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Chapter 14: Q27E (page 780)

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.

Short Answer

Expert verified

Net cash provided by operating activities is $3,000.

Step by step solution

01

Step-by-Step SolutionStep 1: Cash flow from operating activities

Cash flows from operating activities

Receipts:

Collection from customers

$116,000

Collection of dividend revenue

$5,000

Payments:

To suppliers

($51,000)

To employees

($34,000)

For income tax

($16,000)

For Interest

($17,000)

Net cash provided by operating activities

$3,000

02

Treatment of net income

Net income is used while preparing cash flow statement by indirect method.

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Most popular questions from this chapter

Question: Computing cash flows from operating activities鈥攊ndirect method

DVR Equipment, Inc. reported the following data for 2018:

Income Statement:

Net Income $ 43,000

Depreciation Expense 6,000

Balance Sheet:

Increase in Accounts Receivable 6,000

Decrease in Accounts Payable 2,000

Compute DVR鈥檚 net cash provided by operating activities鈥攊ndirect method.

Question: Describe the two formats for reporting operating activities on the statement of cash flows.

Preparing a statement of cash flows using the direct method Jelly Bean, Inc. began 2018 with cash of \(58,000. During the year, Jelly Bean earned revenue of \)595,000 and collected \(614,000 from customers.Expenses for the year totaled \)427,000, of which Jelly Bean paid \(212,000 in cash to suppliers and \)205,000 in cash to employees. Jelly Bean also paid \(148,000 to purchase equipment and a cash dividend of \)57,000 to its stockholders during 2018. Prepare the company鈥檚 statement of cash flows for the year ended December 31, 2018. Format operating activities by the direct method.

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.

Jennifer鈥檚 Wedding Shops earned net income of \(27,000, which included depreciation of \)16,000. Jennifer鈥檚 acquired a \(119,000 building by borrowing \)119,000 on a long-term note payable.

Requirements

  1. How much did Jennifer鈥檚 cash balance increase or decrease during the year?
  2. Were there any non-cash transactions for the company? If so, show how

they would be reported in the statement of cash flows.
See all solutions

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