Financial Accounting, 8th Edition
Financial Accounting, 8th Edition
8th Edition
ISBN: 9780078025556
Author: Robert Libby, Patricia Libby, Daniel Short
Publisher: McGraw-Hill Education
Question
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Chapter 12, Problem 6P

1.

To determine

Prepare the T-accounts in order to report cash flows from operating activities by using indirect method.

1.

Expert Solution
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Explanation of Solution

T-account:

T-account is the form of the ledger account, where the journal entries are posted to this account. It is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.

Following are the changes in cash accounts:

Cash (A)
Operating activities
(1) Net income7,000(4) Inventory3,000
(2) Depreciation4,000
(3) Accounts receivable2,000
(5) Accounts payable6,000
(6) Wages payable500  
Net cash flow provided by operating activities16,500  
Investing activities
  (7) Purchase of property, Plant and Equipment12,000
  Net cash used in investing activities 12,000
Financing activities
(9) Proceeds from stock issuance18,500(8) Payment of long-term note
  (10) Payment of dividends 
Net cash provided by financing activities10,500  
Net increase in cash and cash equivalents15,000  

Following are the changes in non-cash accounts:

Accounts receivable (A)
Beginning balance         28,000 

(3) Decrease        

                2,000
Ending balance              26,000 
Inventory (A)
Beginning balance         68,000  
(4) Increase                      7,000 
Ending balance              75,000 
Accounts payable (L)
Beginning balance21,000
                (5) Increase    6,000
Ending balance 27,000
Wages payable (L)
Beginning balance1,000
                     (6) Increase    5,00
Ending balance 1,500
Fixed Assets-net (A)
Beginning balance           72,000 
(7) Purchases                    12,000                  (2) Depreciation                   4,000
Ending balance                93,500 
Note Payable Long-term (L)
Beginning balance48,000
 (8) PaymentsBorrowings0
Ending balance 42,000
Common stock (SE)
Beginning balance60,000
Stock repurchased                         0(9) Stock issued18,500
Ending balance 78,500
Retained Earnings (SE)
Beginning balance24,000
(10) Dividends(1) Net income7,000
Ending balance 29,000

Note: L represents liabilities, XA represents contra-asset, A represents asset and SE represents stockholders’ equity.

2.

To determine

Prepare the statement of cash flows.

2.

Expert Solution
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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.

Prepare the statement of cash flows for the current year of Company H.

Company H
Statement of Cash Flows (Indirect Method)
For the year ended
ParticularsAmount ($)Amount ($)
Cash flows from operating activities:  
Net income 7,000  
   Add: Depreciation expenses4,00011,000
Changes in current assets and current liabilities  
    Add: Decrease in accounts receivable2,000 
    Less: Increase in merchandise inventory(3,000) 
    Add: Increase in accounts payable6,000 
    Add: Increase in wages payable500
Net cash flows from operating activities 16,500
Cash flows from Investing activities:  
Less: Purchase of fixed assets(12,000) 
Net cash flows from investing activities (12,000)
Cash flows from Financing activities: 
Less: Cash payments on long-term note(6,000) 
Add: Cash receipts from issuing stock18,500 
Less: Cash payments for dividends(2,000) 
Net cash flows from financing activities 10,500
Net increase (decrease) in cash 15,000
Cash balance at the beginning (January 1) 18,000
Cash balance at the end ( December 31) 33,000

Table (1)

3.

To determine

Prepare the schedule of noncash investing and financing activities if necessary.

3.

Expert Solution
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Explanation of Solution

Noncash investing activities:

Noncash investing activities refer to the activities carried out by a company for acquisition of long term assets without inflow or outflow of cash in the statement of cash flows.

There is no need for preparing the schedule of noncash investing and financing activities as there are no noncash investing and financing activities during the year.

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Chapter 12 Solutions

Financial Accounting, 8th Edition

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