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Chapter 23: Q4BE (page 1373)

Bloom Corporation had the following 2017 income statement.

Sales revenue

\(200,000

Cost of goods sold

120,000

Gross profit

80,000

Operating expenses (including depreciation of \)21,000)

50,000

Net income

\(30,000

The following accounts increased during 2017: Accounts Receivable \)12,000, Inventory \(11,000, and Accounts Payable \)13,000. Prepare the cash flows from the operating activities section of Bloom鈥檚 2017 statement of cash flows using the direct method.

Short Answer

Expert verified

Cash flow from operations is$335,000.

Step by step solution

01

Definition of Direct Method

Under the direct method of cash flow statement, the business entity reports the cash receipts from operations and cash disbursed in the operation for determining the cash flow from the operation.

02

Statement of cash flow using the direct method

Particular

Amount $

Cash from sales

$188,000

Cash payment to suppliers

$118,000

Cash payment for operating expenses

$29,000

Cash flow from operations

$335,000

Working note:

Cash from sales:

Particular

Amount $

Sales revenue

$200,000

Less: Increase in accounts receivables

(12,000)

Cash from sales

$188,000

Cash payment to suppliers:

Particular

Amount $

Cost of goods sold

$120,000

Add: Increase in inventory

$11,000

Purchases

$131,000

Less: Increase in accounts payable

(13,000)

Cash payment to suppliers

$118,000

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Most popular questions from this chapter

Comparative balance sheet accounts of Sharpe Company are presented below.

SHARPE COMPANY

COMPARATIVE BALANCE SHEET ACCOUNTS

AS OF DECEMBER 31

Debit Balances 2017 2016

Cash \( 70,000 \) 51,000

Accounts Receivable 155,000 130,000

Inventory 75,000 61,000

Debt investments (available-for-sale) 55,000 85,000

Equipment 70,000 48,000

Buildings 145,000 145,000

Land 40,000 25,000

Totals \(610,000 \)545,000

Credit Balances

Allowance for Doubtful Accounts \( 10,000 \) 8,000

Accumulated Depreciation鈥擡quipment 21,000 14,000

Accumulated Depreciation鈥擝uildings 37,000 28,000

Accounts Payable 66,000 60,000

Income Taxes Payable 12,000 10,000

Long-Term Notes Payable 62,000 70,000

Common Stock 310,000 260,000

Retained Earnings 92,000 95,000

Totals \(610,000 \)545,000

Additional data:

1. Equipment that cost \(10,000 and was 60% depreciated was sold in 2017.

2. Cash dividends were declared and paid during the year.

3. Common stock was issued in exchange for land.

4. Debt investments that cost \)35,000 were sold during the year.

5. There were no write-offs of uncollectible accounts during the year.

Sharpe鈥檚 2017 income statement is as follows.

Sales revenue \(950,000

Less: Cost of goods sold 600,000

Gross profit 350,000

Less: Operating expenses (includes depreciation expense and bad debt expense) 250,000

Income from operations 100,000

Other revenues and expenses Gain on sale of investments \)15,000

Loss on sale of equipment (3,000) 12,000

Income before taxes 112,000

Income taxes 45,000

Net income $ 67,000

Instructions

(a) Compute net cash provided by operating activities under the direct method.

(b) Prepare a statement of cash flows using the indirect method.

(Schedule of Net Cash Flow from Operating Activities鈥擨ndirect Method)

Ballard Co. reported \(145,000 of net income for 2017. The accountant, in preparing the statement of cash flows, noted the following items occurring during 2017 that might affect cash flows from the operating activities.

  1. Ballard purchases 100 shares of treasury stock at a cost of \)20 per share. These shares are then resold at \(25 per share.
  2. Ballard sold 100 shares of IBM common at \)200 per share. The acquisition cost of these shares was \(145 per share. There were no unrealized gains or losses recorded on this investment in 2017.
  3. Ballard revised its estimates for bad debts. Before 2017, Ballard鈥檚 bad debt expenses was 1% of its net sales. In 2017, this percentage was increased to 2%. Net sales for 2017 were \)500,000 and net accounts receivable decreased by \(12,000 during 2017.
  4. Ballard issued 500 shares of its \)10 par common stock for a patent. The market price of the shares on the date of the transaction was \(23 per share.
  5. Depreciation expense is \)39,000.
  6. Ballard Co. holds 40% of the Nirvana company鈥檚 common stock as a long-term investment. Nirvana company reported \(27,000 of net income for 2017.
  7. Nirvana company paid a total of \)2,000 of cash dividend to all investees in 2017.
  8. Ballard declared a 10% stock dividend. One thousand shares of \(10 par common stock were distributed. The market price at date of issuance was \)20 per share.

