Gen Combo Loose Leaf Financial Accounting; Connect Access Card
Gen Combo Loose Leaf Financial Accounting; Connect Access Card
18th Edition
ISBN: 9781264094295
Author: williams
Publisher: MCG
Question
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Chapter 13, Problem 6BP

a.

To determine

Prepare a statement of cash flows for the current year using the direct method.

a.

Expert Solution
Check Mark

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)

Cash flows from investing activities: Cash provided by or used in investing activities is a section of statement of cash flows. It includes the purchase or sale of equipment or land, or marketable securities, which is used for business operations.

Cash flows from investing activities
 
Add: Proceeds from sale of fixed assets
         Sale of marketable securities / investments
 
Deduct: Purchase of fixed assets/long-lived assets
              Purchase of marketable securities
Net cash provided from or used by investing activities

Table (2)

Cash flows from financing activities: Cash provided by or used in financing activities is a section of statement of cash flows. It includes raising cash from long-term debt or payment of long-term debt, which is used for business operations.

Cash flows from financing activities
 
Add: Issuance of common stock
          Proceeds from borrowings
          Proceeds from sale of treasury stock
          Proceeds from issuance of debt
 
Deduct: Payment of dividend
              Repayment of debt
              Interest paid
              Redemption of debt
              Purchase of treasury stock
Net cash provided from or used by financing activities

Table (3)

A statement of cash flow for F technologies for the year ended December 31, 2018.

F Technologies
Statement of Cash Flows Direct Method
For the Year Ended December 31, 2018
DetailsAmount ($)Amount ($)
Cash flows from operating activities:  
Cash receipts:  
Cash received from customers3,340,000 
Interest received65,000 
Total cash receipts 3,405,000
Cash payments:  
Cash paid to suppliers and employees(2,334,000) 
Interest paid(23,000) 
Income taxes paid(125,000) 
Total cash payments(2,482,000)
Net cash provided operating activities 923,000
  
Cash flows from investing activities:  
Purchase of marketable securities(50,000) 
Proceeds from sales of marketable securities65,000 
Loans made to borrowers(30,000) 
Collections on loan27,000 
Cash paid to acquire plant(350,000) 
Proceeds from sale of plant assets22,000 
Net cash used for investing activities (316,000)
   
Cash flows from financing activities:  
Proceeds from short-term borrowing56,000 
Payments to settle short-term debt(70,000) 
Proceeds from issuing common stock160,000 
Payment of dividend(300,000) 
Net cash used for financing activities (154,000)
Net increase (decrease) in Cash 453,000
Cash and cash equivalents, January 1, 2018 20,000
Cash and cash equivalents, December 31, 2018 $473,000

Table (4)

Working notes:

Calculate the amount of cash receipts from customers.

CashreceiptsfromCustomers]=Net sales (+Decrease in Accounts ReceivableORIncrease in Accounts Receivable)= Net sales Increase in Accounts Receivable=$3,400,000$60,000=$3,340,000

Calculate the amount of interest received.

Interest received]={Interest income  (+Decrease in Interest ReceivableORIncrease in Interest  Receivable)}=[(Interest income )+ Decrease in Accounts Receivable]=[$60,000+ $5,000]=$65,000

Calculate the cash paid to supplier and employees.

Step 1: Calculate the amount of cash paid to suppliers of merchandise.

(Cashpaid to suppliersof merchandise)=Cost of Goods Sold (+Decrease in Accounts Payable/Increase in InventoryORIncrease in Accounts Payable /Decrease in Inventory)=(Cost of goods sold + Decrease in accounts payable Decrease in inventory)=$1,500,000+$22,000$30,000=$1,492,000

Step 2: Calculate the amount paid for operating expenses.

(Cashpaid to operating expenses)={Operating expenses Depreciation expenses  (+Decrease in Accrued Operating Expenses Payable/Increase in Short-Term PrepaymentORIncrease inAccrued Operating Expenses PayablePayable /Decrease in Short-Term Prepayment)}=(Operating expenses Depreciation expenses +Decrease in accrued operating expenses payable + Increase in Short-Term Prepayment)=($900,000$75,000 +$9,000 + $8,000)=$842,000

Step 3: Calculate the amount of cash paid to supplier and employees.

Cash paid to supplier and employees=(Cash paid to suppliers of merchandise+ Cash paid for operating expenses)=$1,492,000+$842000=$2,334,000

Calculate the amount of cash paid for interest expenses.

(Cash paid forinterest expenses)={Interest expense(+Decrease in accrued expenses payableORIncrease in accrued expenses  payable)}=(Interest expense Increase in accrued expenses payable)=($27,000  $4,000)=23,000

Calculate the amount of cash paid for income tax expenses:

(Cash paid for Income taxes)=Income tax expense(+Decrease in income tax payableORIncrease in income tax payable)=(Income tax expense + Decrease in income tax payable)=($115,000 + $10,000)=$125,000

Calculate the amount of proceeds from sales of marketable securities.

