Chapter 12, Problem 22E

1.

To determine

Complete the T-account worksheet that is used to prepare the statement of cash flows for the current year.

Explanation of Solution

T-account:

T-account is the form of the ledger account, where the journal entries are posted to this account. It is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.

Following are the changes in cash accounts:

Cash (A)
Operating activities:
(1) Net income	20,200	(3) Inventory	7,000
(2) Depreciation expense	3,000	(4) Accounts payable	3,000
(3) Income taxes payable	1,500	(5) Wages payable	1,500
Net cash flow provided by operating activities	13,700
Investing activities:
(7) Sale of equipment	6,000	(8) Purchased investments	15,000
		Net cash flow provided by investing activities	9,000
Financing activities:
(9) Proceeds from stock issuance	6,000	(10) Payment of dividends	12,000
		Net cash flow used by financing activities	6,000
		Net decrease in cash and cash equivalents	1,300

Following are the changes in non-cash accounts:

Accounts receivable (A)
Beginning balance         22,000
Ending balance              22,000

Merchandise Inventory (A)
Beginning balance         68,000
(3) Increase                      7,000
Ending balance              75,000

Accounts payable (L)
	Beginning balance
(4) Decrease                     7,000		17,000
	Ending balance	14,000

Wages payable (L)
	Beginning balance	2,500
(5) Decrease                     1,000
	Ending balance	1,500

Income taxes payable (L)
	Beginning balance	3,000
	(6) Increase	1,500
	Ending balance	4,500

Equipment (A)
Beginning balance         114,500
Purchases                                 0	(7)Disposals	21,000
Ending balance                93,500

Accumulated Depreciation (XA)
	Beginning balance	32,000
(7) Disposals	(2)Depreciation	3,000
	Ending balance	20,000

Investments (A)
Beginning balance                     0
(8) Purchases                    15,000	Disposals	0
Ending balance                 15,000

Contributed Capital (SE)
	Beginning balance	100,000
Stock repurchased	(9)Stock issued	6,000
	Ending balance	106,000

Retained Earnings (SE)
	Beginning balance	100,000
Stock repurchased	(9) Stock issued	6,000
	Ending balance	106,000

Note: L represents liabilities, XA represents contra-asset, A represents asset and SE represents stockholders’ equity.

2.

To determine

Prepare the statement of cash flows for the current year.

Explanation of Solution

Statement of cash flows:

This statement reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is reported as ending balance of cash at the end of reported period.

Indirect method:

Indirect method uses the accrual basis of accounting, where the Net Income is adjusted to determine the net cash provided from operating activities.

Prepare the statement of cash flows for the current year of Company G.

Company G
Statement of Cash Flows (Indirect Method)
For the year ended December 31,2013
Particulars	Amount ($)	Amount ($)
Cash flows from operating activities:
Net income	20,200
Add: Depreciation expenses	3,000
Changes in current assets and current liabilities
Less: Increase in inventory	(7,000)
Less: Decrease in accounts payable	(3,000)
Less: Decrease in wages payable	(1,000)
Add: Increase in income taxes payable	1,500
Net cash flows from operating activities		13,700
Cash flows from Investing activities:
Less: Purchase of fixed assets	(15,000)
Add: Proceeds from sale of equipment	6,000
Net cash flows from investing activities		(9,000)
Cash flows from Financing activities:
Add: Sale of capital stock	6,000
Less: Dividends paid	(12,000)
Net cash flows from financing activities		(6,000)
Net increase (decrease) in cash		(1,300)
Cash balance at the beginning		20,500
Cash balance at the end		19,200

Table (1)