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Chapter 14: Q27E (page 776)

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.

Short Answer

Expert verified

Answer

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

Step by step solution

01

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: Kalapono Company expects the following for 2018:

鈥� Net cash provided by operating activities of \(100,000.

鈥� Net cash provided by financing activities of \)10,000.

鈥� Net cash used for investing activities of \(20,000 (no sales of long-term assets).

鈥� Cash dividends paid to stockholders was \)2,000.

How much free cash flow does Kalapono expect for 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.

Using a spreadsheet to complete the statement of cash flows鈥� indirect method

Companies can use a spreadsheet to complete the statement of cash flows. Each item that follows is recorded in the transaction analysis columns of the spreadsheet.

  1. Net income
  2. Increases in current assets (other than Cash)
  3. Decreases in current liabilities
  4. Cash payment for acquisition of plant assets
  5. Cash receipt from issuance of common stock
  6. Depreciation expense

Identify each as being recorded by a Debit or Credit in the statement of cash flows section of the spreadsheet

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: Computing cash flows from operating activities鈥攊ndirect method

Winding Road Cellular accountants have assembled the following data for the year ended April 30, 2018:

Cash receipt from sale of land \( 27,000

Net income \) 55,000

Depreciation expense 2,000

Cash purchase of equipment 44,000

Cash payment of dividends 5,800

Decrease in current liabilities 20,000

Cash receipt from issuance of common stock 17,000

Increase in current assets other than cash 27,000

Prepare the operating activities section using the indirect method for Winding Road Cellular鈥檚 statement of cash flows for the year ended April 30, 2018.
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