Fundamentals Of Financial Accounting
Fundamentals Of Financial Accounting
6th Edition
ISBN: 9781259864230
Author: PHILLIPS, Fred, Libby, Robert, Patricia A.
Publisher: Mcgraw-hill Education,
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Chapter 12, Problem 5PB
To determine

To prepare: The cash flow from operating activities section of statement of cash flows for Incorporation C under direct method.

Expert Solution & Answer
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Explanation of Solution

Statement of cash flows:

Statement of cash flow is a financial statement that shows the cash and cash equivalents of a company for a particular period of time. It shows the net changes in cash, by reporting the sources and uses of cash as a result of operating, investing, and financing activities of a company.

Cash flows from operating activities: These refer to the cash received or cash paid in day-to-day operating activities of a company.

The cash flow from operating activities Incorporation C for the year ended December 31, is as follows:

Incorporation C
Statement of Cash Flows (Direct Method)
For the year ended December, 31
Particulars Amount Amount
Cash flows from operating activities:    
Cash received from customers (2) $77,700  
Cash paid to suppliers (3) ($36,040)  
Cash paid for salaries and wage payable (4) ($9,800)  
Cash paid for rent expense (5) ($2,480)  
Cash paid for insurance expense (6) ($1,280)  
Cash paid for utilities expense (7) ($900)  
Cash paid for interest expense ($1,200)  
Net cash flows from operating activities   $26,000

Table (1)

Working note:

Prepare schedule of changes in current assets and liabilities:

Schedule of changes in current assets and liabilities
Particulars  Amount

Ending Balances

(1)

Beginning Balances

(2)

Increase/ (Decrease)

(1)(2)

Inventory  $430 $490 ($60)
Accounts receivable $1,800 $1,500 $300
Prepaid rent $80 $100 ($20)
Prepaid Insurance $70 $90 ($20)
Accounts payable $1,200 $1,300 ($100)
Utilities payable $100 $0 $100
Salaries and wages payable 450 250 200

Table (2)

(1)

Determine the cash received from customers.

Cash receivedfrom customers}=(Sales revenue Increase in accounts receivable(1) )=$78,000$300=$77,700 (2)

Determine the cash paid to suppliers.

Cash paid to suppliers}=(Cost of Goods sold)(Decrease in inventory (1))+(Decrease in accounts payable (1))=$36,000$60+$100=$36,040 (3)

Determine the cash paid for salary and wage expense.

Cash payments forsalaries and wage expense }=(Salary and wage expense (1))(Increase in wage and salary expenses payable (1) )=$10,000$200=$9,800 (4)

Determine the cash paid for rent expense.

Cash payments forrent  expense }=Rent expenseDecrease in prepaid rent expense (1)=$2,500$20=$2,480 (5)

Determine the cash paid for insurance expense.

Cash payments forinsurance expense }=Insurance expenseDecrease in prepaid expenses (1)=$1,300$20=$1,280 (6)

Determine the cash paid for utilities expense.

Cash payments forutilities payable }=Utilities expenseIncrease in utilities payable=$1,000$100=$900 (7)

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Chapter 12 Solutions

Fundamentals Of Financial Accounting

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