Proceeds from sales ofmarketable securities}= (Cost of the marketable securities sold +Gain reported on sales of marketable securities)=($40,000+$25,000)=$65,000

Calculate the amount of proceeds from sales of plant assets.

Proceeds from sales of plant assets}= (Book value of the plant assets sold Loss reported on sales of plant assets)=($30,000$8,000)=$22,000

Calculate the amount of proceeds from issuing capital stock.

Proceeds from issuing capital stock}= (Amount credited to capital account+Amount credited to additional paid-in capital account)=($60,000+$100,000)=$160,000

b.

To determine

Explain why cash paid to suppliers is higher than cost of goods sold.

b.

Expert Solution
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Explanation of Solution

The total amount of cash paid to suppliers is $2,334,000 and the given cost of goods sold is $1,500,000.

The following are the primary reason for the differences:

For the calculation of cash paid to suppliers the below adjustments are included.

  • Decrease in inventory.
  • Decrease in accounts payable.
  • Depreciation expense
  • Increase in prepaid operating expenses
  • Decrease in accrued liabilities for operating expenses.

c.

To determine

Indicate F Company is in a weak cash position (if cash flows from investing and financing activities are negative).

c.

Expert Solution
Check Mark

Explanation of Solution

In fact, the negative cash flows from investing and financing activities indicate that the company is in a strong cash position. In 2018, the beginning balance of cash is $20,000 and at the end of the period, the cash balance is increased significantly an amount of $473,000. The major reason is the operating cash flows show a positive amount of $923,000. Therefore, it indicates that the company has a cash to meet the capital expenditures (investing activities) and make loans to borrower and pay the dividend to stockholders (financing activities).

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Chapter 13 Solutions

Gen Combo Loose Leaf Financial Accounting; Connect Access Card

Ch. 13 - 5. In the long run, is it more important for a...Ch. 13 - 6. Of the three types of business activities...Ch. 13 - Prob. 7DQCh. 13 - Prob. 8DQCh. 13 - Prob. 9DQCh. 13 - Prob. 10DQCh. 13 - Prob. 11DQCh. 13 - Prob. 12DQCh. 13 - Prob. 13DQCh. 13 - Prob. 14DQCh. 13 - Prob. 15DQCh. 13 - Prob. 1BECh. 13 - BRIEF EXERCISE 13.2 Cash Flows from Operations...Ch. 13 - BRIEF EXERCISE 13.3 Cash Flows from Operations...Ch. 13 - Prob. 4BECh. 13 - BRIEF EXERCISE 13.5 Cash Flows from Investing Old...Ch. 13 - Prob. 6BECh. 13 - Prob. 7BECh. 13 - BRIEF EXERCISE 13.8 Determining Beginning Cash...Ch. 13 - Prob. 9BECh. 13 - Prob. 10BECh. 13 - EXERCISE 13.1 Using a Statement of Cash...Ch. 13 - EXERCISE 13.2 Using a Statement of Cash Flows Auto...Ch. 13 - EXERCISE 13.3 Computing Cash Flows An analysis of...Ch. 13 - EXERCISE 13.4 Comparing Net Sales and Cash...Ch. 13 - Prob. 5ECh. 13 - EXERCISE 13.6 Reporting Lending Activities and...Ch. 13 - Prob. 7ECh. 13 - Prob. 8ECh. 13 - Prob. 9ECh. 13 - EXERCISE 13.10 Computation of Net Cash Flows from...Ch. 13 - Prob. 11ECh. 13 - EXERCISE 13.12 Classifying Cash Flows Among the...Ch. 13 - EXERCISE 13.13 Cash Flows from Investing...Ch. 13 - Prob. 14ECh. 13 - EXERCISE 13.15 Home Depot, Inc. Using a Statement...Ch. 13 - Prob. 1APCh. 13 - Prob. 2APCh. 13 - Prob. 3APCh. 13 - Prob. 4APCh. 13 - Prob. 5APCh. 13 - Prob. 6APCh. 13 - Prob. 7APCh. 13 - Prob. 8APCh. 13 - Prob. 1BPCh. 13 - PROBLEM 13.2B Reporting Investing Activities An...Ch. 13 - PROBLEM 13.3B Reporting Investing Activities An...Ch. 13 - Prob. 4BPCh. 13 - Prob. 5BPCh. 13 - Prob. 6BPCh. 13 - Prob. 7BPCh. 13 - Prob. 8BPCh. 13 - Prob. 1CTCCh. 13 - Prob. 2CTCCh. 13 - Prob. 3CTCCh. 13 - Prob. 4CTC
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