P23-8. (SCF—Direct and Indirect Methods) (LO 2, 4) Comparative balance sheet acc
ID: 2529523 • Letter: P
Question
P23-8.
(SCF—Direct and Indirect Methods)
(LO 2, 4) Comparative balance sheet accounts of Sharpe Company are presented below.
SHARPE COMPANY
COMPARATIVE BALANCE SHEET ACCOUNTS
AS OF DECEMBER 31
Debit Balances
2017
2016
Cash
$?70,000
$?51,000
Accounts Receivable
155,000
130,000
Inventory
75,000
61,000
Debt investments (available-for-sale)
55,000
85,000
Equipment
70,000
48,000
Buildings
145,000
145,000
Land
??40,000
??25,000
Totals
$610,000
$545,000
Credit Balances
Allowance for Doubtful Accounts
$?10,000
$??8,000
Accumulated Depreciation—Equipment
21,000
14,000
Accumulated Depreciation—Buildings
37,000
28,000
Accounts Payable
66,000
60,000
Income Taxes Payable
12,000
10,000
Long-Term Notes Payable
62,000
70,000
Common Stock
310,000
260,000
Retained Earnings
??92,000
??95,000
Totals
$610,000
$545,000
Additional data:
1.Equipment that cost $10,000 and was 60% depreciated was sold in 2017.
2.Cash dividends were declared and paid during the year.
3.Common stock was issued in exchange for land.
4.Debt investments that cost $35,000 were sold during the year.
5.There were no write-offs of uncollectible accounts during the year.
Sharpe's 2017 income statement is as follows.
Sales revenue
$950,000
Less: Cost of goods sold
?600,000
Gross profit
?350,000
Less: Operating expenses (includes depreciation expense and bad debt expense)
?250,000
Income from operations
?100,000
Other revenues and expenses
Gain on sale of investments
$15,000?
Loss on sale of equipment
?(3,000)
??12,000
Income before taxes
?112,000
Income taxes
??45,000
Net income
$?67,000
Instructions
(a)
Compute net cash provided by operating activities under the direct method.
(b)
Prepare a statement of cash flows using the indirect method.
SHARPE COMPANY
COMPARATIVE BALANCE SHEET ACCOUNTS
AS OF DECEMBER 31
Debit Balances
2017
2016
Cash
$?70,000
$?51,000
Accounts Receivable
155,000
130,000
Inventory
75,000
61,000
Debt investments (available-for-sale)
55,000
85,000
Equipment
70,000
48,000
Buildings
145,000
145,000
Land
??40,000
??25,000
Totals
$610,000
$545,000
Credit Balances
Allowance for Doubtful Accounts
$?10,000
$??8,000
Accumulated Depreciation—Equipment
21,000
14,000
Accumulated Depreciation—Buildings
37,000
28,000
Accounts Payable
66,000
60,000
Income Taxes Payable
12,000
10,000
Long-Term Notes Payable
62,000
70,000
Common Stock
310,000
260,000
Retained Earnings
??92,000
??95,000
Totals
$610,000
$545,000
Explanation / Answer
(a) cash provided by operating activities under the direct method
(b) statement of cash flows using the indirect method
Cash Flow Statement Direct Method PARTICULARS Amount Amount Operating Activities: Cash receipt: Collection from debtors $ 950,000.00 Net Sales $ 122,000.00 Add: Beginning accounts receivable net of doubtful debts (130000 - 8000) $ 145,000.00 Less: Ending accounts receivables net of doubtful debts $ 927,000.00 (155000 - 10000) Cash Payment: Payment to suppliers $ 600,000.00 Cost of goods sold $ 75,000.00 Add: Closing inventory $ 61,000.00 Less: Opening inventory $ 60,000.00 Add: Beginning accounts payable $ 66,000.00 $ 608,000.00 Less: Closing accounts payables Cash paid for operating expenses Operating Expenses $ 250,000.00 Less: Depreciation - Equipment $ 13,000.00 (21000 - 14000) + 60% of 10000 less: Depreciation Building $ 9,000.00 (37000 -28000) $ 228,000.00 Income tax paid Income tax expense $ 45,000.00 Add: Beginning tax payable $ 10,000.00 Less: Closing tax payable $ 12,000.00 $ 43,000.00 Cash flows from (Used in) Operating Activities $ 48,000.00Related Questions
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