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

Johns Company
Statement of Cash Flows-Indirect Method
For the year ended 2020
Particulars	Amount
Cash Flows from Operating Activities
Net Income	66,850.00
Adjustments to reconcile net loss to net cash flow from operating activites
Add	Amortization of Patent	5,000.00
Add	Depreciation on Building & Equipment	35,500.00
Less	Gain on Sale of Equipment	-8,000.00
Changes in Current Assets & liabilities
Less	Increase in Accounts Receivables	-7,550.00
Less	Increase in Inventory	-7,000.00
Add	Decrease in Prepaid Rent	9,000.00
Less	Increase in Prepaid Insurance	-1,450.00
Add	Increase in Wages Payable	2,000.00
Less	Decrease in Accounts Payable	-10,000.00
Add	Increase in Income Tax Payable	1,000.00
Net Cash flow used for operating activities	85,350.00	A
Cash Flows from (Used for) Investing Activities
Add	Receipt from Sale of Equipment	58,000.00
Less	Payment for Purchase of Equipment	-135,000.00
Net Cash Flow used for Investing Activities	-77,000.00	B
Cash Flows from (Used for) Financing Activities
Less	Payment for Long-term notes payable	-10,000.00
Less	Payment of Premium on bond payable	-5,550.00
Less	Payment of Dividend	-22,300.00
Add	Receipt from PIC-Common Stock	7,500.00
Add	Receipt from Issue of Common Shares	20,000.00
Net Cash Flow from Financing Activities	-10,350.00	C
Net increase in cash and cash equilvalent during the year (A+B+C)	-2,000.00
Add	Cash at the beginning of the year	32,000.00
	Cash at the end of the year	30,000.00

Particulars	Amount
Account Receivable as on 2019	12,950
Add :- Sale Revenue	1,160,000
Less :- Account Receivable as on 2020	20,500
Cash receipts from customers during the year	1,152,450

Particulars	Amount
Opening Inventory	35,000
Add :- COGS	748,000
Less :- Closing Inventory	42,000
Purchases	741,000

Particulars	Amount
Accounts Payable as on 2019	32,000
Add :- Purchases	741,000
Less :- Accounts Payable as on 2020	22,000
Cash paid to suppliers to purchase inventory during the year	751,000