Question

Problem 23-06

Comparative balance sheet accounts of Whispering Inc. are presented below.

WHISPERING INC. COMPARATIVE BALANCE SHEET ACCOUNTS AS OF DECEMBER 31, 2020 AND 2019
		December 31
Debit Accounts		2020		2019
Cash		$41,900		$34,100
Accounts Receivable		70,400		60,300
Inventory		29,900		24,000
Equity investments		22,100		38,300
Machinery		30,200		18,900
Buildings		67,900		56,800
Land		7,400		7,400
		$269,800		$239,800
Credit Accounts
Allowance for Doubtful Accounts		$2,200		$1,500
Accumulated Depreciation—Machinery		5,600		2,200
Accumulated Depreciation—Buildings		13,400		8,900
Accounts Payable		35,300		24,700
Accrued Payables		3,400		2,600
Long-Term Notes Payable		21,000		30,800
Common Stock, no-par		150,000		125,000
Retained Earnings		38,900		44,100
		$269,800		$239,800

Additional data (ignoring taxes):

1.		Net income for the year was $40,900.
2.		Cash dividends declared and paid during the year were $21,100.
3.		A 20% stock dividend was declared during the year. $25,000 of retained earnings was capitalized.
4.		Equity investments (level of ownership is less than 20%) that cost $25,200 were sold during the year for $29,000. No unrealized gains and losses were recorded on these investments in 2020.
5.		Machinery that cost $3,700, on which $750 of depreciation had accumulated, was sold for $2,150.

Whispering’s 2020 income statement follows (ignoring taxes).

Sales revenue					$538,000
Less: Cost of goods sold					380,200
Gross margin					157,800
Less: Operating expenses (includes $8,650 depreciation and $5,364 bad debts)					119,900
Income from operations					37,900
Other: Gain on sale of investments		$3,800
Loss on sale of machinery		(800	)		3,000
Net income					$40,900

(a) Compute net cash flow from operating activities using the direct method. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Net cash flow from operating activities

$

(b) Prepare a statement of cash flows using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

WHISPERING INC.

Answer 1

a.)	Net Cash Flow from operating Activities (direct Method)
	Particulars	Amount	Working
	Cash flows from operating activities
	Cash received from accounts receivable	523,236
	Cash paid to accounts payable	- 375,500	(24,700 +380,200-35,300 +29,900 -24,000)
	Cash paid for operating expenses	- 105,086	(2,600+119,900-8,650-5,364-3,400 )
	Net Cash flow from operating activities	42,650
b.)	Cash Flow statement ( Indirect Method)
	Particulars	Amount	Working
	Cash flows from operating activities
	Net income	40,900	Given
	Adjustments for:
	Depreciation	8,650	Given
	Bad Debts	5,364	Given
	Gain on Sale of Investment	-3,800	Given
	Loss on Sale of Machinery	800	Given
	Increase in accounts receivables	-14,764	(60,300-70,400-4,664 )
	Increase in inventory	-5,900	(24,000-29,900 )
	Increase in accounts payable	10,600	(35,300-24,700 )
	Increase in accured Payable	800	(3,400-2,600 )
	Cash generated from operations	42,650
	Cash flows from investing activities
	Sale of Machinery	2,150	Given
	Purchase of Machinery	-15,000	(18,900 - 3,700 -30,200)
	Purchase of Equity Investments	-9,000	(38,300 - 25,200 - 22,100 )
	Purchase of Building	-11,100	(56,800 - 67,900 )
	Sale of Equity Investments	29,000	GIven
	Net cash used in investing activities	-3,950
	Cash flows from financing activities
	Payment of long term notes payable	-9,800	(21,000-30,800 )
	Cash Dividend paid	-21,100	Given
	Net cash used in financing activities	-30,900
	Net increase in cash and cash equivalents (A)	7,800
	Cash and cash equivalents at beginning of period (B)	34,100
	Cash and cash equivalents at end of period =A+B	41,900