In: Accounting
Statement of Cash Flows—Indirect Method
Glendive Corp. is in the process of preparing its statement of
cash flows for the year ended June 30, 2017. An income statement
for the year and comparative balance sheets are as
follows:
For the Year Ended June 30, 2017 |
|
Sales revenue | $550,000 |
Cost of goods sold | 350,000 |
Gross profit | $200,000 |
General and administrative expenses | $55,000 |
Depreciation expense | 75,000 |
Loss on sale of plant assets | 5,000 |
Total expenses and losses | $135,000 |
Income before interest and taxes | $65,000 |
Interest expense | 15,000 |
Income before taxes | $50,000 |
Income tax expense | 17,000 |
Net income | $33,000 |
June 30 | |||
2017 | 2016 | ||
Cash | $31,000 | $40,000 | |
Accounts receivable | 90,000 | 75,000 | |
Inventory | 80,000 | 95,000 | |
Prepaid rent | 12,000 | 16,000 | |
Total current assets | $213,000 | $226,000 | |
Land | $250,000 | $170,000 | |
Plant and equipment | 750,000 | 600,000 | |
Accumulated depreciation | (310,000) | (250,000) | |
Total long-term assets | $690,000 | $520,000 | |
Total assets | $903,000 | $746,000 | |
Accounts payable | $155,000 | $148,000 | |
Other accrued liabilities | 32,000 | 26,000 | |
Income taxes payable | 8,000 | 10,000 | |
Total current liabilities | $195,000 | $184,000 | |
Long-term bank loan payable | $100,000 | $130,000 | |
Common stock | $350,000 | $200,000 | |
Retained earnings | 258,000 | 232,000 | |
Total stockholders' equity | $608,000 | $432,000 | |
Total liabilities and stockholders' equity | $903,000 | $746,000 |
Dividends of $7,000 were declared and paid during the year. New plant assets were purchased during the year for $195,000 in cash. Also, land was purchased for cash. Plant assets were sold during the year for $25,000 in cash. The original cost of the assets sold was $45,000, and their book value was $30,000. Additional stock was issued for cash, and a portion of the bank loan was repaid.
Required:
1. Prepare a statement of cash flows for 2017 using the indirect method in the Operating Activities section. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash.
Glendive Corp. | |
Statement of Cash Flows | |
For the Year Ended June 30, 2017 | |
Cash Flows from Operating Activities | |
$ | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
$ | |
Cash Flows from Investing Activities | |
$ | |
$ | |
Cash Flows from Financing Activities | |
$ | |
$ | |
$ | |
Cash balance, June 30, 2016 | |
Cash balance, June 30, 2017 | $ |
2. Cash flow from operations computed under the direct method is
1) Indirect method
Glendive Corp. | |
Statement of Cash Flows | |
For the Year Ended June 30, 2017 | |
Cash Flows from Operating Activities :- | |
Net Income | 33000 |
Adjustments to reconcile net income to net cash provided by operating activities: | |
Depreciation | 75000 |
Loss on sale of plant | 5000 |
Interest exp | 15000 |
Increase in accounts rec. | (15000) |
Decrease in inventory | 15000 |
Dncrease in prepaid rent | 4000 |
Increase in accounts payable | 7000 |
Increase in other accrued liability | 6000 |
Income tax (exp of current year) | 17000 |
Actual tax paid (10000+17000-8000) | (19000) |
Net Cash Inflow from operating activity | 143000 |
Investing Activity | |
Land purchased | (80000) |
Plant assets purchased | (195000) |
Plant assets sold | 25000 |
Net Cash Outflow from financing activity | (250000) |
Financing Activity | |
Dividend paid | (7000) |
Common stock issued | 150000 |
Loan repayment | (30000) |
Interest exp | (15000) |
Net cash inflow from financing activity | 98000 |
Net cash flow from all activity | (9000) |
add: opening cash , 30 june 2016 | 40000 |
closing cash balance , 30 june 2017 | 31000 |
Interest exp considered as financing activity.
2) Direct method
Cash Flows from Operating Activities | |
Collections from Drs (75000+550000-90000) | 535000 |
Payments to Accounts payables (80000+350000-95000+148000-155000) | (328000) |
Payment to expenses (55000+12000-16000+26000-32000) | (45000) |
Tax paid | (19000) |
Net Cash Inflow from operating activity | 143000 |
Investing and financing activity will be same.