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Chapter 14: Q33PGA (page 783)

Preparing the statement of cash flows鈥攊ndirect method

Accountants for Morganson, Inc. have assembled the following data for the year ended December 31, 2018:

2018 2017 Current Assets: Cash \( 99,400 \) 25,000 Accounts Receivable 64,100 69,700 Merchandise Inventory 83,000 75,000 Current Liabilities: Accounts Payable 57,600 55,200 Income Tax Payable 14,800 16,800

Transaction Data for 2018:

Issuance of common stock for cash \( 38,000

Payment of notes payable \) 46,100

Depreciation expense 24,000

Payment of cash dividends 50,000

Purchase of equipment with cash 74,000

Issuance of notes payable to borrow cash 62,000

Acquisition of land by issuing long-term notes payable 119,000

Gain on sale of building 4,500 Book value of building sold 54,000

Net income 68,500

Prepare Morganton'sstatement of cash flows using the indirect method. Include an accompanying schedule of non-cash investing and financing activities.

Short Answer

Expert verified

Answer

As per the cash flow statement, net change in the cash equals $74,400. And Total Non-cash Investing and financing activities equals $119,000

Step by step solution

01

Statement of cash flows using indirect method

Morganson Inc.

Statement of Cash Flows

For the year ended December 31, 2018


Cash Flows From Operating Activities:


Net Income

$68,500

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


Depreciation expense

$24,000

Gain on sale of building

($4,500)

Decrease in account receivables

$5,600

Increase in merchandise inventory

($8,000)

Increase in account payable

$2,400

Decrease in tax payable

($2,000)

Net cash provided/ (used) in operating activities

$86,000

Cash Flows From Investing Activities:


Purchase of equipment

($74,000)

Sale of building

$58,500

Net cash provided/ (used) in investing activities

($15,500)

Cash Flows From Financing Activities:


Issuance of common stock

$38,000

Payment of notes payable

($46,100)

Issue of notes payable

$62,000

Dividend paid

($50,000)

Net cash provided/ (used) in financing activities

$3,900

Net increase/(Decrease) in cash

$74,400

Cash Balance, December 31, 2017

$25,000

Cash Balance, December 31, 2018

$99,400

02

Schedule of non-cash investing and financing activities

Morganson Inc.

Statement of Cash Flows (Partial)

For the year ended December 31, 2018


Non-cash Investing and financing activities


Acquisition of land by issuing long-term notes payable

$119,000

Total Non-cash Investing and financing activities

$119,000

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Most popular questions from this chapter

Preparing the direct method statement of cash flows Use the data in Short Exercise S14A-12 and your results. Prepare the business鈥檚 complete statement of cash flows for the year ended June 30, 2018, using the direct method for operating activities.

Question: What does the statement of cash flows report?

Question: If current assets other than cash increase, what is the effect on cash? What about a decrease in current assets other than cash?

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.

Preparing the statement of cash flows鈥攄irect method

Diversion Rare Coins (DRC) was formed on January 1, 2018. Additional data for the year follow:

a. On January 1, 2018, DRC issued no par common stock for \(450,000.

b. Early in January, DRC made the following cash payments:

1. For store fixtures, \)46,000

2. For merchandise inventory, \(310,000

3. For rent expense on a store building, \)18,000

c. Later in the year, DRC purchased merchandise inventory on account for \(238,000. Before year-end, DRC paid \)138,000 of this accounts payable.

d. During 2018, DRC sold 2,700 units of merchandise inventory for \(400 each. Before year-end, the company collected 85% of this amount. Cost of goods sold for the year was \)340,000, and ending merchandise inventory totaled \(208,000.

e. The store employs three people. The combined annual payroll is \)97,000, of which DRC still owes \(6,000 at year-end.

f. At the end of the year, DRC paid income tax of \)18,000. There was no income taxes payable.

g. Late in 2018, DRC paid cash dividends of $35,000.

h. For store fixtures, DRC uses the straight-line depreciation method, over five years, with zero residual value.

Requirements

1. Prepare DRC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.

2. Prepare DRC鈥檚 balance sheet at December 31, 2018.

3. Prepare DRC鈥檚 statement of cash flows for the year ended December 31, 2018. Format cash flows from operating activities by the direct method
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