Statement of Cash Flows (Direct Method) The Wolff Company’s income statement and
ID: 2610076 • Letter: S
Question
Statement of Cash Flows (Direct Method) The Wolff Company’s income statement and comparative balance sheets at December 31 of 2016 and 2015 are shown below:
Cash dividends of $36,000 were declared and paid during 2016. Plant assets were purchased for cash and bonds payable were issued for cash. Bond interest is paid semiannually on June 30 and December 31. Accounts payable relate to merchandise purchases.
Required
a. Calculate the change in cash that occurred during 2016.
b. Prepare a statement of cash flows using the direct method.
c. Compute free cash flow.
d. Compute the operatingcashflowtocurrentliabilities ratio. Round to two decimal points.
e. Compute the operatingcashflowtocapitalexpenditures ratio. Round to two decimal points.
a. Change in Cash during 2016 $Answer AnswerIncreaseDecrease
Income Statement
For the Year Ended December 31, 2016 Sales Revenue $645,000 Cost of Goods Sold $430,000 Wages Expense 86,000 Insurance Expense 12,000 Depreciation Expense 13,000 Interest Expense 12,000 Income Tax Expense 29,000 582,000 Net Income $63,000
Explanation / Answer
Answer for question no.a:
Change in cash that occured during 2016 is Closing balance of the current year- Opening balance of the current year
=$52,000-$8,000
=$46,000.
Answer for question no.b:
Answer for question no.c:
Free cash flows= Cash from operating activities - Cash expended on purchase of capital assets in the present case it is purchase of equipment.
Free cash flow=$38,000 - Purchase of equipment worth ie., 24,000.
=$38,000-$24,000.
=$14,000.
Answer for question no.4:
Operating cash flow to current liabilities ratio = Cash from operations/ Current liabilities
Current liabilities=Accounts payable+Wages payable+Income tax payable in the current case.
=$38,000/22000
=1.727
Particulars Amount Calculation Cash receied from customers(1) 636000 Sales+Opening accouts receivables-Closing accounts receivables Minus: Cost of goods sold paid in cash 463000 Purchases= Cost of goods sold+Closing stock - Opening stock Payment made for purchases=Accounts payable opening balance+Purchases-Accounts payable closing balance Wages expenses paid in cash 83000 Opening balance of Wages expenses payable+Wages expenses- Closing balance of Wages expenses Insurance expense 10000 Actual insurance expense paid in cash=Insurance expense-Prepaid insurance opening balance+Prepaid insurance closing balance Interest expense 12000 Income tax expense 30000 Actual income tax expense paid in cash = Income tax expense+ Opening balance in Income tax payable- Closing balance in income tax payable Total cash operating expenses(2) 598000 Cash from Operations(3)=(1)-(2) 38000 Investing activities Minus:Purchase of plant assets -24000 Cash from Investing activities(4) -24000 Financing activities Issue of bonds 66000 Dividends paid -36000 Net cash from Financing activities(5) 30000 Total cash generated duing the year(3)+(4)+(5) 44000 Add: Opening balance 8000 Closing balance 52000Related Questions
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