Instructions

Prepare a schedule that shows the net cash flow from operating activities using the indirect method. Assume no items other than those listed above affected the computation of 2017 net cash flow from operating activities.

Red Hot Chili Peppers Co. had the following activity in its most recent year of operations.

(a) Purchase of equipment. (g) Amortization of intangible assets.

(b) Redemption of bonds payable. (h) Purchase of treasury stock.

(c) Sale of building. (i) Issuance of bonds for land.

(d) Depreciation. (j) Payment of dividends.

(e) Exchange of equipment for the furniture. (k) Increase in interest receivable on notes receivable.

(f) Issuance of common stock. (l) Pension expense exceeds the amount funded.

Instructions

Classify the items as (1) operating鈥攁dd to net income; (2) operating鈥攄educt from net income; (3) investing; (4) financing; or (5) significant noncash investing and financing activities. Use the indirect method.

Question:Mortonson Company has not yet prepared a formal statement of cash flows for the 2017 fiscal year. Comparative balance sheets as of December 31, 2016 and 2017, and a statement of income and retained earnings for the year ended December 31, 2017, are presented as follows.


MORTONSON COMPANY

STATEMENT OF INCOME AND RETAINED EARNINGS

FOR THE YEAR ENDED DECEMBER 31, 2017

(\(000 OMITTED)

Sales revenue

\)3,800

Expenses

Cost of goods sold

\(1,200

Salaries and benefits

725

Heat, light and power

75

Depreciation

80

Property tax

19

Patent amortization

25

Miscellaneous expenses

10

Interest

30

2,164

Income before taxes

1,636

Income tax

818

Net income

818

Retained earnings 鈥� Jan 1, 2017

310

1,128

Stock dividend declared and issued

600

Retained earnings Dec 31, 2017

\)528


MORTONSON COMPANY

COMPARATIVE BALANCE SHEETS

AS OF DECEMBER 31

(\(000 OMITTED)

Assets

2017

2016

Current assets

Cash

\)333

\(100

U.S treasury notes (available for sale)

10

50

Accounts receivables

780

500

Inventory

720

560

Total current assets

1,843

1,210

Long-term assets

Land

150

70

Building and equipment

910

600

Accumulated depreciation 鈥� building and equipment

(200)

(120)

Patent (less: amortization)

105

130

Total long-term assets

965

680

Total assets

\)2,808

\(1,890

Liabilities and stockholder鈥檚 equity

Current liabilities

Account payable

\)420

\(330

Income tax payable

40

30

Notes payable

320

320

Total current liabilities

780

680

Long-term note payable

200

200

Total liabilities

980

880

Stockholder鈥檚 equity

Common stock

1,300

700

Retained earnings

528

310

Total stockholder鈥檚 equity

1,828

1,010

Total liabilities and stockholder鈥檚 equity

\)2,808

$1,890

Instructions

Prepare a statement of cash flows using the direct method. Changes in accounts receivable and accounts payable relate to sales and the cost of goods sold. Do not prepare a reconciliation schedule.

Question: (L01,4) (Classification of Transactions) Following are selected balance sheet accounts of Allman 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.

2017

2016

Increase (Decrease)

Selected balance sheet accounts

Assets

Accounts receivables

\(34,000

\)24,000

\(10,000

Property, plant and equipment

277,000

247,000

30,000

Accumulated depreciation 鈥� plant assets

(178,000)

(167,000)

(11,000)

Liabilities and stockholder鈥檚 equity

Bonds payable

\)49,000

\(46,000

\)3,000

Dividend payable

8,000

5,000

3,000

Common stock, \(1 par

22,000

19,000

3,000

Additional paid-in-capital

9,000

3,000

6,000

Retained earnings

104,000

91,000

13,000

Selected income statement information for the year ended December 31, 2017:

Sales revenue

\)155,000

Depreciation

33,000

Gain on sale of equipment

14,500

Net income

31,000

Additional information:

1. During 2017, equipment costing \(45,000 was sold for cash.

2. Accounts receivable relate to sales of merchandise.

3. During 2017, \)20,000 of bonds payable were issued in exchange for property, plant, and equipment. 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.

(a) Payments for purchase of property, plant, and equipment.

(b) Proceeds from the sale of equipment.

(c) Cash dividends paid.

(d) Redemption of bonds payable.
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