Maurice Tutor
$15/per page/Negotiable
Statement of Cash Flows—Direct Method
The table on page 267 shows the account balances of Novation, Inc., at the beginning and end of the company’s accounting period.
|
Debits |
Dec 31, 2008 |
Jan 1, 2008 |
|
Cash and Cash Equivalents |
$176,400 |
$ 58,000 |
|
Accounts Receivable |
32,000 |
26,600 |
|
Inventory |
21,000 |
25,400 |
|
Prepaid Insurance |
5,600 |
4,000 |
|
Long-Term Investments (at cost) |
6,000 |
16,800 |
|
Equipment |
80,000 |
66,000 |
|
Treasury Stock (at cost) |
10,000 |
20,000 |
|
Cost of Goods Sold |
368,000 |
|
|
Operating Expenses |
185,000 |
|
|
Income Tax Expense |
37,600 |
|
|
Loss on Sale of Equipment |
1,000 |
|
|
Total debits |
$922,600 |
$216,800 |
|
Credits |
Dec 31, 2008 |
Jan 1, 2008 |
|
Accumulated Depreciation—Equipment |
$ 19,000 |
$ 18,000 |
|
Accounts Payable |
7,000 |
11,200 |
|
Interest Payable |
1,000 |
2,000 |
|
Income Taxes Payable |
12,000 |
8,000 |
|
Notes Payable—Long-Term |
16,000 |
24,000 |
|
Common Stock |
110,000 |
100,000 |
|
Paid-In Capital in Excess of Par |
32,000 |
30,000 |
|
Retained Earnings |
19,600* |
23,600 |
|
Sales |
704,000 |
|
|
Gain on Sale of Long-Term Investments |
2,000 |
|
|
Total credits |
$922,600 |
$216,800 |
The following additional information is available:
(a) All purchases and sales were on account.
(b) Equipment costing $10,000 was sold for $3,000; a loss of $1,000 was recognized on the sale.
(c) Among other items, the operating expenses included depreciation expense of $7,000; interest expense of $2,800; and insurance expense of $2,400.
(d) Equipment was purchased during the year by issuing common stock and by paying the balance ($12,000) in cash.
(e) Treasury stock was sold for $4,000 less than it cost; the decrease in owners’ equity was recorded by reducing Retained Earnings. No dividends were paid during the year.
Instructions:
1. Prepare a statement of cash flows for the year ended December 31, 2008, using the direct method of reporting cash flows from operating activities.
2. Comment on the lack of dividend payment. Does a “no-dividend” policy seem appropriate under the current circumstances for Novations, Inc.?