3. Back Cove Company has the following comparative balance sheets and income sta
ID: 2530807 • Letter: 3
Question
3. Back Cove Company has the following comparative balance sheets and income statement: 2017 2016 Cash Receivables Inventories Other Assets (net) $10,000 11,000 22,000 20,000 $63,000 $15,000 10,000 18,000 573,000 $10,000 $20,000 Retained Earnings 33,000 $63,000 $20,000 16,000 37.000 573,000 Accounts Payable Capital Stock $110,000 72,000 2,000 Cost of Sales Gain on sale of Assets Expenses Income 5 24,000 A. Depreciation expense was $5,000. A machine with a cost of $19,000 and book value of $13,000 was sold which produced the gain on sale of assets. Other assets were purchased for cash during the year, a dividend paid, and stock was issued for $4,000. Using the Indirect Method, prepare a cash flow statement. B. Referto Back Cove in Problem 3. Assuming all operating expenses are paid for in cash and all inventory purchases are made on account, prepare cash from operations using the Direct Method.Explanation / Answer
A)
Back Cove
Statement of Cash Flows - Indirect Method as on 2017
$
$
Operating activities:
Net Income
24,000.00
Adjustments to convert net income to cash basis:
Depreciation
5,000.00
Gain on sale of assets
-2,000.00
Increase in inventory (22000 - 18000)
-4,000.00
Increase in accounts receivable (11000 - 10000)
-1,000.00
Decrease in accounts payable (20000 - 10000)
-10,000.00
Net cash provided by operating activities
12,000.00
Investing activities:
Sale of machine (13000 + 2000)
15,000.00
Purchase of assets (20000+5000) - (30000-13000)
-8,000.00
Net cash used in investing activities
7,000.00
Financing activities:
Issuance of common stock for cash
4,000.00
Payment of cash dividend (37000+24000-33000)
-28,000.00
Net cash used in financing activities
-24,000.00
Net increase in cash
-5,000.00
Beginning cash and cash equivalents
15,000.00
Ending cash and cash equivalents
10,000.00
B)
Direct Method:
Cash flows from operating activities
Cash receipts from customers
110000
Cash paid to suppliers
(82000)
Cash paid for expenses
(16000)
Net cash generated from operating activities
12000
Back Cove
Statement of Cash Flows - Indirect Method as on 2017
$
$
Operating activities:
Net Income
24,000.00
Adjustments to convert net income to cash basis:
Depreciation
5,000.00
Gain on sale of assets
-2,000.00
Increase in inventory (22000 - 18000)
-4,000.00
Increase in accounts receivable (11000 - 10000)
-1,000.00
Decrease in accounts payable (20000 - 10000)
-10,000.00
Net cash provided by operating activities
12,000.00
Investing activities:
Sale of machine (13000 + 2000)
15,000.00
Purchase of assets (20000+5000) - (30000-13000)
-8,000.00
Net cash used in investing activities
7,000.00
Financing activities:
Issuance of common stock for cash
4,000.00
Payment of cash dividend (37000+24000-33000)
-28,000.00
Net cash used in financing activities
-24,000.00
Net increase in cash
-5,000.00
Beginning cash and cash equivalents
15,000.00
Ending cash and cash equivalents
10,000.00
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