Chapter 21, Problem 21.5BYP

1.

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.

To Determine: The missing amounts.

Explanation of Solution

a.

Determine the amount of beginning balance cash:

$\begin{array}{l}\begin{array}{l}\text{Ending balance}\\ \text{of cash}\end{array}\}\text{ =}\left(\begin{array}{l}\text{ Beginning balance of cash +}\\ \text{Net increase in cash }\end{array}\right)\\ \begin{array}{l}\text{Beginning balance}\\ \text{of cash}\end{array}\}\text{=}\left(\begin{array}{l}\text{Ending balance of cash }-\\ \text{Net increase in cash }\end{array}\right)\\ \begin{array}{l}\text{Beginning balance}\\ \text{of cash}\end{array}\}\text{=\$360 }-\$183\\ \begin{array}{l}\text{Beginning balance}\\ \text{of cash}\end{array}\}\text{=\$177}\end{array}$

b.

Determine the amount of ending balance of accounts receivable:

$\begin{array}{l}\begin{array}{l}\text{Ending balance of }\\ \text{accounts receivable}\end{array}\}\text{ =}\left(\begin{array}{l}\text{ Beginning balance of }\\ \text{accounts receivable + Sales}\\ -\text{Cash collection }\end{array}\right)\\ \begin{array}{l}\text{Ending balance of }\\ \text{accounts receivable}\end{array}\}\text{ =}\left(\begin{array}{l}\text{ Beginning balance of }\\ \text{accounts receivable + Sales}\\ -\text{Cash collection }\end{array}\right)\\ \begin{array}{l}\text{Ending balance of }\\ \text{accounts receivable}\end{array}\}\text{ =}\left(\text{\$252 + \$240}-\$213\right)\\ \begin{array}{l}\text{Ending balance of }\\ \text{accounts receivable}\end{array}\}\text{ =\$279}\end{array}$

c.

Calculate the amount of beginningbalance inventory:

Step 1: Calculate the amount of purchase.

$\begin{array}{c}\begin{array}{l}\text{Ending balance}\\ \text{ accountspayable }\end{array}\}\text{ =}\left[\begin{array}{l}\left(\begin{array}{l}\text{ Beginning balance accounts payable }\\ \text{+ Purchase}\end{array}\right)\\ -\text{Cash paid to suppliers}\end{array}\right]\\ \text{Purchase }\text{=}\left[\begin{array}{l}\left(\begin{array}{l}\text{ Ending balance of accounts payable + }\\ \text{Beginning accounts payable}\end{array}\right)\\ -\text{Cash paid to suppliers}\end{array}\right]\\ \text{Purchase }\text{=}\left[\left(\$120+90\right)-\$90\right]\\ \text{Purchase }\text{=\$210}-\$90\\ \text{Purchase }\text{=}\$120\end{array}$

Step 2: Calculate the amount of beginning balance inventory.

$\begin{array}{l}\text{Cost of goods sold =}\left[\begin{array}{l}\left(\begin{array}{l}\text{Beginning balance of inventory}\\ \text{+ Purchases}\end{array}\right)\\ -\text{Ending inventory}\end{array}\right]\\ \begin{array}{l}\text{Beginning balance }\\ \text{of inventory}\end{array}\}=\left[\begin{array}{l}\left(\begin{array}{l}\text{Cost of goods sold }+\text{Ending }\\ \text{balance of inventory}\end{array}\right)\\ -\text{Purchases}\end{array}\right]\\ \begin{array}{l}\text{Beginning balance}\\ \text{of inventory}\end{array}\}=\left[\left(\text{\$}96+\$180\right)-\$120\right]\\ \begin{array}{l}\text{Beginning balance}\\ \text{of inventory}\end{array}\}\text{=\$156}\end{array}$

d.

Calculate the amount of beginning balance accumulated depreciation:

$\begin{array}{l}\begin{array}{l}\text{Ending balance of }\\ \text{accumulated depreciation}\end{array}\}\text{ =}\left[\begin{array}{l}\left(\begin{array}{l}\text{Beginning balance of}\\ \text{ accumulateddepreciation }\\ \text{+ Depreciation expense}\end{array}\right)\\ -\text{Accumulated depreciation }\\ \text{on equipment sold}\end{array}\right]\\ \begin{array}{l}\text{Beginning balance of}\\ \text{accumulated depreciation}\end{array}\}=\left[\begin{array}{l}\left(\begin{array}{l}\text{Ending balance of }\\ \text{accumulated depreciation}\\ -\text{Depreciation expense }\end{array}\right)\\ \text{+ Accumulated depreciation}\\ \text{ on equipment sold}\end{array}\right]\\ \begin{array}{l}\text{Beginning balance of}\\ \text{accumulated depreciation}\end{array}\}=\left[\left(\$120-\$30\right)+\$75\right]\\ \begin{array}{l}\text{Beginning balance of}\\ \text{accumulated depreciation}\end{array}\}=\$165\end{array}$

e.

