Statement of Cash FlowsâIndirect Method
The comparative balance sheet of Merrick Equipment Co. for December 31, 20Y9 and 20Y8, is as follows:
Dec. 31, 20Y9 Dec. 31, 20Y8 Assets Cash $245,600 $227,150 Accounts receivable (net) 88,970 81,580 Inventories 251,170 241,550 Investments 0 93,580 Land 128,820 0 Equipment 277,110 213,550 Accumulated depreciationâequipment (64,880) (57,590) Total assets $926,790 $799,820 Liabilities and Stockholders' Equity Accounts payable $167,750 $157,560 Accrued expenses payable 16,680 20,800 Dividends payable 9,270 7,200 Common stock, $10 par 50,050 39,190 Paid-in capital: Excess of issue price over par-common stock 188,140 108,780 Retained earnings 494,900 466,290 Total liabilities and stockholdersâ equity $926,790 $799,820
Additional data obtained from an examination of the accounts in the ledger for 20Y9 are as follows:
Equipment and land were acquired for cash.
There were no disposals of equipment during the year.
The investments were sold for $84,220 cash.
The common stock was issued for cash.
There was a $66,200 credit to Retained Earnings for net income.
There was a $37,590 debit to Retained Earnings for cash dividends declared.
Required:
Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.
Merrick Equipment Co. Statement of Cash Flows For the Year Ended December 31, 20Y9 Cash flows from operating activities: Net income $ Adjustments to reconcile net income to net cash flow from operating activities: Depreciation Loss on sale of investments Changes in current operating assets and liabilities: Increase in accounts receivable Increase in inventories Increase in accounts payable Decrease in accrued expenses payable Net cash flow from operating activities $ Cash flows from (used for) investing activities: Cash from sale of investments $ Cash used for purchase of land Cash used for purchase of equipment Net cash flow used for investing activities Cash flows from (used for) financing activities: Cash from sale of common stock Cash used for dividends Net cash flow from financing activities Increase in cash $ Cash at the beginning of the year Cash at the end of the year $
Statement of Cash FlowsâIndirect Method
The comparative balance sheet of Merrick Equipment Co. for December 31, 20Y9 and 20Y8, is as follows:
| Dec. 31, 20Y9 | Dec. 31, 20Y8 | ||||
| Assets | |||||
| Cash | $245,600 | $227,150 | |||
| Accounts receivable (net) | 88,970 | 81,580 | |||
| Inventories | 251,170 | 241,550 | |||
| Investments | 0 | 93,580 | |||
| Land | 128,820 | 0 | |||
| Equipment | 277,110 | 213,550 | |||
| Accumulated depreciationâequipment | (64,880) | (57,590) | |||
| Total assets | $926,790 | $799,820 | |||
| Liabilities and Stockholders' Equity | |||||
| Accounts payable | $167,750 | $157,560 | |||
| Accrued expenses payable | 16,680 | 20,800 | |||
| Dividends payable | 9,270 | 7,200 | |||
| Common stock, $10 par | 50,050 | 39,190 | |||
| Paid-in capital: Excess of issue price over par-common stock | 188,140 | 108,780 | |||
| Retained earnings | 494,900 | 466,290 | |||
| Total liabilities and stockholdersâ equity | $926,790 | $799,820 | |||
Additional data obtained from an examination of the accounts in the ledger for 20Y9 are as follows:
Equipment and land were acquired for cash.
There were no disposals of equipment during the year.
The investments were sold for $84,220 cash.
The common stock was issued for cash.
There was a $66,200 credit to Retained Earnings for net income.
There was a $37,590 debit to Retained Earnings for cash dividends declared.
Required:
Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.
| Merrick Equipment Co. | ||
| Statement of Cash Flows | ||
| For the Year Ended December 31, 20Y9 | ||
| Cash flows from operating activities: | ||
| Net income | $ | |
| Adjustments to reconcile net income to net cash flow from operating activities: | ||
| Depreciation | ||
| Loss on sale of investments | ||
| Changes in current operating assets and liabilities: | ||
| Increase in accounts receivable | ||
| Increase in inventories | ||
| Increase in accounts payable | ||
| Decrease in accrued expenses payable | ||
| Net cash flow from operating activities | $ | |
| Cash flows from (used for) investing activities: | ||
| Cash from sale of investments | $ | |
| Cash used for purchase of land | ||
| Cash used for purchase of equipment | ||
| Net cash flow used for investing activities | ||
| Cash flows from (used for) financing activities: | ||
| Cash from sale of common stock | ||
| Cash used for dividends | ||
| Net cash flow from financing activities | ||
| Increase in cash | $ | |
| Cash at the beginning of the year | ||
| Cash at the end of the year | $ | |
Related questions
The comparative balance sheet of Merrick Equipment Co. for December 31, 20Y9 and 20Y8, is as follows:
| Dec. 31, 20Y9 | Dec. 31, 20Y8 | ||||
| Assets | |||||
| Cash | $266,740 | $248,130 | |||
| Accounts receivable (net) | 96,630 | 89,120 | |||
| Inventories | 272,790 | 263,860 | |||
| Investments | 0 | 102,220 | |||
| Land | 139,910 | 0 | |||
| Equipment | 300,960 | 233,280 | |||
| Accumulated depreciationâequipment | (70,460) | (62,910) | |||
| Total assets | $1,006,570 | $873,700 | |||
| Liabilities and Stockholders' Equity | |||||
| Accounts payable | $182,190 | $172,120 | |||
| Accrued expenses payable | 18,120 | 22,720 | |||
| Dividends payable | 10,070 | 7,860 | |||
| Common stock, $10 par | 54,350 | 42,810 | |||
| Paid-in capital: Excess of issue price over par-common stock | 204,330 | 118,820 | |||
| Retained earnings | 537,510 | 509,370 | |||
| Total liabilities and stockholdersâ equity | $1,006,570 | $873,700 | |||
Additional data obtained from an examination of the accounts in the ledger for 20Y9 are as follows:
Equipment and land were acquired for cash.
