Use the following information to determine this company’s cash flows from operating activities using the indirect method.
MOSS COMPANY
Selected Balance Sheet Information
December 31, 2017 and 2016
2017 2016
Current assets
Cash . . . . . . . . . . . . . . . . . . . . . . . $84,650 $26,800
Accounts receivable . . . . . . . . . . 25,000 32,000
Inventory . . . . . . . . . . . . . . . . . . . 60,000 54,100
Current liabilities
Accounts payable . . . . . . . . . . . . 30,400 25,700
Income taxes payable . . . . . . . . . 2,050 2,200
MOSS COMPANY
Income Statement
For Year Ended December 31, 2017
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $515,000
Cost of goods sold . . . . . . . . . . . . . . . . . 331,600
Gross profit . . . . . . . . . . . . . . . . . . . . . . 183,400
Operating expenses
Depreciation expense . . . . . . . . . . . . $ 36,000
Other expenses . . . . . . . . . . . . . . . . . 121,500 157,500
Income before taxes . . . . . . . . . . . . . . . 25,900
Income taxes expense . . . . . . . . . . . . . . 7,700
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 18,200
Select your language
Suggested languages for you:
Found in: Page 574
Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705
Answers without the blur.
Just sign up for free and you're in.
Short Answer
The following transactions and events occurred during the year. Assuming that this company uses the direct method to report cash provided by operating activities, indicate where each item would appear on the statement of cash flows by placing an x in the appropriate column.
Statement of Cash flow | ||||||
Operating Activities | Investing activities | Financing Activities | Non-cash investing and financing activities | Not reported on the statement or in notes | ||
a | Retired long-term notes payable by issuing common stock | |||||
b | Paid cash toward accounts payable | |||||
c | Sold inventory for cash | |||||
d | Paid cash dividend that was declared in a prior period | |||||
e | Accepted six-month note receivable in exchange for plant assets | |||||
f | Recorded depreciation expense | |||||
g | Paid cash to acquire treasury stock | |||||
h | Collected cash from sales | |||||
i | Borrowed cash from bank by signing a nine-month note payable | |||||
j | Paid cash to purchase a patent |
- Non-cash investing and financing activities
- Operating activities
- Operating activities
- Financing activities
- Non-cash investing and financing activities
- Not reported on the statement or in notes
- Financing activities
- Operating activities
- Financing activities
- Investing activities
See the step by step solution
Step by Step Solution
Step 1: Meaning of Cash Flow Statement
A statement that shows the cash flow inside and outside the business entity by categorizing it mainly into operating, investing, and financing activities is known as a cash flow statement.
Step 2: Indicating each item and explain the reason
S.no. | Statement of Cash flow | ||||||
Operating Activities | Investing activities | Financing Activities | Non-cash investing and financing activities | Not reported on the statement or in notes | Explanation |
a | Retired long-term notes payable by issuing common stock | X | Once the organization has received the funds from the lender, the principal amount from a long-term loan, or note payable, often shows in the financing activities part of the cash flow statement. | ||||
b | Paid cash toward accounts payable | X | Accounts Payable will be charged, and Cash will be credited when an account payable is paid. Subsequently, it reflects the recorded but unpaid vendor bills in Accounts Payable's credit balance. Accounts payable falls under the category of operating activities. | ||||
c | Sold inventory for cash | X | Since the sale of items affects net income through expenses, it would seem to constitute an operational activity (merchandise costs ultimately flow through the cost of goods sold on the income statement). | ||||
d | Paid cash dividend that was declared in a prior period | X | Dividend payments are often seen as financing activities since they are made to the investors (shareholders), who are essentially co-financing the business. | ||||
e | Accepted six-month note receivable in exchange for plant assets | X | This transaction is a non-cash activity of the business because plant assets are exchanged against the note receivable. | ||||
f | Recorded depreciation expense | X | Depreciation is added back when computing the indirect method of the cash flow statement since it is subtracted from the net profit calculation and is not a cash item. Depreciation is, in essence, an accounting metric that is subtracted from revenue or net sales to determine the company's cash flow. | ||||
g | Paid cash to acquire treasury stock | X | In the statement of cash flows, the acquisition of Treasury Stock is categorized as a financing activity. The acquisition of other firms' equity securities as an investment shows a cash outflow from investing operations. | ||||
h | Collected cash from sales | X | The total of your cash receipts for the accounting period is your cash collection. Depending on the business operations one engages in, these cash receipts are divided into several categories in a cash receipt statement of cash flow. | ||||
i | Borrowed cash from the bank by signing a nine-month note payable | X | Once the organization gets the funds from the lender, the principal amount from a long-term loan, or note payable, often shows in the financing activities part of the cash flow statement. | ||||
j | Paid cash to purchase a patent | X | Report the patent acquisition by including an outflow for the entire amount paid for the patent on the statement of cash flows. Information from the general ledger is adequate to report this purchase. The operational portion covers patent-related amortization. |
Most popular questions for Business-studies Textbooks
Santana Rey, owner of Business Solutions, decides to prepare a statement of cash flows for her business. (Although the serial problem allowed for various ownership changes in earlier chapters, we will prepare the statement of cash flows using the following financial data.)
