Statement of Cash Flows: Indirect Method

 

p7. Reed Corporation’s income statement for the year ended June 30, 2014, and its comparative balance sheets as of June 30, 2014 and 2013, follow.

 

 

 

✔ 1: Net cash flows from operating

 

activities: $548,000

 

✔ 1: Net cash flows from investing

 

activities: $6,000

 

✔ 1: Net cash flows from financing

 

activities:  ($260,000)

 

 

reed Corporation Income Statement

 

                                                    For the Year ended June 30, 2014                                                     

 

Sales                                                                                                                                       $8,081,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reed Corporation Comparative Balance Sheets

 

                                                             June 30, 2014 and 2013                                                             

 

2014                        2013

 

Assets

 

Cash                                                                                                       $   334,000              $     40,000

 

Accounts receivable (net)                                                                          200,000                                                                                                                    240,000

 

Inventory                                                                                                    360,000                                                                                                                    440,000

 

Prepaid expenses                                                                                           1,200                                                                                                                         2,000

 

Property, plant, and equipment                                                            1,256,000                                                                                                                             1,104,000 Accumulated depreciation—property, plant, and equipment                                   (366,000)                                                                                                                              (280,000) Total assets                                                                                                               $1,785,200                                                                                                               $1,546,000

 

                                                                                 

 

Liabilities and Stockholders’ equity

 

 

 

Accounts payable	$   128,000	Â	$     84,000
Notes payable (due in 90 days)	60,000	Â	160,000
Income taxes payable	52,000	Â	36,000
Mortgage payable	720,000	Â	560,000
Common stock, $5 par value	400,000	Â	400,000
Retained earnings	425,200	Â	306,000
Total liabilities and stockholders’ equity	$1,785,200	Â	$1,546,000

 

 

 

During 2014, the corporation sold at a loss of $8,000 equipment that cost $48,000, on which it had accumulated depreciation of $34,000. It also purchased land and a building for $200,000 through an increase of $200,000 in Mortgage Payable; made   a

 

$40,000 payment on the mortgage; repaid $160,000 in notes but borrowed an addi- tional $60,000 through the issuance of a new note payable; and declared and paid   a

 

$120,000 cash dividend.

 

reQUIreD

 

1.    Using the indirect method, prepare a statement of cash flows. Include a supporting schedule of noncash investing and financing transactions.

 

2.    aCCountInG ConneCtIon ▶ What are the primary reasons for Reed’s large increase in cash from 2013 to 2014?

 

3.    BuSIneSS applICatIon ▶ Compute and assess cash flow yield and free cash flow for 2014. (Round to one decimal place.) How would you assess the corporation’s cash-generating ability?

 

 

 

 

 

 

 

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LO 2, 3, 4, 5

 

 

 

 

✔ 1: Net cash flows from operating

 

activities: $93,600

 

✔ 1: Net cash flows from investing

 

activities:  ($28,800)

 

✔ 1: Net cash flows from financing

 

activities: $204,000

 

 

q322

 

Statement of Cash Flows: Indirect Method

 

p8. Shah Fabrics, Inc.’s comparative balance sheets for December 31, 2014 and 2013, follow.

 

 

 

Shah Fabrics, Inc.

 

Comparative Balance Sheets

 

                                           December 31, 2014 and 2013                                            

 

2014                            2013

 

Assets

 

Cash                                                                          $  378,240                   $  109,440

 

Accounts receivable (net)                                             409,720                       301,720

 

Inventory                                                                      451,560                       551,560

 

Prepaid expenses                                                                  —                         80,000 Land         100,000                   —

 

Building                                                                        548,000                                 —

 

Accumulated depreciation—building                        (60,000)                                — Equipment               132,000                                                                                       136,000

 

Accumulated depreciation—equipment                    (58,000)                       (96,000)

 

Patents                                                                            16,000                         24,000

 

                                                   

 

Total assets                                                              $1,917,520                   $1,106,720

 

                                                   

 

Liabilities and Stockholders’ equity

 

 

 

Accounts payable	$     43,000	Â	$   147,000
Notes payable (current)	40,000	Â	—
Accrued liabilities	—	Â	49,200
Mortgage payable	648,000	Â	—
Common stock, $10 par value	720,000	Â	600,000
Additional paid-in capital	228,800	Â	148,800
Retained earnings	237,720	Â	161,720
Total liabilities and stockholders’ equity	$1,917,520	Â	$1,106,720

 

 

 

Additional information about Shah Fabrics’ operations during 2014 is as follows: (a) net income, $112,000; (b) building and equipment depreciation expense amounts,

 

$60,000 and $12,000, respectively; (c) equipment that cost $54,000 with accumulated depreciation of $50,000 sold at a gain of $21,200; (d) equipment purchases,   $50,000;

 

(e)    patent amortization, $12,000; purchase of patent, $4,000; (f) funds borrowed by issuing notes payable, $100,000; notes payable repaid, $60,000; (g) land and building purchased for $648,000 by signing a mortgage for the total cost; (h) 6,000 shares of

 

$40 par value common stock issued for a total of $200,000; and (i) paid cash dividend,

 

$36,000.

 

reQUIreD

 

1.    Using the indirect method, prepare a statement of cash flows for Shah Fabrics.

 

2.    aCCountInG ConneCtIon ▶ Why did Shah Fabrics have an increase in cash of

 

$268,800 when it recorded net income of only $112,000? Discuss and interpret.

 

3.    BuSIneSS applICatIon ▶ Compute and assess cash flow yield and free cash flow for 2014. (Round to one decimal place.) What is your assessment of Shah Fabrics’ cash-generating ability?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

638                                                                                                              Chapter 13: The Statement of Cash Flows

 

 

 

LO 2, 3, 4, 5

 

 

 

 

✔ 1: Net cash flows from operating

 

activities:  ($212,000)

 

✔ 1: Net cash flows from investing

 

activities: $68,000

 

✔ 1: Net cash flows from financing

 

activities: $48,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LO 2, 3, 4, 5