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Chapter 14: Q-14-1RQ (page 758)
Question: What does the statement of cash flows report?
Answer
The statement of cash flows reportscash received and cash utilized for payments.
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The comparative balance sheet of Jackson Educational Supply at December 31, 2018, reported the following:
| 2018 | 2017 | |
| Current | Assets: | |
| Cash | \( 87,700 | \) 23,500 |
| Accounts Receivable | 15,300 | 22,000 |
| Merchandise Inventory | 62,600 | 60,400 |
| Current | Liabilities: | |
| Accounts Payable | 28,100 | 26,100 |
| Accrued Liabilities | 10,600 | 11,300 |
Jackson鈥檚 transactions during 2018 included the following:
Payment of cash dividends \( 16,200
Depreciation expense \) 16,700
Purchase of equipment with cash 54,700
Purchase of building with cash 98,000
Issuance of long-term notes payable to borrow cash 48,000
Net income 57,600
Issuance of common stock for cash 105,000
Requirements
Question: Computing investing and financing cash flows Preston Media Corporation had the following income statement and balance sheet for 2018:
PRESTON MEDIA CORPORATION
Income Statement
Year Ended December 31, 2018
Sales Revenue \(80,000
Depreciation Expense鈥撯�揚lant Assets \)11,000
Other Expenses \(50,000
Net Income \)19,000
Requirements
1. Compute the acquisition of plant assets for Preston Media Corporation during 2018. The business sold no plant assets during the year. Assume the company paid cash for the acquisition of plant assets.
2. Compute the payment of a long-term note payable. During the year, the business issued a $4,400 note payable.
American Rare Coins (ARC) was formed on January 1, 2018. Additional data for the year follow:
a. On January 1, 2018, ARC issued no par common stock for \(450,000.
b. Early in January, ARC made the following cash payments:
c. Later in the year, ARC purchased merchandise inventory on account for \(239,000. Before year-end, ARC paid \)139,000 of these accounts payable.
d. During 2018, ARC sold 2,400 units of merchandise inventory for \(275 each. Before year-end, the company collected 85% of this amount. Cost of goods sold for the year was \)250,000, and ending merchandise inventory totaled \(329,000.
e. The store employs three people. The combined annual payroll is \)96,000, of which ARC still owes \(3,000 at year-end.
f. At the end of the year, ARC paid income tax of \)17,000. There are no income taxes payable.
g. Late in 2018, ARC paid cash dividends of $44,000.
h. For store fixtures, ARC uses the straight-line depreciation method, over five years, with zero residual value.
Requirements
Prepare ARC鈥檚 statement of cash flows using the indirect method for the year ended December 31, 2018.
Question: Preparing operating activities cash flow鈥攄irect method
The accounting records of Four Seasons Parts reveal the following:
Payment of salaries and wages \( 34,000
Net income \) 21,000
Depreciation expense 10,000
Payment of income tax 16,000
Payment of interest 17,000
Collection of dividend revenue 5,000
Payment of dividends 5,000
Payment to suppliers 51,000
Collections from customers 116,000
Compute cash flows from operating activities using the direct method for the year ended December 31, 2018.
Question: How does the statement of cash flows help users of financial statements?
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