Accounting (Text Only)
Accounting (Text Only)
26th Edition
ISBN: 9781285743615
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
Question
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Chapter 16, Problem 16.3APR
To determine

Statement of cash flows: It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company.

Indirect method: Under this method, the following amounts are to be adjusted from the Net Income to calculate the net cash provided from operating activities.

Cash flows from operating activities: These are the cash produced by the normal business operations.

The below table shows the way of calculation of cash flows from operating activities:

Cash flows from operating activities (Indirect method)
Add: Decrease in current assets
         Increase in current liability
         Depreciation expense and amortization expense
         Loss on sale of plant assets
 
Deduct: Increase in current assets
              Decrease in current liabilities
              Gain on sale of plant assets
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.

The below table shows the way of calculation of cash flows from investing activities:

Cash flows from investing activities
Add: Proceeds from sale of fixed assets
         Sale of marketable securities / investments
         Interest received
         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.

The below table shows the way of calculation of cash flows from financing activities:

Cash flows from financing activities
Add: Issuance of common stock
          Proceeds from borrowings
          Proceeds from issuance of debt
          Issuance of bonds payable
 
Deduct: Payment of dividend
              Repayment of debt
              Interest paid
              Redemption of debt
              Repurchase of stock
Net cash provided from or used by financing activities

Table (3)

To Prepare: A statement of cash flows using the indirect method for presenting cash flows from operating activities.

Expert Solution & Answer
Check Mark

Answer to Problem 16.3APR

Company W
Statement of Cash Flows
For the year ended December 31, 2016
Details Amount ($) Amount ($)
Cash flows from operating activities:    
Net loss (35,320)  
Adjustments to reconcile net income to net cash flow from operating activities:    
Depreciation expense 55,620  
Loss on sales of land 12,600  
Changes in current operating assets and liabilities:    
Increase in accounts receivable (66,960)  
Increase in merchandised inventory (105,480)  
Decrease in prepaid expenses 5,760  
Decrease in accounts payable (35,820)
Net cash used for operating activities   (169,600)
 
Cash flows from investing activities:  
Cash from land sold 151,200
Cash used for acquisition of building (561,600)
Cash used for purchase of equipment (104,400)
Net cash used for investing activities   ($514,800)
 
Cash flows from financing activities:  
Cash received from sale of common stock 400,000
Cash received from issuance of bonds payable 270,000
Cash used for dividends (32,400)
Net cash provided by financing activities   $637,600
Increase (decrease) in cash   ($46,800)
Cash at the beginning of the year   964,800
Cash at the end of the year   $918,000

Table (4)

Explanation of Solution

Working note:

Prepare the schedule in the changes of current assets and liabilities.

Schedule in the Change of Current Assets and Liabilities
Details Amount ($) Effect on Operating Activities
Beginning Balance Ending Balance

Increase/

(Decrease)

Accounts receivable 761,940 828,900 66,960 Deduct
Merchandised inventories 1,162,980 1,268,460 105,480 Deduct
Prepaid expenses 35,100 5,760 (29,340) Add
Accounts payable 958,320 922,500 (35,820) Deduct

Table (5)

Working notes:

Calculate the amount of loss on sale of land:

Loss on sale of land = (Book valueSale value)=($163,800$151,200)=$12,600(Loss)

Calculate the amount of depreciation expense:

Depreciation expense = (Depreciation of building+Depreciation of equipment)=($26,280+$29,340)=$55,620

Calculate the amount of cash received from common stock:

Cash received from common stock = [Common stock @ Par value +Common stock over Par value]=$200,000+$200,000=$400,000

Common stock @ Par value =(Common stock in 2016Common stock in 2015)=317,000$117,000=$200,000

Common stock over Par value =(Common stock in 2016Common stock in 2015)=758,000$558,000=$200,000

Conclusion

Therefore, the ending cash balance is $918,000.

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Chapter 16 Solutions

Accounting (Text Only)

Ch. 16 - Prob. 16.1APECh. 16 - Classifying cash flows Identify whether each of...Ch. 16 - Prob. 16.2APECh. 16 - Prob. 16.2BPECh. 16 - Changes in current operating assets and...Ch. 16 - Changes in current operating assets and...Ch. 16 - Prob. 16.4APECh. 16 - Prob. 16.4BPECh. 16 - Prob. 16.5APECh. 16 - Land transactions on the statement of cash flows...Ch. 16 - Prob. 16.6APECh. 16 - Prob. 16.6BPECh. 16 - Cash payments for merchandisedirect method The...Ch. 16 - Cash payments for merchandisedirect method The...Ch. 16 - Free cash flow McMahon Inc. reported the following...Ch. 16 - Prob. 16.8BPECh. 16 - Prob. 16.1EXCh. 16 - Effect of transactions on cash flows State the...Ch. 16 - Prob. 16.3EXCh. 16 - Prob. 16.4EXCh. 16 - Cash flows from operating activities-indirect...Ch. 16 - Prob. 16.6EXCh. 16 - Prob. 16.7EXCh. 16 - Determining cash payments to stockholders The...Ch. 16 - Reporting changes in equipment on statement of...Ch. 16 - Prob. 16.10EXCh. 16 - Reporting land transactions on statement of cash...Ch. 16 - Prob. 16.12EXCh. 16 - Reporting land acquisition for cash and mortgage...Ch. 16 - Reporting issuance and retirement of longterm debt...Ch. 16 - Prob. 16.15EXCh. 16 - Prob. 16.16EXCh. 16 - Prob. 16.17EXCh. 16 - Prob. 16.18EXCh. 16 - Prob. 16.19EXCh. 16 - Prob. 16.20EXCh. 16 - Prob. 16.21EXCh. 16 - Prob. 16.22EXCh. 16 - Cash flows from operating activitiesdirect method....Ch. 16 - Prob. 16.24EXCh. 16 - Free cash flow The financial statement for Nike,...Ch. 16 - Free cash flow Lovato Motors Inc. has cash flows...Ch. 16 - Prob. 16.1APRCh. 16 - Statement of cash flowsindirect method The...Ch. 16 - Prob. 16.3APRCh. 16 - Statement of cash flows-direct method The...Ch. 16 - Prob. 16.5APRCh. 16 - Prob. 16.1BPRCh. 16 - Statement of cash flowsindirect method The...Ch. 16 - Prob. 16.3BPRCh. 16 - Statement of cash flows-direct method The...Ch. 16 - Prob. 16.5BPRCh. 16 - Ethics in Action Lucas Hunter, president of...Ch. 16 - Using the statement of cash flows You are...Ch. 16 - Dillip Lachgar is the president and majority...Ch. 16 - Prob. 16.4CP
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