
a.
Calculate the change in cash during 2013.
a.

Explanation of Solution
Thus, the change in cash during 2013 is $(8,000).
b.
Prepare a statement of
b.

Explanation of Solution
Statement of cash flows: Statement of cash flows 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. Statement of cash flows includes the changes in cash balance due to operating, investing, and financing activities.
Cash flows from operating activities: Cash flows from operating activity represent the net cash flows from the general operation of the business by comparing the cash receipt and cash payments.
Direct method: The direct method uses the cash basis of accounting for the preparation of the statement of cash flows. It takes into account those revenues and expenses for which cash is either received or paid.
The below table shows the way of calculation of cash flows from operating activities using direct method:
Cash flows from operating activities (Direct method) |
Add: Cash receipts. |
Cash receipt from customer |
Less: Cash payments: |
To supplier |
Interest expense |
For operating expenses |
Income tax expenses |
Net cash provided from or used by operating activities |
Table (1)
Cash flows from investing activities: Cash provided by or used in investing activities is a section of statement of cash flows. It includes the purchase or sale of equipment or land, or marketable securities, which is used for business operations.
Cash flows from investing activities |
Add: Proceeds from sale of fixed assets |
Sale of marketable securities / investments |
Dividend received |
Deduct: Purchase of fixed assets/long-lived assets |
Purchase of marketable securities |
Net cash provided from or used by investing activities |
Table (2)
Cash flows from financing activities: Cash provided by or used in financing activities is a section of statement of cash flows. It includes raising cash from long-term debt or payment of long-term debt, which is used for business operations.
Cash flows from financing activities |
Add: Issuance of common stock |
Proceeds from borrowings |
Proceeds from sale of |
Proceeds from issuance of debt |
Deduct: Payment of dividend |
Repayment of debt |
Interest paid |
Redemption of debt |
Purchase of treasury stock |
Net cash provided from or used by financing activities |
Table (3)
A statement of cash flow for S Corporation for the year ended December 31, 2013.
Schedule in the Change of Current Assets and Liabilities | ||
S Corporation | ||
Statement of Cash Flows - Indirect Method | ||
For the year ended December 31, 2013 | ||
Details | Amount ($) | Amount ($) |
Cash flows from operating activities: | ||
Cash receipts: | ||
From customer | 921,000 | |
Total cash receipts | 921,000 | |
Cash payments: | ||
To supplier | (548,000) | |
To employees | (203,000) | |
For interest | (7,000) | |
Insurance | (11,000) | |
Income tax | (61,000) | |
Total cash payment | (830,000) | |
Net cash used in operating activities | 91,000 | |
Cash flows from investing activities: | ||
Acquisition of plant asset (See Note 1) | (174,000) | |
Cash received from disposition of plant asset | 27,000 | |
Net cash used for investing activities | (147,000) | |
Cash flows from financing activities: | ||
Issuance of bonds payable (See note 2) | 55,000 | |
Issuance of common stock (See note 3) | 75,000 | |
Purchase of treasury stock | (52,000) | |
Cash payment of dividends | (30,000) | |
Net cash provided by financing activities | 48,000 | |
Net increase (decrease) in Cash | (8,000) | |
Add: Cash balance, December 31, 2012 | 31,000 | |
Cash balance, December 31, 2013 | $23,000 |
Table (4)
Working notes:
Calculate the cash receipts and cash payments
1.
Calculate the amount of cash receipts from customers.
Cash receipts from customers: It represents the total amount of cash received from the sales as well as from the accounts receivables.
Calculate the amount of cash receipts from customers.
2.
Calculate the cash payments to suppliers.
Cash Payments to suppliers: It represents the total amount of cash paid for the purchase as well as to the accounts payable.
3.
Calculate the cash payments for Wages expenses.
It represents the total amount of cash paid for the wages.
Calculate the amount of cash payment made to employees.
Increase/ or decrease in wages payable = $0
4.
Calculate the cash payments for Interest expense.
It represents the total amount of cash paid for the interest expense.
Calculate the amount of cash payment made for interest.
5.
Calculate the cash payments for insurance expense.
It represents the total amount of cash paid for the insurance.
Calculate the amount of cash payment made for income tax.
6.
Calculate the cash payments for income taxes.
It represents the total amount of cash paid for the income tax.
Calculate the amount of cash payment made for income tax.
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Chapter 12 Solutions
Financial Accounting for Undergraduates
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