Chapter 21, Problem 21.20P

To determine

Statement of cash flows: This statement reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is reported as the ending balance of cash at the end of the accounting period.

To Prepare: The Statement of cash flow for Industries M, using the T-Accounts.

Explanation of Solution

T-account: T-account is the form of the ledger account, where the journal entries are posted to this account. It is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.

The components of the T-account are as follows:

a)      The title of the account

b)      The left or debit side

c)      The right or credit side

The T-accounts for Industries M, for various accounts are shown below:

Cash Account:

Cash (Statement of Cash Flows) (Amount  ($) in millions)
Cash balance	205
Operating activities:
From customers	(1) 2,495	(4) 675	To suppliers
		(9) 425	For expenses
Investing activities:
Sale of land	(3) 165	(11)  90 0	Purchase of equipment
Sale of equipment	(7) 15
Financing activities:
		(2) 20	Payment on lease
		(13) 450	Payment of dividend

Table (1)

Accounts Receivable:

Accounts Receivable Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 31, 2018	Increase in accounts receivable	150
	Balance	(1) 150

Table (2)

Inventory:

Inventory Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 31, 2018	Increase in inventory	375
	Balance	(4) 375

Table (3)

Land:

Land Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 31, 2018	Increase in land	75
	Lease liability	X (2) 150		December 31, 2016	Balance	75

Table (4)

Accumulated Depreciation - Building:

Accumulated Depreciation - Building Account
Date	Details	Debit ($)		Date	Details	Credit ($)
				December 31, 2018	Accumulated depreciation	30
				December 31, 2018	Balance	(5) 30

Table (5)

Equipment:

Equipment Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 31, 2018	Increase in equipment	600
December 31, 2018	Balance	(11) 900		December 31, 2018	Sale of equipment	(7) 300

Table (6)

Accumulated Depreciation - Equipment:

Accumulated Depreciation - Equipment Account
Date	Details	Debit ($)		Date	Details	Credit ($)
				December 31, 2018	Accumulated depreciation	45
December 31, 2018	Increase in equipment	(7) 270		December 31, 2018	Balance	(6) 315

Table (7)

Patent:

Patent Account
Date	Details	Debit ($)		Date	Details	Credit ($)
				December 31, 2018	Decrease in patent	300
				December 31, 2018	Balance	(8) 300

Table (8)

Accounts Payable:

Accounts Payable Account
Date	Details	Debit ($)		Date	Details	Credit ($)
				December 31, 2018	Increase in accounts payable	300
					Balance	(4) 300

Table (9)

Accrued Expense Payable:

Accrued Expense Payable Account
Date	Details	Debit ($)		Date	Details	Credit ($)
				December 31, 2018	Increase in accrued expense payable	75
					Balance	(9) 75

Table (10)

Lease Liability – Land:

Lease Liability – Land Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 31, 2018	Increase in lease liability	130
		(2) 20			Balance	X (2) 150

Table (11)

Common Stock:

Common Stock Account
Date	Details	Debit ($)		Date	Details	Credit ($)
				December 31, 2018	Increase in common stock	150
					Balance	(12) 150

Table (12)

Paid-in Capital:

Paid-in Capital Account
Date	Details	Debit ($)		Date	Details	Credit ($)
				December 31, 2018	Increase in paid-in capital	75
					Balance	(12) 75

Table (13)

Retained Earnings:

Retained Earnings Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 31, 2018				December 31, 2018	Balance of retained earnings	300
	Payment of cash dividend	(13) 450			Balance	(10) 975
	Retained earning	(12) 225

Table (14)

Note (X):

Purchase $150 worth of land by lease is considered as non cash investing and financing activities.

Prepare T-account for income statement account of Industries Mfor the year ended December 31, 2018:

Sales:

Sales Account
Date	Details	Debit ($)		Date	Details	Credit ($)
				December 31, 2018	Sales revenue	2,645
					Balance	(1) 2,645

Table (15)

Gain on Sale of Land:

Gain on Sale of Land Account
Date	Details	Debit ($)		Date	Details	Credit ($)
				December 31, 2018	Gain on sale of land	90
					Balance	(3) 90

Table (16)

Cost of Goods Sold:

Cost of Goods Sold Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 31, 2018	Cost of Goods Sold	600
	Balance	(4) 600

Table (17)

Depreciation Expense - Building:

Depreciation Expense - Building Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 31, 2018	Depreciation Expense - Building	30
	Balance	(5) 30

Table (18)

Depreciation Expense - Equipment:

Depreciation Expense - Equipment Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 31, 2018	Depreciation Expense – Equipment	315
	Balance	(6) 315

Table (19)

Loss on Sale of Equipment:

Loss on Sale of Equipment Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 31, 2018	Loss on sale of building	15
	Balance	(7) 15

Table (20)

Amortization of Patent:

Amortization of Patent Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 31, 2018	Amortization of patent	300
	Balance	(8) 300

Table (21)

Operating Expenses:

Operating Expenses Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 31, 2018	Operating expense	500
	Balance	(9) 500

Table (22)

Net income (income summary):

Net Income (income summary)Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 31, 2018	Net income	975
	Balance	(10) 975

Table (23)

The spreadsheet of M Company shows the analysis of cash flows in the reporting year 2018:

Industries M
Statement of Cash Flows (Direct Method)
Year Ended December 31, 2018
Details	Amount ($)	Amount ($)
Cash flows from operating activities:
Cash inflows:
From customers	2,495
Cash outflows:
To suppliers of goods	(675)
For operating expenses	(425)
Net cash flows from operating activities		1,395
Cash flows from investing activities:
Purchase of equipment	(900)
Sale of land	165
Sale of equipment	15
Net cash flows from investing activities		(720)
Cash flows from financing activities:
Payment on lease liability	(20)
Payment of cash dividends	(450)
Net cash flows from financing activities		(470)
Net increase in cash		205
Cash balance, January 1,		375
Cash balance, December 31,		580

Table (24)

Note (X):

Schedule of Non Cash Investing and Financing Activities:
Land acquire by lease		$150

Table (25)

Conclusion

Hence, the opening cash balance is $375 million and closing cash balance is $580 million.