Chapter 12, Problem 20E

To determine

Cash Flow Statement:

Cash flow statement is that statement in which, transaction related to cash are recorded. It is mandatory report and included in the financial statement of the company. It is divided into three parts operating activities, investing activity, and financial activity

Operating Activity:

Operating activity is the first part of the cash flow statement. The main focuses of the operating activity on the cash inflow and outflow from the selling goods, providing services and manufacturing. Long term capital and investing cost are not included in the operating activity.

Financing Activity:

Financing activity is the part of the cash flow statement. Financing activity involves the long term liability, borrowing and stockholder’s equity. All the changes in the long term liability, equity and borrowings reported in the financial statement.

Investing Activity:

Investing activity is the third part of the cash flow statement which gives the information related to the acquisition and disposal of the long term assets of the company such as land and building, investment and plant.

To prepare: Cash flow statement by direct method.

Explanation of Solution

Statement of cash flow

Particulars	Amount ($)
Cash flow from operating activities:
Receipts from customers	5,000,000
Payment for inventory	(2,590,000)
Payment for wages	(550,000)
Payment for rent	(320,000)
Payment for tax	(450,000)
Net cash flow from operating activities:(A)	1,090,000
Cash flow from investing activities :
Receipts from land sale	220,000
Receipts from machinery sale	710,000
Payment for machinery	(2,236,000)
Payments for long term investments	(1,260,000)
Net cash from investing activities:(B)	(2,566,000)
Cash flow from financing activities:
Receipts from dividends	208,400
Receipts from issuing stock	1,540,000
Receipts from borrowing	3,600,000
Payment for interest	(218,000)
Payment for notes payable	(386,000)
Payment for dividends	(500,000)
Payment for treasury stock	(218,000)
Net cash flow from financing activities:(C)	4,026,400
Net decrease in cash	2,550,400
Add: Cash opening balance	333,000
Cash ending balance	2,883,400

Table (1)