Question

Problem 23-3 Sunland Company has not yet prepared a formal statement of cash flows for the 2017 fiscal year. Comparative balance sheets as of December 31, 2016 and 2017, and a statement of income and retained earnings for the year ended December 31, 2017, are presented as follows.

SUNLAND COMPANY STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 2017 ($000 OMITTED) Sales revenue $3,840 Expenses    Cost of goods sold $1,210    Salaries and benefits 730    Heat, light, and power 80    Depreciation 70    Property taxes 20    Patent amortization 30    Miscellaneous expenses 10    Interest 30 2,180 Income before income taxes 1,660 Income taxes 830 Net income 830 Retained earnings—Jan. 1, 2017 280 1,110 Stock dividend declared and issued 590 Retained earnings—Dec. 31, 2017 $520

SUNLAND COMPANY COMPARATIVE BALANCE SHEETS AS OF DECEMBER 31 ($000 OMITTED) Assets 2017 2016 Current assets    Cash $235 $140    U.S. Treasury notes (available-for-sale) 10 50    Accounts receivable 790 500    Inventory 740 540      Total current assets 1,775 1,230 Long-term assets    Land 150 70    Buildings and equipment 930 590    Accumulated depreciation—buildings and equipment (170 ) (100 )    Patents (less amortization) 90 120      Total long-term assets 1,000 680      Total assets $2,775 $1,910 Liabilities and Stockholders’ Equity Current liabilities    Accounts payable $391 $370    Income taxes payable 44 30    Notes payable 300 300      Total current liabilities 735 700 Long-term notes payable—due 2019 220 220    Total liabilities 955 920 Stockholders’ equity    Common stock 1,300 710    Retained earnings 520 280      Total stockholders’ equity 1,820 990      Total liabilities and stockholders’ equity $2,775 $1,910

Prepare a statement of cash flows using the direct method. Changes in accounts receivable and accounts payable relate to sales and cost of goods sold. (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).) SUNLAND COMPANY Statement of Cash Flows ($000 Omitted) $ $ $

Answer 1

Solution:

Computation of cash received from customers
Particulars	Amount
Beginning accounts receivables	$500.00
Add: Sales	$3,840.00
Less: Ending accounts receivables	$790.00
Cash received from customers	$3,550.00

Computation of cash paid for inventory
Particulars	Amount
Cost of Goods Sold	$1,210.00
Add: Ending inventory	$740.00
Less: Beginning inventory	$540.00
Purchases made during the year	$1,410.00
Add: Opening accounts payable	$370.00
Less: Ending accounts payable	$391.00
Cash paid to supplier for inventory	$1,389.00

Computation of cash paid for Income Tax
Particulars	Amount
Income tax expense	$830.00
Add: Beginning income tax Payable	$30.00
Less: Ending income tax payable	$44.00
Cash paid for income tax	$816.00

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		$3,550.00
Less: Cash disbursement:
Cash paid to supplier for inventory	-$1,389.00
Cash paid for Salaries and benefits	-$730.00
Cash paid for Heat, light and power	-$80.00
Cash paid for property taxes	-$20.00
Cash paid for miscellenous expenses	-$10.00
Cash paid for interest	-$30.00
Cash Paid for income taxes	-$816.00	-$3,075.00
Net Cash provided by operating activities		$475.00
Cash flow from investing activities:
Cash received from sale of US treasury notes	$40.00
Purchase of land	-$80.00
Purchase of building and equipment	-$340.00
Net Cash used in investing activities		-$380.00
Cash flow from financing activities:		$0.00
Net Increase (Decrease) in Cash		$95.00
Cash balance at beginning of year		$140.00
Cash balance at end of year		$235.00