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Chapter 23: Question 1Q (page 1371)
What is the purpose of the statement of cash flows? What
information does it provide?
It helps indicate the changes in cash inflows and outflows for a company during a specific period.
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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
Identify the following items as (1) operating, (2) investing, or (3) financing activities: purchase of land, payment of dividends, cash sales, and purchase of treasury stock.
Colbert Corporation had the following 2017 income statement.
Revenues \(100,000
Expenses 60,000
\) 40,000
In 2017, Colbert had the following activity in selected accounts.
Accounts Receivable Doubtful Accounts 1/1/17 20,000 1,200 1/1/17 Revenues 100,000 1,000 Write-offs Write-offs 1,000 1,840 Bad debt expense 90,000 Collections 12/31/17 29,000 2,040 12/31/17
Prepare Colbert鈥檚 cash flows from the operating activities section of the statement of cash flows using
(a) the direct method and
(b) the indirect method.
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.
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.
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