Galley Corp., a merchandiser, recently completed its 2011 operations. For the ye
ID: 2374400 • Letter: G
Question
Galley Corp., a merchandiser, recently completed its 2011 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, (5) Other Expenses are all cash expenses, and (6) any change in Income Taxes Payable reflects the accrual and cash payment of taxes. The company%u2019s balance sheets and income statement follow.
Purchased equipment for $36,685 cash.
Issued 19,000 shares of common stock for $5.80 cash per share.
Declared and paid $491,708 in cash dividends.
Prepare a complete statement of cash flows; report its cash flows from operating activities according to the direct method. (Amounts to be deducted should be indicated with a minus sign. Omit the "$" sign in your response.)
Comparative Balance Sheets
December 31, 2011 and 2010 2011 2010 Assets Cash $ 181,067 $ 121,716 Accounts receivable 96,569 84,042 Merchandise inventory 634,283 556,416 Equipment 346,771 310,086 Accum. depreciation%u2014Equipment (161,314) (106,260) Total assets $ 1,097,376 $ 966,000 Liabilities and Equity Accounts payable $ 72,427 $ 100,464 Income taxes payable 28,532 25,116 Common stock, $2 par value 566,500 528,500 Paid-in capital in excess of par value, common stock 241,250 169,050 Retained earnings 188,667 142,870 Total liabilities and equity $ 1,097,376 $ 966,000
Explanation / Answer
Hi,
Please find the answer as follows:
Cash Received from Customers = 84042 (Opening Accounts Receivable) + 2170000 (Sales) - 96569 (Opening Accounts Receivable) = 2157473
You need to calculate purchases to get the amount of cash paid for merchandise
Cost of Goods Sold = Opening Stock + Purchases - Closing Stock
1019900 = 556416+ Purchases - 634283
Purchases = 1019900 + 634283 - 556416 = 1097767
Cash Paid for Merchandise = 100464 (Opening Accounts Payable) + 1097767 (Purchases) - 72427 (Opening Accounts Payable) = -1125804
Cash Paid for Taxes = 130203 (Income Tax Expense) + 25116 (Opening Income Tax Payable) - 28532 (Closing Income Tax Payable) = -126787
Net Cash Provided by Operating Activites = 2157473 - 1125804 - 126787 - 427338 = 477544
Cash Paid for Dividends = -491708
Cash Used by Financing Activities = -491708 + 110200 = -381508
Net Increase in Cash = 477544 - 381508 - 36685 = 59351 (This is in place of depreciation expense)
+ Opening Cash = 121716
= Ending Cash = 121716 + 59351 = 181067 (Answer verified)
Thanks.
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