ACCT 001 Lecture Notes - Lecture 9: Cash Flow Statement, Cash Flow, Financial Statement
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Statement of Cash Flows Using a Work SheetâIndirect Method (Appendix)
Peoria Corp. just completed another successful year, as indicated by the following income statement:
| For the Year Ended December 31, 2017 | |
| Sales revenue | $1,250,000 |
| Cost of goods sold | 700,000 |
| Gross profit | $550,000 |
| Operating expenses | 150,000 |
| Income before interest and taxes | $400,000 |
| Interest expense | 25,000 |
| Income before taxes | $375,000 |
| Income tax expense | 150,000 |
| Net income | $225,000 |
Presented here are comparative balance sheets:
| December 31 | |||
| 2017 | 2016 | ||
| Cash | $52,000 | $90,000 | |
| Accounts receivable | 180,000 | 130,000 | |
| Inventory | 230,000 | 200,000 | |
| Prepayments | 15,000 | 25,000 | |
| Total current assets | $477,000 | $445,000 | |
| Land | $750,000 | $600,000 | |
| Plant and equipment | 700,000 | 500,000 | |
| Accumulated depreciation | (250,000) | (200,000) | |
| Total long-term assets | $1,200,000 | $900,000 | |
| Total assets | $1,677,000 | $1,345,000 | |
| Accounts payable | $130,000 | $148,000 | |
| Other accrued liabilities | 68,000 | 63,000 | |
| Income taxes payable | 90,000 | 110,000 | |
| Total current liabilities | $288,000 | $321,000 | |
| Long-term bank loan payable | $350,000 | $300,000 | |
| Common stock | $550,000 | $400,000 | |
| Retained earnings | 489,000 | 324,000 | |
| Total stockholders' equity | $1,039,000 | $724,000 | |
| Total liabilities and stockholders' equity | $1,677,000 | $1,345,000 | |
Other information is as follows:
Dividends of $60,000 were declared and paid during the year.
Operating expenses include $50,000 of depreciation.
Land and plant and equipment were acquired for cash, and additional stock was issued for cash. Cash also was received from additional bank loans.
The president has asked you some questions about the year's results. She is very impressed with the profit margin of 18% (net income divided by sales revenue). She is bothered, however, by the decline in the company's cash balance during the year. One of the conditions of the existing bank loan is that the company maintain a minimum cash balance of $50,000.
Required:
1. Using the format in the chapter's appendix, prepare a statement of cash flows work sheet. If an amount box does not require an entry, leave it blank. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash.
| Balances | Cash Inflows (Outflows) | |||||
| Accounts | 12/31/17 | 12/31/16 | Changes | Operating | Investing | Financing |
| Cash | $ | $ | $ | $ | $ | $ |
| Accounts Receivable | ||||||
| Inventory | ||||||
| Prepayments | ||||||
| Land | ||||||
| Plant and Equipment | ||||||
| Accumulated Depreciation | ||||||
| Accounts Payable | ||||||
| Other Accrued Liabilities | ||||||
| Income Taxes Payable | ||||||
| Long-Term Bank Loan Payable | ||||||
| Common Stock | ||||||
| Retained Earnings | ||||||
| Net Income | ||||||
| Totals | $ | $ | $ | $ | $ | $ |
| Net increase (decrease) in cash | $ | |||||
2. Prepare a statement of cash flows for 2017 using the indirect method in the Operating Activities section. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash.
| Peoria Corp. | |
| Statement of Cash Flows | |
| For the Year Ended December 31, 2017 | |
| Cash Flows from Operating Activities | |
| $ | |
| Adjustments to reconcile net income to net cash provided by operating activities: | |
| $ | |
| Cash Flows from Investing Activities | |
| $ | |
| $ | |
| Cash Flows from Financing Activities | |
| $ | |
| $ | |
| $ | |
| Cash balance, December 31, 2016 | |
| Cash balance, December 31, 2017 | $ |
3. During the year Peoria experienced a decrease in cash at the end of the year due to
