Assignment: Direct and Indirect Cash Flow Models
Complete the following exercise. Fill in the Excel spreadsheet provided via the link below 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 20X2 and 20X3 balance sheets included the following items:
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December 31
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20X3
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20X2
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Debits
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Cash
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$10,500
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$ 4,000
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Accounts receivable
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8,000
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9,000
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Merchandise inventory
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21,000
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18,000
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Equipment
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18,000
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15,000
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Totals
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$57,500
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$46,000
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Credits
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Accumulated depreciation, equipment
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$4,000
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$3,000
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Accounts payable
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7,000
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5,000
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Taxes payable
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1,000
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2,000
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Dividends payable
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1,500
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0
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Common stock, $10 par value
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27,000
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25,000
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Contributed capital in excess of par, common stock
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6,000
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5,000
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Retained earnings
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11,000
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6,000
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Totals
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$57,500
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$46,000
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The Carpet Company's income statement was as follows:
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CARPET COMPANY
Income Statement
For the Year Ended December 31, 20X3
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Sales
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$61,000
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Cost of goods sold
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$40,000
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Wages and other operating expenses
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6,300
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Income taxes expense
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4,200
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Depreciation expense
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1,500
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52,000
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Net income
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9,000
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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:
a. Prepare the statement of cash flow under the direct method for the year ended December 31, 20X3.
b. Prepare the statement of cash flow under the indirect method for the year ended December 31, 20X3.
c. 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.