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Chapter 23: Q4E (page 1375)

Question:Data for the Vince Gill Company are presented in E23-3.

Instructions

Prepare the operating activities section of the statement of cash flows using the direct method.

Short Answer

Expert verified

Answer

The net cash provided by operating activities is computed as $1,225,000

Step by step solution

01

Computation of cash receipts from customers

Cashreceiptsfromcustomers=SalesRevenue+Decreaseinaccountsreceivables=6,900,000+360,000=$7,260,000

02

Computation of cash payment to suppliers

Amount ($)

Cost of goods sold

4,700,000

Less: Decrease in Inventories

-300,000

Purchases

4,400,000

Add: Decrease in accounts payable

275,000

Cash Payments to suppliers

4,675,000

03

Computation of cash payment for operating expenses

Amount ($)

Amount ($)

Cash payments for operating expenses

Operating expenses, exclusive of depreciation [450,000+(700,000-60,000)]

1,090,000

Add: Increase in prepaid expenses

170,000

Decrease in accrued prepaid expenses payable

100,000

270,000

Cash Payment for operating expenses

1,360,000

04

Preparation statement of cash flow (partial)



VINCE GILL COMPANY
Partial Statement of Cash Flows

For the year ended December 31, 2017


Cash flows from operating activities

Cash Receipts from customers

$7,260,000

Cash Payments:

To suppliers

$4,675,000

For Operating expenses

1,360,000

6,035,000

Net cash provided by operating activities

$1,225,000

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Most popular questions from this chapter

Novak Corporation is preparing its 2017 statement of cash flows, using the indirect method. Presented below is a list of items that may affect the statement. Using the code below, indicate how each item will affect Novak鈥檚 2017 statement of cash flows.

Code Letter Effect

A Added to net income in the operating section

D Deducted from net income in the operating section

R-I Cash receipt in investing section

P-I Cash payment in investing section

R-F Cash receipt in financing section

P-F Cash payment in financing section

N Noncash investing and financing activity

(a)Purchase of land and building

(b)Decrease in accounts receivable

(c)Issuance of stock.

(d)Depreciation expense.

(e)Sale of land at book value.

(f)Sale of land at a gain.

(g)Payment of dividends.

(h)Increase in accounts receivable.

(i)Purchase of available-for-sale debt investment

(j)Increase in accounts payable.

(k)Decrease in accounts payable.

(l)Loan from bank by signing note

(m)Purchase of equipment using a note

(n)Increase in inventory

(o)Issuance of bonds.

(p)Redemption of bonds payable.

(q)Sale of equipment at a loss.

(r)Purchase of treasury stock.

Question: Collinsworth Co. reported sales on an accrual basis of \(100,000. If accounts receivable increased \)30,000 and the allowance for doubtful accounts increased \(9,000 after a write-off of \)2,000, compute cash sales.

Dingel Corporation has contracted with you to prepare a statement of cash flows. The controller has provided the following information.

December 31

2017

2016

Buildings

\( 鈥�0鈥�

\)29,750

Equipment

45,000

20,000

Patents

5,000

6,250

Investments

鈥�0鈥�

3,000

Inventory

12,000

9,000

Accounts receivable

12,250

10,000

Cash

33,500

13,000

\(107,750

\)91,000

Share capital鈥攐rdinary

\( 43,000

\)33,000

Retained earnings

20,750

6,000

Allowance for doubtful accounts

3,000

4,500

Accumulated depreciation on equipment

2,000

4,500

Accumulated depreciation on buildings

鈥�0鈥�

6,000

Accounts payable

5,000

3,000

Dividends payable

鈥�0鈥�

5,000

Long-term notes payable

31,000

25,000

Notes payable, short-term (non-trade)

3,000

4,000

\(107,750

\)91,000

Additional data related to 2017 are as follows.

  1. Equipment that had cost \(11,000 and was 40% depreciated at the time of disposal was sold for \)2,500.
  2. \(10,000 of the long-term notes payable was paid by issuing ordinary shares.
  3. Cash dividends paid were \)5,000.
  4. On January 1, 2017, the building was completely destroyed by a flood. Insurance proceeds on the building were \(32,000.
  5. Equity investments (non-trading) were sold at \)1,700 above their cost.
  6. Cash was paid for the acquisition of equipment.
  7. A long-term note for \(16,000 was issued for the acquisition of equipment.
  8. Interest of \)2,000 and income taxes of $6,500 were paid in cash.

Instructions Prepare a statement of cash flows using the indirect method.

Question: (SCF Theory and Analysis of Improper SCF) Teresa Ramirez and Lenny Traylor are examining the following statement of cash flows for Pacific Clothing Store鈥檚 first year of operations.


PACIFIC CLOTHING STORE

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED JANUARY 31, 2017

Sources of cash

From sales of merchandise

\(382,000

From sale of common stock

380,000

From sale of investment

120,000

From depreciation

80,000

From issuance of note for truck

30,000

From interest on investments

8,000

Total sources of cash

1,000,000

Uses of cash

For purchase of fixtures and equipment

330,000

For merchandise purchased for resale

253,000

For operating expenses (including depreciation)

170,000

For purchase of investment

95,000

For purchase of truck by issuance of note

30,000

For purchase of treasury stock

10,000

For interest on note

3,000

Total uses of cash

891,000

Net increase in cash

\)109,000

Teresa claims that Pacific鈥檚 statement of cash flows is an excellent portrayal of a superb first year, with cash increasing \(109,000. Lenny replies that it was not a superb first year鈥攖hat the year was an operating failure, the statement was incorrectly presented, and \)109,000 is not the actual increase in cash.

Instructions

(a) With whom do you agree, Teresa or Lenny? Explain your position.

(b) Using the data provided, prepare a statement of cash flows in proper indirect method form. The only noncash items in income are depreciation and the gain from the sale of the investment (purchase and sale are related).

(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.
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