Question

Condensed financial data of Buffalo Industries follow.

Buffalo Industries

Comparative Balance Sheets

December 31

Assets 2017 2016

Cash $ 88,880 $ 53,240

Accounts receivable 96,580 41,800

Inventory 123,750 113,135

Prepaid expenses 31,240 28,600

Long-term investments 151,800 119,900

Plant assets 313,500 266,750

Accumulated depreciation (55,000 ) (57,200 )

Total $750,750 $566,225

Liabilities and Stockholders’ Equity

Accounts payable $ 112,200 $ 74,030

Accrued expenses payable 18,150 23,100

Bonds payable 121,000 160,600

Common stock 242,000 192,500

Retained earnings 257,400 115,995

Total $750,750 $566,225

Buffalo Industries Income Statement

Data For the Year Ended December 31, 2017

Sales revenue $427,306

Less:

Cost of goods sold $149,006

Operating expenses, excluding depreciation 13,651

Depreciation expense 51,150

Income tax expense 30,008

Interest expense 5,203

Loss on disposal of plant assets 8,250 257,268

Net income $ 170,038

Additional information:

1. New plant assets costing $110,000 were purchased for cash during the year.

2. Old plant assets having an original cost of $63,250 and accumulated depreciation of $53,350 were sold for $1,650 cash.

3. Bonds payable matured and were paid off at face value for cash.

4. A cash dividend of $28,633 was declared and paid during the year. Further analysis reveals that accounts payable pertain to merchandise creditors.

Prepare a statement of cash flows for Buffalo Industries 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).)

Answer 1

Buffalo Industries
Statement of Cash Flows
For the Year Ended December 31, 2017
(Direct Method)
Cash Flows from Operating Activities
Cash receipts from customers	372526
Cash paid for merchandise	121451
Cash paid for operating expenses	21241
Cash paid for interest expense	5203
Cash paid for income taxes	30008
Net cash provided by operating activities		194623
Cash Flows from Investing Activities
Sale proceeds of plant assets	1650
Purchase of plant assets	-110000
Purchase of long-term investments	-31900
Net cash used by investing activities		-140250
Cash Flows from Financing Activities
Issuance of Capital stock	49500
Redemption of Bonds payable	-39600
Payment of cash dividends	-28633
Net cash used by financing activities		-18733
Net increase in cash		35640
Cash at beginning of period		53240
Cash at end of period		88880

Working:

Cash receipts from customers
Sales Revenue	427306
Less: Increase in Accounts Receivable	54780
	372526
Cash paid for merchandise
Cost of goods sold	149006
Add: Increase in Inventory	10615
Less: Increase in Accounts Payable	38170
	121451
Cash paid for operating expenses
Operating expenses	13651
Add: Decrease in Accrued expenses payable	4950
Add: Increase in Prepaid expenses	2640
	21241