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ACCT20100 Chapter Notes - Chapter 7: Cash Flow Statement, Accounts Payable

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fuchsiahound508
21 Oct 2016
School
ND
Department
Accountancy
Course
ACCT20100
Professor
Schmuhl

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Document Summary

Chapter 7: reporting and interpreting cost of goods sold and inventory. Inventory and cash flows: cash flow statement shows the first signs of over producing inventory, effects of changes in inventory: Borrowing from suppliers, which increases accounts payable, increases cash. Paying suppliers, which decreases accounts payable, decreases cash: effects on statement of cash flows: When a net decrease in inventory for the period occurs, sales are greater than purchases and, thus, the decrease must be added in computing cash flows from operations. When a net increase in inventory for the period occurs, sales are less than purchases and, thus, the increase must be subtracted in computing cash flows from operations. When a net decrease in accounts payable for the period occurs, payments to suppliers are greater than new purchases and, thus, the decrease must be subtracted in computing cash flows from operations.

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Related Questions

To compare statement of cash flows reporting under the direct andindirect methods, select "Direct", "Indirect" or "Both" indicatingthe method in which the line items are reported on the statement ofcash flows.

Cash Flows (and Related Changes) Statement of Cash FlowsMethod
1. Net income
2. Receipts from customers
3. Accounts receivable increase or decrease
4. Payments to suppliers
5. Inventory increase or decrease
6. Accounts payable increase or decrease
7. Payments to employees
8. Wages payable, increase or decrease
9. Depreciation expense
10. Cash flows from operating activities
11. Cash flows from investing activities
12. Cash flows from financing activities
13. Net increase or decrease in cash during the period

* you are going to get statement of cash flows method(choose one ofdirect, indirect, both)

Statement of Cash Flows Using A method of preparing the statement of cash flows that reconciles net income with net cash flows from operating activities.Indirect Method

For the year ending March 31, 20Y5, Omega Systems Inc. reported net income of $105,450 and paid dividends of $7,500. Comparative balance sheets as of March 31, 20Y5 and 20Y4, are as follows:

OMEGA SYSTEMS INC.
Balance Sheets
March 31, Changes Increase
(Decrease)
20Y5 20Y4
Assets
Current assets:
Cash $ 39,500 $ 29,250 $ 10,250
Accounts receivable 114,120 78,000 36,120
Inventory 126,550 117,550 9,000
Estimated Returns Inventory 6,600 5,000 1,600
Office supplies 4,255 4,435 (180)
Prepaid insurance 3,975 4,500 (525)
Total current assets $ 295,000 $238,735 $ 56,265
Property, plant, and equipment:
Land $ 30,000 $ 30,000 $ 0
Store equipment 350,000 285,000 65,000
Accumulated depreciation—store equipment (118,550) (93,900) (24,650)
Office equipment 23,355 15,000 8,355
Accumulated depreciation—office equipment (7,080) (3,345) (3,735)
Total property, plant, and equipment $ 277,725 $232,755 $ 44,970
Total assets $ 572,725 $471,490 $101,235
Liabilities
Current liabilities:
Accounts payable $ 24,630 $ 13,905 $ 10,725
Customer refunds payable 9,000 7,500 1,500
Notes payable (current portion) 7,500 7,500 0
Salaries payable 1,710 2,250 (540)
Unearned rent 2,700 3,600 (900)
Total current liabilities $ 45,540 $ 34,755 $ 10,785
Long-term liabilities:
Notes payable (final payment due in eight years) 30,000 37,500 (7,500)
Total liabilities $ 75,540 $ 72,255 $ 3,285
Stockholders’ Equity
Common stock $ 37,500 $ 37,500 $ 0
Retained earnings 459,685 361,735 97,950
Total stockholders’ equity $ 497,185 $399,235 $ 97,950
Total liabilities and stockholders’ equity $ 572,725 $471,490 $101,235

Instructions:

1. Prepare a statement of cash flows, using the indirect method. Enter account decreases, cash outflows, and the income statement effects that reduce net income as negative amounts.

Omega Systems Inc.
Statement of Cash Flows

For the Year Ended March 31, 20Y5

Cash flows from operating activities:

Net income

Depreciation expense-store equipment

Depreciation expense-office equipment

Changes in noncash current operating assets and liabilities:

Increase in accounts receivable

Increase in inventory

Increase in estimated returns inventory

Decrease in office supplies

Decrease in prepaid insurance

Increase in accounts payable

Increase in customer refunds payable

Decrease in salaries payable

Decrease in unearned rent

Net cash flows used for investing activities

Cash flows used for financing activities:

Payment of note payable

Payment of dividends

Net cash flows used for financing activities

Net increase in cash

April 1, 20Y4 cash balance

March 31, 20Y5 cash balance

"Ozark Corporation reported net income of $100,000 for 2015. Theincome statement revealed sales of $1,000,000; gross profit of$520,000; selling and administrative costs of $340,000; interestexpense of $20,000; and income taxes of $60,000.

The selling and administrative expenses included $25,000 fordepreciation. No equipment was sold during the year. Equipmentpurchases were made with cash. Prepaid insurance included in thebalance sheet related to administrative costs. All accounts payableincluded in the balance sheet relate to inventory purchases. Thechange in retained earnings is attributable to net income anddividends. The increase in common stock and additional paid-incapital is due to issuing additional shares for cash.

"

Using the indirect approach, prepare a statement of cash flows forOzark for the year ending December 31, 2015. Comparative balancesheets for Ozark follow.

OZARK CORPORATION
Balance Sheet
December 31, 2014 and 2015


ASSETS 2015 $2,014
Cash $458,700 $471,450
Accounts receivable 199,250 171,500
Inventories 248,600 278,800
Prepaid insurance 13,000 11,000
Land 250,000 250,000
Building and equipment 1,500,000 1,300,000
Less: Accumulated depreciation (205,000) (180,000)
Total assets $2,464,550 $2,302,750

LIABILITIES
Accounts payable $85,700 $93,400
Interest payable 10,500 15,000
Income taxes payable 22,000 8,000
STOCKHOLDERS' EQUITY
Common stock 710,000 700,000
Paid in capital in excess of par 990,000 900,000
Retained earnings 646,350 586,350
Total liabilities and equity $2,464,550 $2,302,750

This below is what i am needing
OZARK CORPORATION
Statement of Cash Flows(Indirect Approach)
For the year ending December31, 2015
Cash flows from operatingactivities:
Net income $ -
Add (deduct) noncash effects on operatingincome
Depreciation expense $ -
Increase in accounts receivable -
Decrease in inventory -
Increase in prepaid insurance -
Decrease in accounts payable -
Decrease in interest payble -
Increase in income taxes payable - -
Net cash provided by operating activities $ -
Cash flows from investingactivities:
Purchase of equipment $ -
Net cash used by investing activities -
Cash flows from financingactivities:
Proceeds from issuing stock $ -
Dividends on common -
Net cash provided by financing activities -
Net decrease in cash $ -
Cash balance at January 1,20X5 -
Cash balance at December 31,20X5 $ -