Question

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	$625,650.00	$586,340.00
4	Accounts receivable (net)	228,170.00	208,030.00
5	Inventories	641,480.00	617,130.00
6	Investments	0.00	240,290.00
7	Land	328,170.00	0.00
8	Equipment	706,070.00	552,300.00
9	Accumulated depreciation-equipment	(165,580.00)	(147,010.00)
10	Total assets	$2,363,960.00	$2,057,080.00
11	Liabilities and Stockholders’ Equity
12	Accounts payable (merchandise creditors)	$424,300.00	$404,860.00
13	Accrued expenses payable (operating expenses)	41,850.00	52,880.00
14	Dividends payable	23,200.00	19,880.00
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	1,307,110.00	1,199,460.00
18	Total liabilities and stockholders’ equity	$2,363,960.00	$2,057,080.00

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

1	Sales		$5,378,129.00
2	Cost of goods sold		3,306,510.00
3	Gross profit		$2,071,619.00
4	Operating expenses:
5	Depreciation expense	$18,570.00
6	Other operating expenses	1,755,879.00
7	Total operating expenses		1,774,449.00
8	Operating income		$297,170.00
9	Other income:
10	Gain on sale of investments		40,390.00
11	Income before income tax		$337,560.00
12	Income tax expense		133,650.00
13	Net income		$203,910.00

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

	a. The investments were sold for $280,680 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 $96,260 debit to Retained Earnings for cash dividends declared.

Required

Prepare a statement of cash flows, using the direct method of presenting cash flows from operating activities.

Answer 1

Solution

Livers Inc

Cash Flow Statement using the direct method:

Cash Flow Statement (Direct Method of presenting cash flows from operating activities) for the year ended December 31, 20Y3j
Cash flow from operating activities:
Cash receipts from customers		$5,357,989
Cash paid to suppliers		($3,311,420)
Cash generated from operations			$2,046,569
Operating expenses paid			($1,766,909)
Income tax expense			($133,650)
Net cash provided by operating activities			$146,010
Cash flow from investing activities:
Proceeds from sale of investment			$280,680
Purchase of land			($328,170)
Purchase of equipment			($153,770)
Net cash provided by investing activities			($201,260)
Cash flow from financing activities:
Proceeds from issue of stock			$187,500
Dividends paid			($92,940)
Cash flow from financing activities			$94,560
Net increase in cash			$39,310
Beginning balance of cash			$586,340
Ending balance of cash			$625,650

Workings –

1. Cash receipts from customers:

Sales                                                         $5,378,129

Less: increase in accounts receivable      $20,140

Cash receipts from customers                  $5,357,989

1. Cash paid to suppliers:

Cost of goods sold                              $3,306,510

Add: increase in inventory                 $24,350

Less: increase in accounts payable    ($19,440)

Cash paid to suppliers                        $3,311,420

1. Operating Expenses paid:

Operating expenses                                        $1,755,879

Add: decrease in accrued expenses payable $11,030

Operating expenses paid                                $1,766,909

1. Dividends paid:

Cash Dividends declared        $96,260

Add: beginning balance         $19,880

Less: Ending balance             ($23,200)

Cash dividends paid               $92,940