Chapter 21, Problem 8P

To determine

Prepare a spreadsheet to support a cash flow statement of H Company for the year 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 a spreadsheet to support the statement of cash flows.

Table (1)

A statement of cash flows of H Company for the year 2016:

Table (2)

Working notes:

1. (a) Calculate the net loss.

Particulars	Amount($)	Amount($)
Revenues :
Sales		49,550
Interest revenue		790
Gain on exchange of assets		1,300
Total revenue		51,640
Expenses:
Cost of goods sold	23,800
Wages expense	16,510
Other operating expenses	1,100
Depreciation expense: buildings	2,700
Depreciation expense: equipment	3,100
Patent amortization	815
Interest expense	1,715
Loss on sale of investments	200
Loss on sale of building	(2,600)
Income tax expense	500
Total expenses		(53,040)
Net Loss		(1,400)

Table (2)

Note: The $31,850 ending retained earnings balance is derived by subtracting the $1,400 net loss and the $2,100 dividends from the $35,350 beginning retained earnings balance.

(e) Calculate the increase in accounts receivable.

$\begin{array}{c}\text{Increase in Accounts Receivable}=\left(\begin{array}{l}\text{Beginning yera's accounts receivable}\\ -\text{Ending year's accounts receivable}\end{array}\right)\\ =\$5,900-\$6,215\\ =\$315\end{array}$

(f) Calculate the increase in inventories.

$\begin{array}{c}\text{Increase in inventories}=\left(\begin{array}{l}\text{Beginning year's inventories}\\ -\text{Ending year's inventories}\end{array}\right)\\ =\$15,300-\$15,530\\ =\$230\end{array}$

(g) Calculate the decrease in prepaid items.

$\begin{array}{c}\text{Decerase in prepaid items}=\left(\begin{array}{l}\text{Beginning year's prepaid items }\\ -\text{Ending year's prepaid items}\end{array}\right)\\ =\$1,400-\$1,000\\ =\$400\end{array}$

(h) Calculate the increase in accounts payable.

$\begin{array}{c}\text{Increase in Accounts Payable}=\left(\begin{array}{l}\text{Beginning year's accounts payable}\\ -\text{Ending year's accounts payable}\end{array}\right)\\ =\$8,900-\$9,195\\ =\$295\end{array}$

1. (i) Calculate the decrease in interest payable.

$\begin{array}{c}\text{Decrease in Interest Payable}=\left(\begin{array}{l}\text{Beginning year's interest payable}\\ -\text{Ending year's interest payable}\end{array}\right)\\ =\$630-\$330\\ =\$330\end{array}$

1. (j) Calculate the increase in wages payable.

$\begin{array}{c}\text{Increase in Wages Payable}=\left(\begin{array}{l}\text{Beginning year's wages payable}\\ -\text{Ending year's wages payable}\end{array}\right)\\ =\$2,500-\$2,600\\ =\$100\end{array}$

1. (l) Proceeds from issuance of bonds payable.

$\begin{array}{c}\left(\begin{array}{l}\text{Proceeds from Issuance }\\ \text{of Bonds Payable}\end{array}\right)=\left(\begin{array}{l}\text{Payment to retire bonds payable}\\ -\text{Bonds payable}\end{array}\right)\\ =\$14,000-\$6,000\\ =\$8,000\end{array}$

1. (m) Students may have difficulty with the extraordinary loss transaction. This may be shown in journal entry form as follows:

Date	Accounts and Explanation	Debit ($)	Credit ($)
	Proceeds from sale of building	2,200
	Accumulated Depreciation	3,200
	Ordinary Loss(net)	2,600
	Buildings		8000
	(To record the sale of  building)

Table (3)

(n-1) Calculate the exchange of equipment for land.

$\begin{array}{c}\text{Exchange of Equipment for Land}=\left(\begin{array}{l}\text{Purchase of equipment}\\ -\text{Accumulated depreciation}\\ +\text{Gain on exchange of equipment for land}\end{array}\right)\\ =\$4,000-\$2,600+1,300\\ =\$2,700\end{array}$

(o)Calculate the proceeds from sale of long-term investment.

$\begin{array}{c}\left(\begin{array}{l}\text{Proceeds from Sale of}\\ \text{ Long-Term Investment}\end{array}\right)=\left(\begin{array}{l}\text{Purchase of long term investment}\\ -\text{Proceeds from sale of long-term investment}\end{array}\right)\\ =\$1,000-\$200\\ =\$800\end{array}$

(p-1) Calculate the issuance of common stock for patent.

$\begin{array}{c}\left(\begin{array}{l}\text{Issuance of Common Stock}\\ \text{ for Patent}\end{array}\right)=\left(\begin{array}{l}\text{Issuance of common stock}\\ +\text{Additional paid-in capital }\end{array}\right)\\ =\$650+\$650\\ =\$1,300\end{array}$

(p-2) Acquisition of patent by issuing common stock is $1,300,

(r) Calculate the bond discount amortization.

$\begin{array}{c}\text{Bond Discount Amortization}=\left(\begin{array}{l}\text{ Proceeds from issuance of bonds payable}\\ -\text{Discount on bonds payable}\end{array}\right)\\ =\$780-\$715\\ =\$65\end{array}$

(s) Calculate net increase in cash.

$\begin{array}{c}\text{Net Increase in Cash}=\left(\text{Beginning year's cash}-\text{Ending year's cash}\right)\\ =\$2,700-\$3,520\\ =\$820\end{array}$

Conclusion

Therefore, the net increase in cash is $820.