Question

You are the chief accountant for Jared Jo Your assistant has prepared an income statement for the current year and has developed the following additional information by analyzing changes in the company’s balance sheet accounts.

FOR THE YEAR ENDED DECEMBER 31, 2019

Revenue:

Net sales $9,500,000

Interest income 320,000

Gain on sales of marketable securities 70,000

Total revenue and gains $9,890,000

Costs and expenses:

Cost of goods sold $4,860,000

Operating expenses (including depreciation of $700,000) 3,740,000

Interest expense 270,000 Income tax expense 300,000

Loss on sales of plant assets 90,000

Total costs, expenses, and losses 9,260,000

Net income $ 630,000

Changes in the company’s balance sheet accounts over the year are summarized as follows.

1. Accounts Receivable decreased by $85,000.

2. Accrued Interest Receivable increased by $15,000.

3. Inventory decreased by $280,000, and Accounts Payable to suppliers of merchandise decreased by $240,000.

4. Short-term prepayments of operating expenses decreased by $18,000, and accrued liabilities for operating expenses increased by $35,000.

5. The liability for Accrued Interest Payable decreased by $16,000 during the year.

6. The liability for Accrued Income Taxes Payable increased by $25,000 during the year.

7. The following schedule summarizes the total debit and credit entries during the year in other balance sheet accounts.

Marketable Securities $ 120,000 $ 210,000

Notes Receivable (cash loans made to others) 250,000 190,000

Plant Assets (see paragraph 8) 3,800,000 360,000

Notes Payable (short-term borrowing) 620,000   740,000

Bonds Payable 1,100,000

Capital Stock 50,000

Additional Paid-in Capital (from issuance of stock) 840,000

Retained Earnings (see paragraph 9) 320,000 630,000

8. The $360,000 in credit entries to the Plant Assets account is net of any debits to accumulated depreciation when plant assets were retired. The $360,000 in credit entries represents the book value of all plant assets sold or retired during the year.

9. The $320,000 debit to Retained Earnings represents dividends declared and paid during the year. The $630,000 credit entry represents the net income for the year.

10. All investing and financing activities were cash transactions.

11. Cash and cash equivalents amounted to $448,000 at the beginning of the year and to $330,000 at year-end.

Instructions You are to prepare a statement of cash flows for the current year. Cash flows from operating activities are to be determined by the direct method. Uses of cash should be reflected as negative balances. Show your calculations for the following: a. Cash received from customers. b. Interest received. c. Cash paid to suppliers and employees. d. Interest paid. e. Income taxes paid. f. Proceeds from sales of marketable securities. g. Proceeds from sales of plant assets. h. Proceeds from issuing capital stock.

Answer 1

CASH FLOW STATEMENT

CASH FLOWS FROM OPERATING EXPENSES
CASH RECIVED FROM CUSTOMERS		95,85,000
CASH RECEIVED FROM INTREST		3,05,000
CASH PAID TO CREDITORS		(48,20,000)
CASH PAID FOR OPERATING EXPENSES		(29,87,000)
CASH INTEREST EXPENSES PAID		(286,000)
CASH TAX EXPENSES PAID		(275,000)
NET CASH PROVIDED BY OPERATING ACTIVITIES		15,22,000
CASH FLOWS FROM INVESTING ACTIVITIES
CASH RECIEPTS FROM SALE OF MARKETABLE SECURITIES	280,000
CASH PAID FOR PURCHASE OF MARKETABLE SECURITIES	(120,000)
CASH PAID FOR NOTE RECIEVABLE GIVEN TO OTHERS	(250,000)
CASH RECIPTS ON RECIPTS OF NOTE RECIEVABLE	190,000
CASH RECIPTS FROM SALE OF PLANT ASSETS	270,000
CASH PAID FOR PURCHASE OF PLANT ASSETS	(38,00,000)
NET CASH USED IN INVESTING ACTIVITIES		(34,30,000)
CASH FLOWS FROM FINANCING ACTIVITIES
CASH RECIEPTS FROM NOTES PAYABLE	740,000
CASH PAID ON MATURITY OF NOTE PAYABLE	(620,000)
CASH RECIEPTS FROM ISSUANCE OF BOND	11,00,000
CASH RECIEPTS ON ISSUANCE OF CAPITAL STOCK	890,000
CASH DIVIDENDS PAID	(320,000)
CASH FLOW FROM FINANCING ACTIVITIES		17,90,000
NET DECREASE IN CASH		(118,000)
CASH AT THE BEGINNING		448,000
CASH AT THE YAER END		330,000

NOTES:

1. CASH RECIEVED FROM CUSTOMERS

SALES + DECREASE IN ACCOUNT RECIEVABLE

(9,500,000 + 85,000 ) = 95,85,000

2. INTREST RECIEVED

INTREST INCOME - INCREASE IN INTREST RECIEVABLE

(320,000 - 15,000) = 305,000

3. CASH PAID TO SUPLLIERS

INVENTORY PURCHASE = (COST OF GOODS SOLD - DECREASE IN INVENTORY )

= ( 48,60,000 - 280,000 ) = 45,80,000

CASH PAID TO SUPPLIERS = (INVETORY PURCHASE + DECREASE IN ACCOUNT PAYABLE)

= (45,80,000 + 240,000) = 48,20,000

4. CASH PAID TO EMPLOYEES

(OPERATING EXPENSES - DECREASE IN PREPAID - INCREASE IN ACCOUNT PAYABLE)

(30,40,000 - 18,000 - 35,000 ) = 29,87,000

5. INTREST PAID

INTREST EXPENSES + DECREASE IN INTREST PAYABLE

(270,000 + 16,000) = 286,000

6. INCOME TAXES PAID

TAX EXPENSES - INCREASE IN INCOME TAXES PAYABLE

300,000 - 25,000 = (275,000)

7. PROCEEDS FROM SALES OF MARKETABLE SECURITIES

CREDIT ENTRY IN MARKETABLE SECURITIES + GAIN ON SALE

(210,000 + 70,000) = 280,000

8.PROCEEDS FROM SALES OF PLANT ASSETS

CREDIT ENTRY IN PLANT ASSETS - LOSS ON SALE

360,000 - 90,000 = 270,000

9. PROCEEDS FROM ISSUING OF CAPITAL STOCK

(ISSUE OF CAPITAL STOCK + ADDITIONAL PAID IN CAPITAL)

(50,000 + 840,000) = 890,000