Question

Comparative balance sheet accounts of Whispering Inc. are presented below. WHISPERING INC. COMPARATIVE BALANCE SHEET ACCOUNTS AS OF DECEMBER 31, 2017 AND 2016 December 31 Debit Accounts 2017 2016 Cash $42,400 $33,500 Accounts Receivable 70,200 59,800 Inventory 29,700 24,100 Equity investments 22,500 38,100 Machinery 30,100 18,900 Buildings 67,000 55,700 Land 7,400 7,400 $269,300 $237,500 Credit Accounts Allowance for Doubtful Accounts $2,200 $1,600 Accumulated Depreciation—Machinery 5,600 2,200 Accumulated Depreciation—Buildings 13,600 9,000 Accounts Payable 35,300 24,600 Accrued Payables 3,400 2,600 Long-Term Notes Payable 20,800 30,900 Common Stock, no-par 150,000 125,000 Retained Earnings 38,400 41,600 $269,300 $237,500 Additional data (ignoring taxes): 1. Net income for the year was $42,900. 2. Cash dividends declared and paid during the year were $21,100. 3. A 20% stock dividend was declared during the year. $25,000 of retained earnings was capitalized. 4. Equity investments (level of ownership is less than 20%) that cost $25,100 were sold during the year for $28,800. No unrealized gains and losses were recorded on these investments in 2017. 5. Machinery that cost $3,800, on which $750 of depreciation had accumulated, was sold for $2,250. Whispering’s 2017 income statement follows (ignoring taxes). Sales revenue $541,200 Less: Cost of goods sold 380,200 Gross margin 161,000 Less: Operating expenses (includes $8,750 depreciation and $5,835 bad debts) 121,000 Income from operations 40,000 Other: Gain on sale of investments $3,700 Loss on sale of machinery (800 ) 2,900 Net income $42,900

(a) Compute net cash flow from operating activities using the direct method. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Net cash flow from operating activities $

(b) Prepare a statement of cash flows using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).) WHISPERING INC. Statement of Cash Flows (Indirect Method) $ Adjustments to reconcile net income to $ $

Answer 1

Cashflow statement in Indirect Method:

Description	Amount	Amount
Cash flow from operating activity		$          44,850
Net Income before tax	$          42,900
Gain on sale of investments	$           (3,700)
Loss on sale of equipment	$               800
Add non-cash expense
Depreciation	$            8,750
Adjustment for change in working capital
Increase in AR	$        (10,400)
Increase in inventory	$           (5,600)
Increase in Allowance	$               600
Increase in AP	$          10,700
Increase in Accrued Liability	$               800
Cash flow from financing activity		$        (31,200)
Issue of new shares
Redemption of new bonds	$        (10,100)
Dividends paid	$        (21,100)
Cash flow from investing activity		$           (4,750)
Sale of investment	$          28,800
Sale of Machinery	$            2,250
Purchase of PPE	$        (15,000)
Purchase of Building	$        (11,300)
Purchase on equity investment	$           (9,500)
Cash generated during the year		$            8,900
Opening cash balance		$          33,500
Closing Cash balance		$          42,400
	In BS	$          42,400
	Variance	$                   -
Opening profits	$          41,600
Profit for the year	$          42,900
total	$          84,500
Less Closing profits	$        (38,400)
Dividend distributed	$          46,100
Cash dividend	$          21,100
Stock dividend (125000*20%)	$          25,000
Total dividend	$          46,100
Equity investment opening	$          38,100
Less book value of the sold investment	$        (25,100)
Remaining value	$          13,000
Value in the balance sheet	$          22,500
Fresh investment	$            9,500
Machinery opening balance	$          18,900
Less sold machine	$           (3,800)
Net amount	$          15,100
The closing balance of Machine	$          30,100
Purchase of Machine	$          15,000

Cash flow from operating activities in the Direct method
Description	Amount
Cash collected from receivables	$        525,565
Less: Cash paid for payables	$      (375,100)
Less: Cash paid for operating expense (121000-8750-5835)	$      (105,615)
Cash generated by operating activities	$          44,850

Accounts receivable
Opening AR	$         59,800
Add: New sale	$      541,200
Less: Actual bad debt	$         (5,235)
Less: Closing balance	$       (70,200)
Cash collected from AR	$      525,565
Allowance for doubtful debt
Opening balance	$           1,600
Add: Bad debt expense	$           5,835
Less: Closing balance	$         (2,200)
Actual bad debt	$           5,235
Inventory
Closing balance	$         29,700
Add: cost of goods sold	$      380,200
Less: Opening balance	$       (24,100)
Actual purchase	$      385,800
Accounts payables
Opening balance	$         24,600
Add: Purchase	$      385,800
Less: Closing balance	$       (35,300)
Cash payment	$      375,100
Operating expense
Expense in PL	$      121,000
Less: Bad debt	$         (5,835)
Less: depreciation	$         (8,750)
Less: Closing expense payable	$         (3,400)
Less: Opening expense payable	$           2,600
Cash payment	$      105,615