ACCOUNTG 221 Lecture Notes - Lecture 4: Retained Earnings, Income Statement

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13 Jan 2017

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Cash flow from operating activities (income statement: cash receipts (inflow) from revenue (including interest, cash payments (outflows) for expenses (including interest) Cash flow from investing activities: cash receipt (inflows) from the sale of long term assets, cash payments (outflows) for the purchase of long-term assets. Investing is buying things that will last you more than a year. Cash flows from financing activities: cash receipts (inflows) from borrowing funds, cash receipts (inflows) from issuing common stock, cash payments (outflows) to repay borrowed funds, cash payments (outflows) for dividends. A deferral involves recognizing a revenue or expense at some time after cash has been collected or paid. Cash came in or went out, but no revenue was earned and an expense was not incurred. Receive cash in advance of when services are preformed (unearned revenue: example- retainer for a lawyer. Prepaid expense- new accounts: supplies, prepaid insurances, prepaid rent. Expense means an asset that has been used.

Related Questions

Erroneous Statement of Cash Flows

Ryan Company's bookkeeper prepared the following 2016 statement of cash flows:

Flows of Cash Statement December 31, 2016
Sources (Inflows) of Cash
Net Source from Operations
Net income	$47,800
Add: Cash receipt from sale of land	6,500
Inflow from issuing 10% bonds payable	25,000
Depreciation expense	13,200
Reduction in inventory	1,900
Less: Outflow to buy equipment	(16,400)
Increase in prepaid expenses	(700)
Cash (principal) paid on long-term note	(9,500)
ordinary gain	(2,000)
Total source from operations		$65,800
Other Sources (Inflows) of Cash
Loss on sale of land	$2,300
Increase in accounts payable	1,000
Cash from issuing preferred stock	38,700
Patent amortization expense	2,100
Total other sources of cash		44,100
Sources (Financing) Not Affecting Cash
Issuance of common stock for patent		11,000
Total inflows of cash		$120,900
Uses (Outflows) of Cash
To purchase building	$(62,000)
Increase in accounts receivable	(7,800)
For acquiring marketable securities	(7,100)
Decrease in income taxes payable	(1,400)
Total uses of cash		(78,300)
Uses (Investing) Not Affecting Cash
Acquisition of patent by issuing common stock		(11,000)
Net inflow before dividends		$ 31,600
Less: Cash dividends		(24,000)
Net increase in cash		$7,600
Cash, January 1, 2016		15,300
Cash, December 31, 2016		$22,900

After a thorough investigation, you have determined that the amounts of the items listed on the statement are correct. However, you notice several items that are incorrectly classified and reported.

Required

Prepare a corrected 2016 statement of cash flows for the Ryan Company. Use the minus sign to indicate cash outflows, a decrease in cash or cash payments.

Operating Activities

________________ __________

Adjustment for non cash income items:

________________ __________

Adjustments for cash flow effects from working capital items:

________________ __________

Net cash provided by operating activities ____________

Investing Activities:

________________ __________

Net cash used for investing activities _________

Financing Activities:

________________ __________

Net cash provided by financing activies _________

Net increase in cash _________

Cash, january 1, 2016 _________

Cash, december 31, 2016 _________

Investing and Financing Activities not Affecting Cash

Investing Activities:

Acquistion of patent by issuing commons stock ______________

Financing Activities:

Issuance of common stock for patent ____________

ivorymallard438

Sorry about these values, this thing is kind of messed up. Ihope this can be understood.

The following is the Choco Companyâs balance sheet and incomestatement as of 12/31/2016.

Balance Sheet	2015	2016
Cash Accounts receivable Inventory Long-term investments Total assets Liabilities and stockholdersâ equity: (no value) Accounts payable Salary payable Bonds payable Common stock Retained earnings Total liabilities and stockholdersâ equity	$ 120,000 105,000 225,000 60,000 510,000 120,000 15,000 100,000 125,000 150,000 510,000	21,500 195,000 180,000 -0- 396,500 75,000 24,000 70,000 125,000 102,500 396,500
Income statement
Revenue:(no value) Sales Loss on sales of long-term investment Expenses: (no value) Cost of goods sold Salary expense Net income (loss)		560,000 (7,500) (375,000) (180,000) (2,500)

During 2016, following transactions were made:

Sold long-term investment for a loss of $7,500 (sold for$52,500).

$30,000 of bonds payable matured in 2016.

Paid cash dividends of $45,000.

What is the amount of cash inflow/outflow/ from their customers?(assume Sales are all credit sales)

What is the amount of cash inflow/outflow from the loss on thesales of long-term investment?

What is the amount of cash inflow/outflow from theirsuppliers?

What is the amount of cash inflow/outflow from theiremployees?

What is the amount of cash inflow/outflow from their long-terminvestment?

What is the amount of cash inflow/outflow regarding the maturityof their bonds payable?

What is the amount of cash inflow/outflow regarding the cashdividends?

Using the above balance sheet, income statement and informationfrom a to g, prepare the entire cash flow statement using thedirect method.

Choco Company Statement of Cash Flows For the year ended December 31, 2016
Cash flows from operating activities: Cash inflows: Cash outflows: Net cash flows from operating activities
Cash flows from investing activities: Net cash flows from investing activities
Cash flows from financing activities: Net cash flows from financing activities
Cash balance, 12/31/2016

browncamel370

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

harlequinelk794

ACCOUNTG 221 Lecture Notes - Lecture 4: Retained Earnings, Income Statement

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