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Chapter 14: Q14-8SE (page 772)

Question: Preparing the statement of cash flows鈥攊ndirect method Use the Preston Media Corporation data in Short Exercise S14-7 and the results you calculated from the requirements. Prepare Preston Media鈥檚 statement of cash flows鈥� indirect method鈥攆or the year ended December 31, 2018.

Short Answer

Expert verified

Answer

Net Increase/(Decrease) in cash is $1,100.

Step by step solution

01

Cash flow from operating activities 

Cash flows from operating activities

Amount

Amount

Net Income

$19,000

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

Depreciation expense

$11,000

Increase in accounts receivables

($4,500)

Increase in accounts payable

$3,500

Net cash provided by operating activities

$29,000

02

Statement of cash flows- Indirect method


Winding Road Cellular

Statement of cash flows

Year ended 31st December, 2018

Cash flows from operating activities

Net Income

$19,000

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

Depreciation expense

$11,000

Increase in accounts receivables

($4,500)

Increase in accounts payable

$3,500

Net cash provided by operating activities

$29,000

Cash flows from investing activities

Cash purchase of plant assets

($21,000)

Net cash used for investing activities

($21,000)

Cash flows from financing activities

Cash receipt from issuance of common stock

$4,000

Cash payment of dividends

($7,900)

Payment to notes payable

($7,400)

Cash receipt from issuance of note payable

$4,400

Net cash provided by financing activities

($6,900)

Net Increase/(Decrease) in cash

$1,100

Cash balance, December 31, 2017

$3,900

Cash balance, December 31, 2018

$5,000

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Most popular questions from this chapter

Classifying cash flow items Consider the following transactions:

  1. Purchased equipment for \(130,000 cash.
  2. Issued \)14 par preferred stock for cash.
  3. Cash received from sales to customers of \(35,000.
  4. Cash paid to vendors, \)17,000.
  5. Sold building for \(19,000 gain for cash.
  6. Purchased treasury stock for \)28,000.
  7. Retired a notes payable with 1,250 shares of the company鈥檚 common stock.

Identify the category of the statement of cash flows in which each transaction would be reported.

Preparing the statement of cash flows鈥攊ndirect method, evaluating cash flows, and measuring free cash flows

The comparative balance sheet of Robeson Educational Supply at December 31, 2018, reported the following:

2018 2017 Current Assets: Cash \( 83,900 \) 20,500 Accounts Receivable 14,500 21,800 Merchandise Inventory 61,800 60,400 Current Liabilities: Accounts Payable 29,600 28,100 Accrued Liabilities 10,500 11,900 Robeson鈥檚 transactions during 2018 included the following:

Payment of cash dividends \( 21,200

Depreciation expense \) 17,400

Purchase of equipment with cash 54,400

Purchase of building with cash 103,000

Issuance of long-term notes payable to borrow cash 44,000

Net income 63,600

Issuance of common stock for cash 111,000

Requirements

1. Prepare the statement of cash flows of Robeson Educational Supply for the year ended December 31, 2018. Use the indirect method to report cash flows from operating activities.

2. Evaluate Robeson鈥檚 cash flows for the year. Mention all three categories of cash flows, and give the reason for your evaluation.

3. If Robeson plans similar activity for 2018, what is its expected free cash flow?

Question: What is free cash flow, and how is it calculated?

Question: How does the direct method differ from the indirect method when preparing the operating activities section of the statement of cash flows?

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:

  1. For store fixtures, \)53,000
  2. For merchandise inventory, \(340,000
  3. For rent expense on a store building, \)20,000

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

  1. What is the purpose of the statement of cash flows?
  2. Prepare ARC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 ARC鈥檚 balance sheet at December 31, 2018.

Prepare ARC鈥檚 statement of cash flows using the indirect method for the year ended December 31, 2018.
See all solutions

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