
Concept explainers
Statement of
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.
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.
Cash Receipts: It encompasses all the cash receipts from sale of goods and on account receivable.
Cash Payments: It encompasses all the cash payments that are made to suppliers of goods and all expenses that are paid.
The below table shows the way of calculation of cash flows from operating activities:
Cash flows from operating activities (Direct method) |
Add: Cash receipts. |
Cash receipt from customer |
Less: Cash payments: |
To supplier |
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.
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 |
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)
T-Account: For all the business transactions,
To Prepare: T-account for

Explanation of Solution
Cash Account: (all amounts are in 000s)
Cash Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Operatingactivities: | December 31, 2016 | Operatingactivities: | |||
From customers | 203 | To suppliers of goods | 132 | |||
From dividend received | 2 | To employees | 28 | |||
For interest | 5 | |||||
For income taxes | 18 | |||||
Investing activities: | Investing activities: | |||||
Sale of building | 7 | Purchase of long-term investment | 5 | |||
Purchase of equipment | 15 | |||||
Financing activities: | Financing activities: | |||||
Sale of bonds payable | 25 | Payment of dividends | 13 | |||
Purchase of |
8 | |||||
Balance | 13 |
Table (4)
Accounts Receivable Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Decrease in accounts receivable | 3 | ||||
Balance | 3 |
Table (5)
Inventory:
Inventory Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Increase in inventory | 5 | ||||
Balance | 5 |
Table (6)
Dividend Receivable:
Dividend ReceivableAccount | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Increase in dividend receivable | 1 | ||||
Balance | 1 |
Table (7)
Long-Term Investment:
Long-Term InvestmentAccount | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Increase in long-term investment | 5 | ||||
Balance | 5 |
Table (8)
Land:
Land Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Increase in land | 30 | ||||
Balance | 30 |
Table (9)
Building and Equipment:
Building and Equipment Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Decrease in building and equipment | 25 | ||||
December 31, 2016 | Purchase of equipment | 15 | Balance | 40 |
Table (10)
Accumulated Depreciation Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Accumulated depreciation | 25 | ||||
Depreciation | 30 | December 31, 2016 | Balance | 5 |
Table (11)
Accounts Payable:
Accounts Payable Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Decrease in accounts payable | 7 | ||||
Balance | 7 |
Table (12)
Salary Payable:
Salary Payable Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Decrease in salary payable | 3 | ||||
Balance | 3 |
Table (13)
Interest Payable:
Interest Payable Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Increase in interest payable | 2 | ||||
Balance | 2 |
Table (14)
Income Tax Payable:
Income Tax PayableAccount | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Decrease in income tax payable | 1 | ||||
Balance | 1 |
Table (15)
Notes Payable:
Notes Payable Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Notes payable | 30 | ||||
Balance | 30 |
Table (16)
Bonds Payable:
Bonds Payable Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Bonds payable | 25 | ||||
Balance | 25 |
Table (17)
Discount on Bonds:
Discount on BondsAccount | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Discount on bond | 1 | ||||
Balance | 1 |
Table (18)
Common stock:
Common stock Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Common stock | 10 | ||||
Balance | 10 |
Table (19)
Paid-in Capital:
Paid-in Capital Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Paid-in capital | 4 | ||||
Balance | 4 |
Table (20)
Retained Earnings Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Balance of retained earnings | 2 | December 31, 2016 | |||
Payment of cash dividend | 13 | Balance | 25 | |||
Retained earning | 14 |
Table (21)
Treasury Stock:
Treasury Stock Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Treasury stock | 8 | ||||
Balance | 8 |
Table (22)
Sales:
Sales Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Sales revenue | 200 | ||||
Balance | 200 |
Table (23)
Dividend Revenue:
Dividend RevenueAccount | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Dividend revenue | 3 | ||||
Balance | 3 |
Table (24)
Cost of Goods Sold:
Cost of Goods Sold Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Cost of Goods Sold | 120 | ||||
Balance | 120 |
Table (28)
Salaries Expense:
Salaries ExpenseAccount | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Salaries Expense | 25 | ||||
Balance | 25 |
Table (29)
Depreciation Expense:
Depreciation Expense Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Depreciation Expense | 5 | ||||
Balance | 5 |
Table (30)
Bad debt Expense Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Bad debt Expense | 3 | ||||
Balance | 3 |
Table (31
Interest Expense:
Interest ExpenseAccount | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | InterestExpense | 8 | ||||
Balance | 8 |
Table (32)
Loss on Sale of Building:
Loss on Sale of BuildingAccount | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Loss on sale of building | 3 | ||||
Balance | 3 |
Table (33)
Income Tax Expense:
Income Tax Expense Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Income Tax Expense | 17 | ||||
Balance | 17 |
Table (34)
Net income (income summary):
Net Income (income summary)Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) |
|
December 31, 2016 | Net income | 25 | ||||
Balance | 25 |
Table (35)
To Prepare: The statement of cash flows using direct method for D Company for the year ended December 31, 2016.

