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Chapter 5: Q22Q. (page 238)

The net income for the year for Genesis, Inc. is \(750,000, but the statement of cash flows reports that the net cash provided by operating activities is \)640,000. What might account for the difference?

Short Answer

Expert verified

Net income reported by the business entity is higher than the net cash from operating activities because of large credit sales and higher payments to accounts payable.

Step by step solution

01

Definition of Cash Basis of Accounting

The accounting method of reporting all the financial information that includes the cash flow either inward or outward is known as the cash basis of accounting.Non-cash transactions are not included in this method of accounting.

02

Reason for Difference between the Net Income and Cash Provided by Operating Activities

There are two reasons for the difference between the net income and the net cash from operation:

  1. Higher credit sales or increase in receivables.
  2. Repayment of accounts payable or reduction in payables.

Higher credit sales will increase the net income of the business entity and will not affect the cash from operations. The reduction in payables will reduce the money from the process and will not affect the net income of the business entity.

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Lowell Company鈥檚 December 31, 2017, trial balance includes the following accounts: Inventory \(120,000, Buildings \)207,000, Accumulated Depreciation鈥擡quipment \(19,000, Equipment \)190,000, Land (held for investment) \(46,000, Accumulated Depreciation鈥擝uildings \)45,000, Land \(71,000, and Timberland \)70,000. Prepare the property, plant, and equipment section of the balance sheet

(Preparation of a Corrected Balance Sheet) Uhura Company has decided to expand its operations. The bookkeeper recently completed the balance sheet presented below in order to obtain additional funds for expansion.

UHURA Company

Balance Sheet

For the year ended 2017

Current assets

Cash

\(230,000

Accounts receivables (Net)

340,000

Inventory (Lower of average cost or market)

401,000

Equity investment (Trading)

140,000

Property, Plant and Equipment

Building (net)

570,000

Equipment (net)

160,000

Land held for future use

175,000

Intangible assets

Goodwill

80,000

Cash surrender value of life insurance

90,000

Prepaid expenses

12,000

Current liabilities

Account payable

135,000

Note payable

125,000

Pension obligation

82,000

Rent payable

49,000

Premium on bond payable

53,000

Long-term Liabilities

Bond payable

500,000

Stockholders equity

Common stock \)1 par, authorized 400,000 shares, issued 290,000

290,000

Additional paid in capital

160,000

Retained earnings

Instructions

Prepare a revised balance sheet given the available information. Assume that the accumulated depreciation balance for the buildings is \(160,000 and for the equipment, \)105,000. The allowance for doubtful accounts has a balance of $17,000. The pension obligation is considered a long-term liability.
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