Income tax expense 36000 Deduct Increase in income tax payable 12000 Cash

Income tax expense 36000 deduct increase in income

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Income tax expense$36,000Deduct: Increase in income tax payable12,000Cash payments for income taxes$24,000Illustration 13B-13 shows the relationships among cash payments for income taxes,income tax expense, and changes in income tax payable.CashPayments forIncome TaxesIncome TaxExpenseDecrease in Income Tax PayableorIncrease in Income Tax PayableIllustration 13B-10Computation of cashpayments for operatingexpensesIllustration 13B-11Formula to compute cashpayments for operatingexpenses—direct methodIllustration 13B-12Computation of cashpayments for income taxesIllustration 13B-13Formula to compute cashpayments for incometaxes—direct methodJWCL165_c13_612-673.qxd 8/13/09 11:15 AM Page 645
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The operating activities section of the statement of cash flows of JuarezCompany is shown in Illustration 13B-14.646Chapter 13Statement of Cash FlowsCash flows from operating activitiesCash receipts from customers$978,000Less: Cash payments:To suppliers$678,000For operating expenses179,000For income taxes24,000881,000Net cash provided by operating activities$ 97,000When a company uses the direct method, it must also provide in a separate schedule(not shown here) the net cash flows from operating activities as computed underthe indirect method.Step 2: Investing and Financing ActivitiesANALYZE CHANGES IN NONCURRENT ASSET AND LIABILITYACCOUNTS AND RECORD AS INVESTING AND FINANCINGACTIVITIES, OR AS SIGNIFICANT NONCASH TRANSACTIONSIncrease in Land.Juarez’s land increased $60,000. The additional informationsection indicates that the company issued common stock to purchase the land.Theissuance of common stock for land has no effect on cash. But it is a significant noncash investing and financing transaction.This transaction requires disclosure ina separate schedule at the bottom of the statement of cash flows.Increase in Equipment.The comparative balance sheets show that equipmentincreased $160,000 in 2011. The additional information in Illustration 13B-1 indicated that the increase resulted from two investing transactions: (1) Juarez purchased for cash equipment costing $180,000. And (2) it sold for $17,000 cashequipment costing $20,000, whose book value was $18,000. The relevant data forthe statement of cash flows is the cash paid for the purchase and the cash proceedsfrom the sale. For Juarez Company, the investing activities section will show thefollowing: The $180,000 purchase of equipment as an outflow of cash, and the$17,000 sale of equipment as an inflow of cash.The company should not netthe twoamounts.Both individual outflows and inflows of cash should be shown.The analysis of the changes in equipment should include the relatedAccumulated Depreciation account. These two accounts for Juarez Company areshown in Illustration 13B-15.Equipment1/1/11Balance–0–Cost of equipment sold20,000Cash purchase180,00012/31/11Balance160,000Accumulated Depreciation—EquipmentSale of equipment2,0001/1/11Balance–0–Depreciation expense18,00012/31/11Balance16,000Illustration 13B-14Operating activities sectionof the statement of cashflowsIllustration 13B-15
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