Question

P23-8B (L03,6,8) (SCF—Direct and Indirect Methods) Comparative balance sheet accounts of Hamblin Company are impresented below. Additional data: 1. Equipment that cost $20,000 and was 40% depreciated was sold in 2017. 2. Cash dividends were declared and paid during the year. 3. Common stock was issued in exchange for land. 4. Investments that cost $25,000 were sold during the year. 5. There were no write-offs of uncollectible accounts during the year. Hamblin’s 2017 income statement is as follows. Instructions (a) Compute net cash provided by operating activities under the direct method. (b) Prepare a statement of cash flows using the indirect method. HAMBLIN COMPANY COMPARATIVE BALANCE SHEET ACCOUNTS AS OF DECEMBER 31 2017 2016 Debit Balances Cash $ 60,000 $ 71,500 Investments (available-for-sale) 30,000 55,000 Accounts receivable 152,000 136,000 Inventory 118,000 84,000 Land 50,000 15,000 Buidings 160,000 160,000 Equipment 60,000 41,500 Total assets $630,000 $563,000 Totals Credit Balances Allowance for doubtful accounts $ 6,000 $ 3,000 Accumulated depreciation-buildings 40,000 32,000 Accumulated depreciation -equipment 24,000 18,500 Accounts payable 102,000 95,000 Income taxes payable 13,000 8,000 Long-term notes payable 65,000 80,000 Common stock 295,000 236,500 Retained earnings 85,000 90,000 Totals $630,000 $563,000 Sales $750,000 Less: Cost of goods sold 480,000 Gross profi t 270,000 Less: Operating expenses (includes depreciation expense and bad debt expense) 145,000 Income from operations 125,000 Other revenues and expenses Gain on sale of investments $7,000 Loss on sale of equipment (4,000) 3,000 Income before taxes 128,000 Income taxes 52,000 Net income 76,000

Answer 1

Cash received from customers = Sales - Increase in Accounts Receivables

Cash payments for merchandise = Cost of goods sold + Increase in Inventory - Increase in Accounts payable

Cash payments for operating expenses = Operating expenses - Depreciation expense - Bad debt

Cash payments for Income Taxes = Income Tax expense - Increase in Income Tax payable

Depreciation expense on equipment

Closing balance in accumulated depreciation + Accumulated dep on sold equipment - Opening balance in acc. depreciation

24000 + 8000 - 18500 = 13500

Depreciation expense on building

Closing balance in accumulated depreciation - Opening balance in acc. depreciation

40000 - 32000 = 8000

Common stock issued for cash = closing bal in common stock - opening bal in common stock - common stock issued against purchase of land

295000 - 236500 - 35000 = 23500

Dividends paid in cash = beg balance in retained earnings + Net Income - ending balance in ret earnings

90000 + 76000 - 85000 = 81000

Purchase of equipment = Ending balance in equipment a/c +Cost of equipment sold - Beg. Balance in equipment a/c

= 60000 + 20000 - 41500

= 38500