I don\'t need help with answering, I need help understand when to know its a inc
ID: 2403679 • Letter: I
Question
I don't need help with answering, I need help understand when to know its a increase or a decrease, as shown below. (Highlighted)
Cash Flow from Operating Activities
Statement of Cash Flows (Indirect Method) Arctic Company’s income statement and compara-
tive balance sheets as of December 31 of 2016 and 2015 follow:
ARCTIC COMPANY
Income Statement
For the Year Ended December 31, 2016
Sales revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $740,000
Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $534,000
Wages expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,000
Advertising expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,000
Depreciation expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000
Gain on sale of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,000)
772,000
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (32,000)
ARCTIC COMPANY
Balance Sheets
Dec. 31,
2016
Dec. 31,
2015
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 71,000 $ 28,000
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,000 49,000
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107,000 113,000
Prepaid advertising. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 14,000
Plant assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360,000 222,000
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (80,000)
(56,000)
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $510,000 $370,000
Liabilities and Stockholders’ Equity
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,000 $ 31,000
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 —
Bonds payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210,000 —
Common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245,000 245,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,000 94,000
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30,000)
—
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $510,000 $370,000
During 2016, Arctic sold land for $70,000 cash that had originally cost $45,000. Arctic also purchased
equipment for cash, acquired treasury stock for cash, and issued bonds payable for cash. Accounts
payable relate to merchandise purchases.
Required
a. Calculate the change in cash that occurred during 2016.
b. Prepare a statement of cash flows using the indirect method.
I don't need help with answering, I need help understand when to know its a increase or a decrease, as shown below. (Highlighted)
Cash Flow from Operating Activities
Net Loss -32,000 Add (deduct) items to convert net income to cash basis Depreciation expense 24,000 Gain on Sale of Land -25,000 Accounts Receivable Decrease 7,000 Inventory Decrease 6,000 Prepaid Advertising Decrease 4,000 Accounts Payable Decrease -14,000 Interest Payable Increase 6,000 Cash Flow Provided by Operating Activities -24,000 Cash Flow from Investing Activities Sale of Land 70,000 Purchase of Plant Assets -183,000 Cash Used by Investing Activities -113,000 Cash Flow from Financing Activities Issuance of Bonds Payable 210,000 Purchase of Treasury Stock -30,000 Cash Provided by Financing Activities 180,000 Net Increase in Cash 43,000 Cash at Beginning of Year 28,000 Cash at End of Year 71,000Explanation / Answer
cash flow statement
Indirect Method
net loss
-32000
depreciation
24000
gain on sale of land
-25000
decrease in accounts receivables
7000
decrease in inventory
6000
decrease in prepaid advertising
4000
decrease in accounts payable
-14000
interest payable
6000
cash flow from operating activities
-24000
cash flow from investing activities
sale of land
70000
purchase of equipment
-183000
cash flow from investing activities
-113000
cash flow from financing activities
issuance of bonds payable
210000
purchase of treasury stock
-30000
cash flow from financing activities
180000
A-
net cash flow during the year
cash flow from operating activities + investing activities + financing activities
43000
opening balance of cash
28000
B-
Year end cash balance
71000
Purchase of equipment
year end value of plant - (value of plant-value of land )
360000-(222000-45000)
183000
cash flow statement
Indirect Method
net loss
-32000
depreciation
24000
gain on sale of land
-25000
decrease in accounts receivables
7000
decrease in inventory
6000
decrease in prepaid advertising
4000
decrease in accounts payable
-14000
interest payable
6000
cash flow from operating activities
-24000
cash flow from investing activities
sale of land
70000
purchase of equipment
-183000
cash flow from investing activities
-113000
cash flow from financing activities
issuance of bonds payable
210000
purchase of treasury stock
-30000
cash flow from financing activities
180000
A-
net cash flow during the year
cash flow from operating activities + investing activities + financing activities
43000
opening balance of cash
28000
B-
Year end cash balance
71000
Purchase of equipment
year end value of plant - (value of plant-value of land )
360000-(222000-45000)
183000
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