Chapter 21, Problem 11E

1.

To determine

Prepare the cash flow statement under spread sheet method of S company for the year ended 2016.

Explanation of Solution

Statement of cash flows: Cash flow 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. Statement of cash flows includes the changes in cash balance due to operating, investing, and financing activities.

Worksheet: A worksheet is a spreadsheet used while preparing a financial statement. It is a type of form having multiple columns and it is used in the adjustment process. The use of a worksheet is optional for any organization. A worksheet can neither be considered as a journal nor a part of the general ledger.

Prepare the cash flow statement under spread sheet method.

Table (1)

Table (2)

Working Note:

1. (a) Net income for the year ended 2016 is $1,140.
2. (b) Calculate the decrease in accounts receivable.

$\begin{array}{l}\begin{array}{c}\text{Decrease in accounts receivable = }\left(\begin{array}{l}\text{opening accounts receivable}\\ \text{ – closing accounts receivable}\end{array}\right)\\ \text{= \$450- \$310}\\ \text{=\$140}\end{array}\hfill \\ \hfill \end{array}$

1. (c) Calculate an increase in inventory.

$\begin{array}{c}\text{Increase in inventory = Closing inventory - opening inventory}\\ \text{=\$450-\$310}\\ =\$50\end{array}$

1. (d) Calculate the cost of land sold.

$\begin{array}{c}\text{Cost of land sold = }\left(\begin{array}{l}\text{Proceeds from sale of land }\\ \text{- Gain on sale of land}\end{array}\right)\\ =\$530-\$400\\ =\$130\end{array}$

1. (e) Calculate the purchase of land.

$\begin{array}{c}\text{Purchase of land = }\left(\begin{array}{l}\text{Closing balance}\\ -\text{Balance amount of land }\\ \text{after sale}\end{array}\right)\\ =\$500-\$170\\ =\$330\end{array}$

$\begin{array}{c}\begin{array}{l}\text{Balance amount of land }\\ \text{after sales}\end{array})=\left\{\begin{array}{l}\text{Opening balance}\\ -\text{Sale of land}\end{array}\right\}\\ =\$300-\$130\\ =\$170\end{array}$

1. (f) Calculate the Proceeds from Equipment.

   $\begin{array}{c}\text{Proceeds from sale of equipment = Book value }-\text{Selling cost}\\ \text{=\$300}-\$260\\ =\$40\end{array}$

2. (g) Calculate the Purchase of equipment.

   $\begin{array}{c}\text{Purchase of Equipment = }\left(\begin{array}{l}\text{Closing balance}\\ -\text{Balance amount of equipment }\\ \text{after sale}\end{array}\right)\\ =\$1,800-\$1,200\\ =\$600\end{array}$

   $\begin{array}{c}\begin{array}{l}\text{Balance amount of equipment }\\ \text{after sales}\end{array})=\left\{\begin{array}{l}\text{Opening balance}\\ -\text{Sale of equipment}\end{array}\right\}\\ =\$1,600-\$400\\ =\$1,200\end{array}$

3. (h) Calculate the Depreciation expense.

   $\begin{array}{c}\text{Depreciation Expenses = }\left(\begin{array}{l}\text{Opening accumulated depreciation}\\ -\text{ Closing accumulated depreciation}\end{array}\right)\\ =\$200-\$150\\ =\$50\end{array}$

4. (i) Calculate an increase in accounts payable.

   $\begin{array}{c}\text{Increase in accounts payable = }\left(\begin{array}{l}\text{Closing balance of accounts payable}\\ -\text{Opening balance of accounts payable}\end{array}\right)\\ \text{=\$750}-\$600\\ =\$150\end{array}$

5. (j) Calculate the proceeds from issuance of common stock.

   $\begin{array}{c}\text{Proceeds from issuance of common stock = Number of share}\times \text{Value of share}\\ =50\times \$10\\ =\$500\end{array}$

6. (k) Calculate the payment of dividend.

   $\begin{array}{c}\text{Payment of dividend = Net income}-\text{Increase in retained earnings}\\ \text{=\$1,140}-\$140\\ =\$1,000\end{array}$

   $\begin{array}{c}\text{Increase in retained earnings =}\left(\begin{array}{l}\text{Closing retained earning}\\ -\text{ Opening retained earning}\end{array}\right)\\ \text{=\$840}-\$700\\ =\$140\end{array}$

(I) Calculate the net increase in cash.

$\begin{array}{c}\text{Increase in cash =}\left(\begin{array}{l}\text{Closing cash balance}\\ -\text{ Opening cash balance}\end{array}\right)\\ =\$1,130-\$700\\ =\$430\end{array}$

2.

To determine

Prepare the cash flow statement of S company for the year ended 2016.

Explanation of Solution

Indirect method: Under indirect method, net income is reported first, and then non-cash expenses, losses from fixed assets, and changes in opening balances and ending balances of current assets are adjusted to reconcile the net income balance.

Prepare the cash flow statement.

W company
Statement of cash flow for the year ended December 31, 2016
Particulars	Amount($)	Amount($)
Operating activities:
Net income	$1,140
Adjustment for non-cash income items
Add: Depreciation expense	50
Loss on sale of equipment	260
Less: gain on sale of land	(400)
Adjustment for cash flow effects from working capital:
Decrease in accounts receivable	140
Increase in inventory	(50)
Increase in accounts payable	150
Net cash provided by operating activities		$1,290
Investing activities:
Payment for purchase of land	($330)
Proceeds from sale of land	530
Proceeds from sale equipment	40
Payment for purchase of equipment	(600)
Net cash used for investing activities		($360)
Financing activities:
Proceeds from issuance of common stock	$500
Payment of dividend	(1,000)
Net cash used for financing activities		(500)
Net increase in cash		$430
Cash as on 1st January 2016		700
Cash as on 31st December 2016		$1,130

Table (3)

Therefore, the cash balance as on December 31, 2016 is $1,130.