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Chapter 23: Q14Q (page 1372)
Question: Explain how the amount of cash payments to suppliers is computed under the direct method.
Answer
Particular | Amount $ |
Cost of goods sold | xxx |
Add/Less: increase or decrease in inventory | xxx |
Purchases | xxx |
Add/less: increase or decrease in account payable | xxx |
Cash payment to supplier | xxx |
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Question: The board of directors of Tirico Corp. declared cash dividends of \(260,000 during the current year. If dividends payable was \)85,000 at the beginning of the year and $90,000 at the end of the year, how much cash was paid in dividends during the year?
Broussard Company reported net income of \(3.5 million in 2017. Depreciation for the year was \)520,000, accounts receivable increased \(500,000, and accounts payable increased \)300,000. Compute net cash flow from operating activities using the indirect method.
Question: ETHICS (Cash Flow Reporting)
Brockman Guitar Company is in the business of manufacturing top-quality, steelstring folk guitars. In recent years, the company has experienced working capital problems resulting from the procurement of factory equipment, the unanticipated buildup of receivables and inventories, and the payoff of a balloon mortgage on a new manufacturing facility. The founder and president of the company, Barbara Brockman, has attempted to raise cash from various financial institutions, but to no avail because of the company鈥檚 poor performance in recent years. In particular, the company鈥檚 lead bank, First Financial, is especially concerned about Brockman鈥檚 inability to maintain a positive cash position. The commercial loan officer from First Financial told Barbara, 鈥淚 can鈥檛 even consider your request for capital financing unless I see that your company is able to generate positive cash flows from operations.鈥� Thinking about the banker鈥檚 comment, Barbara came up with what she believes is a good plan: With a more attractive statement of cash flows, the bank might be willing to provide long-term financing. To 鈥渨indow dress鈥� cash flows, the company can sell its accounts receivables to factors and liquidate its raw materials inventories. These rather costly transactions would generate lots of cash. As the chief accountant for Brockman Guitar, it is your job to tell Barbara what you think of her plan.
Instructions
Answer the following questions.
(a) What are the ethical issues related to Barbara Brockman鈥檚 idea?
(b) What would you tell Barbara Brockman?
Following are selected statement of financial position accounts of Sander Bros. Corp. at December 31, 2017 and 2016, and the increases or decreases in each account from 2016 to 2017. Also presented is selected income statement information for the year ended December 31, 2017, and additional information.
Selected statement of financial position accounts
2017 | 2016 | Increase (Decrease) | |
Assets | |||
Property, plant, and equipment | \(277,000 | \)247,000 | \(30,000 |
Accumulated depreciation | (178,000) | (167,000) | (11,000) |
Accounts receivable | 34,000 | 24,000 | 10,000 |
Equity and liabilities | |||
Share capital鈥攐rdinary, \)1 par | \( 22,000 | \) 19,000 | \( 3,000 |
Share premium鈥攐rdinary | 9,000 | 3,000 | 6,000 |
Retained earnings | 104,000 | 91,000 | 13,000 |
Bonds payable | 49,000 | 46,000 | 3,000 |
Dividends payable | 8,000 | 5,000 | 3,000 |
| Selected income statement information for the year ended December 31, 2017 | |||
Sales revenue | \)155,000 | ||
Depreciation | 38,000 | ||
Gain on sale of equipment | 14,500 | ||
Net income | 31,000 | ||
Additional information:
There was no amortization of bond discount or premium.
Instructions Determine the category (operating, investing, or financing) and the amount that should be reported in the statement of cash flows for the following items.
Question: (Worksheet Preparation) Below is the comparative balance sheet for Stevie Wonder Corporation.
Particulars | Dec 31, 2017 | Dec 31, 2016 |
Cash | \(16,500 | \)21,000 |
Short-term investments | 25,000 | 19,000 |
Accounts receivables | 43,000 | 45,000 |
Allowance for doubtful accounts | (1,800) | (2,000) |
Prepaid expenses | 4,200 | 2,500 |
Inventory | 81,500 | 65,000 |
Land | 50,000 | 50,000 |
Buildings | 125,000 | 73,500 |
Accumulated depreciation 鈥� Buildings | (30,000) | (23,000) |
Equipment | 53,000 | 46,000 |
Accumulated depreciation 鈥� equipment | (19,000) | (15,500) |
Delivery equipment | 39,000 | 39,000 |
Accumulated depreciation 鈥� delivery equipment | (22,000) | (20,500) |
Patents | 15,000 | 0 |
\(379,400 | \)300,000 | |
Accounts payable | \(26,000 | \)16,000 |
Short-term note payable | 4,000 | 6,000 |
Accrued payable | 3,000 | 4,600 |
Mortgage payable | 73,000 | 53,400 |
Bond payable | 50,000 | 62,500 |
Common stock | 140,000 | 102,000 |
Paid-in-capital in excess of par | 10,000 | 4,000 |
Retained earnings | 73,400 | 51,500 |
\(379,400 | \)300,000 |
Dividends in the amount of $15,000 were declared and paid in 2017.
Instructions
From this information, prepare a worksheet for a statement of cash flows. Make reasonable assumptions as appropriate. The short-term investments are considered available-for-sale and no unrealized gains or losses have occurred on these securities
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