Task 1: Net Cash Provided by Operating Activities (Indirect Method)
For the year just completed, Strident Corporation, an office equipment wholesaler, had net income of $84,000. Balances in the company’s current asset and current liabilities accounts at the beginning and end of the year were as follows:
|
|
End of Year
|
Beginning of Year
|
|
Current Assets:
|
|
|
|
Cash
|
$60,000
|
$80,000
|
|
Accounts receivable
|
$250,000
|
$190,000
|
|
Inventory
|
$437,000
|
$360,000
|
|
Prepaid expenses
|
$12,000
|
$14,000
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$420,000
|
$390,000
|
|
Accrued liabilities
|
$8,000
|
$12,000
|
The Deferred Income Taxes liability account on the balance sheet increased by $6,000 during the year, and depreciation charges were $50,000.
Required: Using the indirect method, determine the net cash provided by operating activities for the year.
Task 2: Prepare a Statement of Cash Flows (indirect Method)
Comparative financial statement data for the Holly Company follow:
|
|
December 31
|
|
|
2007
|
2006
|
|
Cash
|
$4
|
$7
|
|
Accounts receivable
|
36
|
29
|
|
Inventory
|
75
|
61
|
|
Plant and equipment
|
210
|
180
|
|
Accumulated depreciation
|
(40)
|
(30)
|
|
Total assets
|
$258
|
$247
|
|
Accounts payable
|
$45
|
$39
|
|
Common stock
|
90
|
70
|
|
Retained earnings
|
150
|
138
|
|
Total liabilities and shareholders' equity
|
$285
|
$247
|
For 2007, the company reported net income as follows:
|
Sales
|
$500
|
|
Cost of goods sold
|
300
|
|
Gross margin
|
200
|
|
Selling and administrative expenses
|
180
|
|
Net income
|
20
|
Dividends of $8 were declared and paid during 2007.
Required: Using the indirect method, prepare a statement of cash flows for 2007.
Task 3: ANALYTICAL THINKING
Listed below are the changes that have taken place in Luang Corporation’s balance sheet accounts as a result of the past year’s activities:
|
Debit Balance Accounts
|
Net Increase (Decrease)
|
|
Cash
|
$(30,000)
|
|
Accounts Receivable
|
20,000
|
|
Inventory
|
(60,000)
|
|
Prepaid Expenses
|
10,000
|
|
Long-Term Investments
|
50,000
|
|
Plant and Equipment
|
120,000
|
|
Net Increase
|
$110,000
|
|
Credit Balance Accounts
|
Net Increase (Decrease)
|
|
Accumulated Depreciation
|
$40,000
|
|
Accounts Payable
|
30,000
|
|
Accrued Liabilities
|
10,000
|
|
Taxes Payable
|
10,000
|
|
Bonds Payable
|
(40,000)
|
|
Deferred Income Taxes
|
(5,000)
|
|
Common Stock
|
20,000
|
|
Retained Earnings
|
45,000
|
|
Net Increase
|
$110,000
|
The following additional information is available about last year’s activities:
a. The company sold equipment during the year for $40,000. The equipment originally cost the company $120,000, and it had $70,000 in accumulated depreciation at the time of sale.
b. Net income for the years was $_____?_____.
c. The balance in the Cash account at the beginning of the year was $100,000; the balance at the end of the year was $_____?_____.
d. The company declared and paid $35,000 in cash dividends during the year.
e. Long-term investments that had cost $60,000 were sold during the year for $80,000.
f. The beginning and ending balances in the Plant and Equipment and Accumulated Depreciation accounts for the past year are given below:
|
|
Ending
|
Beginning
|
|
Plant and Equipment
|
$620,000
|
$500,000
|
|
Accumulated Depreciation
|
$240,000
|
$200,000
|
g. If data are not given explaining the account, make the most reasonable assumption as to the cause of the change.
Required:
Using the indirect method, prepare a statement of cash flows for the past year.