Comparative balance sheet accounts of Sharpe Company are presented below. Equipm
ID: 2426084 • Letter: C
Question
Comparative balance sheet accounts of Sharpe Company are presented below. Equipment that cost $10,000 and was 60% depreciated was sold in 2014. Cash dividends were declared and paid during the year. Common stock was issued in exchange for land. Investments that cost $35,000 were sold during the year. There were no write-offs of uncollectible accounts during the year. Sharpe's 2014 income statement is as follows. Compute net cash provided by operating activities under the direct m4ethod. Prepare a statement of cash flows using the indirect method.Explanation / Answer
Calculation of Net cash provided by Operating Activities (Direct Method)
Cash Receipts from Customers =
+
Sales revenue
$ 950,000
+
Beginning Accounts Receivable
$ 130,000
Ending Accounts Receivable
$ (155,000)
$ 925,000
Less: Cash Payments to Suppliers =
+
Cost of Goods Sold
$ 600,000
+
Ending Inventory
$ 75,000
Beginning Inventory
$ (61,000)
+
Beginning Accounts Payable
$ 60,000
Ending Accounts Payable
$ (66,000)
$ 608,000
Less: Cash Payments for operating expenses =
+
Operating expenses
$ 250,000
-
Depreciation on equipment (21000-14000)+(10000*60%)
$ (13,000)
-
Depreciation on Building (37000-28000)
$ (9,000)
-
Bad debts expense (10000-8000)
$ (2,000)
$ 226,000
Less: Income Tax Payments =
+
Beginning Income Tax Payable
$ 10,000
Ending Income Tax Payable
$ (12,000)
+
Income Tax Expense
$ 45,000
$ 43,000
Net cash provided by Operating Activities (Direct Method)
$ 48,000
Statement of Cash Flows (Indirect Method)
For the year ending December 31, 2014
Cash Flows from Operating Activities:
+
Net Income
$ 67,000
-
Gain on sale of investments
$ (15,000)
+
Loss on sale of equipment
$ 3,000
+
Depreciation on equipment (21000-14000)+(10000*60%)
$ 13,000
+
Depreciation on Building (37000-28000)
$ 9,000
+
Bad debts expense (10000-8000)
$ 2,000
-
Increase in Accounts receivables (155000-130000)
$ (25,000)
-
Increase in Inventory (75000-61000)
$ (14,000)
+
Increase in Accounts Payable (66000-60000)
$ 6,000
+
Increase in Income tax Payable (12000-10000)
$ 2,000
$ 48,000
Cash Flows from Investing Activities:
+
Sale of Equipment = (10000*40%) - 3000
$ 1,000
+
Sale of Investment = 35000+15000 =
$ 50,000
-
Investment Purchased = (55000+35000-85000)
$ (5,000)
-
Purchase of Equipment = (70000+10000-48000)
$ (32,000)
+
Sale of Land (25000+(310000-260000) - 40000
$ 35,000
$ 49,000
Cash Flows from Financing Activities:
-
Cash Dividend Paid (95000+67000-92000)
$ (70,000)
-
Long Term notes repaid (70000-62000)
$ (8,000)
$ (78,000)
Net Cash flow
$ 19,000
Add: Beginning Cash balance
$ 51,000
Ending Cash Balance
$ 70,000
Calculation of Net cash provided by Operating Activities (Direct Method)
Cash Receipts from Customers =
+
Sales revenue
$ 950,000
+
Beginning Accounts Receivable
$ 130,000
Ending Accounts Receivable
$ (155,000)
$ 925,000
Less: Cash Payments to Suppliers =
+
Cost of Goods Sold
$ 600,000
+
Ending Inventory
$ 75,000
Beginning Inventory
$ (61,000)
+
Beginning Accounts Payable
$ 60,000
Ending Accounts Payable
$ (66,000)
$ 608,000
Less: Cash Payments for operating expenses =
+
Operating expenses
$ 250,000
-
Depreciation on equipment (21000-14000)+(10000*60%)
$ (13,000)
-
Depreciation on Building (37000-28000)
$ (9,000)
-
Bad debts expense (10000-8000)
$ (2,000)
$ 226,000
Less: Income Tax Payments =
+
Beginning Income Tax Payable
$ 10,000
Ending Income Tax Payable
$ (12,000)
+
Income Tax Expense
$ 45,000
$ 43,000
Net cash provided by Operating Activities (Direct Method)
$ 48,000
Statement of Cash Flows (Indirect Method)
For the year ending December 31, 2014
Cash Flows from Operating Activities:
+
Net Income
$ 67,000
-
Gain on sale of investments
$ (15,000)
+
Loss on sale of equipment
$ 3,000
+
Depreciation on equipment (21000-14000)+(10000*60%)
$ 13,000
+
Depreciation on Building (37000-28000)
$ 9,000
+
Bad debts expense (10000-8000)
$ 2,000
-
Increase in Accounts receivables (155000-130000)
$ (25,000)
-
Increase in Inventory (75000-61000)
$ (14,000)
+
Increase in Accounts Payable (66000-60000)
$ 6,000
+
Increase in Income tax Payable (12000-10000)
$ 2,000
$ 48,000
Cash Flows from Investing Activities:
+
Sale of Equipment = (10000*40%) - 3000
$ 1,000
+
Sale of Investment = 35000+15000 =
$ 50,000
-
Investment Purchased = (55000+35000-85000)
$ (5,000)
-
Purchase of Equipment = (70000+10000-48000)
$ (32,000)
+
Sale of Land (25000+(310000-260000) - 40000
$ 35,000
$ 49,000
Cash Flows from Financing Activities:
-
Cash Dividend Paid (95000+67000-92000)
$ (70,000)
-
Long Term notes repaid (70000-62000)
$ (8,000)
$ (78,000)
Net Cash flow
$ 19,000
Add: Beginning Cash balance
$ 51,000
Ending Cash Balance
$ 70,000
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