Question

The following are income statement and comparative statement of financial position for Rabies Corporation for the year ended 31/12/2019. Sales 1,915,000 C.G.S (965,000) gross income 950,000 Operating expenses (721,000) income from operating 229,000 Other gain or losses ( 2,000) Interest expenses (12,000) Tax (65,000) net income 150,000 Comparative statement of financial positions for the year ended 31/12/2019 ASSETS 2019 2018 L. S. Equity 2019 2018 Cash 104,000 57,000 Accounts payable 69,000 75,000 Accounts receivable 82,000 36,000 Accrued expenses 15,700 16000 Allowance account -14,000 -10,000 tax payable 3300 4000 Inventories 104,000 50,000 Prepaid expenses 4,000 6000 Bonds payable 110,000 150,000 Land 45,000 70,000 Factory 200,000 200,000 Acc. dep.- building -21000 -11000 ordinary ($1 par) 320,000 160,000 Equipment 193,000 68,000 premium 50,000 50,000 Acc. Dep.- equip. -28000 -10000 Retained earnings 236,000 136,000 Goodwill 120,000 120,000 treasury shares -15000 -15,000 Total assets 789,000 576,000 Totals 789,000 576,000 Additional information: 1) equipment purchased for cash. 2) Equipment with cost 41,000 and accumulated depreciation$5000 was sold for $34000, equipment of $100,000 was purchased for ordinary shares. 3) Operating expenses include depreciation. 4) Land was sold for cash. 5) Bonds were redeemed at book value. 6) Dividend are declared and paid during the year Required: Prepare the statement of cash flows for the year ended 31/12/2019at indirect method and direct method for cash from operating but others sections under one method?

Answer 1

Indirect method:

Cash flow from Operating activities
Net Income		150,000
Adjustments to reconcile net income:
Add: Loss from sale of equipment	2,000
Add: Depreciation [(21,000 + 28,000) - (11,000 + 10,000) + 5,000)	33,000
Less: Increase in accounts receivables	(46,000)
Add Increas in allowance for uncollectible amount	4,000
Less: Increase in inventory	(54,000)
Add: Decrease in prepaid expenses	2,000
Less: Decrease in accounts payable	(6,000)
Less: Decrease in accrued exp	(300)
Less: Decrease in tax payable	(700)	(66,000)
Net cash from Operating activities		84,000
Cash flow from Investing activities
Sale of equipment	34,000
Equipment purchased [193,000 - (68,000 - 41,000 + 100,000)]	(66,000)
Sale of land	25,000	(7,000)
Cash flow from Financing activities
Issuance of common stock	60,000
Dividend paid [236,000 - (136,000 + 150,000)]	(50,000)
Bonds redeemed	(40,000)	(30,000)
Net increase in cash and cash equivalents		47,000
Add: Opening cash balance		57,000
Closing cash balance		104,000

Direct method:

Cash collected from customers	(1,915,000 + 36,000 - 82,000)	1,869,000
Cash paid for goods purchased	[965,000 + (75,000 - 69,000) + (104,000 - 50,000)]	(1,025,000)
Cash paid for operating expenses	[(721,000 - 33,000 Depr.) + (16,000 - 15,700) + (4,000 - 6,000) + (10,000 - 14,000)	(682,300)
Interest paid		(12,000)
Tax paid in cash	[65,000 + (4,000 - 3,300)]	(65,700)
Cash flow from Operating activities		84,000