Statement of
Indirect method: Under this method, the following amounts are to be adjusted from the Net Income to calculate the net cash provided from operating activities.
Cash flows from operating activities: These are the cash produced by the normal business operations.
The below table shows the way of calculation of cash flows from operating activities:
Cash flows from operating activities (Indirect method) |
Add: Decrease in current assets |
Increase in current liability |
Depreciation expense and amortization expense |
Loss on sale of plant assets |
Deduct: Increase in current assets |
Decrease in current liabilities |
Gain on sale of plant assets |
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.
The below table shows the way of calculation of cash flows from investing activities:
Cash flows from investing activities |
Add: Proceeds from sale of fixed assets |
Sale of marketable securities / investments |
Interest received |
Dividend received |
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.
The below table shows the way of calculation of cash flows from financing activities:
Cash flows from financing activities |
Add: Issuance of common stock |
Proceeds from borrowings |
Proceeds from issuance of debt |
Issuance of bonds payable |
Deduct: Payment of dividend |
Repayment of debt |
Interest paid |
Redemption of debt |
Repurchase of stock |
Net cash provided from or used by financing activities |
Table (3)
To Prepare: A statement of cash flows using the indirect method for presenting cash flows from operating activities.
Explanation of Solution
Explanation
Company W | ||
Statement of Cash Flows | ||
For the year ended December 31, 2016 | ||
Details | Amount ($) | Amount ($) |
Cash flows from operating activities: | ||
Net loss | (35,320) | |
Adjustments to reconcile net income to net cash flow from operating activities: | ||
Depreciation expense | 55,620 | |
Loss on sales of land | 12,600 | |
Changes in current operating assets and liabilities: | ||
Increase in |
(66,960) | |
Increase in merchandised inventory | (105,480) | |
Decrease in prepaid expenses | 5,760 | |
Decrease in accounts payable | (35,820) | |
Net cash used for operating activities | ($169,600) | |
Cash flows from investing activities: | ||
Cash from land sold | 151,200 | |
Cash used for acquisition of building | (561,600) | |
Cash used for purchase of equipment | (104,400) | |
Net cash used for investing activities | ($514,800) | |
Cash flows from financing activities: | ||
Cash received from sale of common stock | 400,000 | |
Cash received from issuance of bonds payable | 270,000 | |
Cash used for dividends | (32,400) | |
Net cash provided by financing activities | $637,600 | |
Increase (decrease) in cash | ($46,800) | |
Cash at the beginning of the year | 964,800 | |
Cash at the end of the year | $918,000 |
Table (4)
Working notes:
Prepare the schedule in the changes of current assets and liabilities.
Schedule in the Change of Current Assets and Liabilities | ||||
Details | Amount ($) | Effect on Operating Activities | ||
Beginning Balance | Ending Balance | Increase/ (Decrease) |
||
Accounts receivable | 761,940 | 828,900 | 66,960 | Deduct |
Merchandised inventories | 1,162,980 | 1,268,460 | 105,480 | Deduct |
Prepaid expenses | 35,100 | 29,340 | (5,760) | Add |
Accounts payable | 958,320 | 922,500 | (35,820) | Deduct |
Table (5)
Calculate the amount of cash received from common stock:
Therefore, the ending cash balance is $918,000
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Chapter 14 Solutions
FINANCIAL AND MANAGERIAL ACCOUNTING
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- compute the cash ratios for 2018 and 2017 (Round your answers to two decimal places, X.XX.) 2018:? 2017:? here is the data table Ranfield, Inc. Comparative Balance Sheet December 31, 2018 and 2017 2018 2017 2016* Assets Current Assets: Cash $91,000 $90,000 Accounts Receivables, Net 112,000 119,000 $102,000 Merchandise Inventory 148,000 160,000 202,000 Prepaid Expenses 17,000 6,000 Total Current Assets 368,000 375,000 Property, Plant, and Equipment, Net 213,000 174,000 Total Assets $581,000 $549,000 $596,000 Liabilities Total Current Liabilities $223,000 $241,000 Long-term Liabilities 115,000 98,000 Total Liabilities 338,000 339,000 Stockholders' Equity…arrow_forwardStatement of Cash Flows The comparative balance sheet of Whitman Co. at December 31, 20Y2 and 20Y1, is as follows: Dec. 31, 20Y2 Dec. 31, 20Y1 Assets Cash $ 612,820 $ 661,020 Accounts receivable (net) 557,670 508,640 Inventories 845,690 778,280 Prepaid expenses 19,610 23,290 Land 210,810 318,670 Buildings 974,380 600,560 Accumulated depreciation-buildings (275,770) (257,380) Equipment 343,180 303,350 Accumulated depreciation-equipment (94,370) (106,020) Total assets $3,194,020 $2,830,410 Liabilities and Stockholders' Equity Accounts payable (merchandise creditors) $ 606,860 $ 640,400 Bonds payable 178,870 0 Common stock, $20 par 210,000 78,000 Excess of paid-in capital over par 505,000 373,000 Retained earnings 1,693,290 1,739,010 Total liabilities and stockholders’ equity $3,194,020 $2,830,410 The noncurrent asset, noncurrent…arrow_forwardStatement of Cash Flows The comparative balance sheet of Whitman Co. at December 31, 20Y2 and 20Y1, is as follows: Dec. 31, 20Y2 Dec. 31, 20Y1 Assets Cash $ 647,180 $ 696,900 Accounts receivable (net) 588,930 537,160 Inventories 893,110 821,920 Prepaid expenses 20,710 24,590 Land 222,630 336,530 Buildings 1,029,020 634,240 Accumulated depreciation-buildings (291,230) (271,820) Equipment 362,420 320,350 Accumulated depreciation-equipment (99,670) (111,960) Total assets $3,373,100 $2,987,910 Liabilities and Stockholders' Equity Accounts payable (merchandise creditors) $ 640,890 $ 676,300 Bonds payable 188,890 0 Common stock, $20 par 222,000 82,000 Excess of…arrow_forward
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