Question

Exercise 23-13 Ivanhoe Inc., a greeting card company, had the following statements prepared as of December 31, 2017.

IVANHOE INC. COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2017 AND 2016 12/31/17 12/31/16 Cash $5,900 $7,000 Accounts receivable 61,400 51,500 Short-term debt investments (available-for-sale) 35,000 18,200 Inventory 40,000 60,500 Prepaid rent 5,000 4,100 Equipment 152,900 131,100 Accumulated depreciation—equipment (35,200 ) (25,100 ) Copyrights 45,800 50,000 Total assets $310,800 $297,300 Accounts payable $46,100 $40,100 Income taxes payable 3,900 5,900 Salaries and wages payable 8,000 4,000 Short-term loans payable 8,100 10,000 Long-term loans payable 60,400 69,300 Common stock, $10 par 100,000 100,000 Contributed capital, common stock 30,000 30,000 Retained earnings 54,300 38,000 Total liabilities & stockholders’ equity $310,800 $297,300

IVANHOE INC. INCOME STATEMENT FOR THE YEAR ENDING DECEMBER 31, 2017 Sales revenue $332,700 Cost of goods sold 176,000 Gross profit 156,700 Operating expenses 119,300 Operating income 37,400 Interest expense $11,500 Gain on sale of equipment 2,100 9,400 Income before tax 28,000 Income tax expense 5,600 Net income $22,400

Additional information: 1. Dividends in the amount of $6,100 were declared and paid during 2017. 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 2017.

Prepare a statement of cash flows using the direct method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).) IVANHOE INC. Statement of Cash Flows $ $ $

Answer 1

Solution:

Computation of cash received from customers
Particulars	Amount
Beginning accounts receivables	$51,500.00
Add: Sales	$332,700.00
Less: Ending accounts receivables	$61,400.00
Cash received from customers	$322,800.00

Computation of cash paid for inventory
Particulars	Amount
Cost of Goods Sold	$176,000.00
Add: Ending inventory	$40,000.00
Less: Beginning inventory	$60,500.00
Purchases made during the year	$155,500.00
Add: Opening accounts payable	$40,100.00
Less: Ending accounts payable	$46,100.00
Cash paid to supplier for inventory	$149,500.00

Computation of cash paid for Operating expenses
Particulars	Amount
Operating expenses	$119,300.00
Less: Depreciation expense ($35,200 - $25,100 + $13,860)	$23,960.00
Less: Amortization expense	$4,200.00
Add: Ending Prepaid expense	$5,000.00
Less: Beginning prepaid expense	$4,100.00
Add: Beginning salaries and wages payable	$4,000.00
Less: Ending salaries and wages payable	$8,000.00
Cash paid for operating expenses	$88,040.00

Computation of cash paid for Income Tax
Particulars	Amount
Income tax expense	$5,600.00
Add: Beginning income tax Payable	$5,900.00
Less: Ending income tax payable	$3,900.00
Cash paid for income tax	$7,600.00

Ivanhoe Inc.
Statement of Cash Flows (Direct Method)
For Year Ended December 31, 2017
Particulars	Details	Amount
Cash Flows from operating activities:
Cash received from customers		$322,800.00
Less: Cash disbursement:
Cash paid to supplier for inventory	-$149,500.00
Cash paid for operating expenses	-$88,040.00
Cash paid for interest	-$11,500.00
Cash Paid for income taxes	-$7,600.00	-$256,640.00
Net Cash provided by operating activities		$66,160.00
Cash flow from investing activities:
Cash received from sale of equipment ($19,800*30% + $2,100)	$8,040.00
Purchase of equipment ($152,900 - $131,100 + $19,800)	-$41,600.00
Cash paid for purhcase of short term debt investment ($35,000 - $18,200)	-$16,800.00
Net Cash used in investing activities		-$50,360.00
Cash flow from financing activities:
Repayment of short term loan	-$1,900.00
Repayment of long term loan	-$8,900.00
Cash paid for dividends	-$6,100.00
Net Cash used in financing activities		-$16,900.00
Net Increase (Decrease) in Cash		-$1,100.00
Cash balance at beginning of year		$7,000.00
Cash balance at end of year		$5,900.00