Calculate the amount of beginning balance of income tax payable:

$\begin{array}{l}\begin{array}{l}\text{Ending balance of }\\ \text{income tax payable}\end{array}\}\text{ =}\left[\begin{array}{l}\left(\begin{array}{l}\text{Beginning balance of balance of income tax payable}\\ \text{ + Income tax expense}\end{array}\right)\\ -\text{Income tax payable}\end{array}\right]\\ \begin{array}{l}\text{Beginning balance of}\\ \text{income}\text{tax payable}\end{array}\}\text{=}\left[\begin{array}{l}\left(\begin{array}{l}\text{Ending balance of income tax payable}\\ -\text{Income tax expense}\end{array}\right)\\ \text{+Income tax payable}\end{array}\right]\\ \begin{array}{l}\text{Beginning balance of}\\ \text{income}\text{tax payable}\end{array}\}\text{=}\left[\left(\$66-\$21\right)+\$27\right]\\ \begin{array}{l}\text{Beginning balance of}\\ \text{income}\text{tax payable}\end{array}\}\text{=\$72}\end{array}$

f.

Calculate the amount of ending balance of retained earnings:

$\begin{array}{l}\begin{array}{l}\text{Ending balance of}\\ \text{retained rarnings }\end{array}\}\text{= }\left[\begin{array}{l}\left(\begin{array}{l}\text{Beginning balance of retained earnings}\\ \text{+ Net income}\end{array}\right)\\ -\text{ Dividends paid}\end{array}\right]\\ \begin{array}{l}\text{Ending balance of}\\ \text{retained rarnings }\end{array}\}\text{=}\left[\begin{array}{l}\left(\begin{array}{l}\text{Beginning balance of retained earnings}\\ \text{+ Net income}\end{array}\right)\\ -\text{ Dividends paid}\end{array}\right]\\ \begin{array}{l}\text{Ending balance of}\\ \text{retained rarnings }\end{array}\}\text{= }\left(\$141+\$84\right)-\$9\\ \begin{array}{l}\text{Ending balance of}\\ \text{retained rarnings }\end{array}\}\text{= }\$216\end{array}$

The balance sheet of D Industries is recreated using the deduced figures.

D Industries
Comparative balance sheet
At December 31
Assets:	2016 (all $ in millions)	2015 (all $ in millions)
Cash	360	$\boxed{177}$
Accounts receivable (net)	$\boxed{279}$	252
Inventory	180	$\boxed{156}$
Property, plant, and equipment	450	600
Less: Accumulated depreciation	(120)	$\boxed{\left(165\right)}$
Total assets	$1,149	$1,020
Liabilities and shareholders’ equity:
Accounts payable	120	90
General and administrative expenses payable	27	27
Income taxes payable	66	$\boxed{72}$
Common stock	720	690
Retained earnings	$\boxed{\begin{array}{l}216\hfill \end{array}}$	141
Total liabilities and shareholders’ equity	$1,149	$1,020

Table (1)

2.

To determine

To Prepare: A Statement of Cash flow from operating activities for D Industries for the year December 31, 2016.

Explanation of Solution

Step 1: Prepare the schedule in the changes of current assets and liabilities.

Figure (1)

Step2: Prepare a Statement of Cash flow from operating activities for D Industries for the year December 31, 2016:

D Industries
Statement of cash flows (Partial)
For the year ended December 31, 2016
Cash flows from operating activities	Amount (All $ in millions)	Amount (All $ in millions)
Net income		84
Adjustments to reconcile net income to net cash from operating activities:
Depreciation expense	30
Gain on sale of equipment	(45)	(15)
Changes in operating assets and liabilities:
Increase in accounts receivable	(27)
Increase in inventory	(24)
Increase in accounts payable	30
Decrease in income taxes payable	(6)	(27)
Net cash provided from operating activities		$42

Table (2)

The statement of cash flow of D Industries shows the cash flows from operating activities to be $42 million