Statement of Cash Flows—Direct Method The comparative balance sheet of Flack Inc

Question

Statement of Cash Flows—Direct Method

The comparative balance sheet of Flack Inc. for December 31, 2014 and 2013, is as follows:

The income statement for the year ended December 31, 2014, is as follows:

The following additional information was taken from the records:

The investments were sold for $92,330 cash.

Equipment and land were acquired for cash.

There were no disposals of equipment during the year.

The common stock was issued for cash.

There was a $32,000 debit to Retained Earnings for cash dividends declared.

Required:

Prepare a statement of cash flows, using the direct method of presenting cash flows from operating activities. Use the minus sign to indicate cash out flows, cash payments, and decreases in cash.

     Dec. 31, 2014      Dec. 31, 2013 Assets Cash $ 204,210 $ 193,080 Accounts receivable (net) 75,040 68,840 Inventories 211,490 203,360 Investments 0 79,130 Land 108,410 0 Equipment 231,140 182,000 Accumulated depreciation-equipment (55,000) (49,100) $775,290 $677,310 Liabilities and Stockholders' Equity Accounts payable (merchandise creditors) $ 140,100 $ 133,430 Accrued expenses payable (operating expenses) 14,090 17,610 Dividends payable 7,600 6,100 Common stock, $1 par 41,400 31,830 Paid-in capital in excess of par—common stock 157,500 92,110 Retained earnings 414,600 396,230 $775,290 $677,310

Explanation / Answer

Direct method formula

Putting values in the formula mentioned above:

Cash Receipts from Customers = + Net Sales + Beginning Accounts Receivable Ending Accounts Receivable Cash Payments to Suppliers = + Purchases + Ending Inventory Beginning Inventory + Beginning Accounts Payable Ending Accounts Payable Cash Payments to Employees = + Beginning Salaries Payable Ending Salaries Payable + Salaries Expense Cash Payments for Purchase of Prepaid Assets = + Ending Prepaid Rent, Prepaid Insurance etc. + Expired Rent, Expired Insurance etc. Beginning Prepaid Rent, Prepaid Insurance etc. Interest Payments = + Beginning Interest Payable Ending Interest Payable + Interest Expense Income Tax Payments = + Beginning Income Tax Payable Ending Income Tax Payable + Income Tax Expense

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