Net Income$ 158,900 Additional information: 1. Old plant assets with an original cost of $57,500 and accumulated depreciation of $48,500 were sold for $1,500 cash. 2. depreciation expense is included in Operating expenses on the income statement. 3. Maturing bonds were retired at face value. 4. A cash dividend was declared and paid during the year. Solution – Indirect Method: ARMA COMPANY Statement of Cash Flows For the Year ended December 31, 2011 Operating activities: Net Income$ 158,900 Adjustments: Depreciation expense$ 46,500 (see note/formula below) Loss on sale of plant assets 7,500
Increase in accounts receivable (59,800) Increase in inventories (9,650) Increase in prepaid expenses (2,400) Increase in accounts payable 44,700 Decrease in accrued liabilities (500) 26,350 Net cash provided by operating activities$ 185,250 Investing activities: Proceeds from sale of plant assets$ 1,500 Increase in (purchase of) plant assets (85,000)(see note/formula below) Increase in (purchase of) investments (24,000)(= increase in investment acct) Net cash used by investing activities (107,500) Financing activities: Retirement of bonds payable$ (40,000)(= decrease in B/P acct)
Payment of dividends (40,350)(see note below) Sale of common stock 45,000(= increase in Com Stk acct) Net cash used by financing activities (35,350) Net increase in cash$ 42,400 Cash balance, beginning of year 48,400 Cash balance, end of year$ 90,800 Note:Solving for the amount of depreciation expense and purchase of plant assets can by solved by setting up t-accounts or using the “formulas” below (EB is the ending balance, BB is the beginning balance).
The Essay on Memorandum-Statement of Cash Flows
Memorandum To:Stockholders of Carpino Company CC:Ms. Lydia Money, Chief Executive Officer From:W. E. Count, Financial Analyst Date:10/5/13 Re:Corporate Financial Position/Statement of Cash Flows I have been charged to examine the Financial Statements of Carpino Company for the purpose of providing an objective opinion regarding organizational capacity to generate sufficient cash to continue as a ...
For the amount of dividends paid, use the basic equation used on the statement of retained earnings (Beg RE + NI – Dividends = End RE).
Depreciation Expense = EB Accum Deprec + Accum Deprec on plant asset sold – BB Accum Deprec. Cost of new plant assets purchased = EB Plant Assets + Original cost of plant asset sold – BB Plant Assets Depreciation Expense = EB Accum Deprec + Accum Deprec on plant asset sold – BB Accum Deprec. Cost of new plant assets purchased = EB Plant Assets + Original cost of plant asset sold – BB Plant Assets Solution – Direct method (Operating activity section only): ARMA COMPANY Statement of Cash Flows For the Year ended December 31, 2011 Operating activities (computations for the first three number show below):
Cash received from customers$ 332,980 Less cash disbursements for: Merchandise purchased$ (100,410) Operating expenses (15,310) Income taxes (27,280) Interest expense (4,730) Total cash disbursements (147,730) Net cash provided by operating activities$ 185,250 (Remainder of statement is the same as it is shown when the indirect method was used for the operating section) Calculations: Sales$ 392,780Cost of Goods Sold$ (135,460) Increase in Acct recr (59,800)Increase in inventory (9,650) Cash from customers$ 332,980Increase in Acct Payable 44,700 Cash paid for merchandise $(100,410)
Operating expenses$ (58,910) Increase in Prepaid Exp (2,400) Decrease in Accrued Liab (500) Add back depreciation exp 46,500 – same as previous page Cash paid for operating exp $ (15,310) There were no receivables or payables related to income taxes or interest, so there were no adjustments to those expenses from the income statement. Note: The additions and subtractions of the asset and liability changes are the same as on the previous page. Just be sure to treat the original expense (from the income statement) as a negative/cash outflow to begin with (i. e. in parenthesis).
The Essay on The Accrual Basis Of Accounting Is Far Superior To The Cash Basis Of Accounting
The Accrual basis of accounting is far superior to the Cash basis of accounting. Discuss. The difference between accrual and cash basis of accounting is cash basis accounting recognizes revenues and expenses depends upon on timing. Cash basis accounting is simple, recognizes revenues when cash is received and recognizes expenses when cash is paid out only. It does not record accounts payable or ...
