Question

DIRECT METHOD

The comparative balance sheet of Livers Inc. for December 31, 20Y3 and 20Y2, is as follows:

1		Dec. 31, 20Y3	Dec. 31, 20Y2
2	Assets
3	Cash	$625,820.00	$586,050.00
4	Accounts receivable (net)	227,530.00	209,880.00
5	Inventories	641,480.00	616,920.00
6	Investments	0.00	240,910.00
7	Land	327,510.00	0.00
8	Equipment	704,830.00	554,110.00
9	Accumulated depreciation-equipment	(165,750.00)	(148,570.00)
10	Total assets	$2,361,420.00	$2,059,300.00
11	Liabilities and Stockholders’ Equity
12	Accounts payable (merchandise creditors)	$424,970.00	$405,330.00
13	Accrued expenses payable (operating expenses)	42,810.00	51,640.00
14	Dividends payable	23,200.00	19,840.00
15	Common stock, $2 par	150,000.00	100,000.00
16	Paid-in capital: Excess of issue price over par—common stock	417,500.00	280,000.00
17	Retained earnings	1,302,940.00	1,202,490.00
18	Total liabilities and stockholders’ equity	$2,361,420.00	$2,059,300.00

The income statement for the year ended December 31, 20Y3, is as follows:

1	Sales		$5,368,400.00
2	Cost of goods sold		3,305,660.00
3	Gross profit		$2,062,740.00
4	Operating expenses:
5	Depreciation expense	$17,180.00
6	Other operating expenses	1,754,452.00
7	Total operating expenses		1,771,632.00
8	Operating income		$291,108.00
9	Other income:
10	Gain on sale of investments		39,110.00
11	Income before income tax		$330,218.00
12	Income tax expense		133,998.00
13	Net income		$196,220.00

Additional data obtained from an examination of the accounts in the ledger for 20Y3 are as follows:

	a. The investments were sold for $280,020 cash.
	b. Equipment and land were acquired for cash.
	c. There were no disposals of equipment during the year.
	d. The common stock was issued for cash.
	e. There was a $95,770 debit to Retained Earnings for cash dividends declared.

Prepare a statement of cash flows, using the direct method of presenting cash flows from operating activities. Be sure to complete the heading of the statement. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. Enter amounts that represent cash outflows as negative numbers using a minus sign.

Answer 1

Ans:

S.NO	Particulars	Amount($)	Amount($)
	Cash Flow From Operating Activities
	Cash Received from Customers	$5350750
	Less:Cash paid to supplies	($3310580)
	Cash Paid for operating Expenses	($1763282)
	Cash Paid for Income Taxes	($133998)
	Net Cash Provided by Operating Activities	$142,890	$142,890

Notes:

Note:1
Sales for the Year	$5368400
Less:Increase in Accounts Receivable	($17,650)
Cash Received from Customers	$5350750
Note:2
Cost of Goods Sold	$3305,660
Less:Increase in Accounts Payable	-19640
Add:Increase In Inventory Balance	24,560
Cash paid to Suppliers	3310580
Note:3
Other Operating Expenses	1754452
Add:Decrease in accrued Liabilities(51640-42810)	8830
Cash Paid For operating Expenses	1763282

Livers Inc
Statement of Cash Flows
For the Years Ending December 31, 2013
	Amount ($)
Cash Flows from Operating Activities
Net Income	$     1,96,220
Less: Gain on sale of Investment	$      (39,110)
Add Expenses Not Requiring Cash:
Depreciation	$        17,180
Other Adjustments:
Subtract increase in Accounts Receivable ($209,880-$227,530)	$      (17,650)
Add increase in Accounts Payable ($424, 970-$405,330)	$        19,640
Subtract Increase in Inventory ($616,920-$641,480)	$      (24,560)
Subtract reduction in Accrued expense payable ($42,810-$51,640)	$        (8,830)
Net Cash from Operating Activities	$     1,42,890
Cash Flows from Investing Activities
Sale of investments	$     2,80,020
Purchase of New Equipment ($554,110-$704,830)	$    (1,50,720)
Purchase of Land	$    (3,27,510)
Net Cash Used for Investing Activities	$    (1,98,210)
Cash Flows from Financing Activities
Dividend paid	$    (92,410)
Borrowed Long Term Notes Payable	$              -
Issue of Common stock	$        50,000
Paid in Capital in excess of par	$     1,37,500
Net Cash from Financing Activities	$        95,090
NET INCREASE/(DECREASE) IN CASH	$        39,770
Cash and Equivalents at the Beginning of the Year	$     5,86,050
Cash and Equivalents at the End of the Year	$     6,25,820

Computation of Dividend paid
Particulars	Amount
Beginning Dividend Payable	$     19,840
Add: Divined Declared	$     95,770
Less: Ending Dividend Payable	$    (23,200)
Dividend Paid	$     92,410