Question

Prepare a complete statement of cash flows; report its cash flows from operating activities according to the direct method.

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	$	164,000			$	107,000
Accounts receivable		83,000				71,000
Inventory		601,000				526,000
Total current assets		848,000				704,000
Equipment		335,000				299,000
Accum. depreciation—Equipment		(158,000	)			(104,000	)
Total assets	$	1,025,000			$	899,000
Liabilities and Equity
Accounts payable	$	87,000			$	71,000
Income taxes payable		28,000				25,000
Total current liabilities		115,000				96,000
Equity
Common stock, $2 par value		592,000				568,000
Paid-in capital in excess of par value, common stock		196,000				160,000
Retained earnings		122,000				75,000
Total liabilities and equity	$	1,025,000			$	899,000

  

GOLDEN CORPORATION Income Statement For Year Ended December 31, 2017
Sales				$	1,792,000
Cost of goods sold					1,086,000
Gross profit					706,000
Operating expenses
Depreciation expense	$	54,000
Other expenses		494,000			548,000
Income before taxes					158,000
Income taxes expense					22,000
Net income				$	136,000

Additional Information on Year 2017 Transactions

1. Purchased equipment for $36,000 cash.
2. Issued 12,000 shares of common stock for $5 cash per share.
3. Declared and paid $89,000 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.)

Answer 1

GOLDEN CORPORATION
Statement of Cash flows
For the Year Ended December 31, 2017
Cash flows from operating activities
Cash received from customers	$   1,780,000		1792000+71000-83000
Cash paid to suppliers	$ (1,145,000)		1086000+71000-87000+601000-526000
Cash paid for operating expenses	$     (494,000)
Cash paid for income tax	$       (19,000)		22000+25000-28000
Net cash provided by operating activities		$ 122,000
Cash flows from investing activities
Cash paid for purchase of plant assets	$       (36,000)
Net cash used by investing activities		$ (36,000)
Cash flows from financing activities
Cash paid for dividends	$       (89,000)
Cash received from issuance of common stock	$         60,000
Net cash used by financing activities		$ (29,000)
Net Increase in cash and cash equivalents		$    57,000
Cash and cash equivalents at beginning of period		$ 107,000
Cash and cash equivalents at end of period		$ 164,000

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