Explanation Cash Flow Statement: It is a financial statement which gives information about company’s cash inflows and outflows during an accounting year. It tells the cash position of the company and shows from where company generates its cash and how it is used in the business. Direct Method: It refers to preparation of cash flow statement by converting the accrual basis into cash basis by adjusting each line item as indirect method This method ignore the items like, depreciation, amortization etc as it include only cash transaction. For example cash received from debtors, interest paid in cash, payment of cash to supplier. Operating Activities: It is the first part of cash flow statement It focus on inflow and outflow of cash from enterprise main.business operation like purchasing and selling of goods and services. It excludes longterm capital or investment costs. Investing Activities: It is the second part of cash flow statement It focus on cash flow related to purchasing and selling of long term assets of the firm like plant, building, machinery. Financing Activities : It is the third part of cash flow statement It focus on cash flow related to change in size and composition of equity and debt capital of the company like issue of share and debenture, payment of dividend. Following is the cash flow statement using direct method: Cash flow statement of Barry Clothing Store Incorporation For the year ended 31 December Cash flow from operating activities Amounts($) Cash collected from customer 3,542,006 Less: Cash paid for merchandise (2,201,348) Less: Cash paid to other suppliers (776,639) Less: Cash paid for interest (81,894) Less: Cash paid for discontinued operation (25,541) Add: Cash received from investment 197,664 Net cash used in operating activities 126,605 Cash flow from investing activities Available for sale securities acquired (74,168) Available for sale securities sold 93,000 Equipment sold 253,580 Sold intangible assets 64,519 Net cash used in investing activities 336,931 Cash flow from financing activities Paid long term notes (current portion) (85,374) Issue long term debt 1,046 Cash dividend received (93,079) Acquired treasury stock (300,000) Net cash used in financing activities (477,407) Decrease in cash for the year (13,871) Opening cash balance of cash 108,035 Closing cash balance of cash 94,164 Table (1) The above table shows the value from operation by cash inflows which are received from customer and deduct all expense and purchase made. Hence, Cash used in operating activities is $81,680. The cash flow from investing activities is $336,931 and from financing activities is ($477,407). The addition of all these three reflects net increase or decrease in cash. Therefore, net decrease in cash is ($13,871) which is to be subtracted from opening balance of cash of $108,035. Thus, the net closing balance of cash is $94,164 as on 31 December which is given in the balance sheet. Working Note: Calculation of cash collected from customers: Cash received from customers Amount($) Sales revenue 3,630,100 Less: Increase in accounts receivable (83,700) Less: Bad debt expenses (4,394) Cash received from custom 3,542,006 Table (2) Calculation of cash paid for merchandise: Cash paid for merchandise Amount($) Cost of goods 2,178,060 Add: Increase in inventory 83,700 Less: Increase in accounts payable (60,412) Cash paid for merchandise 2,201,348 Table (3) Calculation of cash paid to other suppliers: Cash paid to other suppliers Amount($) General and administrative expenses 103,075 Less: Stock based compensation (34,526) Add: Cash paid for pension funding 698,090 Cash paid to other supplier 766,639 Table (4) Calculation of cash received from investment: Cash received from investment Amount($) Interest receive 167,826 Add: Loss on sale of investment 22,088 Add: Investment income 7,750 Cash received from investment 197,664 Table (5) Calculation of cash paid for income tax: Cash paid for income tax Amount($) Income tax expenses 531,994 Less: Increase in income tax payable (15,276) Add: Decrease in DTL 20,925 Cash paid for income taxes 537,643 Table (6) Calculation of cash paid for interest: Cash paid for interest Amount($) Interest expenses 116,421 Less: Discount amortization (34,527) Cash paid for interest 81,894 Table (7) Calculation of loss or gain on sale of investment: Loss on sale of investment = Cost of securities − Selling price of securities = $ 115 , 088 − $ 93 , 000 = $ 22 , 088 Calculation of loss or gain on sale of plant: Loss on plant = Cost of plant − Selling price of plant = $ 307 , 830 − $ 253 , 580 = $ 54 , 250 Calculation of amount of investment at fair value: Account: Investment at fair value Date Particulars

3rd Edition

ISBN: 9780136912644

Author: Elizabeth A. Gordon; Jana S. Raedy; Alexander J. Sannella

Publisher: Pearson Education (US)

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Chapter 22, Problem 22.12P

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Cash flow statement for the current year of BCSI using direct method.

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Chapter 22, Problem 22.11P

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Chapter 22 Solutions

Intermediate Accounting

Ch. 22 - Prob. 22.1Q Ch. 22 - Prob. 22.2Q Ch. 22 - Prob. 22.3Q Ch. 22 - Prob. 22.4Q Ch. 22 - Prob. 22.5Q Ch. 22 - How do firms reclassify gains and losses on the...Ch. 22 - Prob. 22.7Q Ch. 22 - Prob. 22.8Q Ch. 22 - Prob. 22.9Q Ch. 22 - Prob. 22.10Q

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Cash flow statement for the current year of BCSI using direct method.

Solution Summary: The author explains the cash flow statement of Barry Clothing Store Incorporation using direct method.

Cash flow statement for the current year of BCSI using direct method.

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Chapter 22 Solutions