Question

Metlock Inc., a greeting card company, had the following statements prepared as of December 31, 2020.

METLOCK INC. COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2020 AND 2019
		12/31/20			12/31/19
Cash		$5,900			$7,100
Accounts receivable		62,000			51,000
Short-term debt investments (available-for-sale)		35,000			18,100
Inventory		40,400			59,900
Prepaid rent		5,000			4,000
Equipment		153,300			129,100
Accumulated depreciation—equipment		(35,000	)		(24,800	)
Copyrights		46,300			50,300
Total assets		$312,900			$294,700
Accounts payable		$46,500			$40,200
Income taxes payable		4,100			6,100
Salaries and wages payable		8,100			4,100
Short-term loans payable		8,000			10,100
Long-term loans payable		60,600			69,600
Common stock, $10 par		100,000			100,000
Contributed capital, common stock		30,000			30,000
Retained earnings		55,600			34,600
Total liabilities & stockholders’ equity		$312,900			$294,700

METLOCK INC. INCOME STATEMENT FOR THE YEAR ENDING DECEMBER 31, 2020
Sales revenue				$338,150
Cost of goods sold				175,700
Gross profit				162,450
Operating expenses				119,400
Operating income				43,050
Interest expense		$11,300
Gain on sale of equipment		2,000		9,300
Income before tax				33,750
Income tax expense				6,750
Net income				$27,000

Additional information:

1.		Dividends in the amount of $6,000 were declared and paid during 2020.
2.		Depreciation expense and amortization expense are included in operating expenses.
3.		No unrealized gains or losses have occurred on the investments during the year.
4.		Equipment that had a cost of $19,800 and was 70% depreciated was sold during 2020.

Prepare a statement of cash flows using the direct method.

Answer 1

Solution:
	Statement of Cash Flows - Direct Method
	© www.excel-skills.com	Amount
	Cash flows from operating activities
	Cash Receipts:
	Cash receipts from customers (Wn1)	$       327,150
	Cash Payments:
	Cash paid for Merchandise (WN2)	$     -149,900
	Cash Paid for Operating Expenses (Wn 3)	$       -88,340
	Cash paid for interest expenses	$       -11,300
	Cash paid for income tax expenses	$         -8,750
	Net cash from operating activities		$      68,860
	Cash flows from investing activities
	Sale of Equipment	$           7,940
	Purchase of Equipment	$       -44,000
	Purchase of Investment	$       -16,900
	Net cash used in investing activities		$     -52,960
	Cash flows from financing activities
	Dividend Paid	$         -6,000
	Repayment of Short term loan	$         -2,100
	Repayment of Long term loan	$         -9,000
	Net cash used in financing activities		$     -17,100
	Net increase in cash and cash equivalents		$       -1,200
	Cash and cash equivalents at beginning of period		$        7,100
	Cash and cash equivalents at end of period		$        5,900
	Working notes: 1
	Calculation of cash collection from customer
	Sales Revenue	$            338,150
	Add: Opening Net AR	$              51,000
	Less: Closing Net AR	$              62,000
	Cash Collected (A)	$            327,150
	Working notes: 2
	Calculation of purhcase of inventory
	Cost of Goods Sold	$            175,700
	Add: Closing inventory	$              40,400
	Less : Opening Inventory	$              59,900
	Material Purhcased	$            156,200
	Calculation of amount paid to supplied
	Op. Balance of Acct Payable	$              40,200
	Add: Purchases	$            156,200
	Less: Cl. Balance of Account payable	$              46,500
	Cash paid	$            149,900
	Working notes: 3
	Calculation of amount paid for other operating expenses
	Operating Expenses	$            119,400
	Less: Depreciation expenses	$             -24,060
	Add: Increase in prepaid rent	$                 1,000
	Less: Increase in salary Payable	$               -4,000
	Less: Amortization Expenses	$               -4,000
	Net Cash Paid	$              88,340