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Chapter 14: Q29E (page 781)

Question: Computing cash flow items鈥攄irect method Consider the following facts:

  1. Beginning and ending Accounts Receivable are \(24,000 and \)20,000, respectively. Credit sales for the period total \(68,000.
  2. Cost of goods sold is \)77,000.
  3. Beginning Merchandise Inventory balance is \(29,000, and ending Merchandise Inventory balance is \)26,000.
  4. Beginning and ending Accounts Payable are \(12,000 and \)16,000, respectively.

Requirements

  1. Compute cash collections from customers.
  2. Compute cash payments for merchandise inventory

Short Answer

Expert verified

Answer

Requirement 1: Cash collection =$72,000

Requirement 2: Cash payment for merchandise inventory =$70,000

Step by step solution

01

Calculation of cash collections from customer

Cash Collection = Opening account receivable + Credit sales for the period 鈥� Closing account receivables

=$24,000+$68,000-$20,000

=$72,000

02

Computation of cash payments for merchandise inventory

Cash Payments for inventory = Cost of goods sold 鈥� Beginning merchandise inventory + Closing merchandise inventory + Beginning accounts payable 鈥� Closing accounts payable

=$77,000 鈥� 29,000+ $26,000 + 12,000 鈥� $16,000

=$70,000

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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: Classifying items on the indirect statement of cash flows

The statement of cash flows categorizes like transactions for optimal reporting. Identify each item as a(n):

鈥� Operating activity鈥攁ddition to net income (O+) or subtraction from net income (O-)

鈥� Investing activity鈥攃ash inflow (I+) or cash outflow (I-)

鈥� Financing activity鈥攃ash inflow (F+) or cash outflow (F-)

鈥� Non-cash investing and financing activity (NIF)

鈥� Activity that is not used to prepare the indirect statement of cash flows (N)

The indirect method is used to report cash flows from operating activities.

  1. Loss on sale of land.
  2. Acquisition of equipment by issuance of note payable.
  3. Payment of long-term debt.
  4. Acquisition of building by issuance of common stock.
  5. Increase in Salaries Payable.
  6. Decrease in Merchandise Inventory.
  7. Increase in Prepaid Expenses.
  8. Decrease in Accrued Liabilities.
  9. Cash sale of land (no gain or loss).
  10. Issuance of long-term note payable to borrow cash.
  11. Depreciation Expense.
  12. Purchase of treasury stock.
  13. Issuance of common stock.
  14. Increase in Accounts Payable.
  15. Net income.
  16. Payment of cash dividend

Question: Big Island, Inc. began 2018 with cash of \(40,000. During the year, Big Island earned revenue of \)200,000 and collected \(120,000 from customers. Expenses for the year totaled \)160,000, of which Big Island paid \(65,000 in cash to suppliers and \)80,000 in cash to employees. The company received \(2,000 cash for interest revenue and paid \)10,000 for income taxes. Big Island also paid \(35,000 to purchase equipment and a cash dividend of \)15,000 to its stockholders during 2018. Prepare the company鈥檚 operating activities section of the statement of cash flows for the year ended December 31, 2018. Use the direct method.

Computing operating activities cash flow鈥攊ndirect method

The records of Vintage Color Engraving reveal the following:

Net income \( 36,000

Depreciation expense \) 5,000

Sales revenue 53,000

Decrease in current liabilities 19,000

Loss on sale of land 4,000

Increase in current assets other than cash 10,000

Acquisition of land 35,000

Compute cash flows from operating activities by the indirect method for year ended December 31, 2018.

Why might a spreadsheet be helpful when completing the statement of cash flows?
See all solutions

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