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Chapter 14: Q14-11RQ (page 769)
Question: What accounts on the balance sheet must be evaluated when completing the investing activities section of the statement of cash flows?
Answer
Investing activity records transactions related to long-term assets and long-term note receivables.
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Classifying transactions on the statement of cash flows鈥攊ndirect method Consider the following transactions:
Identify the category of the statement of cash flows, indirect method, in which each transaction would be reported.
Classic Rare Coins (CRC) was formed on January 1, 2018. Additional data for the year follow:
a. On January 1, 2018, CRC issued no-par common stock for \(525,000.
b. Early in January, CRC made the following cash payments:
1. For store fixtures, \)51,000
2. For merchandise inventory, \(240,000
3. For rent expense on a store building, \)18,000
c. Later in the year, CRC purchased merchandise inventory on account for \(243,000. Before year-end, CRC paid \)153,000 of these accounts payable.
d. During 2018, CRC sold 2,800 units of merchandise inventory for \(325 each. Before year-end, the company collected 95% of this amount. Cost of goods sold for the year was \)290,000, and ending merchandise inventory totaled \(193,000.
e. The store employs three people. The combined annual payroll is \)82,000, of which CRC still owes \(5,000 at year-end.
f. At the end of the year, CRC paid income tax of \)17,000. There were no income taxes payable.
g. Late in 2018, CRC paid cash dividends of $38,000.
h. For store fixtures, CRC uses the straight-line depreciation method, over five years, with zero residual value.
Requirements
1. What is the purpose of the statement of cash flows?
2. Prepare CRC鈥檚 income statement for the year ended December 31, 2018. Use the single-step format, with all revenues listed together and all expenses listed together.
3. Prepare CRC鈥檚 balance sheet at December 31, 2018.
4. Prepare CRC鈥檚 statement of cash flows using the indirect method for the year ended December 31, 2018.
Using a spreadsheet to prepare the statement of cash flows鈥攊ndirect method Use the Boost Plus, Inc. data in Exercise E14-21 to prepare the spreadsheet for the 2018 statement of cash flows. Format cash flows from operating activities by the indirect method.
Preparing the statement of cash flows鈥攄irect method
Diversion Rare Coins (DRC) was formed on January 1, 2018. Additional data for the year follow:
a. On January 1, 2018, DRC issued no par common stock for \(450,000.
b. Early in January, DRC made the following cash payments:
1. For store fixtures, \)46,000
2. For merchandise inventory, \(310,000
3. For rent expense on a store building, \)18,000
c. Later in the year, DRC purchased merchandise inventory on account for \(238,000. Before year-end, DRC paid \)138,000 of this accounts payable.
d. During 2018, DRC sold 2,700 units of merchandise inventory for \(400 each. Before year-end, the company collected 85% of this amount. Cost of goods sold for the year was \)340,000, and ending merchandise inventory totaled \(208,000.
e. The store employs three people. The combined annual payroll is \)97,000, of which DRC still owes \(6,000 at year-end.
f. At the end of the year, DRC paid income tax of \)18,000. There was no income taxes payable.
g. Late in 2018, DRC paid cash dividends of $35,000.
h. For store fixtures, DRC uses the straight-line depreciation method, over five years, with zero residual value.
Requirements
1. Prepare DRC鈥檚 income statement for the year ended December 31, 2018. Use the single-step format, with all revenues listed together and all expenses listed together.
2. Prepare DRC鈥檚 balance sheet at December 31, 2018.
3. Prepare DRC鈥檚 statement of cash flows for the year ended December 31, 2018. Format cash flows from operating activities by the direct method
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
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