Question

Exercise 23-12

Condensed financial data of Headland Company for 2017 and 2016 are presented below.

HEADLAND COMPANY COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2017 AND 2016
		2017			2016
Cash		$1,810			$1,120
Receivables		1,790			1,330
Inventory		1,570			1,940
Plant assets		1,870			1,740
Accumulated depreciation		(1,230	)		(1,150	)
Long-term investments (held-to-maturity)		1,300			1,440
		$7,110			$6,420
Accounts payable		$1,220			$910
Accrued liabilities		200			260
Bonds payable		1,370			1,550
Common stock		1,860			1,740
Retained earnings		2,460			1,960
		$7,110			$6,420

HEADLAND COMPANY INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2017
Sales revenue		$6,810
Cost of goods sold		4,680
Gross margin		2,130
Selling and administrative expenses		920
Income from operations		1,210
Other revenues and gains
Gain on sale of investments		80
Income before tax		1,290
Income tax expense		530
Net income		760
Cash dividends		260
Income retained in business		$500

Additional information:

During the year, $70 of common stock was issued in exchange for plant assets. No plant assets were sold in 2017.

Prepare a statement of cash flows using the direct method. (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

H COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2017
(Direct Method)
Cash Flows from Operating Activities
Cash receipts from customers	6350
Cash paid for merchandise	4000
Cash paid for selling/administrative expenses	900
Cash paid for income taxes	530
Net cash provided by operating activities		920
Cash Flows from Investing Activities
Purchase of plant assets	-130
Sale of investments	220
Net cash provided by investing activities		90
Cash Flows from Financing Activities
Redemption of Bonds payable	-180
Issuance of Capital stock	120
Payment of cash dividends	-260
Net cash used by financing activities		-320
Net increase in cash		690
Cash at beginning of period		1120
Cash at end of period		1810
Noncash Investing and Financing Activities
Issuance of Common stock for Plant Assets		70
CASH RECEIPTS AND PAYMENT CALCULATION
Cash receipts from customers
Sales Revenue	6810
Less: Increase in Accounts Receivable (1790-1330)	-460
	6350
Cash paid for merchandise
Cost of goods sold	4680
Less: Decrease in Inventory (1940-1570)	-370
Less: Increase in Accounts Payable (1220-910)	-310
	4000
Cash paid for selling/administrative expenses
Selling and administrative expenses	920
Add: Decrease in Accrued liabilities (260-200)	60
Less: Depreciation* (1150-1230)	-80
	900