There were no disposals of equipment during the year.
The investments were sold for $92,000 cash.
The common stock was issued for cash.
There was a $69,200 credit to Retained Earnings for net income.
There was a $41,060 debit to Retained Earnings for cash dividends declared.
Required:
Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.
| Merrick Equipment Co. | ||
| Statement of Cash Flows | ||
| For the Year Ended December 31, 20Y9 | ||
| Cash flows from operating activities: | ||
| $ | ||
| Adjustments to reconcile net income to net cash flow from operating activities: | ||
| Changes in current operating assets and liabilities: | ||
| Net cash flow from operating activities | $ | |
| Cash flows from (used for) investing activities: | ||
| $ | ||
| Net cash flow used for investing activities | ||
| Cash flows from (used for) financing activities: | ||
| Net cash flow from financing activities | ||
| $ | ||
| Cash at the beginning of the year | ||
| Cash at the end of the year | $ | |
Budgeted Income Statement and Balance Sheet
As a preliminary to requesting budget estimates of sales, costs, and expenses for the fiscal year beginning January 1, 20Y9, the following tentative trial balance as of December 31, 20Y8, is prepared by the Accounting Department of Regina Soap Co.:
| Cash | $108,400 | ||
| Accounts Receivable | 204,900 | ||
| Finished Goods | 43,000 | ||
| Work in Process | 28,700 | ||
| Materials | 47,100 | ||
| Prepaid Expenses | 3,500 | ||
| Plant and Equipment | 498,600 | ||
| Accumulated DepreciationâPlant and Equipment | $214,400 | ||
| Accounts Payable | 183,200 | ||
| Common Stock, $10 par | 250,000 | ||
| Retained Earnings | 286,600 | ||
| $934,200 | $934,200 |
Factory output and sales for 20Y9 are expected to total 25,000 units of product, which are to be sold at $90 per unit. The quantities and costs of the inventories at December 31, 20Y9, are expected to remain unchanged from the balances at the beginning of the year.
Budget estimates of manufacturing costs and operating expenses for the year are summarized as follows:
| Estimated Costs and Expenses | ||||
| Fixed (Total for Year) | Variable (Per Unit Sold) | |||
| Cost of goods manufactured and sold: | ||||
| Direct materials | _ | $23 | ||
| Direct labor | _ | 7 | ||
| Factory overhead: | ||||
| Depreciation of plant and equipment | $25,000 | _ | ||
| Other factory overhead | 7,800 | 4 | ||
| Selling expenses: | ||||
| Sales salaries and commissions | 89,800 | 11.5 | ||
| Advertising | 75,000 | _ | ||
| Miscellaneous selling expense | 6,500 | 2 | ||
| Administrative expenses: | ||||
| Office and officers salaries | 59,000 | 5.5 | ||
| Supplies | 3,000 | 1 | ||
| Miscellaneous administrative expense | 1,600 | 1.5 | ||
Balances of accounts receivable, prepaid expenses, and accounts payable at the end of the year are not expected to differ significantly from the beginning balances. Federal income tax of $178,400 on 20Y9 taxable income will be paid during 20Y9. Regular quarterly cash dividends of $1 per share are expected to be declared and paid in March, June, September, and December on 25,000 shares of common stock outstanding. It is anticipated that fixed assets will be purchased for $135,000 cash in May.
Required:
1. Prepare a budgeted income statement for 20Y9.
| Regina Soap Co. | |||
| Budgeted Income Statement | |||
| For the Year Ending December 31, 20Y9 | |||
| $ | |||
| Cost of goods sold: | |||
| $ | |||
| Cost of goods sold | |||
| Gross profit | $ | ||
| Operating expenses: | |||
| Selling expenses: | |||
| $ | |||
| Total selling expenses | $ | ||
| Administrative expenses: | |||
| $ | |||
| Total administrative expenses | |||
| Total operating expenses | |||
| Income before income tax | $ | ||
| $ | |||
2. Prepare a budgeted balance sheet as of December 31, 20Y9.
| Regina Soap Co. Budgeted Balance Sheet December 31, 20Y9 | |||
|---|---|---|---|
| Assets | |||
| Current assets: | |||
| Inventories: | |||
| Total current assets | |||
| Property, plant, and equipment: | |||
| Total property, plant, and equipment | |||
| Total assets | |||
| Liabilities | |||
| Current liabilities: | |||
| Stockholders' Equity | |||
| Total stockholdersâ equity | |||
| Total liabilities and stockholdersâ equity | |||
