
Concept explainers
a.
Prepare a partial statement of
a.

Explanation of Solution
Statement of cash flows: Statement of cash flows 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.
Cash flows from operating activities: Cash flows from operating activity represent the net cash flows from the general operation of the business by comparing the cash receipt and cash payments.
Direct method: The direct method uses the cash basis of accounting for the preparation of the statement of cash flows. It takes into account those revenues and expenses for which cash is either received or paid.
The below table shows the way of calculation of cash flows from operating activities using direct method:
Cash flows from operating activities (Direct method) |
Add: Cash receipts. |
Cash receipt from customer |
Less: Cash payments: |
To supplier |
Interest expense |
For operating expenses |
Income tax expenses |
Net cash provided from or used by operating activities |
Table (1)
The operating activities sections of the statement of cash flows:
RI Incorporation | ||
Statement of Cash Flows Direct Method | ||
For the Year Ended December 31, 2018 | ||
Details | Amount ($) | Amount ($) |
Cash flows from operating activities: | ||
Cash receipts: | ||
Cash received from customers | 2,590,000 | |
Interest and dividend received | 91,000 | |
Total cash receipts | 2,681,000 | |
Cash payments: | ||
Cash paid to suppliers and employees | (1,576,000) | |
Interest paid | (58,000) | |
Income taxes paid | (112,000) | |
Total cash payments | (1,746,000) | |
Net cash provided operating activities | $935,000 |
Table (2)
Working notes:
The amount of cash receipts from customers:
Step 1: Calculate the change in
Step 2: The Calculate the amount of cash receipts from customers.
The amount of interest and dividend received:
Step 1: Calculate the change in interest receivable.
Step 2: The Calculate the amount of cash receipts from customers.
Calculate the cash paid to supplier and employees.
Step 1: Calculate the change in inventory.
Step 2: Calculate the change in accounts payable.
Step 3: Calculate the amount of cash paid to suppliers of merchandise.
Step 4: Calculate the change in short-term prepayment.
Step 5: Calculate the change in accrued operating expenses payable.
Step 6: Calculate the amount paid for operating expenses.
Step 7: Calculate the amount of cash paid to supplier and employees.
Calculate the amount of cash paid for interest expenses:
Step 1: Calculate the change in accrued interest payable.
Step 2: Calculate the amount of cash paid for interest expenses.
Calculate the amount of cash paid for income tax expenses:
Step 1: Calculate the change in income taxes payable.
Step 2: Calculate the amount of cash paid for income taxes.
b.
Describe two other ways that cash flows from operations could be increased.
b.

Explanation of Solution
- Reduce the amount of inventory or clear the inventory in hand.
- The amount of short-term prepayments of expenses should be reduced.
- The purchases of goods and services on account should be paid in short-term period. This would lead to increase the cash flows from operations.
Want to see more full solutions like this?
Chapter 13 Solutions
Financial & Managerial Accounting
- What is the percent change in sales for year 2 compared to the base year of this financial accounting question?arrow_forwardPhoenix Industries has twelve million shares outstanding, generates free cash flows of $75 million each year, and has a cost of capital of 12%. It also has $50 million of cash on hand. Phoenix wants to decide whether to repurchase stock or invest the cash in a project that generates free cash flows of $3 million each year. Should Phoenix invest or repurchase the shares? A) Repurchase B) Invest C) Indifferent between options D) Cannot say for sure provide answerarrow_forwardprovide correct answerarrow_forward
- abc general accountingarrow_forwardStep by step answerarrow_forwardAt the beginning of the year, Anderson Corporation's assets are $275,000 and its equity is $198,000. During the year, assets increase by $95,000 and liabilities increase by $58,000. What is the equity at the end of the year? Helparrow_forward
- Morgan & Co. is currently an all-equity firm with 100,000 shares of stock outstanding at a market price of $30 per share. The company's earnings before interest and taxes are $120,000. Morgan & Co. has decided to add leverage to its financial operations by issuing $750,000 of debt at an 8% interest rate. This $750,000 will be used to repurchase shares of stock. You own 2,500 shares of Morgan & Co. stock. You also loan out funds at an 8% interest rate. How many of your shares of stock in Morgan & Co. must you sell to offset the leverage that the firm is assuming? Assume that you loan out all of the funds you receive from the sale of your stock.arrow_forwardWhat is the new price after the mark up for this financial accounting question?arrow_forwardhi expert please help me financial accountingarrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





