In: Accounting
Statement of Cash Flows Using a Work Sheet—Indirect Method (Appendix)
Wabash Corp. just completed another successful year, as
indicated by the following income statement:
For the Year Ended December 31, 2017 | |
Sales revenue | $2,460,000 |
Cost of goods sold | 1,400,000 |
Gross profit | $1,060,000 |
Operating expenses | 460,000 |
Income before interest and taxes | $600,000 |
Interest expense | 100,000 |
Income before taxes | $500,000 |
Income tax expense | 150,000 |
Net income | $350,000 |
Presented here are comparative balance sheets:
December 31 | |||
2017 | 2016 | ||
Cash | $140,000 | $210,000 | |
Accounts receivable | 60,000 | 145,000 | |
Inventory | 200,000 | 180,000 | |
Prepayments | 15,000 | 25,000 | |
Total current assets | $415,000 | $560,000 | |
Land | $600,000 | $700,000 | |
Plant and equipment | 850,000 | 600,000 | |
Accumulated depreciation | (225,000) | (200,000) | |
Total long-term assets | $1,225,000 | $1,100,000 | |
Total assets | $1,640,000 | $1,660,000 | |
Accounts payable | $140,000 | $120,000 | |
Other accrued liabilities | 50,000 | 55,000 | |
Income taxes payable | 80,000 | 115,000 | |
Total current liabilities | $270,000 | $290,000 | |
Long-term bank loan payable | $200,000 | $250,000 | |
Common stock | $450,000 | $400,000 | |
Retained earnings | 720,000 | 720,000 | |
Total stockholders' equity | $1,170,000 | $1,120,000 | |
Total liabilities and stockholders' equity | $1,640,000 | $1,660,000 |
Other information is as follows:
Dividends of $350,000 were declared and paid during the year.
Operating expenses include $25,000 of depreciation.
Land was sold for its book value, and new plant and equipment were acquired for cash.
Part of the bank loan was repaid, and additional common stock was issued for cash.
The president has asked you some questions about the year's results. She is very impressed with the profit margin of 14% (net income divided by sales revenue). She is bothered, however, by the decline in the company's cash balance during the year. One of the conditions of the existing bank loan is that the company maintain a minimum cash balance of $100,000.
Required:
1. Using the format in the chapter's appendix, prepare a statement of cash flows work sheet. If an amount box does not require an entry, leave it blank.
Balances | Cash Inflows (Outflows) | |||||
Accounts | 12/31/17 | 12/31/16 | Changes | Operating | Investing | Financing |
Cash | ||||||
Accounts Receivable | ||||||
Inventory | ||||||
Prepayments | ||||||
Land | ||||||
Plant and Equipment | ||||||
Accumulated Depreciation | ||||||
Accounts Payable | ||||||
Other Accrued Liabilities | ||||||
Income Taxes Payable | ||||||
Long-Term Bank Loan Payable | ||||||
Common Stock | ||||||
Retained Earnings | ||||||
Net Income | ||||||
Totals | $ | $ | $ | $ | $ | $ |
Net increase (decrease) in cash | $ |
2. Prepare a statement of cash flows for 2017 using the indirect method in the Operating Activities section. Use the minus sign to indicate net loss, cash payments, cash outflows, or decreases in cash.
Wabash Corp. | |
Statement of Cash Flows | |
For the Year Ended December 31, 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, December 31, 2016 | |
Cash balance, December 31, 2017 | $ |
3. During the year Wabash experienced a
decrease in cash at the end of the year due to
Cash flow indirect method | |||
Cash flow from operating activities | |||
Net income | 350000 | ||
Adjustments to reconcile the net income | |||
Depreciation expense | 25000 | ||
Changes in current asset and liabilities | |||
decrease in accounts receivable | 85000 | ||
Increase in Inventory | -20000 | ||
Decrease in prepayments | 10000 | ||
Increase in accounts payable | 20000 | ||
Decrease in accrued liabilities | -5000 | ||
Decrease in income tax payable | -35000 | ||
80000 | |||
Cash flow from operating activities | 430000 | ||
Cash flow from Investing activities | |||
Equipment purchased | -250000 | ||
Equipment sold | |||
Land sold | 100000 | ||
Cash flow from Investing activities | -150000 |
Cash flow from Financing activities | |||
Paid in capital in excess | |||
Common stock | 50000 | ||
Dividend | -350000 | ||
Long term balnk loan payable | -50000 | ||
Cash flow from Financing activities | -350000 | ||
Net Cash and cash equivalent | -70000 | ||
Add | Beginning cash and cash equivalent | 210000 | |
Ending cash and cash equivalent | 140000 | ||