a. Following are balance sheet data for Quality Merchandise, Inc.: December 31 2

Question

a. Following are balance sheet data for Quality Merchandise, Inc.: December 31 2011 2010 Cash $ 47,000 $ 26,000 Accounts receivable, net 141,000 134,000 Merchandise inventory 83,000 102,000 Prepaid expenses 9,000 11,000 Plant assets (net of accumulated depreciation) 235,000 230,000 Accounts payable 122,000 127,000 Accrued liabilities payable 40,000 41,000 Capital stock 300,000 300,000 Retained earnings 53,000 35,000 Assume that the depreciation recorded in 2011 was USD 15,000. Compute the cash spent to purchase plant assets, assuming no assets were sold or scrapped in 2011.

b.Use the data in the previous exercise. Assume the net income for 2011 was USD 24,000, depreciation was USD 15,000, and dividends declared and paid were USD 6,000. The company paid interest of USD 2,000 and income taxes of USD 14,000. Prepare a statement of cash flows—indirect method. Also prepare any necessary supplemental schedule(s).

Explanation / Answer

a) Plant assets at the beginning $230,000 Less: Depreciation -$15,000 $215,000 Less: Plant Assets at the end -$235,000 Purchases of Assets -$20,000 b) Quality Merchandise, Inc. Statement of Cash Flows For the Year Ended December 13, 2011 Cash Flows from Operating Activities: Net income $24,000 Adjustments to reconcile net income to net cash flows from operating activities - Depreciation expense $15,000 Increase in accounts receivable(141,000 -134,000 ) -$7,000 Decrease in inventory (83,000 - 102,000 ) $19,000 Decrease in prepaid expenses (9,000 - 11,000) $2,000 Decrease in accounts payable (122,000 - 127,000) -$5,000 Decrease in accrued liabilities (40,000 - 41,000) -$1,000 $8,000 Net cash flows from operating activities $47,000 Cash Flows for Investing Activities: Cash paid to purchase plant assets -$20,000 Net cash flows for investing activities -$20,000 Cash Flows for Financing Activities: Cash paid for dividends -$6,000 Net cash flows for financing activities -$6,000 Net increase in cash $21,000 Cash balance, beginning $26,000 Cash balance, ending $47,000

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