Question

In: Accounting

Back Cove Company has the following comparative balance sheets and income statement:                             &

Back Cove Company has the following comparative balance sheets and income statement:

                                                2017                                       2016

Cash                                      $10,000                                 $15,000
Receivables                           11,000                                   10,000
Inventories                            22,000                                   18,000
Other Assets (net)              20,000                                   30,000
                                                $63,000                                 $73,000

Accounts Payable             $10,000                                 $20,000
Capital Stock                      $20,000                                 16,000
Retained Earnings            33,000                                 37,000
                                                $63,000                                 $73,000

Sales                                                                      $110,000
Cost of Sales                                                           72,000
Gain on sale of Assets                                          2,000
Expenses                                                                 16,000
Income                                                                 $ 24,000

Depreciation expense was $5,000 (included in the $16,000). A machine with a cost of $19,000 and book value of $13,000 was sold which produced the gain on sale of assets. Other assets were purchased for cash during the year, a dividend paid, and stock was issued for $4,000.

A. Using the Indirect Method, prepare a cash flow statement.

B. Refer to Back Cove in Problem 3. Assuming all operating expenses are paid for in cash and all inventory purchases are made on account, prepare cash from operations using the Direct Method.

Solutions

Expert Solution

(A) Cash flow Statement   

Cash flow from operating activities ( In $)

Profit/ Loss earned during the year (37000-33000) ( 4000)

Add: Depreciation 5000

Less: Gain on sale of assets (2000)

Adjusted profits/ Losses before depreciation and Non-operating items (1000)

Add: Decrease in the value of other assets 10000

Less: Increase in receivables (1000)

Less: Increase in inventories (4000)

Less: Decrease in Account payable (10000)

Cash used in operating activit (6000)

Cash from investing activities

Sale of asset 15000

Less: Purchase of assets (8000)

Net Cash flow frominvesting activities 7000

Cash flow from financing activity

Issue of stock 4000

Net cash flow from financing activity 4000

Note: there is pehaps missing info about dividend paid

  (b) Cash from operations ( direct method)

cash reciverd from debtors: 10000

Less: cah paid to debtors: (10000)

Less: Operating expenses:(11000)

cash used in operations : (11000)


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