On the basis of the following data for Grant Co. for 2011 and the preceding year
ID: 2381173 • Letter: O
Question
On the basis of the following data for Grant Co. for 2011 and the preceding year ended December 31, 2010, prepare a statement of cash flows. Use the indirect method of reporting cash flows from operating activities. Assume that equipment costing $125,000 was purchased for cash and equipment costing $85,000 with accumulated depreciation of $65,000 was sold for $15,000; that the stock was issued for cash; and that the only entries in the retained earnings account were net income of $56,000 and cash dividends declared of $18,000.
Year
Year
2011
2010
Cash
$90,000
$ 78,000
Accounts receivable (net)
78,000
85,000
Inventories
106,500
90,000
Equipment
410,000
370,000
Accumulated depreciation
(150,000)
(158,000)
$534,500
$465,000
Accounts payable (merchandise creditors)
$ 53,500
$ 55,000
Cash dividends payable
5,000
4,000
Common stock, $10 par
200,000
170,000
Paid-in capital in excess of par--
common stock
62,000
60,000
Retained earnings
214,000
176,000
$534,500
$465,000
Year
Year
2011
2010
Cash
$90,000
$ 78,000
Accounts receivable (net)
78,000
85,000
Inventories
106,500
90,000
Equipment
410,000
370,000
Accumulated depreciation
(150,000)
(158,000)
$534,500
$465,000
Accounts payable (merchandise creditors)
$ 53,500
$ 55,000
Cash dividends payable
5,000
4,000
Common stock, $10 par
200,000
170,000
Paid-in capital in excess of par--
common stock
62,000
60,000
Retained earnings
214,000
176,000
$534,500
$465,000
On the basis of the following data for Grant Co. for 2011 and the preceding year ended December 31, 2010, prepare a statement of cash flows. Use the indirect method of reporting cash flows from operating activities. Assume that equipment costing $125,000 was purchased for cash and equipment costing $85,000 with accumulated depreciation of $65,000 was sold for $15,000; that the stock was issued for cash; and that the only entries in the retained earnings account were net income of $56,000 and cash dividends declared of $18,000.Explanation / Answer
PARTICULARS
AMOUNT
AMOUNT
NET INCOME
56000
CASH LOW FROM OPERTING ACTIVITIES
ADD:- LOSS ON SALE OF OLD EQUIPMENT[(85000-65000)-15000]
5000
ADD: DEPRECIATION [(150000-(158000-65000)]
57000
62000
ADJUSTMENT FOR WORKING CAPITAL CHANGES
ADD:-DECREASE IN ACCOUNTS RECIEVABLE
7000
LESS:- INCREASE IN INVENTORIES
(16500)
LESS:-DECREASE IN ACCOUNTS PAYABLE
(1500)
ADD:- INCREASE IN CASH DIVIDEND PAYABLE
1000
CASH INFLOW FROM OPERATING ACTIVITIES
52000
CASH FLOW FROM INVESTING ACTIVITIES
PURCHASE OF EQUIPMENT
(125000)
SALE OF OLD EQUIPMENT
15000
CASH OUTFLOW FROM INVESTING ACTIVITIES
(110000)
CASH FLOW FROM FINANCING ACTIVITIES
ISSUE OF COMMON STOCK
32000
CASH DIVIDEND PAID
(18000)
CASH INFLOW FROM FINANCING ACTIVITIES
14000
NET CASH GENERATED DURING THE YEAR [56000+ 52000-110000+14000]
12000
ADD: CASH BALANCE AT THE BEGINNING OF THE YEAR
78000
THEREFORE, CASH BALANCE AT THE END OF THE YEAR
90000
PARTICULARS
AMOUNT
AMOUNT
NET INCOME
56000
CASH LOW FROM OPERTING ACTIVITIES
ADD:- LOSS ON SALE OF OLD EQUIPMENT[(85000-65000)-15000]
5000
ADD: DEPRECIATION [(150000-(158000-65000)]
57000
62000
ADJUSTMENT FOR WORKING CAPITAL CHANGES
ADD:-DECREASE IN ACCOUNTS RECIEVABLE
7000
LESS:- INCREASE IN INVENTORIES
(16500)
LESS:-DECREASE IN ACCOUNTS PAYABLE
(1500)
ADD:- INCREASE IN CASH DIVIDEND PAYABLE
1000
CASH INFLOW FROM OPERATING ACTIVITIES
52000
CASH FLOW FROM INVESTING ACTIVITIES
PURCHASE OF EQUIPMENT
(125000)
SALE OF OLD EQUIPMENT
15000
CASH OUTFLOW FROM INVESTING ACTIVITIES
(110000)
CASH FLOW FROM FINANCING ACTIVITIES
ISSUE OF COMMON STOCK
32000
CASH DIVIDEND PAID
(18000)
CASH INFLOW FROM FINANCING ACTIVITIES
14000
NET CASH GENERATED DURING THE YEAR [56000+ 52000-110000+14000]
12000
ADD: CASH BALANCE AT THE BEGINNING OF THE YEAR
78000
THEREFORE, CASH BALANCE AT THE END OF THE YEAR
90000
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