Fundamentals Of Financial Accounting
6th Edition
ISBN: 9781259864230
Author: PHILLIPS, Fred, Libby, Robert, Patricia A.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 12, Problem 4CP
Preparing and Interpreting a Statement of Cash Flows (Indirect Method)
Soft Touch Company was started several years ago by two golf instructors. The company’s comparative balance sheets and income statement are presented below, along with additional information.
Current Year |
Previous Year |
|
Balance Sheet at December 31 | ||
Cash | $13,500 | $ 8,000 |
Accounts Receivable | 2,500 | 3,500 |
Equipment | 11,000 | 10,000 |
Accumulated |
(3,000) | (2,500) |
$24,000 | $19,000 | |
Accounts Payable | $ 1,000 | $ 2,000 |
Salaries and Wages Payable | 1,000 | 1,500 |
Note Payable (long-term) | 3,000 | 1,000 |
Common Stock | 10,000 | 10,000 |
Retained Earnings | 9,000 | 4,500 |
$24,000 | $19,000 | |
Income Statement | ||
Service Revenue | $75,000 | |
Salaries and Wages Expense | 68,000 | |
Depreciation Expense | 500 | |
Income Tax Expense | 2,000 | |
Net Income | $ 4,500 |
Additional Data:
- a. Bought new golf clubs using cash, $1,000.
- b. Borrowed $2,000 cash from the bank during the year.
- c. Accounts Payable includes only purchases of services made on credit for operating purposes. Because there are no liability accounts relating to income tax, assume that Income Tax Expense was fully paid in cash.
Required:
- 1. Prepare the statement of cash flows for the current year ended December 31 using the indirect method.
- 2. Use the statement of cash flows to evaluate the company’s cash flows.
TIP: Demonstration Case A provides an example of information to consider when evaluating cash flows.
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Use the following excerpts from Eagle Company's financial records to determine net cash flows from financing activities.
acquired new plant assets
$18,000
borrowed from bank, note payable
40,000
declared and paid dividends to shareholders
15,000
PARNELL COMPANY
Income Statement
For the Year Ended December 31, 2021
($ in thousands)
Revenues and gains:
Sales
$890
11
$901
Gain on sale of building
Expenses and loss:
Cost of goods sold
Salaries
$ 345
129
53
Insurance
132
Depreciation
Interest expense
Loss on sale of equipment
59
13
731
170
Income before tax
85
Income tax expense
$ 85
Net income
PARNELL COMPANY
Selected Accounts from Comparative Balance Sheets
December 31, 2021 and 2020
($ in thousands)
Year
Change
$ 61
2021
2020
Cash
152
91
Accounts receivable
Inventory
342
207
135
312
57
228
120
78
181
(131)
(49)
120
36
17
(37)
443
Prepaid insurance
Accounts payable
Salaries payable
Deferred tax liability
Bond discount
106
108
84
61
218
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Open spreadsheet
Cash flows from operating activities
Selected data derived from the income statement and balance sheet of National Beverage Co. for a recent year are as follows:
Income statement data (in thousands):
Net income
Loss on disposal of property
Depreciation expense
Other items involving noncash expense
Balance sheet data (in thousands):
Increase in accounts receivable
Office 365
National Beverage Co.
Cash Flows from Operating Activities
(in thousands)
Cash flows from (used for) operating activities:
Increase in inventory
Increase in prepaid expenses
Increase in accounts payable and other current liabilities
This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.
Adjustments to reconcile net income to net
cash flows from (used for) operating activities:
$143,748
(192)
13,725
860
Check My Work 2 more Check My Work uses remaining.
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Chapter 12 Solutions
Fundamentals Of Financial Accounting
Ch. 12 - Compare the purposes of the income statement, the...Ch. 12 - Prob. 2QCh. 12 - Prob. 3QCh. 12 - What are the major categories of business...Ch. 12 - Prob. 5QCh. 12 - Describe the types of items used to compute cash...Ch. 12 - Under the indirect method, depreciation expense is...Ch. 12 - Prob. 8QCh. 12 - Explain why a 50,000 increase in inventory during...Ch. 12 - Prob. 10Q
Ch. 12 - As a junior analyst, you are evaluating the...Ch. 12 - Prob. 12QCh. 12 - Prob. 13QCh. 12 - Prob. 14QCh. 12 - (Supplement 12A) How is the sale of equipment...Ch. 12 - Prob. 1MCCh. 12 - Prob. 2MCCh. 12 - Prob. 3MCCh. 12 - Prob. 4MCCh. 12 - Which of the following would not appear in the...Ch. 12 - Prob. 6MCCh. 12 - Prob. 7MCCh. 12 - Prob. 8MCCh. 12 - The total change in cash as shown near the bottom...Ch. 12 - Prob. 10MCCh. 12 - Prob. 1MECh. 12 - Matching Items Reported to Cash Flow Statement...Ch. 12 - Determining the Effects of Account Changes on Cash...Ch. 12 - Computing Cash Flows from Operating Activities...Ch. 12 - Prob. 5MECh. 12 - Computing Cash Flows from Investing Activities...Ch. 12 - Computing Cash Flows from Financing Activities...Ch. 12 - Computing Cash Flows Under IFRS Using the data...Ch. 12 - Prob. 9MECh. 12 - Interpreting Cash Flows from Operating, Investing,...Ch. 12 - Matching Items Reported to Cash Flow Statement...Ch. 12 - Computing Cash Flows from Operating Activities...Ch. 12 - Prob. 13MECh. 12 - Matching items Reported to Cash Flow Statement...Ch. 12 - Prob. 2ECh. 12 - Prob. 3ECh. 12 - Prob. 4ECh. 12 - Prob. 5ECh. 12 - Prob. 6ECh. 12 - Prob. 7ECh. 12 - Prob. 8ECh. 12 - Reporting and Interpreting Cash Flows from...Ch. 12 - Prob. 10ECh. 12 - Prob. 11ECh. 12 - Inferring Balance Sheet Changes from the Cash Flow...Ch. 12 - Prob. 13ECh. 12 - Prob. 14ECh. 12 - Prob. 15ECh. 12 - Prob. 16ECh. 12 - Prob. 17ECh. 12 - Prob. 18ECh. 12 - Prob. 19ECh. 12 - Prob. 20ECh. 12 - Prob. 21ECh. 12 - Prob. 22ECh. 12 - (Supplement 12B) Preparing a Statement of Cash...Ch. 12 - Determining Cash Flow Statement Effects of...Ch. 12 - Prob. 2CPCh. 12 - Prob. 3CPCh. 12 - Preparing and Interpreting a Statement of Cash...Ch. 12 - Prob. 5CPCh. 12 - Prob. 6CPCh. 12 - (Supplement 12A) Preparing and Interpreting a...Ch. 12 - Prob. 1PACh. 12 - Prob. 2PACh. 12 - Prob. 3PACh. 12 - Preparing and Interpreting a Statement of Cash...Ch. 12 - Computing Cash Flows from Operating Activities...Ch. 12 - Prob. 6PACh. 12 - (Supplement 12A) Preparing and Interpreting a...Ch. 12 - Prob. 1PBCh. 12 - Prob. 2PBCh. 12 - Prob. 3PBCh. 12 - Preparing and Interpreting a Statement of Cash...Ch. 12 - Prob. 5PBCh. 12 - Prob. 6PBCh. 12 - Prob. 1SDCCh. 12 - Prob. 2SDCCh. 12 - Prob. 6SDCCh. 12 - Prob. 7SDCCh. 12 - Prob. 8SDCCh. 12 - Prob. 9SDCCh. 12 - Prob. 1CC
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