Question

Prepare a statement of cash flow (direct method). Include a reconciliation of net income to cash flow from operations for the year ended December 31, 2012.

During 2012, ABC Corporation paid $263 in cash towards new plant assets. They also financed an extra $55 in plant asset acquisitions. They borrowed this by issuing a N/P. Therefore, capital expenditures are $318. ABC sold plant assets for their book value in a cash transaction. ABC did not repay any debt during the current year. All dividends declared were cash dividends.

Thank you in advance.

ABC Corporation

Income Statement

For the Year Ended December 31, 2012

Sales		$1,250
Cost of Goods Sold		$950
Gross Profit		$300
Operating Expenses:
Selling General and Administrative Expense	75
Depreciation Expense	55	$130
Operating Income:		$170
Interest Expense	75
Interest /revenue	50	$25
Profit before Tax		$145
Income Tax Expense		$53
Net Profit		$92

ABC Corporation

Balance Sheet

December 31, 2012 and 2011

Assets	2012	2011
Cash	$150	$212
Accounts Receivable	238	175
Inventory	750	300
Prepaid Expenses	350	225
Plant Assets	485	638
Accumulated Depreciation	(248)	(250)
Total Assets	$1725	$1300
Liabilities and Stockholders’ Equity
Accounts Payable	$132	$125
Taxes Payable	125	75
Long-term Debt	555	250
Common Stock	750	750
Retained Earnings	163	100
Total Liabilities and Stockholders’ Equity	1725	1300

Answer 1

ABC Corporation
Statement of Cash flows
For the Year Ended December 31, 2012
Cash flows from operating activities
Cash received from customers	$    1,187		1250+175-238
Cash received from interest revenue	$          50
Cash paid to suppliers	$ (1,393)		950+125-132+750-300
Cash paid for selling and administrative expense	$      (200)		75+350-225
Cash paid for interest expenses	$        (75)
Cash paid for income tax expenses	$          (3)		53+75-125
Net cash used by operating activities		$ (434)
Cash flows from investing activities
Cash received from sale of Plant Assets	$        414		638-485+318-((250+55-248))
Cash paid for purchase of Plant Assets	$      (263)
Net cash provided by investing activities		$    151
Cash flows from financing activities
Cash received from long term debt	$        250		555-250-55
Dividends paid	$        (29)		163-100-92
Net cash provided by financing activities		$    221
Net Decrease in cash		$    (62)
Cash and cash equivalents at beginning of period		$    212
Cash and cash equivalents at end of period		$    150
Non cash investing and financing activities
Acquisition of plant assets by issuing long term bond		$       55

Cash flows from operating activities
Net Income		$       92
Adjustments to reconcile net income to ;
Depreciation expense	$          55
Increase in accounts receivable	$        (63)
Increase in inventory	$      (450)
Increase in prepaid expenses	$      (125)
Increase in accounts payable	$             7
Increase in income tax payable	$          50
		$ (526)
Net cash used by operating activities		$ (434)

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