Chapter 4, Problem 4.9P

1.

To determine

Cash flow statement:

This 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.

To prepare: A statement of cash flow for D corporation using direct method for reporting operating activities.

Answer to Problem 4.9P

Prepare a statement of cash flow for corporation D using direct method.

Corporation D Statement of Cash Flows (Direct method)  for the year ended December 31, 2016
Particulars	Amount ($)	Amount ($)
Cash flows from operating activities:
Collections from customers (1)	880,000
Payment of operating expenses (2)	(6,60,000)
Payment of income taxes (3)	(85,000)
Net cash flows from operating activities		135,000
Cash flows from investing activities:
Sale of investments	50,000
Net cash flows from investing activities		50,000
Cash flows from financing activities:
Proceeds from issue of common stock	1,00,000
Payment of dividends	(80,000)
Net cash flows from financing activities		20,000
Increase in cash		2,05,000
Cash and cash equivalents, January 1		70,000
Cash and cash equivalents, December 31		275,000

                                                              Table (1)

Explanation of Solution

Working notes:

Compute the cash collections from customers.

$\begin{array}{c}\begin{array}{l}\text{Cash}\text{receipts}\text{from}\\ \text{Customers}\end{array}]=\text{Sales}\text{revenue }\left(\begin{array}{l}+\text{Decrease in Accounts Receivable}\\ \text{OR}\\ -\text{Increase in Accounts Receivable}\end{array}\right)\\ =\text{Sales}\text{revenue}-\text{Increase in Accounts Receivable}\\ =\text{\$900,000}-\$20,000\left(\text{\$120,000}-\$100,000\right)\\ =\$880,000\end{array}$ (1)

Compute the cash payment for operating activities.

Details of cash payments	Amount ($)
Operating expenses	700,000
Less: Depreciation	(30,000)
Increase in Accounts Payable (Operating)	(10,000)
Cash payments for operating expense	660,000

Table (2) (2)

Compute the cash payment for income taxes.

$\begin{array}{c}\begin{array}{l}\text{Cash payments for }\\ \text{Income taxes}\end{array}]=\text{Income tax expense}\left(\begin{array}{l}+\text{Decrease in income tax payable}\\ \text{OR}\\ -\text{Increase in income tax payable}\end{array}\right)\\ =\$80,000+\$5,000\left(\text{\$15,000}-\$10,000\right)\\ =\$85,000\end{array}$ (3)

2

To determine

To prepare: The cash flows from operating activities section of Corporation D’s 2016 statement of cash flow, under the indirect method.

Explanation of Solution

Prepare the cash flow from operating activities section of Corporation D’s 2016 statement of cash flow, under the indirect method.

Corporation D Statement of cash flows (Partial) (Indirect method) For the year ended December 31, 2016
Particulars	Amount ($)	Amount ($)
Cash flows from operating activities:
Net income	120,000
Adjustments for noncash effects:
Depreciation expense	30,000
Changes in operating assets and liabilities:
Increase in accounts receivable	(20,000)
Increase in accounts payable	10,000
Decrease in income taxes payable	(5,000)
Net cash flows from operating activities		135,000

Table (3)

Conclusion

Hence, the net cash flows from operating activities for corporation D for 2016 is $135,000.