Unformatted text preview: 3. Award: 19.34 out of 33.34 points Portions of the financial statements for Clear Transmissions Company are provided below. CLEAR TRANSMISSIONS COMPANY
Income Statement
For the Year Ended December 31, 2016 ($ in 000s) Sales $1,680 Cost of goods sold (672) Gross margin 1,008 Salaries expense
$ 292 Depreciation expense 210 Patent amortization expense 22 Interest expense 64 Loss on sale of cash equivalents 12 (600) Income before taxes 408 Income tax expense (204) Net Income $ 204 CLEAR TRANSMISSIONS COMPANY
Selected Accounts from Comparative Balance Sheets
December 31, 2016 and 2015 ($ in 000s) Year 2016
2015 Change Cash
$120 $112 $ 8 Accounts receivable 232 250 (18) Inventory 446 462 (16) Accounts payable 170 158 12 Salaries payable 86 98 (12) Interest payable 43 32 11 Income taxes payable 33 22 11 Required:
Prepare the cash flows from operating activities section of the statement of cash flows for Clear
Transmissions Company using the direct method. (Enter your answers in thousands (i.e., 5,000 should
be entered as 5). Amounts to be deducted should be indicated with a minus sign.) Cash Flows from Operating Activities:
Cash received from customers $ 1,698 Cash paid to suppliers (700) Cash paid to employees (304) Cash paid for interest (69) Cash paid for income taxes Net cash flows from operating activities (215) $ 410 *Red text indicates no response was expected in a cell or a formulabased calculation is incorrect; no
points deducted. References
Financial
Statements Learning Objective:
2103 Determine
cash flows from
operating activities
by the direct
method. Portions of the financial statements for Clear Transmissions Company are provided below. CLEAR TRANSMISSIONS COMPANY
Income Statement
For the Year Ended December 31, 2016 ($ in 000s) Sales $1,680 Cost of goods sold (672) Gross margin 1,008 Salaries expense
$ 292 Depreciation expense 210 Patent amortization expense 22 Interest expense 64 Loss on sale of cash equivalents 12 (600) Income before taxes 408 Income tax expense (204) Net Income $ 204 CLEAR TRANSMISSIONS COMPANY
Selected Accounts from Comparative Balance Sheets December 31, 2016 and 2015 ($ in 000s) Year 2016
2015 Change Cash
$120 $112 $ 8 Accounts receivable 232 250 (18) Inventory 446 462 (16) Accounts payable 170 158 12 Salaries payable 86 98 (12) Interest payable 43 32 11 Income taxes payable 33 22 11 Required:
Prepare the cash flows from operating activities section of the statement of cash flows for Clear
Transmissions Company using the direct method. (Enter your answers in thousands (i.e., 5,000 should
be entered as 5). Amounts to be deducted should be indicated with a minus sign.) Cash Flows from Operating Activities:
Cash received from customers $ 1,698 Cash decrease from sale of cash equivalents (12) Cash paid to suppliers (644) Cash paid to employees (304) Cash paid for interest (53) Cash paid for income taxes (193) Net cash flows from operating activities $ 492 Explanation:
Calculations using spreadsheet entries:
a. Summary Entry
General Journal Cash (received from customers) Accounts receivable Sales revenue Debit
1,698 Credit Debit
672 Credit Debit
292 12 Credit 18 1,680 b. Summary Entry
General Journal Cost of goods sold Inventory Accounts payable Cash (paid to suppliers of goods) 16 12 644 c. Summary Entry
General Journal Salaries expense Salaries payable Cash (paid to employees) 304 d. Summary Entry
General Journal Interest expense Interest payable Cash (paid for interest) Debit
64 Credit Debit
204 Credit 11 53 e. Summary Entry
General Journal Income tax expense Income tax payable Cash (paid for income taxes) 11 193 Cash decrease from sale of cash equivalents If a cash equivalent investment is sold for either more or less than its acquisition cost, we have a cash
flow. Suppose the cost of this investment classified as a cash equivalent had been, say, $27,000 and was
sold for $15,000, $12,000 less than that cost. The sale constitutes both a $15,000 increase and a $27,000
decrease in cash and cash equivalents. The cash equivalent was already in the beginning balance in cash
and cash equivalents in the balance sheet, so the change in cash is the loss only. The transaction in journal
entry format: General Journal Cash Loss on sale of cash equivalent Cash (cash equivalent investment) Depreciation expense and patent amortization are not cash flows. Debit
15,000
12,000 Credit 27,000 ...
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