Question

The comparative balance sheet of Livers Inc. for December 31, 20Y3 and 20Y2, is as follows:

1		Dec. 31, 20Y3	Dec. 31, 20Y2
2	Assets
3	Cash	$626,640.00	$585,760.00
4	Accounts receivable (net)	226,900.00	208,390.00
5	Inventories	641,350.00	616,130.00
6	Investments	0.00	239,300.00
7	Land	328,730.00	0.00
8	Equipment	705,940.00	553,530.00
9	Accumulated depreciation-equipment	(166,970.00)	(148,000.00)
10	Total assets	$2,362,590.00	$2,055,110.00
11	Liabilities and Stockholders’ Equity
12	Accounts payable (merchandise creditors)	$425,140.00	$404,540.00
13	Accrued expenses payable (operating expenses)	42,020.00	52,750.00
14	Dividends payable	23,580.00	19,500.00
15	Common stock, $2 par	150,000.00	100,000.00
16	Paid-in capital: Excess of issue price over par—common stock	417,500.00	280,000.00
17	Retained earnings	1,304,350.00	1,198,320.00
18	Total liabilities and stockholders’ equity	$2,362,590.00	$2,055,110.00

The income statement for the year ended December 31, 20Y3, is as follows:

1	Sales		$5,375,435.00
2	Cost of goods sold		3,306,880.00
3	Gross profit		$2,068,555.00
4	Operating expenses:
5	Depreciation expense	$18,970.00
6	Other operating expenses	1,755,677.00
7	Total operating expenses		1,774,647.00
8	Operating income		$293,908.00
9	Other income:
10	Gain on sale of investments		40,580.00
11	Income before income tax		$334,488.00
12	Income tax expense		132,778.00
13	Net income		$201,710.00

Additional data obtained from an examination of the accounts in the ledger for 20Y3 are as follows:

	a. The investments were sold for $279,880 cash.
	b. Equipment and land were acquired for cash.
	c. There were no disposals of equipment during the year.
	d. The common stock was issued for cash.
	e. There was a $95,680 debit to Retained Earnings for cash dividends declared.

Prepare a statement of cash flows, using the direct method of presenting cash flows from operating activities. Be sure to complete the heading of the statement. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. Enter amounts that represent cash outflows as negative numbers using a minus sign.

Answer 1

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Part a. Direct Method
Cash flows from operating activities
Cash received from customers (Working-1)			$     5,356,925
Cash paid to suppliers (Working-2)		$                                                    -3,311,500
Cash paid for other expense (Working-3)		$                                                    -1,766,407
Payment of Income Tax		$                                                        -132,778
			$   -5,210,685
Net cash provided by operating activities			$        146,240
Cash flows from investing activities
Sale of Investment		$                                                          279,880
Purchase of Land		$                                                        -328,730
Purchase of equipment		$                                                        -152,410
Net cash used by investing activities			$       -201,260
Cash flows from financing activities
Issue of Common Stock		$                                                            50,000
Increase in paid in capital		$                                                          137,500
Dividend paid	Working-4	$                                                          -91,600
Net cash used by financing activities			$           95,900
Net increase in cash and cash equivalents			$           40,880
Cash and cash equivalents, Beginning			$        585,760
Cash and cash equivalents, Ending			$        626,640	$                      -
Working:
(1)   Cash received from customers
Sales revenue		$                                                      5,375,435
Less: Increase in accounts receivable		$                                                          -18,510
Cash received from customers		$                                                      5,356,925
(2)             Cash paid to suppliers
Cost of goods sold		$                                                      3,306,880
Add: Increase in Inventory		$                                                            25,220
		$                                                      3,332,100
Less: Increase in Accounts Payable		$                                                          -20,600
Cash paid to suppliers for goods		$                                                      3,311,500
(3) Cash paid for Other Expense
Other Expense		$                                                      1,755,677
Add: Decrease in Accrued Expense		$                                                            10,730
Cash Paid		$                                                      1,766,407
(4) Cash paid for Dividend
Beginning Balance		$                                                            19,500
Add: Debit to Retained Earning		$                                                            95,680
less: Ending Balance		$                                                          -23,580
Cash Paid		$                                                            91,600