Required: 1. Prepare a complete statement of cash flow accourding to the INDIREC

Question

Required:

1. Prepare a complete statement of cash flow accourding to the INDIRECT METHOD

2. Prepare a complete statement of cash flow accourding to the DIRECT METHOD

Statement of Cash Flows Jacoby Corporation, a merchandiser, recently completed its calendar year 2013 operations. For the year: All sales are credit sales .All credits to Accounts Receivable reflect cash receipts from customers . All purchases of inventory are on credit .All debits to Accounts Payable reflect cash payments for inventory . Other expenses are paid in advance and are initially debited to Prepaid Expenses . The company's balance sheets and income statement follow Jacoby Corporation Balance Sheet December 31, 2012 and 2013 2013 2012 Assets Cash Accounts receivable Merchandise invento Prepaid expenses Equipment Accumulated depreciation Total Assets 136,500 74,100 454,500 17,100 278,250 (108,750) $851,700 71,550 90,750 490,200 19,200 216,000 (93,000) 794,700 117,450 17,250 112,500 465,000 18,000 121,500 851,700 123,450 11,250 82,500 450,000 Accounts payable Short-term notes payable term notes payable Common stock, $5 par Paid in capital in excess Retained earnings TOTAL Liabilities 127,500 794,700 Jacoby Corporation Income Statement December 31, 2013 Sales Cost of goods sold Gross profit Operating Expenses 1,083,000 585,000 498,000 36,600 392,850 Depreciation expense Other expenses Total operating expenses 29,450 68,550 Gain and losses Loss on sale of equipment Income before taxes Income tax expense Net income 2,100 66,450 9,450 57,000

Explanation / Answer

1)

INDIRECT METHOD

2)

DIRECT METHOD

WORKING NOTES:

Net Income $     57,000 Adjustments depreciation $   36,600 Loss on sale of equipment $     2,100 Decrease in accounts receivable $   16,650 decrease in merchandise inventory $   35,700 decrease in prepaid expense $     2,100 Increase in short term notes payable $     6,000 Decrease in accounts payable $   -6,000 Net adjustment $     93,150 Cash Flow from Operating Activites $ 1,50,150 Cash flow from Investing Activites Sale of equipment $   28,050 Purchase of equipment $ -38,250 Net cash used in investing activites $   -10,200 Cash flow from Financing Activities Redmeption of longterm Notes payable $ -45,000 Issue of common stock $   33,000 Cash dividend paid $ -63,000 Net cash used in Financing Activites $   -75,000 Net cash Flow during the period $     64,950 Add: Beginning Balance $     71,550 Cash at the end of 2013 $ 1,36,500

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