3. Back Cove Company has the following comparative balance sheets and income sta
ID: 2528941 • Letter: 3
Question
3. Back Cove Company has the following comparative balance sheets and income statement: 2017 2016 Cash Receivables Inventories Other Assets (net) $10,000 11,000 22,000 20,000 $63,000 $15,000 10,000 18,000 573,000 $10,000 $20,000 Retained Earnings 33,000 $63,000 $20,000 16,000 37.000 573,000 Accounts Payable Capital Stock $110,000 72,000 2,000 Cost of Sales Gain on sale of Assets Expenses Income 5 24,000 A. Depreciation expense was $5,000. A machine with a cost of $19,000 and book value of $13,000 was sold which produced the gain on sale of assets. Other assets were purchased for cash during the year, a dividend paid, and stock was issued for $4,000. Using the Indirect Method, prepare a cash flow statement. B. Referto Back Cove in Problem 3. Assuming all operating expenses are paid for in cash and all inventory purchases are made on account, prepare cash from operations using the Direct Method.Explanation / Answer
Ans. B. Cash flow Statement (with the using of Indirect method)
Cash flow from Operating Activities (All value in $)
Net profit : 24000
Add: Depreciation exp. : 5000
Less: Gain of sale of assets: (2000)
Current Assets Adjustment:
Increase of Receivable : (1000)
Increase of Inventory : (4000)
Decrease of Accouting
payable (20000-10000) : (10000)
Net cash flow from
Operating Activities (A) : 12000
Cash flow from Investing Acitivites
Sale of fixed Assets (13000+2000) : 15000
Purchase of Fixed Assets* : (10000)
Net cashflow from Investing activities (B) : 5000
Cashflow from Financing activities
Stock Issued : 4000
Payment of dividend : (26000)
(37000+22000-33000)
Cash flow fromFinanciging activities(C): (22000)
Net cash flow (A+B+C) = (5000)
Add: Op. Balance = 15000
Closing Balance = 10000
* Fixed Assets Accounts
To Balance B/d 30000 By Depreciation A/c 5000
To Purchase (Diff.) 10000 By Sale of fixed assets 15000
By Balance C/d 20000
40000 40000
B. Calculation of Cashflow from Operating activities (with the using of Direct method)
Cash flow from Operating Activities
Sales : 110000
Less: Cost of goods sold : (72000)
Expenses (16000-5000) : (11000)
Decrease of Receivable : (1000)
Decrease of A/c payable : (10000)
Decrease of Inventory : (4000)
Net cashflow from Operation : 12000
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