Comparative balance sheet accounts of Windsor Inc. are presented below. WINDSOR

Question

Comparative balance sheet accounts of Windsor Inc. are presented below.

WINDSOR INC.
COMPARATIVE BALANCE SHEET ACCOUNTS
AS OF DECEMBER 31, 2017 AND 2016

December 31

2017

2016

$42,200

$33,900

71,100

60,200

30,100

24,100

22,500

38,700

29,900

18,900

67,800

56,400

7,600

7,600

$271,200

$239,800

$2,200

$1,500

5,700

2,300

13,600

9,000

34,700

24,500

3,500

2,600

21,100

30,700

150,000

125,000

40,400

44,200

$271,200

$239,800

Additional data (ignoring taxes):

Windsor’s 2017 income statement follows (ignoring taxes).

$538,000

377,700

160,300

120,800

39,500

$3,800

(800

3,000

$42,500

(a) Compute net cash flow from operating activities using the direct method. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

(b) Prepare a statement of cash flows using the indirect method.

WINDSOR INC.
COMPARATIVE BALANCE SHEET ACCOUNTS
AS OF DECEMBER 31, 2017 AND 2016

December 31

Debit Accounts

2017

2016

Cash

$42,200

$33,900

Accounts Receivable

71,100

60,200

Inventory

30,100

24,100

Equity investments

22,500

38,700

Machinery

29,900

18,900

Buildings

67,800

56,400

Land

7,600

7,600

$271,200

$239,800

Credit Accounts Allowance for Doubtful Accounts

$2,200

$1,500

Accumulated Depreciation—Machinery

5,700

2,300

Accumulated Depreciation—Buildings

13,600

9,000

Accounts Payable

34,700

24,500

Accrued Payables

3,500

2,600

Long-Term Notes Payable

21,100

30,700

Common Stock, no-par

150,000

125,000

Retained Earnings

40,400

44,200

$271,200

$239,800

Explanation / Answer

Solution:  

(a) Net cash flow from operating activities using the direct method.

Particulars

Amount($)

Cash received from customers (WN 1)

522,109

Cash payments to suppliers (WN 2)

($ 373,500)

Cash payments for operating expenses (WN 3)

($105,459)

Net cash provided by operating activities

$ 43,150

Working Notes (WN):

1: Cash received from customers:

Sales revenue:                                                                                                    $ 538,000

Add: Net Accounts Receivable 2016 ($ 60,200 - $ 1,500):                      $ 58,700

Less: Net Accounts Receivable 2017 ($ 71,100 - $ 2,200):                      ($ 68,900)

Less: Bad debts:                                                                                                 ($ 5,691)

                                                                                                                   $ 522,109

2: Cash payments to suppliers:

Cost of goods sold:                                                                                           $ 377,700

Add: Accounts Payable 2016:                                                                   $ 24,500

Less: Accounts Payable 2017:                                                                   ($ 34,700)

Add: Inventory 2017:                                                                                $ 30,100

Less: Inventory 2016:                                                                                 ($ 24,100)

                                                                                                                   $ 373,500

3: Cash payments for operating expenses:

= Operating expenses- Depreciation - Bad debts- Increase in accrued payable

=$ 120,800 - $8,750 - $5,691 – ($3,500- $ 2,600)

=$ 106,359 -$ 900

=$ 105,459

Solution (b):

Cash Flow Statement (Indirect Method)

Particulars

Amount($)

Amount($)

A.CASH FLOW FROM OPERATING ACTIVITIES

42,500

Adjustments to reconcile net income

Add: Depreciation expense

8,750

Add: Loss on sale of machinery

800

Add: Increase in accounts payable ($34,700 - $ 24,500)

10,200

Add: Increase in accrued payables ($3,500- $ 2,600)

900

Less: Gain on sale of investments

(3,800)

Less: Increase in Net Accounts Receivable[ ($71,100- $ 2,200) -($ 60,200- $ 1500)

(10,200)

Less: Increase in Inventory ($30,100- $ 24,100)

(6,000)

650

Net cash provided by operating activities

43,150

B.CASH FLOW FROM INVESTING ACTIVITIES

Sale of equity investment (Given)

28,600

Purchase of equity investment (WN 1)

(8,600)

Sale of machinery (Given)

2,250

Additions to building ($ 67,800-$ 56,400)

(11,400)

Purchase of machinery (WN 2)

(14,800)

Net cash used in investing activities

($ 3,950)

C.CASH FLOW FROM FINANCING ACTIVITIES

Redemption of Long term notes payable ($30,700- $ 21,100)

(9,600)

Payment of dividend

(21,300)

Net cash used in financing activities

(30,900)

Net Increase in cash (A + B+ C)

8,300

Add: Cash at the beginning (or 2016)

33,900

Cash at the end (or 2017)

42,200

Working Note (WN):

1. Equity Investment Account

Particulars

Debit

Amount ($)

Particulars

Credit

Amount ($)

Beginning Balance

38,700

Cash sale

28,600

Gain on sale

3,800

Purchase (Balancing figure)

8,600

Ending Balance

22,500

Total

51,100

Total

51,100

2. Machinery Account

Particulars

Debit

Amount ($)

Particulars

Credit

Amount ($)

Beginning Balance

18,900

Cash sale

2250

Depreciation on machine sold

750

Loss on sale

800

Purchase (Balancing figure)

14,800

Ending Balance

29,900

Total

33,700

Total

33,700

Particulars

Amount($)

Cash received from customers (WN 1)

522,109

Cash payments to suppliers (WN 2)

($ 373,500)

Cash payments for operating expenses (WN 3)

($105,459)

Net cash provided by operating activities

$ 43,150

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