PROBLEM 13-14. Operating Cash Flows, Direct and Indirect Methods [LO 3, 4] Sellm
ID: 2467338 • Letter: P
Question
PROBLEM 13-14. Operating Cash Flows, Direct and Indirect Methods [LO 3, 4] Sellmer’s Pasta, Inc., has the following financial statements:
Sellmer’s Pasta, Inc.
Balance Sheets
As of December 31, 2013, and 2014
2013 2014
Assets Cash $263,000 $280,900
Accounts receivable 118,000 120,500
Inventory 94,200 83,800
Prepaid expenses 183,800 199,080
Plant and equipment 55,700 80,325
Accumulated depreciation (12,900) (15,500)
Total assets $701,800 $749,105
Liabilities and Equity Accounts payable $172,700 $175,900
Short-term notes payable 62,500 58,200
Accrued wages 29,200 32,800
Long-term notes payable 175,400 156,405
Common stock 72,500 72,500
Retained earnings 189,500 253,300
Total liabilities and equity $701,800 $749,105 532
Sellmer’s Pasta, Inc.
Income Statement
For the Year Ended December 31, 2014
Sales $449,000
Less: Cost of goods sold (173,000)
Gross margin 276,000
Less operating expenses:
Wages and salaries expense $176,000
Advertising expense 16,400
Misc. operating expenses 12,200
Depreciation expense 2,600 (207,200)
Net income (loss) $ 68,800
At the end of 2014, Sellmer purchased additional equipment for $24,625. Sellmer paid dividends of $5,000 during the year.
Required
a. Prepare a statement of cash flows for 2014 using the direct method. Assume that advertising is paid in cash.
b. Prepare the operating activities section of the statement of cash flows for 2014 using the indirect method. Note that there is no difference between the two methods for the investing and financing sections.
Explanation / Answer
a.
Sellmer’s Pasta, Inc.
Statement of cash flows
For the year ended December 31, 2014
b. Cash flow from Operating activities using Indirect Method
Particulars Working Amount Cash flow from Operating activities Cash reciepts from Customers 449000+118000-120500 446500 Cash payment to Suppliers 173000+83800-94200+58200-62500 158300 Cash payment to Employees 29200-32800+176000 172400 Cash payment for Purchase of Prepaid Assets 199080-183800 15280 Total Cash flow from Operating activities Advertising expenses paid (16400) 2 Cash flow from Investing Activities Purchase of Fixed assets 80325-55700 (24625) 3 Cash flow from Financing Activities Repayment of Long term loans 175400-156405 (18995) Dividend Paid (5000) Total Cash flow from Financing Activities (23995) Toatl Cash Flows $17900 Net Cash equivalents (280900-263000) $17900Related Questions
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