Question

Vandals Company has not yet prepared a formal statement of cash flows for the 2020 fiscal year. Comparative balance sheets as of December 31, 2019, and 2020, and a statement of income and retained earnings for the year ended December 31, 2020, are presented below.

Vandals Company
Statement of Income and Retained Earnings
For The Year Ended December 31, 2020
($000 Omitted)
Sales						$4,250,000
Expenses
Cost of goods sold					$765,000
Bad debt expense					$21,250
Salaries and benefits					510,000
Heat, light, and power					255,000
Depreciation					8,925
Property taxes					127,500
Patent amortization					1,275
Miscellaneous expenses					116,688
Interest					77,792
Total expenses						1,883,430
Income before income taxes						2,366,570
Income taxes						637,500
Net income						1,729,070
Retained earnings - January 1, 2020						318,750
						2,047,820
Cash dividend declared and issued						12,750
Retained earnings - December 31, 2020						$2,035,070
Vandals Company
Comparative Balance Sheet
December 31
($000 Omitted)
Assets					2020	2019
Current assets
Cash					$1,782,960	$118,575
U.S. Treasury notes (Available-for-sale)					17,000	85,000
Accounts receivable					221,850	136,000
Allowance for doubtful account					(12,325)	(12,750)
Inventory					23,800	29,750
Total current assets					2,033,285	356,575
Long-term assets
Land					19,125	4,250
Buildings and equipment					51,000	21,250
Accumulated depreciation					(21,675)	(12,750)
Patents (less amortization)					7,225	8,500
Total long-term assets					55,675	21,250
Total assets					$2,088,960	$377,825
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable					$20,400	$25,500
Income taxes payable					4,080	5,100
Short-term Notes payable					10,625	10,625
Total current liabilities					35,105	41,225
Long-term notes payable - due 2020					17,000	17,000
Total liabilities					52,105	58,225
Stockholders' equity
Common stock outstanding					1,785	850
Retained earnings					2,035,070	318,750
Total stockholders' equity					2,036,855	319,600
Total liabilities and stockholders' equity					$2,088,960	$377,825

Instructions:                                                                                    

Prepare a statement of cash flows using the direct method. Changes in accounts receivable and in accounts payable relate to sales and cost of sales. Do not prepare a reconciliation schedule.      

Answer 1

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Workings for direct method
Adjustment of Allowance for doubtful account	Amount $
Opening balance	12,750.00
Add: Bad debt expense	21,250.00
Less: Closing balance	12,325.00
Adjustment of Allowance for doubtful account	21,675.00
Cash Received from customers	Amount $
Opening Accounts Receivable	136,000.00
Add: Sales	4,250,000.00
Less: Closing Accounts Receivable	221,850.00
Less: Adjustment of Allowance for doubtful account	21,675.00
Cash Received from customers	4,142,475.00
Inventory purchased
Cost of goods sold	765,000.00
Add: Closing Inventory	23,800.00
Less: Opening Inventory	29,750.00
Inventory purchased	759,050.00
Cash paid to suppliers
Opening Accounts Payable	25,500.00
Add: Purchases	759,050.00
Less: Closing Accounts Payable	20,400.00
Cash paid to suppliers	764,150.00
Expenses paid
Total Expenses	1,883,430.00
Less: Cost of goods sold	765,000.00
Less: Depreciation Expense	8,925.00
Less: Patent amortization	1,275.00
Less: Bad debt expense	21,250.00
Expenses paid	1,086,980.00
Income tax paid
Income tax Expense	637,500.00
Add: Opening Income tax Payable	5,100.00
Less: Closing Income tax Payable	4,080.00
Income tax paid	638,520.00
Land purchased
Closing balance	19,125.00
Less: Opening balance	4,250.00
Land purchased	14,875.00
Building purchased
Closing balance	51,000.00
Less: Opening balance	21,250.00
Building purchased	29,750.00
Sale of U.S. Treasury notes (Available-for-sale)
Opening balance	85,000.00
Less: Closing balance	17,000.00
Sale of U.S. Treasury notes (Available-for-sale)	68,000.00
Equity issued
Closing balance	1,785.00
Less: Opening balance	850.00
Equity issued	935.00

Clarissa Company
Cashflow statement	Amount $	Amount $
Particulars
Cash flow from operating activities
Cash Received from customers		4,142,475.00
Less: Cash Payments
To Suppliers	764,150.00
Expenses paid	1,086,980.00
Income tax paid	638,520.00	2,489,650.00
Net cash provided by operating activities		1,652,825.00
Cash flow from investing activities
Land purchased	(14,875.00)
Building purchased	(29,750.00)
Sale of U.S. Treasury notes (Available-for-sale)	68,000.00
Net cash used for investing activities		23,375.00
Cash flow from financing activities
Equity issued	935.00
Dividends paid	(12,750.00)
Net cash used for financing activities		(11,815.00)
Net Increase/(Decrease) in cash		1,664,385.00
Cash Balance, beginning		118,575.00
Cash Balance, ending		1,782,960.00