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Statement of Cash Flows—Indirect Method Glendive Corp. is in the process of preparing its statement of...

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

Solutions

Expert Solution

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.


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