Study Guide Solutions_Chapter 16_Annotated

Study Guide Solutions_Chapter 16_Annotated - Quick Study...

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Quick Study 16-3 Indirect Method Cash flows from operating activities Net income (Always the starting point for Indirect) ............. $ 72,800 A djustments to reconcile net income to operating cash flow Depreciation (Non-Cash Expense so must add back) ....... $144,000 Accounts receivable decrease . ............................................ 28,000 Inventory increase . ................................................................ (23,600) Accounts payable increase . ................................................. 18,800 Income taxes payable decrease . .......................................... (600 ) 166,600 Net cash provided from operating activities . ........................ $239,400 Quick Study 16-4 Book Value = Cost – Accumulated Depreciation (Investing) Computation of cash inflow from sale of furniture Cost of furniture sold (given) . ................................................ $105,000 Accumulated depreciation at beginning of year (given) . .... $121,400 Increase from depreciation expense (given) . ....................... 36,000 Total “expected” accumulated depreciation . ....................... 157,400 Actual accumulated depreciation at end of year (given) . .... (74,400 ) Accumulated depreciation on sold furniture . ....................... 83,000 Cash received from sale of furniture at book value . ............ $ 22,000 Quick Study 16-5 Part 1 Computation of cash received from the sale of common stock (Financing) Increase in Common stock ($310,000 2011 - $300,000 2010 ) . ............ $ 10,000 Increase in Paid-in capital in excess of par value ($1,134,000 2011 - $684,000 2010 ) . ..................................................... 450,000 Cash received from the sale of common stock . .................................. $460,000 Part 2 Computation of cash paid for dividends Beginning retained earnings . ................................................................ $575,000 Net income . ............................................................................................. 196,000 Total “expected” retained earnings. ..................................................... 771,000 Actual ending retained earnings . .......................................................... (627,000 ) Cash paid for dividends Dividends are paid from R/E ....................... $144,000 Liabilities income. Change in Account Balance During Year Increase Decrease Current Subtract from net Add to net income. Assets Current Add to net income. Subtract from net
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Quick Study 16-17 Indirect Method Part 1 KRUG, INC. Statement of Cash Flows (Indirect Method) For Year Ended December 31, 2012 Cash flows from operating activities Net income (Always the starting point for Indirect) .... $ 13,500 Adjustments to reconcile net income to net cash provided by operating activities Increase in accounts receivable. .......................... (1,900) Increase in inventory . ............................................ (19,950) Decrease in accounts payable . ............................ (2,050) Increase in salaries payable . ................................ 450 Depreciation expense (Non-Cash Expense so must add back) ............................................................ 4,200 Net cash provided by operating activities. .......... $ (5,750) Cash flows from investing activities Cash paid for equipment (Note 1) . ....................... (5,400 ) Net cash used in investing activities. .................. (5,400) Cash flows from financing activities Cash received from stock issuance. .................... 7,000 Net cash used in financing activities. .................. 7,000 Net decrease in cash . ............................................... $ (4,150) Cash balance at beginning of year . ........................ 30,550 Cash balance at end of year . ................................... $ 26,400 Note 1 Equipment Bal., 12/31/2011 44,500 Purchase “plug” Sale 0 plug = $5,400 Bal., 12/31/2012 49,900 Part 2 The company’s operating cash flows are negative, $(5,750). This is not a good omen. However, much of this is attributed to a huge increase in inventory. Thus, an assessment of the saleable nature of that inventory, and why it is being built up, is crucially important. Also, the level of cash has only marginally declined, from $30,550 to $26,400. Thus, there seems to be sufficient cash. However, one should question why so much of its assets is in the form of cash (more than 16%) as this is not a productive use of assets.
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This note was uploaded on 02/21/2012 for the course ACCT 202 taught by Professor Walterberry during the Spring '10 term at Old Dominion.

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Study Guide Solutions_Chapter 16_Annotated - Quick Study...

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