Question

Problem 23-4 Vaughn Company had the following information available at the end of 2017. VAUGHNCOMPANY COMPARATIVE BALANCE SHEETS AS OF DECEMBER 31, 2017 AND 2016 2017 2016 Cash $10,090 $3,960 Accounts receivable 20,420 12,880 Short-term investments 21,900 30,120 Inventory 41,880 35,100 Prepaid rent 3,010 12,090 Prepaid insurance 2,080 90 Supplies 1,010 75 Land 123,790 175,990 Buildings 352,890 352,890 Accumulated depreciation—buildings (105,450 ) (87,170 ) Equipment 523,690 398,650 Accumulated depreciation—equipment (130,800 ) (112,550 ) Patents 44,830 49,530 Total assets $909,340 $871,655 Accounts payable $21,890 $32,080 Income taxes payable 5,020 3,990 Salaries and wages payable 5,000 3,030 Short-term notes payable 10,100 10,100 Long-term notes payable 60,090 70,350 Bonds payable 402,480 402,480 Premium on bonds payable 13,780 23,185 Common stock 241,670 219,820 Paid-in capital in excess of par—common stock 25,220 17,450 Retained earnings 124,090 89,170 Total liabilities and stockholders’ equity $909,340 $871,655 VAUGHN COMPANY INCOME STATEMENT AND DIVIDEND INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2017 Sales revenue $1,169,440 Cost of goods sold 745,640 423,800 Gross margin Operating expenses Selling expenses $79,900 Administrative expenses 157,280 Depreciation/Amortization expense 41,230 Total operating expenses 278,410 Income from operations 145,390 Other revenues/expenses Gain on sale of land 7,990 Gain on sale of short-term investment 4,000 Dividend revenue 2,400 Interest expense (52,070 ) (37,680 ) Income before taxes 107,710 Income tax expense 39,690 Net income 68,020 Dividends to common stockholders (33,100 ) To retained earnings $34,920

Prepare a statement of cash flows for Vaughn Company using the direct method accompanied by a reconciliation schedule. Assume the short-term investments are debt securities, classified as available-for-sale. (Show amounts in the investing and financing sections that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Answer 1

Vaughn Company
Cash flow for operating activities under direct method
								Reconciliation of Net Income to net cash flow from operating activites
Cash receipts from customers
Opening Accounts receivable					12880			Net Income				68020
Add : Sales					1169440			Add : Income tax expense				39690
Less : Closing accounts receivable					20420	1161900		Add : Depreciation				41230
								Less : gain on sale of land				-7990
Payment made to suppliers								Less : Gain on sale of investment				-4000
Ending Inventory					41880			Less; Dividend revenue				-2400
Add : cost of goods sold					745640			Add : interest Expense				52070
Less : Beginning Inventory					35100			Net operating cash flow before working capital changes				186620
Inventory purchased					752420			Less : Increase in accounts receivable				-7540
Add : Beginning Accounts payable					32080			Less ; Increase in inventory				-6780
Less : Ending Accounts Payable					21890	-762610		Add : Decrease in prepaid rent				9080
								Less : increase in prepaid insurance				-1990
Selling expenses						-79900		Less : increase in supplies				-935
Administrative expenses					157280			Less : Decrease in accounts payable				-10190
Less : Beginning prepaid rent					12090			Add : increase in salary & wages Payable				1970
Less : Beginning prepaid insurance					90			Total				170235
Add : Ending prepaid rent					3010			Less ; Taxes paid				-38660
Add : Ending prepaid insurance					2080			Net cash flow from operating activities				131575
Less : Beginning supplies					75
Add : Ending supplies					1010
Add : Beginning salary & wages payable					3030
Less : Ending salary & wages payable					5000	-149155
Income taxes paid						-38660
	Cash flows from operating activities					131575
Cash flow from Financing activities
Notes payable repaid						-10260
Interest paid in cash/premium on bonds						-61475
Payment of Dividends						-33100
Receipt from issaunce of stock						29620
	Cash flow from Financing activities					-75215
Cash flow from Investing activities
Payment for purchase of plant asset						-125040
Proceeds from sale of short term investment						12220
Dividend Revenue						2400
Proceeds from sale of land						60190
	Cash flow from Investing activities					-50230
Net Cash flows						6130
Add : beginning cash balance						3960
Ending cash balance						10090