Direct and Indirect Cash Flow Models
Complete the following exercise. Fill in the Excel spreadsheet titled Cash Flows provided via the link at the bottom of the page to
provide your answers to parts a and b. Then paste the Excel data into a Word document on which you can also write the answer to part c.
Label each exercise or problem clearly. Use APA formatting and citation if needed.
The Carpet Company's 2009 and 2010 balance sheets included the following items:
December 31
2010 2009
Debits
Cash $10,500 $ 4,000
Accounts receivable 8,000 9,000
Merchandise inventory 21,000 18,000
Equipment 18,000 15,000
Totals $57,500 $46,000
Credits
Accumulated depreciation, equipment $4,000 $3,000
Accounts payable 7,000 5,000
Taxes payable 1,000 2,000
Dividends payable 1,500 0
Common stock, $10 par value 27,000 25,000
Contributed capital in excess of par, common stock 6,000 5,000
Retained earnings 11,000 6,000
Totals $57,500 $46,000
The Carpet Company's income statement was as follows:
CARPET COMPANY
Income Statement
For the Year Ended December 31, 2010
Sales $61,000Cost of goods sold $40,000
Wages and other operating expenses 6,300
Income taxes expense 4,200
Depreciation expense 1,500 52,000
Net income 9,000
Additional information includes the following:
Equipment costing $3,500 was purchased during the year.
Fully depreciated equipment that cost $500 was discarded and its cost and accumulated depreciation were removed from the accounts.
Two hundred shares of stock were sold and issued at $15 per share.
The company declared $4,000 of cash dividends and paid $2,500.
Required:
Prepare the statement of cash flow under the direct method for the year ended December 31, 2010.
Prepare the statement of cash flow under the indirect method for the year ended December 31, 2010.
Provide a statement between 200 and 300 words in length for senior management. The topic is the status of the company based on
cash flow.