Chapter 21, Problem 16P

1.

To determine

Prepare a spreadsheet to support the statement of cash flows under direct method of F Company for the year ended December 31, 2016.

Explanation of Solution

Statement of cash flows: This statement reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is reported as ending balance of cash at the end of reported period. Statement of cash flows includes the changes in cash balance due to operating, investing, and financing activities.

Worksheet: A worksheet is a spreadsheet used while preparing a financial statement. It is a type of form having multiple columns and it is used in the adjustment process. The use of a worksheet is optional for any organization. A worksheet can neither be considered as a journal nor a part of the general ledger.

Direct method: Under direct method, cash receipts from customers (cash inflows) and cash payments to suppliers (cash outflows) are reported under the operating activities.

Prepare a spreadsheet to support the statement of cash flows under direct method.

Table (1)

Table (2)

Working notes:

a) Net sales for the year is $1,950,000.

b) Cost of goods sold is $1,150,000.

c) Other operating expenses is $505,000.

f) Interest expense is $15,000.

h) Loss on sale of equipment is $5,000.

i) Income tax expense is $90,000.

j) Calculate the accounts receivable.

$\begin{array}{l}\begin{array}{c}\text{Decrease in accounts receivable = }\left(\begin{array}{l}\text{Beginnig year's accounts receivable}\\ \text{ – Ending year's accounts receivable}\end{array}\right)\\ \text{= \$305,000}-\$2,95,00\\ =\$10,000\end{array}\hfill \\ \hfill \end{array}$

k) Calculate the increase in inventory.

$\begin{array}{c}\text{Increase in inventory}=\left(\begin{array}{l}\text{Beginning year's inventory}\\ -\text{Ending year's inventory}\end{array}\right)\\ =\$431,0000-\$549,000\\ =\$118,000\end{array}$

l) Calculate the accounts payable.

$\begin{array}{l}\begin{array}{c}\text{Increase in Accounts Payable = }\left(\begin{array}{l}\text{Beginnig year's accounts payable}\\ \text{ – Ending year's accounts payable}\end{array}\right)\\ \text{= \$563,000}-\$604,000\\ =\$41,000\end{array}\hfill \\ \hfill \end{array}$

m) Calculate the deferred tax

$\begin{array}{c}\text{Increase in Deferred Tax =}\left(\begin{array}{l}\text{Closing balance of deferred tax}\\ -\text{ Opening balance of deferred tax}\end{array}\right)\\ =\$30,000-\$41,000\\ =\$11,000\end{array}$

n) Calculate proceeds from sale of common stock.

$\begin{array}{c}\left(\begin{array}{l}\text{Proceeds from Sale }\\ \text{of Common Stock}\end{array}\right)=\left(\begin{array}{l}\text{Issuance of common stock}\\ +\text{Additional paid in capital}\end{array}\right)\\ =\$10,000+\$13,0000\\ =\$23,000\end{array}$

o) Calculate proceeds from sale of treasury stock.

$\begin{array}{c}\left(\begin{array}{l}\text{Proceeds from Sale }\\ \text{of Treasury Stock}\end{array}\right)=\left(\begin{array}{l}\text{Issuance of treasury stock}\\ +\text{Additional paid in capital}\end{array}\right)\\ =\$17,000+\$8,000\\ =\$25,000\end{array}$

p) Calculate the payment to retire bonds.

$\begin{array}{c}\text{Bonds payable}=\left(\begin{array}{l}\text{Beginning year's bonds payable}\\ -\text{Ending year's bonds payable}\end{array}\right)\\ =\$210,000-\$160,000\\ =\$50,000\end{array}$

q) Purchase of equipment is $63,000.

r-1) Issuance of long-term note is $150,000.

r-2) Calculate issuance of long-term note to purchase land.

$\begin{array}{c}\left(\begin{array}{l}\text{Issuance of Long-term}\\ \text{ Note to Purchase Land}\end{array}\right)=\left(\begin{array}{l}\text{Beginning year's purchase of land}\\ -\text{Ending year's purchase of land}\end{array}\right)\\ =\$350,000-200,000\\ =\$150,000\end{array}$

s) Payment of cash dividends is $43,000.

t) Calculate net increase in cash.

$\begin{array}{c}\text{Net increase in cash}=\left(\begin{array}{l}\text{Beginnig year's cash}\\ -\text{Ending year's cash}\end{array}\right)\\ =\$225,000-180,000\\ =\$45,000\end{array}$

Conclusion

Therefore, net increase in cash is $45,000.

2.

To determine

Prepare a statement of cash flows of F Company for the year 2016.

Explanation of Solution

Prepare a statement of cash flows of F Company for the year 2016.

F Company
Statement of cash flows
For Year Ended December 31, 2016
Particulars	Amount($)	Amount($)
Operating Activities:
Cash inflows:
Collections from customers	1,960,000
Cash inflows from operating activities		1,960,000
Cash outflows:
Payments to suppliers	(1,227,000)
Other operating payments	(505,000)
Payments of interest	(15,000)
Payments of income taxes	(79,000)
Cash outflows from operating activities		(1,826,000)
Net cash provided by operating activities		134,000
Investing Activities:
Proceeds from sale of equipment	19,000
Payment for purchase of equipment	(63,000)
Net cash used for investing activities		(44,000)
Financing  Activities:
Proceeds from sale of common stock	23,000
Proceeds from sale of treasury stock	25,000
Payment to retire bonds	(50,000)
Payment of cash dividend	(43,000)
Net cash used for financing activities		(45,000)
Net increase in cash (see Schedule 1)		45,000
Cash, January 1, 2016		180,000
Cash, December 31,2016		225,000
Schedule 1: Investing and Financing Activities Not Affecting Cash
Investing Activities:
Purchase of land by issuance of long-term note		(150,000)
Financing  Activities:
Issuance of long-term note to purchase land		150,000

Table (3)

Conclusion

Therefore, the net increase in cash is $45,000.