Question

Exercise 23-12

Condensed financial data of Bonita Company for 2017 and 2016 are presented below.

Oriole COMPANY COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2017 AND 2016
		2017			2016
Cash		$1,760			$1,180
Receivables		1,750			1,290
Inventory		1620			1,890
Plant assets		1930			1,690
Accumulated depreciation		(1280)			(1,160)
Long-term investments (held-to-maturity)		1,290			1,440
		$7,070			$6,330
Accounts payable		$1,180			$920
Accrued liabilities		200			260
Bonds payable		1,370			1,550
Common stock		1,930			1,670
Retained earnings		2,390			1,930
		$7,070			$6,330

BONITA COMPANY INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2017
Sales revenue		$6,800
Cost of goods sold		4,700
Gross margin		2,100
Selling and administrative expenses		910
Income from operations		1,190
Other revenues and gains
Gain on sale of investments		80
Income before tax		1,270
Income tax expense		550
Net income		720
Cash dividends		260
Income retained in business		$460

Additional information:

During the year, $70 of common stock was issued in exchange for plant assets. No plant assets were sold in 2017.

Prepare a statement of cash flows using the direct method. (Show amounts in the investing and financing sections that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

BONITA COMPANY
Statement of Cash Flows
(Direct Method)
Cash Flows from operating activities
cash receipts from customers
cash paid for merchandise
cash paid for selling/admin expenses
cash paid for income taxes
net cash provided by operating activities
cash flows from investing activities
sale of plant assets
sale of investments
net cash provided by investing activities
cash flows from financing acitivities
payment of cash dividends
redemption of bonds payable
issuance of capital stock
net cash used by financing activities
net increase in cash
cash at beginning of period
cash at end of period
noncash investing and financing activities
insurance of common stock for plant assets

Answer 1

Cash received from customer = Beginning accounts receivables + Sales revenue – Ending accounts receivables

Cash received from customers = $1,290 + $6,800 - $1,750 = $6,340

Inventory purchased = Ending inventory + Cost of goods sold – Beginning inventory = $1,620 + $4,700 - $1890 = $4,430

Cash paid for merchandise = Beginning accounts payable + Inventory purchased - Ending accounts payable = $920 + $4,430 – $1,180 = $4,170

Cash paid for selling/admin expenses = Beginning accrued liabilities + Selling and administrative expenses – Ending accrued liabilities – Depreciation expense = $260 + $910 - $200 – ($1,280-$1,160) = $850

Increase in plant assets = Plant assets purchased in cash + Plant assets received in exchange of common stock

$1,930 - $1,690 = Purchase of plant assets in cash + $70

Purchase of plant assets in cash = $240 - $70 = $170

Cash on sale of investment = Decrease in investments + Gain on sale of investments = $1,440 - $1,290 + $80 = $230

Issue of common stock for cash = Increase in common stock – Stock issue in exchange of plant assets = $1,930 - $1,670 - $70 = $190

BONITA COMPANY
Statement of Cash Flows
(Direct Method)
Cash Flows from operating activities
cash receipts from customers	$ 6,340.00
cash paid for merchandise	-$ 4,170.00
cash paid for selling/admin expenses	-$ 850.00
cash paid for income taxes	-$ 550.00
net cash provided by operating activities		$ 770.00
cash flows from investing activities
Purchase of plant assets	-$ 170.00
sale of investments	$ 230.00
net cash provided by investing activities		$ 60.00
cash flows from financing acitivities
payment of cash dividends	-$ 260.00
redemption of bonds payable	-$ 180.00
issuance of capital stock	$ 190.00
net cash used by financing activities		-$ 250.00
net increase in cash		$ 580.00
cash at beginning of period		$ 1,180.00
cash at end of period		$ 1,760.00
noncash investing and financing activities
insurance of common stock for plant assets		$ 70.00