Question

In: Accounting

Golden Corp., a merchandiser, recently completed its 2017 operations. For the year, (1) all sales are...

Golden Corp., a merchandiser, recently completed its 2017 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, (5) Other Expenses are all cash expenses, and (6) any change in Income Taxes Payable reflects the accrual and cash payment of taxes. The company’s balance sheets and income statement follow.

GOLDEN CORPORATION
Comparative Balance Sheets
December 31, 2017 and 2016

2017

2016

Assets

Cash

$

179,000

$

123,500

Accounts receivable

105,500

86,000

Inventory

623,500

541,000

Total current assets

908,000

750,500

Equipment

375,400

314,000

Accum. depreciation—Equipment

(165,500

)

(111,500

)

Total assets

$

1,117,900

$

953,000

Liabilities and Equity

Accounts payable

$

117,000

$

86,000

Income taxes payable

43,000

32,600

Total current liabilities

160,000

118,600

Equity

Common stock, $2 par value

622,000

583,000

Paid-in capital in excess of par value, common stock

211,000

182,500

Retained earnings

124,900

68,900

Total liabilities and equity

$

1,117,900

$

953,000

  

GOLDEN CORPORATION
Income Statement
For Year Ended December 31, 2017

Sales

$

1,867,000

Cost of goods sold

1,101,000

Gross profit

766,000

Operating expenses

Depreciation expense

$

54,000

Other expenses

509,000

563,000

Income before taxes

203,000

Income taxes expense

43,000

Net income

$

160,000

Additional Information on Year 2017 Transactions

  1. Purchased equipment for $61,400 cash.
  2. Issued 13,500 shares of common stock for $5 cash per share.
  3. Declared and paid $104,000 in cash dividends.


Required:
Prepare a complete statement of cash flows; report its cash flows from operating activities according to the direct method. (Amounts to be deducted should be indicated with a minus sign.)

Solutions

Expert Solution

Solution

Statement of cash flow(direct method)

Cash flow from operating activities:
Cash received from customers (1) $1,847,500
Cash paid for merchandise(2) $(1,152,500)
Cash paid for other expenses (3) $(509,000)
Cash paid for income taxes(4) $(32,600)
Net cash provided by operating activities $153,400
Cash flow from investing activities:
Cash paid for equipment $(61,400)
Net cash used in investing activities $(61,400)
Cash flow from financing activities:
Cash received from stock issuance $67,500
Cash paid for cash dividends $(104,000)
Net cash used in financing activities $(36,500)
Net increase (decrease) in cash $55,500
Cash balance at beginning of year $123,500
Cash balance at end of year $179,000

(1) Sales-increase in receivables
=$1,867,000-($105,500-$86,000)

=$1,847,500

(2) cost of good sold+increase in inventory-increase in payables

=$1,101,000+($623,500-$541,000) -($117,000-$86,000)

=$1,152,500

(3) operating expenses other than depreciation

=$509,000

(4) income taxes expense -increase in income tax payable

=$43,000-($43,000-$32,600)

=$32,600


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