Answer to Problem 21.19P
Figure (1)
Explanation of Solution
Working notes:
Calculate the amount of cash received from customers:
Calculate the amount of dividend received:
Calculate the amount of cash paid to suppliers:
Calculate the amount of cash paid to employee expenses:
Calculate the amount of cash paid for interest expense:
Calculate the amount of cash paid for income taxes:
Calculate the amount of purchaseof long-term investment:
Calculate the amount of proceeds from sale of bonds payable:
Hence, the opening cash balance is $20 million and closing cash balance is $33 million.
Want to see more full solutions like this?
Chapter 21 Solutions
INTERMEDIATE ACCOUNTING
- Problem 19-13 (Algo) Shoney Video Concepts produces a line of video streaming servers that are linked to personal computers for storing movies. These devices have very fast access and large storage capacity. Shoney is trying to determine a production plan for the next 12 months. The main criterion for this plan is that the employment level is to be held constant over the period. Shoney is continuing in its R&D efforts to develop new applications and prefers not to cause any adverse feelings with the local workforce. For the same reason, all employees should put in full workweeks, even if that is not the lowest-cost alternative. The forecast for the next 12 months is MONTH FORECAST DEMAND January February March April 530 730 830 530 May June 330 230 July 130 August 130 September 230 October 630 730 800 November December Manufacturing cost is $210 per server, equally divided between materials and labor. Inventory storage cost is $4 per unit per month and is assigned based on the ending…arrow_forwardCompute 007s gross profit percentage and rate of inventory turnover for 2016arrow_forwardHeadland Company pays its office employee payroll weekly. Below is a partial list of employees and their payroll data for August. Because August is their vacation period, vacation pay is also listed. Earnings to Weekly Vacation Pay to Be Employee July 31 Pay Received in August Mark Hamill $5,180 $280 Karen Robbins 4,480 230 $460 Brent Kirk 3,680 190 380 Alec Guinness 8,380 330 Ken Sprouse 8,980 410 820 Assume that the federal income tax withheld is 10% of wages. Union dues withheld are 2% of wages. Vacations are taken the second and third weeks of August by Robbins, Kirk, and Sprouse. The state unemployment tax rate is 2.5% and the federal is 0.8%, both on a $7,000 maximum. The FICA rate is 7.65% on employee and employer on a maximum of $142,800 per employee. In addition, a 1.45% rate is charged both employer and employee for an employee's wages in excess of $142,800. Make the journal entries necessary for each of the four August payrolls. The entries for the payroll and for the…arrow_forward
- Subject. General accountingarrow_forwardCompute the assets turnover ratioarrow_forwardExercise 5-18 (Algo) Calculate receivables ratios (LO5-8) Below are amounts (in millions) from three companies' annual reports. WalCo TarMart Costbet Beginning Accounts Receivable $1,795 6,066 609 Ending Accounts Receivable $2,742 6,594 645 Net Sales $320,427 65,878 66,963 Required: 1. Calculate the receivables turnover ratio and the average collection period for WalCo, TarMart and CostGet 2. Which company appears most efficient in collecting cash from sales? Complete this question by entering your answers in the tabs below. Required 1 Required C Calculate the receivables turnover ratio and the average collection period for WalCo, TarMart and CostGet. (Enter your answers in millions rounded to 1 decimal place.) Receivables Turnover Ratio: WalCo S TarMart. S CostGet S Choose Numerator Choose Numerator "ValCo FarMart CostGet 320,427 $ 65.878 66,963 Choose Denominator Receivables turnover ratio 2,742.0 116.9 times 0 times 0 times Average Collection Period Choose Denominator Average…arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





