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Chapter 14: Q14-7SE (page 770)

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.

Short Answer

Expert verified

Answer

Requirement (1): cash paid to purchase new plant is $21,000.

Requirement (2): Payment of a long-term note payable is $7,400.

Step by step solution

01

(Requirement 1.) Computation of acquisition of plant assets for Preston Media Corporation during 2018

Particulars

Amount ($)

Plant assets (31st December, 2018)

105,350

Plant assets (31st December, 2017)

(84,350)

Cash paid to purchase new plant

21,000

02

(Requirement 2.) Computation of the payment of a long-term note payable

Particulars

Amount($)

Particulars

Amount($)

Payment

7,400

Opening balance (31/12/2017)

12,000

Closing balance (31/12/2018)

9,000

New issuance

4,400

Total

16,400

Total

16,400

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Most popular questions from this chapter

Preparing the statement of cash flows鈥攊ndirect method with non-cash transactions the 2018 income statement and comparative balance sheet of Sweet Valley, Inc. follow:

Additionally, Sweet Valley purchased land of \(20,900 by financing it 100% with long-term notes payable during 2018. During the year, there were no sales of land, no retirements of stock, and no treasury stock transactions. A plant asset was disposed of for \)0. The cost and the accumulated depreciation of the disposed asset were $13,240. Plant asset was acquired for cash.

Requirements

1. Prepare the 2018 statement of cash flows, formatting operating activities by the indirect method.

2. How will what you learned in this problem help you evaluate an investment?

Question: If a company experienced a loss on disposal of long-term assets, how would this be reported in the operating activities section of the statement of cash flows when using the indirect method? Why?

Question: Describe the five steps used to prepare the statement of cash flows by the indirect method.

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.

Preparing the statement of cash flows鈥攊ndirect method with non-cash transactions the 2018 income statement and comparative balance sheet of Rolling Hills, Inc. follow:

Additionally, Rolling Hills purchased land of \(21,100 by financing it 100% with long-term notes payable during 2018. During the year, there were no sales of land, no retirements of stock, and no treasury stock transactions. A plant asset was disposed of for \)0. The cost and the accumulated depreciation of the disposed asset was $13,410. The plant acquisition was for cash.

Requirements

1. Prepare the 2018 statement of cash flows, formatting operating activities by the indirect method.

2. How will what you learned in this problem help you evaluate an investment?
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