P1-4B Presented below are selected financial statement items for Preacher Corpor
ID: 2415410 • Letter: P
Question
P1-4B Presented below are selected financial statement items for Preacher Corporation for December 31, 2014.Inventory $ 55,000 Cash paid to purchase equipment $ 20,000Cash paid to suppliers 154,000 Equipment 40,000Buildings 400,000 Service revenue 200,000Common stock 20,000 Cash received from customers 162,000Cash dividends paid 2,000 Cash received from issuing Cash at beginning of period 11,000 bonds payable 40,000 Instructions (a) Determine which items should be included in a statement of cash flows, and then prepare the statement for Preacher Corporation.(b) Comment on the adequacy of net cash provided by operating activities to fund the company’s investing activities and dividend payments.
Explanation / Answer
Cash flows are inflows and outflows of cash and cash equivalents. it means movement of cash into organisation and movement of cash out of the organization . The difference between the cash inflows and outflows is known as net cash flow which can be either net cash inflow or net cash outflow.
Classification of cash flows
The cash flow statement during the a period is classified into three main categories of cash inflows and cash outflows i.e operating, investing and financing activities
On the basis of above information the cash flow statement is prepared below
Preacher Corporation
Cash flows from operating activities
Amount in ($)
Amount in ($)
Service revenue
2,00,000
Cash received from customers
1,62,000
Cash paid to suppliers
-1,54,000
Cash generated from operations activities
2,08,000
2,08,000
Cash flows from investing activities
Purchase of equipment
20,000
Purchase of equipment
40,000
Purchase of building
4,00,000
Net Cash used in investing activities
-4,60,000
-4,60,000
Cash flows from Financing activities
Issue of bonds
40,000
Dividend paid
-2,000
Net Cash from financing activities
-38,000
-38,000
Net decrease in cash and cash equivalents
-2,14,000
The dividend payment is not an issue from cash flow generated in operating activities but for investing activities the funds has to be generated from financing activities but not to be paid from operating activitiesThe net cash from operations are $ 2,08,000 , which indicates the inventory turnover is high and collection from customers are faster or less days from sale to collection of payment than purchase to payment to suppliers showing positive cash inflows from operating activities .
Cash Flow Statement for the year ended 31.12.2014Cash flows from operating activities
Amount in ($)
Amount in ($)
Service revenue
2,00,000
Cash received from customers
1,62,000
Cash paid to suppliers
-1,54,000
Cash generated from operations activities
2,08,000
2,08,000
Cash flows from investing activities
Purchase of equipment
20,000
Purchase of equipment
40,000
Purchase of building
4,00,000
Net Cash used in investing activities
-4,60,000
-4,60,000
Cash flows from Financing activities
Issue of bonds
40,000
Dividend paid
-2,000
Net Cash from financing activities
-38,000
-38,000
Net decrease in cash and cash equivalents
-2,14,000
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