. 12 - Prob. 12QSCh. 12 - Prob. 13QSCh. 12 - Prob. 14QSCh. 12 - Prob. 15QSCh. 12 - Prob. 16QSCh. 12 - Prob. 17QSCh. 12 - Prob. 18QSCh. 12 - Prob. 19QSCh. 12 - Prob. 20QSCh. 12 - Prob. 21QSCh. 12 - Prob. 22QSCh. 12 - Prob. 23QSCh. 12 - Prob. 24QSCh. 12 - Prob. 25QSCh. 12 - Prob. 26QSCh. 12 - Prob. 27QSCh. 12 - Prob. 1ECh. 12 - Prob. 2ECh. 12 - Prob. 3ECh. 12 - Prob. 4ECh. 12 - Prob. 5ECh. 12 - Prob. 6ECh. 12 - Prob. 7ECh. 12 - Prob. 8ECh. 12 - Prob. 9ECh. 12 - Exercise Reconstructed entries For each of the...Ch. 12 - Prob. 11ECh. 12 - Prob. 12ECh. 12 - Prob. 13ECh. 12 - Prob. 14ECh. 12 - Prob. 15ECh. 12 - Prob. 16ECh. 12 - Direct: Preparing statement of cash flows Refer to...Ch. 12 - Prob. 18ECh. 12 - Prob. 19ECh. 12 - Prob. 20ECh. 12 - Prob. 1PSACh. 12 - Prob. 2PSACh. 12 - Prob. 3PSACh. 12 - Prob. 4PSACh. 12 - Prob. 5PSACh. 12 - Prob. 6PSACh. 12 - Prob. 7PSACh. 12 - Prob. 8PSACh. 12 - Prob. 1PSBCh. 12 - Prob. 2PSBCh. 12 - Prob. 3PSBCh. 12 - Prob. 4PSBCh. 12 - Prob. 5PSBCh. 12 - Prob. 6PSBCh. 12 - Prob. 7PSBCh. 12 - Prob. 8PSBCh. 12 - Prob. 12SPCh. 12 - Prob. 1GLPCh. 12 - Prob. 2GLPCh. 12 - Prob. 3GLPCh. 12 - Prob. 1AACh. 12 - Prob. 2AACh. 12 - Prob. 3AACh. 12 - Prob. 1BTNCh. 12 - Prob. 2BTNCh. 12 - Prob. 3BTNCh. 12 - Prob. 4BTNCh. 12 - Prob. 5BTNCh. 12 - Prob. 6BTNCh. 12 - Prob. 7BTN
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