Question

Statement of Cash Flows (Direct Method) The Sweet Company’s income statement and comparative balance sheets as of December 31 of 2016 and 2015 are presented below:

SWEET COMPANY Income Statement For the Year Ended December 31, 2016
Sales Revenue		$950,000
Cost of Goods Sold	$507,000
Wages Expense	207,000
Depreciation Expense	62,000
Insurance Expense	13,000
Interest Expense	12,000
Income Tax Expense	57,000
Gain on Sale of Equipment	(16,000)	842,000
Net Income		$108,000

SWEET COMPANY Balance Sheets
	Dec. 31, 2016	Dec. 31, 2015
Assets
Cash	$32,000	$33,000
Accounts Receivable	68,000	43,000
Inventory	177,000	126,000
Prepaid Insurance	9,000	11,000
Plant Assets	887,000	770,000
Accumulated Depreciation	(191,000)	(175,000)
Total Assets	$982,000	$808,000
Liabilities and Stockholders’ Equity
Accounts Payable	$37,000	$27,000
Interest Payable	5,000	-
Income Tax Payable	11,000	18,000
Bonds Payable	145,000	80,000
Common Stock	660,000	585,000
Retained Earnings	176,000	98,000
Treasury Stock	(52,000)	-
Total Liabilities and Stockholders’ Equity	$982,000	$808,000

During the year, Sweet Company sold equipment for $27,000 cash that originally cost $57,000 and had $46,000 accumulated depreciation. New equipment was purchased for cash. Bonds payable and common stock were issued for cash. Cash dividends of $30,000 were declared and paid. At the end of the year, shares of treasury stock were purchased for cash. Accounts payable relate to merchandise purchases.

Required
a. Compute the change in cash that occurred during 2016.
b. Prepare a statement of cash flows using the direct method.

a. Change in Cash during 2016 $Answer AnswerIncreaseDecrease

b. Use a negative sign with cash outflow answers.

SWEET COMPANY Statement of Cash Flows For Year Ended December 31, 2016
Cash Flow from Operating Activities
Cash Received from Customers		$Answer
Cash Paid for Merchandise Purchased	$Answer
Cash Paid to Employees	Answer
Cash Paid for Insurance	Answer
Cash Paid for Interest	Answer
Cash Paid as Income Taxes	Answer	Answer
Cash Provided by Operating Activities		Answer
Cash Flow from Investing Activities
Sale of Equipment	Answer
Purchase of Equipment	Answer
Cash Used by Investing Activities		Answer
Cash Flow from Financing Activities
Issuance of Bonds Payable	Answer
Purchase of Common Stock	Answer
Payment of Dividends	Answer
Purchase of Treasury Stock	Answer
Cash Provided by Financing Activities		Answer
Net in CashAnswerIncreaseDecrease		Answer
Cash at Beginning of Year		Answer
Cash at End of Year		$Answer

Answer 1

Solution:

Cash Flow Statement using direct method

SWEET COMPANY
Statement of Cash Flows
For Year Ended December 31, 2016
Cash Flow from Operating Activities
Cash Received from Customers (Refer Note 1)		$925,000
Cash Paid for Merchandise Purchased (Note 2)	-$548,000
Cash Paid to Employees	-207000
Cash Paid for Insurance (Note 4)	-$11,000
Cash Paid for Interest (Note 5)	-$7,000
Cash Paid as Income Taxes	-$64,000	-$837,000
Cash Provided by Operating Activities		$88,000
Cash Flow from Investing Activities
Sale of Equipment	$27,000
Purchase of Equipment (Refer Note 7)	-$174,000
Cash Used by Investing Activities		-$147,000
Cash Flow from Financing Activities
Issuance of Bonds Payable (145,000 - 80,000)	65000
Issuance of Common Stock (660,000 - 585,000)	75000
Payment of Dividends	-30000
Purchase of Treasury Stock	-52000
Cash Provided by Financing Activities		58000
Net in Cash Increase / (Decrease)		-$1,000
Cash at Beginning of Year		33000
Cash at End of Year		$32,000

Note – Please check the sign (+ or -) and put the answer in the format given in the answer.. I have used – sign for cash outflow.

Note 1 -- Cash receipts from Customers
Beginning Accounts Receivable	$43,000
Plus: Credit Sales made during the year	$950,000
Less: Ending Accounts Receivable	-$68,000
Cash Collected from Customers	$925,000
Note 2 -- Cash payment for merchandise
Beginning Accounts Payable	$27,000
Plus: Purchases made during the year (refer note 3)	$558,000
Less: Ending Accounts Payable	-$37,000
Cash Paid to Supplier during the year	$548,000
Note 3 -- Purchase made during the year
Cost of Goods Sold	$507,000
Plus: Ending Inventory	$177,000
Less: Beginning Inventory	-$126,000
Purchases made during the year	$558,000
Note 4 -- Cash paid for insurance expense
Insurance Expense during the year	$13,000
Add: Ending Prepaid Insurance	$9,000
Less: Beginning Prepaid Insurance	-$11,000
Cash paid for insurance expense	$11,000
Note 5 -- Cash paid for Interest
Interest Expense incurred during the year	$12,000
Add: Beginning Balance	$0
Less: Ending balance	-$5,000
Cash paid for interest	$7,000
Note 6 -- Cash paid for Income Taxes
Income tax expense incurred during the year	$57,000
Add: Beginning Balance	$18,000
Less: Ending balance	-$11,000
Cash paid for Income Taxes	$64,000

Note 7

Equipment Account
	Debit		Credit
Beginning Balance	$770,000	Cost of Equipment Sold	$57,000
Equipment Purchased during the year (bal fig)	$174,000	Ending bal	$887,000
	$944,000		$944,000

Change in Cash = Decrease $1,000

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