In: Accounting
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 ?
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.