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 | |
Net income | $ |
Adjustments to reconcile net income to net cash provided by operating activities: | |
Depreciation expense | |
Loss on sale of plant assets | |
Increase in accounts receivable | |
Decrease in inventory | |
Decrease in prepaid rent | |
Increase in accounts payable | |
Increase in other accrued liabilities | |
Decrease in income taxes payable | |
Net cash provided by operating activities | $ |
Cash Flows from Investing Activities | |
Sale of plant assets | $ |
Acquisition of land | |
Acquisition of new plant assets | |
Net cash used by investing activities | $ |
Cash Flows from Financing Activities | |
Repayment of long-term loan | $ |
Issuance of additional stock | |
Payment of cash dividends | |
Net cash provided by financing activities | $ |
Net decrease in cash | $ |
Cash balance, June 30, 2016 | |
Cash balance, June 30, 2017 | $ |
Feedback
The indirect method involves reporting net cash flow from operating activities; it is computed by adjusting net income to remove the effect of all deferrals of past operating cash receipts and payments and all accruals of future operating cash receipts and payments. The sum of operating, investing, and financing activities must equal the net change in cash.
2. Cash flow from operations computed under the
direct method is
preferred by investors as it provides more information by
showing actual inflows and outflows of cash.
Feedback
Correct
Feedback
Partially correct
Solution 1:
Statement of Cash
Flows - Glendive Corporation For the year ended Jun 30, 2017 |
||
Particulars | Details | Amount |
Cash Flow from Operating Activities: | ||
Net Income | $33,000.00 | |
Adjustments to reconcile net income to cash flow from operating activities: | ||
Depreciation Expense | $75,000.00 | |
Loss on sale of plant assets | $5,000.00 | |
Increase in Accounts Receivables ($90,000 - $75,000) | -$15,000.00 | |
Decrease in Inventory ($95,000 - $80,000) | $15,000.00 | |
Decrease in prepaid rent ($16,000 - $12,000) | $4,000.00 | |
Increase in Accounts payable ($155,000 - $148,000) | $7,000.00 | |
Increase in other accrued liabilities ($32,000 - $26,000) | $6,000.00 | |
Decrease in income taxes payable ($10,000 - $8,000) | -$2,000.00 | |
Total Adjustments | $95,000.00 | |
Net Cash Flow From Operating Activites (A) | $128,000.00 | |
Cash Flow from Investing Activities: | ||
Sale of plant assets | $25,000.00 | |
Acquisiton of new plant assets | -$195,000.00 | |
Cash paid for purchase of land | -$80,000.00 | |
Net Cash used by Investing Activites (B) | -$250,000.00 | |
Cash Flow from Financing Activities: | ||
Repayment of long term loan | -$30,000.00 | |
Issuance of additional stock | $150,000.00 | |
Payment of cash dividends | -$7,000.00 | |
Net Cash provided by Financing Activites (C) | $113,000.00 | |
Total Cash flow from all activities (A+B+C) | -$9,000.00 | |
Cash at the beginning of the year | $40,000.00 | |
Cash at the end of year | $31,000.00 |
Solution 2:
Glendive Corporation | ||
Statement of Cash Flows (Partial) (Direct Method) | ||
For Year Ended June 30, 2017 | ||
Particulars | Details | Amount |
Cash Flows from operating activities: | ||
Cash received from customers | $535,000.00 | |
Less: Cash disbursement: | ||
Cash paid to supplier for inventory | -$328,000.00 | |
Cash paid for operating expenses | -$45,000.00 | |
Cash paid for interest | -$15,000.00 | |
Cash Paid for income taxes | -$19,000.00 | -$407,000.00 |
Net Cash provided by operating activities | $128,000.00 |
Computation of cash received from customers | |
Particulars | Amount |
Beginning accounts receivables | $75,000.00 |
Add: Sales | $550,000.00 |
Less: Ending accounts receivables | $90,000.00 |
Cash received from customers | $535,000.00 |
Computation of cash paid for inventory | |
Particulars | Amount |
Cost of Goods Sold | $350,000.00 |
Add: Ending inventory | $80,000.00 |
Less: Beginning inventory | $95,000.00 |
Purchases made during the year | $335,000.00 |
Add: Opening accounts payable | $148,000.00 |
Less: Ending accounts payable | $155,000.00 |
Cash paid to supplier for inventory | $328,000.00 |
Computation of cash paid for General and administrative expenses | |
Particulars | Amount |
Operating expenses | $55,000.00 |
Add: Ending Prepaid expense | $12,000.00 |
Less: Beginning prepaid expense | $16,000.00 |
Add: Beginning other accrued liabilities | $26,000.00 |
Less: Ending other accrued liabilities | $32,000.00 |
Cash paid for General and administrative expenses | $45,000.00 |
Computation of cash paid for Income Tax | |
Particulars | Amount |
Income tax expense | $17,000.00 |
Add: Beginning income tax Payable | $10,000.00 |
Less: Ending income tax payable | $8,000.00 |
Cash paid for income tax | $19,000.00 |