F. Prepare a statement of cash flow on both direct and indirect method 2017 2016
ID: 2527387 • Letter: F
Question
F. Prepare a statement of cash flow on both direct and indirect method 2017 2016 Change Assets: Cash 215,000 70,000 145,000 Accounts receivable, net 87,000 65,000 22,000 Inventory 74,000 60,000 14,000 Prepaid expenses 12,000 20,000 -8,000 Property, palnt & equipment 780,000 600,000 180,000 Accumulated depreciation -110,000 -60,000 -50,000 Total Assets 1,058,000 755,000 303,000 Liabilities & Equity Accounts payable 32,000 40,000 -8,000 Accrued liabilities 26,000 40,000 -14,000 Taxes payable 15,000 4,000 11,000 Long-term Notes Payable 100,000 - Common stock 200,000 200,000 Additional paid in capital 326,000 276,000 50,000 Retained earnings 359,000 195,000 164,000 Total liabilities and equity 1,058,000 755,000 303,000 Sales 1,400,000 Cost of goods sold 780,000 Gross profit 620,000 Operating exoenses 290,000 Pre-tax income 330,000 Income taxes 66,000 Net income 264,000 a. Stock option expense of $50,000 was recognized in 2017 b. Equipment of $180,000 was purchased using $100,000 note payable and cash F. Prepare a statement of cash flow on both direct and indirect method 2017 2016 Change Assets: Cash 215,000 70,000 145,000 Accounts receivable, net 87,000 65,000 22,000 Inventory 74,000 60,000 14,000 Prepaid expenses 12,000 20,000 -8,000 Property, palnt & equipment 780,000 600,000 180,000 Accumulated depreciation -110,000 -60,000 -50,000 Total Assets 1,058,000 755,000 303,000 Liabilities & Equity Accounts payable 32,000 40,000 -8,000 Accrued liabilities 26,000 40,000 -14,000 Taxes payable 15,000 4,000 11,000 Long-term Notes Payable 100,000 - Common stock 200,000 200,000 Additional paid in capital 326,000 276,000 50,000 Retained earnings 359,000 195,000 164,000 Total liabilities and equity 1,058,000 755,000 303,000 Sales 1,400,000 Cost of goods sold 780,000 Gross profit 620,000 Operating exoenses 290,000 Pre-tax income 330,000 Income taxes 66,000 Net income 264,000 a. Stock option expense of $50,000 was recognized in 2017 b. Equipment of $180,000 was purchased using $100,000 note payable and cashExplanation / Answer
Solution:
Cash Flow Statement (Direct Method)
Particulars
Amount($)
A.CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers (WN 1)
1,378,000
Cash payments to suppliers (WN 2)
(794,000)
Cash payments for operating expenses (WN 3)
(204,000)
Cash payment for income tax expense (WN 4)
(55,000)
Net cash provided by operating activities
325,000
B.CASH FLOW FROM INVESTING ACTIVITIES
Purchase of equipment for cash (WN 5)
(80,000)
Net cash used in investing activities
( 80,000)
C.CASH FLOW FROM FINANCING ACTIVITIES
Additional paid in capital
50,000
Payment of dividend (WN 6)
(100,000)
Stock option expense
(50,000)
Net cash used in financing activities
(100,000)
Net Increase in cash (A + B+ C)
145,000
Add: Cash at the beginning (or 2016)
70,000
Cash at the end (or 2017)
215,000
Cash Flow Statement (Indirect Method)
Particulars
Amount($)
Amount($)
A.CASH FLOW FROM OPERATING ACTIVITIES
Net Income
264,000
Adjustments to reconcile net income
Add: Depreciation expense ($ 110,000 - $ 60,000)
50,000
Add: Stock option expense
50,000
Add: Prepaid expenses written off
8,000
Add: Increase in taxes payable
11,000
Less: Increase in accounts receivable
(22,000)
Less: Increase in inventory
(14,000)
Less: Decrease in accounts payable
(8,000)
Less: Decrease in accrued liabilities
(14,000)
Net cash provided by operating activities
325,000
B.CASH FLOW FROM INVESTING ACTIVITIES
Purchase of equipment for cash (WN 5)
(80,000)
Net cash used in investing activities
( 80,000)
C.CASH FLOW FROM FINANCING ACTIVITIES
Additional paid in capital
50,000
Payment of dividend (WN 6)
(100,000)
Stock option expense
(50,000)
Net cash used in financing activities
(100,000)
Net Increase in cash (A + B+ C)
145,000
Add: Cash at the beginning (or 2016)
70,000
Cash at the end (or 2017)
215,000
Working Notes (WN):
1: Cash received from customers:
=Sales revenue + Accounts Receivable, net 2016 -Accounts Receivable, net 2017
= $ 1,400,000+ $ 65,000- $ 87,000
=$ 1,378,000
2: Cash payments to suppliers:
=Cost of goods sold + Accounts payable 2016 -Accounts Payable 2017 + Inventory 2017 – Inventory 2016 + Prepaid expenses 2017 – Prepaid expenses 2016
=$ 780,000 + $ 40,000-$ 32,000 + $ 74,000 - $ 60,000 + $ 12,000 - $ 20,000
=$ 794,000
3: Cash payments for operating expenses:
= Operating expenses- Depreciation - Stock option expense + Decrease in accrued liabilities
=$ 290,000- $50,000 - $ 50,000 + $ 14,000
= $ 204,000
4. Income tax payment:
= Tax payable 2016 – Tax payable 2017 + Income tax expense 2017
= $ 4,000 - $ 15,000 + $ 66,000
= $ 55,000
5. Property, plant & equipment Account
Particulars
Debit
Amount ($)
Particulars
Credit
Amount ($)
Beginning Balance
600,000
Purchase:
Note Payable : $ 100,000
Cash: $ 80,000
(Balancing figure)
180,000
Ending Balance
780,000
Total
780,000
Total
780,000
6. Retained Earnings Account
Particulars
Debit
Amount ($)
Particulars
Credit
Amount ($)
Beginning Balance
195,000
Dividend paid
(Balancing figure)
100,000
Net Income (2017)
264,000
Ending Balance
359,000
Total
459,000
Total
459,000
Particulars
Amount($)
A.CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers (WN 1)
1,378,000
Cash payments to suppliers (WN 2)
(794,000)
Cash payments for operating expenses (WN 3)
(204,000)
Cash payment for income tax expense (WN 4)
(55,000)
Net cash provided by operating activities
325,000
B.CASH FLOW FROM INVESTING ACTIVITIES
Purchase of equipment for cash (WN 5)
(80,000)
Net cash used in investing activities
( 80,000)
C.CASH FLOW FROM FINANCING ACTIVITIES
Additional paid in capital
50,000
Payment of dividend (WN 6)
(100,000)
Stock option expense
(50,000)
Net cash used in financing activities
(100,000)
Net Increase in cash (A + B+ C)
145,000
Add: Cash at the beginning (or 2016)
70,000
Cash at the end (or 2017)
215,000
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