Chapter 12, Problem 4PSA

Summary Introduction

Cash Flow Statement:

Cash flow statement are referring as the statement which shows inflow and outflow of the cash in the business organization. Cash flow from operating activities can be made by two methods.

1. Direct Method
2. Indirect Method

To determine: Preparation of complete statement of cash flow using indirect method and also mention debit and credits in the analysis of changes columns with letter.

Answer to Problem 4PSA

Analysis of changes column is $600,775.

Explanation of Solution

Following is a statement of cash movement:

	December 31, 2015		Analysis of changes			December 31, 2016
	Amount ($)		Debit Amount $		Credit Amount $	Amount ($)
Balance sheet-Debit Accounts:
Cash	73,500					49,800
Account Receivable	50,625	B	15,185			65,810
Merchandise Inventory	251,800	C	23,856			275,656
Prepaid Expenses	1,875			D	625	1,250
Equipment	108,000	H	96,375	G	46,875	157,500
	485,800					550,016
Balance sheet-Credit Accounts:
Accumulated Depreciation	46,000	G	30,125	F	20,750	36,625
Account Payable	114,675	E	61,534			53,141
Short-term note payable	6,000			J	4,000	10,000
Long-term note payable	48,750	K	50,125	I	66,375	65,000
Common stock, $5 par value	150,250			L	12,500	162,750
Paid-in capital in excess of par value, common stock	-			L	37,500	37,500
Retained earnings	120,125	M	50,100	A	114,975	185,000
	485,800					550,016

Statement of Cash flow

Operating Activities:
Net Income	A	114,975
Increase in account receivable			B	15,185
Increase in inventory			C	23,856
Decrease in prepaid expenses	D	625
Decrease in account payable			E	61,534
Depreciation Expense	F	20,750
Loss on sale of Equipment	G	5,125
Investing Activities:
Cash received from equipment sale	G	11,625
Cash paid for equipment purchase			H	30,000
Financing Activities:
Cash receipt from short-term notes payable	J	4,000
Cash paid towards long-term notes payable			K	50,125
Cash received by issuing shares	L	50,000
Cash paid as dividends			M	50,100
Non-Cash investing and financing activities
Long-term notes payable signed for equipment purchase	I	66,375	H	66,375
		600,775		600,775

The letter A through M that corresponds to the list of items should be written next to the amounts written under debit and credit.