ACCT 1A Chapter Notes - Chapter 5: Current Asset, Accounts Payable, Retained Earnings

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rosebuffalo981

18 Aug 2020

School

Irvine Valley College

Department

Accounting

Course

ACCT 1A

Professor

seilo

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Reporting cash flows from operating activities direct method. Remember, under the direct method, inflows come from collections from customers, dividends and interest received, and outflows come from payments of utilities, wages, taxes and interest. The computation of cash receipts and payments requires adjusting each item on the statement of earnings from an accrual basis to a cash basis. Operating activities/items such as short-term investments, receivable, inventory, prepaid expenses, payables, accrued liabilities, income taxes payable and retained earnings. Converting revenues and expense items from an accrual basis to a cash basis: To facilitate this process, we analyze the change in the balance of each current asset and current liability account by examining the type of transactions that affect the account. This process helps us determine the amount of cash received or paid during the accounting period. Balance + increases decreases = ending balance.

Related Questions

Accounting prepare Statement of cahs flow indrect method anddirect method!

Balance sheet
Asset
Cash $35,473 20,238
Accounts receivable 32,552 14,496
Merchandise inventory 26,812 20,470
Property, plant, and equipment 59,924 78,086
Accumulated depreciation (29,150) (23,526)
Total $125,611 $109,764

Liability and stockholderâs equity
Accounts Payable $28,796 15,092
Income Taxes payable 6,695 7,961
Bonds payable 26,691 33,309
Common stock 17,800 13,400
Retained earning 45,629 40,002
Total $125,611 $109,764

Income Statement
Sales $243,765
Cost of Good Sold $176,279
Operating expense 23,863
Interest Expense 3,141
Income Tax expense 7,592
Net income $32,890

Additional information
Dividends declared and paid were $27,263
During the year equipment was sold for $8,353 cash. This equipmentcost $18,162 originally and had a book value of $8,353 at the timeof sale.
All depreciation expense, $15,433 is in the selling expensecategory
All sales and purchases are on accounts.

*This is direct method I solved.

Cash flows from operatingactivities
Cash Received from customers		225709
Deduct: Cash payments for merchandise	168917
Cash payments for operating expenses	23,863
Cash payments for interest	3,141
Cash payments for income tax	8,858	204779
Net cash flow from operatingactivities		20930

*Indrect methods I solved

Cash Flows from operatingactivities:
Net Income		32890
Adjustments to reconcile net income to netcash flow from operations:
Depreciation expense	15433
Changes in current operating assets andliabilities
Increase in accounts receivable	-18056
Increase in inventory	-6342
Increase in accounts payable	13704
Interest paid	-3141
Decrease in income taxes payable	-8858	-7260
Net cash flow provided byoperating activities		25630

Cash flow from investing activities:
Cash recevied from sale of equipment	8353
Net cash flow used investingactivities		8353

Cash flow from financing activities
Cash received from sale of commonstock	4400
Less Cash paid for dividends	-27263
Less cash paid to retire bondspayable	-6618
Net cash flow used byfinancing activities		-29481

Increase in Cash		4502
Cash at beginning of period		20238
Cash at end of period		24740

I'm sure there are some error. Please correct it!

champagneplatypus509

36. The best measure of a company's ability to generate sufficientcash to continue as a going concern is net cash provided by
A) financing activities.
B) investing activities.
C) operating activities.
D) processing activities.

37. Using the indirect method, if equipment is sold at a gain,the
A) sale proceeds received are deducted in the operating activitiessection.
B) sale proceeds received are added in the operating activitiessection.
C) amount of the gain is added in the operating activitiessection.
D) amount of the gain is deducted in the operating activitiessection.

38. The statement of cash flows
A) is prepared instead of an income statement under generallyaccepted accounting principles.
B) is used to assess an entity's ability to pay dividends and meetobligations.
C) is prepared from comparative income statements.
D) reflects earnings per share figures on a cash basis and on anaccrual basis in the body of the statement.

39. In the bottom portion of the statement of cash flowsworksheet,
A) inflows of cash are debits in the reconciling columns.
B) outflows of cash are debits in the reconciling columns.
C) information pertaining to investing and financing activitiesonly is entered.
D) only significant noncash transactions are entered.

40. Which of the following characteristics does not apply to cashequivalents?
A) Short-term
B) Highly-liquid
C) Readily convertible into cash
D) Sensitive to interest rate changes

ceruleanoyster399

Statement of Cash Flows Using a Work SheetâIndirect Method (Appendix)

Peoria Corp. just completed another successful year, as indicated by the following income statement:

	For the Year Ended December 31, 2017

Sales revenue	$1,250,000
Cost of goods sold	700,000
Gross profit	$550,000
Operating expenses	150,000
Income before interest and taxes	$400,000
Interest expense	25,000
Income before taxes	$375,000
Income tax expense	150,000
Net income	$225,000

Presented here are comparative balance sheets:

	December 31
	2017	2016

Cash	$52,000	$90,000
Accounts receivable	180,000	130,000
Inventory	230,000	200,000
Prepayments	15,000	25,000
Total current assets	$477,000	$445,000
Land	$750,000	$600,000
Plant and equipment	700,000	500,000
Accumulated depreciation	(250,000)	(200,000)
Total long-term assets	$1,200,000	$900,000
Total assets	$1,677,000	$1,345,000
Accounts payable	$130,000	$148,000
Other accrued liabilities	68,000	63,000
Income taxes payable	90,000	110,000
Total current liabilities	$288,000	$321,000
Long-term bank loan payable	$350,000	$300,000
Common stock	$550,000	$400,000
Retained earnings	489,000	324,000
Total stockholders' equity	$1,039,000	$724,000
Total liabilities and stockholders' equity	$1,677,000	$1,345,000

Other information is as follows:

Dividends of $60,000 were declared and paid during the year.

Operating expenses include $50,000 of depreciation.

Land and plant and equipment were acquired for cash, and additional stock was issued for cash. Cash also was received from additional bank loans.

The president has asked you some questions about the year's results. She is very impressed with the profit margin of 18% (net income divided by sales revenue). She is bothered, however, by the decline in the company's cash balance during the year. One of the conditions of the existing bank loan is that the company maintain a minimum cash balance of $50,000.

Required:

1. Using the format in the chapter's appendix, prepare a statement of cash flows work sheet. If an amount box does not require an entry, leave it blank. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash.

	Balances			Cash Inflows (Outflows)
Accounts	12/31/17	12/31/16	Changes	Operating	Investing	Financing
Cash	$	$	$	$	$	$
Accounts Receivable
Inventory
Prepayments
Land
Plant and Equipment
Accumulated Depreciation
Accounts Payable
Other Accrued Liabilities
Income Taxes Payable
Long-Term Bank Loan Payable
Common Stock
Retained Earnings
Net Income
Totals	$	$	$	$	$	$
Net increase (decrease) in cash				$

2. Prepare a statement of cash flows for 2017 using the indirect method in the Operating Activities section. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash.

Peoria Corp.
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash Flows from Operating Activities
	$
Adjustments to reconcile net income to net cash provided by operating activities:







	$
Cash Flows from Investing Activities
	$

	$
Cash Flows from Financing Activities
	$


	$
	$
Cash balance, December 31, 2016
Cash balance, December 31, 2017	$

3. During the year Peoria experienced a decrease in cash at the end of the year due to

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ACCT 1A Chapter Notes - Chapter 5: Current Asset, Accounts Payable, Retained Earnings

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