Question

Johns Company's Comparative balance sheet and income statement are presented below.

	2020	2019
Cash	$30,000	$32,000
Accounts receivable	20,500	12,950
Inventory	42,000	35,000
Prepaid rent	3,000	12,000
Prepaid insurance	3,100	1,650
Land	125,000	125,000
Building &Equipment	875,000	800,000
Accumulated Dep.-building &equipment	(225,000)	(199,500)
Patents	45,000	50,000
Total assets	918,600	869,100
Accounts payable	22,000	32,000
Income taxes payable	5,000	4,000
Wage payable	5,000	3,000
Long-term notes payable	70,000	80,000
Bonds payable	400,000	400,000
Premium on bonds payable	20,303	25,853
Common stock	240,000	220,000
PIC-Common stock	25,000	17,500
Retained earnings	131,297	86,747
Total liabilities&SE	918,600	869,100

Income statement for 2020:

Sale Revenue	1,160,000
COGS	748,000
Gross margin	412,000
Operating expense:
Selling expense	79,200
Administrative expense	156,700
Depreciation expense	35,500
Amortization expense	5,000
Total operating expenses	276,400
Income from operation	135,600
Gain on sale of equipment	(8,000)
Interest expense	49,350
Income tax expense	94,250
Income tax expense	(27,400)
Net income	66,850

Additional information for transactions in 2020:

1. New equipment was purchased for $135,000 in cash.
2. Equipment that originally cost $60,000 and was depreciated by $10,000 was sold for cash.
3. A payment of $10,000 was paid to the bank for the notes payable.
4. Johns Co. declared dividends and made the payment to its shareholders.
5. In November, in order to finance the operation, Johns Co. issued additional common stock to shareholders.

Instructions

• Prepare a statement of cash flows for Johns Company using the indirect method.
• What is the amount of cash receipts from customers?
• What is the amount of cash paid to suppliers to purchase inventory?

Answer 1

Cash Flow Statement
Indirect Method
Cash flow from Operating Activities
Net Income		$          66,850
Adjustments
Depreciation	$          35,500
Amortization	$            5,000
Gain on sale of equipment	$           -8,000
Increase in Accounts Receivable	$           -7,550
Increase in Inventory	$           -7,000
Decrease in Prepaid Rent	$            9,000
Increase in Prepaid Insurance	$           -1,450
Decrease in Accounts payable	$         -10,000
Increase in Income tax payable	$            1,000
Increase in Wage payable	$            2,000
Decrease in Premium on Bonds	$           -5,550
Total Adjustments		$          12,950
Net Cash from operating activities			$          79,800
Cash flow from Investing Activities
Purchase of Equipment		$      -1,35,000
Sale of Equipment		$          58,000
Net Cash used in investing activities			$        -77,000
Cash flow from Financing Activities
Issue of Common Stock		$          27,500
Paid for long term notes payable		$         -10,000
Payment of cash dividends		$         -22,300
Net Cash used in financing activities			$           -4,800
Net Increase in cash			$           -2,000
Cash, beginning of the year			$          32,000
Cash, ending of the year			$          30,000

Cash Receipts from Customers = $1160000 + 12950 - 20500 = $1152450
Cash paid to Suppliers = $748000+32000-22000+42000-35000 = $765000