Question

Problem 21-5 Statement of cash flows; direct method [LO21-3, 21-8]

Comparative balance sheets for 2018 and 2017 and a statement of income for 2018 are given below for Metagrobolize Industries. Additional information from the accounting records of Metagrobolize also is provided.

METAGROBOLIZE INDUSTRIES Comparative Balance Sheets December 31, 2018 and 2017 ($ in 000s)
		2018			2017
Assets
Cash	$	530			$	255
Accounts receivable		650				340
Inventory		800				425
Land		600				555
Building		900				900
Less: Accumulated depreciation		(200	)			(175)
Equipment		3,250				3,050
Less: Accumulated depreciation		(460	)			(420	)
Patent		1,500				1,650
	$	7,570			$	6,580
Liabilities
Accounts payable	$	900			$	600
Accrued expenses payable		300				245
Lease liability—land		130				0
Shareholders' Equity
Common stock		3,620				3,500
Paid-in capital—excess of par		550				445
Retained earnings		2,070				1,790
	$	7,570			$	6,580

METAGROBOLIZE INDUSTRIES Income Statement For the Year Ended December 31, 2018 ($ in 000s)
Revenues
Sales revenue	$	3,040
Gain on sale of land		65		$	3,105
Expenses
Cost of goods sold	$	1,100
Depreciation expense—building		25
Depreciation expense—equipment		580
Loss on sale of equipment		25
Amortization of patent		150
Operating expenses		350			2,230
Net income				$	875

Additional information from the accounting records:

1. Annual payments of $20,000 on the finance lease liability are paid each January 1, beginning in 2018.
2. During 2018, equipment with a cost of $600,000 (90% depreciated) was sold.
3. The statement of shareholders' equity reveals reductions of $225,000 and $370,000 for stock dividends and cash dividends, respectively.

Required:
Prepare the statement of cash flows of Metagrobolize for the year ended December 31, 2018. Present cash flows from operating activities by the direct method. (Enter your answers in thousands (i.e., 5,000 should be entered as 5). Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Computation of cash received from customers
Particulars	Amount (In Million)
Beginning accounts receivables	$340
Add: Sales	$3,040
Less: Ending accounts receivables	$650
Cash received from customers	$2,730

Computation of cash paid for inventory
Particulars	Amount (In Million)
Cost of Goods Sold	$1,100
Add: Ending inventory	$800
Less: Beginning inventory	$425
Purchases made during the year	$1,475
Add: Opening accounts payable	$600
Less: Ending accounts payable	$900
Cash paid to supplier for inventory	$1,175

Opening Accrued Expenses Payable	245
Add: Operating Expenses	350
Less: Closing Accrued Expenses Payable	300
Cash Payment for Operating Expenses	295
Closing Equipment Balance	3250
Add: Equipment sold	600
Less: Opening Equipment Balance	3050
Equipment Purchased	800
Opening Balance of Land	555
Add: Land Purchased (leased- 130+20)	150
Less: Closing Balance	600
cost of Land sold	105
Gain on sale	65
Cash received on sale	170

Cost of Equipment	600
Depreciation	540
Salvage Value	60
Loss on Sale of Equipment	(25)
Cash received	35

METAGROBOLIZE INDUSTRIES
Statement of Cash flows
For the Year Ended December 31, 2018
($ '000)
Cash Flows from operating activities
Cash Inflows:
From Customers	2730
Cash Outflows:
To Suppliers of Goods	-1175
For Operating Expenses	-295
Cash flow from Operating activities		1260
Cash flow from Financing activities
Purchase of Equipment	-800
Sale of Land	170
Sale of Equipment	35
cash used in Investing Activity		-595
Cash flows from financing activity
Payment of Lease Liability	-20
Payment of Cash Dividend	-370
Cash used in Financing Activities		-390
Net Increase in Cash		275
Cash Balance January 1		255
Cash Balance December 31		530
Non cash Investing and Financing Activities
Land acquired on lease (130 + 20)		150