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In: Accounting

The following balances are available for Chrisman Company: December 31 2017 2016 Cash $8,000 $10,000 Accounts...

  1. The following balances are available for Chrisman Company:

    December 31

    2017 2016
    Cash $8,000 $10,000
    Accounts receivable 20,000 15,000
    Inventory 15,900 26,600
    Prepaid rent 9,000 6,000
    Land 75,000 75,000
    Plant and equipment 400,000 300,000
    Accumulated depreciation (65,000) (30,000)
        Totals $462,900 $402,600
    Accounts payable $12,000 $10,000
    Income taxes payable 3,000 5,000
    Short-term notes payable 35,000 25,000
    Bonds payable 75,000 100,000
    Common stock 200,000 150,000
    Retained earnings 137,900 112,600
        Totals $462,900 $402,600

    Bonds were retired during 2017 at face value, plant and equipment were acquired for cash, and common stock was issued for cash. Depreciation expense for the year was $35,000. Net income was reported at $25,300.

    Required:

    1. Prepare a statement of cash flows for 2017 using the indirect method in the Operating Activities section. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash.

    Chrisman Company
    Statement of Cash Flows
    For the Year Ended December 31, 2017
    Cash Flows from Operating Activities
    Net income $
    Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation expense
    Increase in accounts receivable
    Decrease in inventory
    Increase in prepaid rent
    Increase in accounts payable
    Decrease in income taxes payable
    Net cash provided by operating activities $
    Cash Flows from Investing Activities
    Acquisition of plant and equipment $
    Cash Flows from Financing Activities
    Retirement of bonds payable $
    Issuance of short-term notes payable
    Issuance of common stock
    Net cash provided by financing activities $
    Net increase in cash $
    Cash balance, December 31, 2016
    Cash balance, December 31, 2017 $

    2. Based on its statement of cash flows, Chrisman

         did not generate enough cash flow from its operating activities to fund its investing activities.

         In addition to operating activities, Chrisman generated cash ?

Solutions

Expert Solution

Solution

Chrisman Company
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash Flows from Operating Activities
Net income $ 25,300
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense $ 35,000
Increase in accounts receivable $   (5,000)
Decrease in inventory $ 10,700
Increase in prepaid rent $   (3,000)
Increase in accounts payable $    2,000
Decrease in income taxes payable $   (2,000)
Net cash provided by operating activities $ 63,000
Cash Flows from Investing Activities
Acquisition of plant and equipment $(100,000)
Cash Flows from Financing Activities
Retirement of bonds payable $ (25,000)
Issuance of short-term notes payable $ 10,000
Issuance of common stock $ 50,000
Net cash provided by financing activities $ 35,000
Net increase in cash $   (2,000)
Cash balance, December 31, 2016 $ 10,000
Cash balance, December 31, 2017 $    8,000

.

General notes for cash flow
Cash is increased when Current liability increase or Current asset Decrease.
Cash is Decreased when Current liability Decrease or Current asset Increase.
Depreciation or loss on sale of any asset is a non cash expense hence it will be added to net income to get operating cash
Profit on sale of asset or investment is a non cash profit and hence will be deducted from operating income.


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