
(1)
Statement of
Direct method:
This method uses the basis of cash for preparing the cash flows of statement.
Operating activities:
Operating activities refer to the normal activities of a company to carry out the business. The examples for operating activities are purchase of inventory, payment of salary, sales, and others.
Investing activities:
Investing activities refer to the activities carried out by a company for acquisition of long term assets. The examples for investing activities are purchase of equipment, long term investment, sale of land, and others.
Financing activities:
Financing activities refer to the activities carried out by a company to mobilize funds to carry out the business activities. The examples for financing activities are purchase of bonds, issuance of common shares, and others.
To prepare: A spreadsheet for the preparation of thestatement of cash flow of NI Company under direct method for the year ended December 31, 2018.
(1)

Explanation of Solution
Spreadsheet:
The spreadsheet is a supplementary device which helps to prepare the
Spreadsheet for the Statement of cash flows of NI Company:
NI Company | ||||
Spreadsheet for the Statement of Cash Flows | ||||
Amount in Millions | ||||
Particulars | December 31,2017 Amount ($) | Changes | December 31,2018 Amount ($) | |
Debit ($) | Credit ($) | |||
Assets | ||||
Assets | ||||
Cash | 55 | (18) 2 | 57 | |
|
170 | (1) 11 | 181 | |
Less: Allowance | (6) | (1) 2 | (8) | |
Prepaid insurance | 12 | (8) 5 | 7 | |
Inventory | 165 | (4) 5 | 170 | |
Long term investment | 90 | (2) 6 | (3) 30 | 66 |
Land | 150 | 150 | ||
Buildings and equipment | 270 | (13) 80 X | (10) 60 | 290 |
Less: Acc. depreciation | (75) | (10) 15 | (6) 25 | (85) |
Trademark | 25 | (7) 1 | 24 | |
Total assets | 856 | 852 | ||
Liabilities and |
||||
Liabilities | ||||
Accounts payable | 45 | (4) 15 | 30 | |
salaries payable | 8 | (5) 5 | 3 | |
15 | (11) 3 | 18 | ||
Lease liability | 0 | (13) 12 | X (13) 80 | 68 |
Bonds payable | 275 | (14) 130 | 145 | |
Less: Discount | (25) | (9) 3 | (22) | |
Stockholders’ equity | ||||
Common Stock | 290 | (15) 20 | 310 | |
Paid in capital –ex of par | 85 | (15) 10 | 95 | |
0 | (16) 50 | 50 | ||
|
163 | (17) 30 | (12) 22 | 155 |
Total liabilities and stockholders’ equity | 856 | 852 | ||
Income Statement | ||||
Revenues | ||||
Sales revenue | (1) 320 | 320 | ||
Investment revenue | (2) 15 | 15 | ||
Gain on sale of investments | (3) 5 | 5 | ||
Expenses | ||||
Cost of goods sold | (4) 125 | (125) | ||
Salaries expense | (5) 55 | (55) | ||
Depreciation expense | (6) 25 | (25) | ||
Trademark amortization | (7) 1 | (1) | ||
Bad debt expense | (1) 7 | (7) | ||
Insurance expense | (8) 13 | (13) | ||
Bond Interest expenses | (9) 30 | (30) | ||
Loss on building fire | (10) 42 | (42) | ||
Income tax expense | (11) 20 | (20) | ||
Net income | (12) 22 | 22 | ||
Statement of Cash Flows | ||||
Operating activities: | ||||
Cash Inflows: | ||||
From customers | (1) 304 | |||
From investment revenue | (2) 9 | |||
To suppliers of goods | (4) 145 | |||
To employees | (5) 60 | |||
For insurance | (8) 8 | |||
For bond interest | (9) 27 | |||
For income taxes | (11) 17 | |||
Net cash flows | 56 | |||
Investing activities: | ||||
Sale of long term investment | (3) 35 | |||
Sale of building parts | (10) 3 | |||
Net cash flows | 38 | |||
Financing activities: | ||||
Payment on lease liability | (13) 12 | |||
Retirement of bonds payable | (14) 130 | |||
Sale of common stock | (15) 30 | |||
Sale of preferred stock | (16) 50 | |||
Payment of cash dividends | (17) 30 | |||
Net cash flows | (92) | |||
Net increase in cash | (18) 2 | 2 | ||
Total | 1,082 | 1,082 |
Table (1)
Note (X):
Purchase $80 million worth of equipment by 7-year lease is considered as non cash investing and financing activities.
(2)
To prepare: The statement of cash flows.
(2)

Explanation of Solution
The spreadsheet of NI Company shows the analysis of cash flows in the reporting year 2018.
NI Company | |||
Spreadsheet for the statement of cash flows | |||
Year ended December 31, 2018 | |||
Changes | |||
Details (December 31, 2017) | Debits ($) | Credits ($) | December 31, 2018 |
Statement of cash flows | |||
Operating activities: | |||
Cash inflows: | |||
From customers | 304 | ||
From investment revenue | 9 | ||
Cash outflows: | |||
To suppliers of goods | (145) | ||
To employees | (60) | ||
For insurance expense | (8) | ||
For bond interest expense | (27) | ||
For income taxes | (17) | ||
Net cash flows from operating activities | 56 | ||
Investing activities: | |||
Sale of long-term investment | 35 | ||
Sale of building parts | 3 | ||
Net cash flows from investing activities | 38 | ||
Financing activities: | |||
Payment on lease liability | (12) | ||
Retirement of bonds payable | (130) | ||
Sale of common stock | 30 | ||
Sale of preferred stock | 50 | ||
Payment of cash dividends | (30) | ||
Net cash flow from financing activities | (92) | ||
Net increase in cash | 2 | ||
Cash balance, January 1 | 55 | ||
Cash balance, December 31 | 57 |
Table (2)
Hence, the opening cash balance is $55 and the closing cash balance is $57.
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