QUESTIONS -
1. Describe the direct method for determining net cash provided by operating activities. What is the advantage of this method? What is the disadvantage of this method?
2. In the direct method, why is depreciation expense not reported in the cash flows from operating activities section?
3. Describe the indirect method for determining net cash provided by operating activities. What is the advantage of this method? What is the disadvantage of this method?
4. In the indirect method, why is depreciation expense reported in the cash flows from operating activites section?
5. Are both the direct and indirect method of presenting net cash from operating activities acceptable under GAAP? Which method is preferred by FASB? Which method is more popular?
EXERCISES
1. Indicate whether each transaction is an operating, investing, financing or non-cash transaction:
(a) Issued $50,000 par value common stock for cash.
(b) Purchased a machine for $30,000, giving a long-term note in exchange.
(c) Issued $200,000 par value common stock upon conversion of bonds having a face value of $200,000.
(d) Declared and paid a cash dividend of $18,000.
(e) Sold a long-term investment with a cost of $15,000 for $15,000 cash.
(f) Collected $16,000 of accounts receivable.
(g) Paid $18,000 on accounts payable.
2. Indicate whether the item would be reported as operating (indirect method), investing, financing, or non-cash on the cash flow statement:
(a) Payment of interest on notes payable.
(b) Exchange of land for patent.
(c) Sale of building at book value.
(d) Payment of dividends.
(e) Depreciation.
(f) Receipt of dividends on investment in stock.
(g) Receipt of interest on notes receivable.
(h) Issuance of common stock.
(i) Amortization of patent.
(j) Issuance of bonds for land.
(k) Purchase of land.
(l) Conversion of bonds into common stock.
(m)Loss on sale of land.
(n) Retirement of bonds.
Bryant CompanyIncome Statement For Year Ending on 12/31/18
Sales 350,000
Cost of Goods Sold 125,000
Gross Profit 225,000
Operating Expenses:
Insurance 10,000
Salaries 40,000
Depreciation 20,000
Rent 10,000
Total Operating Expenses 80,000
Operating Income 145,000
Income Tax Expense 58,000
Net Income 87,000
Bryant Company Comparative Balance Sheets For 12/31/17 and 12/31/18
2017 2018
Cash 69,000 72,000
Accounts Receivable 14,000 24,000
Merchandise Inventory 52,000 32,000
Prepaid Rent 7,000 15,000
Equipment 204,000 294,000
Accum. Depr.-Equipment 52,000 72,000
Accounts Payable 45,000 30,000
Salaries Payable 10,000 14,000
Income Taxes Payable 9,000 10,000
Dividends Payable 30,000 24,000
Bonds Payable - 20,000
Common Stock 80,000 100,000
Retained Earnings 120,000 167,000
REQUIRED:
Compute the cash flows from operating activities using the
A. direct method
B. indirect method
Attachment:- Assignment.rar