BUSINESS SOLUTIONS
Income Statement
For Three Months Ended March 31, 2018Particular | Amount $ | Amount $ |
Computer service revenue | $25,307 | |
Net sales | 18,693 | |
Total revenue | 44,000 | |
Cost of goods sold | $14,052 | |
Depreciation expenses – Office equipment | 400 | |
Depreciation expenses – Computer equipment | 1,250 | |
Wages expenses | 3,250 | |
Insurance expenses | 555 | |
Rent expenses | 2,475 | |
Computer supplies expenses | 1,305 | |
Advertising expenses | 600 | |
Mileage expenses | 320 | |
Repair expenses – computer | 960 | |
Total expenses | 25,167 | |
Net income | $18,833 |
BUSINESS SOLUTIONS
Comparative Balance Sheets
December 31, 2017, and March 31, 2018March 31, 2018 | Dec 31, 2017 |
Cash | $68,057 | $48,372 |
Accounts receivables | 22,867 | 5,668 |
Inventory | 704 | 0 |
Computer supplies | 2,005 | 580 |
Prepaid insurance | 1,110 | 1,665 |
Prepaid rent | 825 | 825 |
Total current assets | 95,568 | 95,568 |
Office equipment | 8,000 | 8,000 |
Accumulated depreciation – office equipment | (800) | (400) |
Computer equipment | 20,000 | 20,000 |
Accumulated depreciation – computer equipment | (2,500) | (1,250) |
Total assets | $120,268 | $120,268 |
Liability and equity | ||
Account payable | $0 | $1,100 |
Wages payable | 875 | 500 |
Unearned computer service revenue | 0 | 1,500 |
Total current liabilities | 875 | 3,100 |
Equity | ||
Common stock | 98,000 | 73,000 |
Retained earnings | 21,393 | 7,360 |
Total liabilities and equity | $120,268 | $83,460 |
Required
Prepare a statement of cash flows for Business Solutions using the indirect method for the three months ended March 31, 2018. Recall that owner Santana Rey contributed $25,000 to the business in exchange for additional stock in the first quarter of 2018 and has received $4,800 in cash dividends.
Peugeot S.A. reports the following financial information for the year ended December 31, 2014 (euros in millions). Prepare its statement of cash flows under the indirect method. (Hint: Each line item below is titled, and any necessary parentheses added, as it is reported in the statement of cash flows.)
Net income (loss) | € (822) | Cash from issuances of shares | € 2,961 |
Depreciation, amortization, and impairment | 2,530 | Cash paid for other financing activities | (1,891) |
Losses on disposals and other | 42 | Cash from disposal of plant assets & intangibles | 206 |
Net decrease in current operating assets & other | 2,314 | Cash paid for plant assets, intangibles & other | (2,542) |
Cash paid for dividends | (58) | Cash and cash equivalents, December 31, 2013 | 8,162 |