Statement of Cash Flows—Direct Method The comparative balance sheet of Rucker Ph

Question

Statement of Cash Flows—Direct Method

The comparative balance sheet of Rucker Photography Products Inc. for December 31, 2016 and 2015, is as follows:

The income statement for the year ended December 31, 2016, is as follows:

The following additional information was taken from the records:

Equipment and land were acquired for cash.

There were no disposals of equipment during the year.

The investments were sold for $82,820 cash.

The common stock was issued for cash.

There was a $21,800 debit to Retained Earnings for cash dividends declared.

Required:

Prepare a statement of cash flows, using the direct method of presenting cash flows from operating activities. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.

Dec. 31, 2016 Dec. 31, 2015 Assets Cash $296,730 $275,390 Accounts receivable (net) 107,490 98,910 Inventories 303,440 292,850 Investments 0 113,450 Land 155,640 0 Equipment 334,800 258,900 Accumulated depreciation-equipment (78,380) (69,820) Total $1,119,720 $969,680 Liabilities and Stockholders' Equity Accounts payable (merchandise creditors) $202,670 $191,030 Accrued expenses payable (operating expenses) 20,150 25,210 Dividends payable 11,200 8,730 Common stock, $10 par 60,460 47,510 Paid-in capital: Excess of issue price over par-common stock 227,300 131,880 Retained earnings 597,940 565,320 Total $1,119,720 $969,680 Rucker Photography Products Inc. Statement of Cash Flows For the Year Ended December 31, 2016 Cash flows from operating activities: Cash received from customers Less cash payments for merchandise Less cash payments for operating expenses Less cash payments for income taxes 1,720,280V Net cash flow from operating activities Cash flows from investing activities: Cash received from sale of investments Less cash paid for purchase of land Y Less cash paid for purchase of equipment Net cash flow used for investing activities Cash flows from financing activities: Cash received from sale of common stock Less cash paid for dividends Net cash flow from financing activities Increase in cash Cash at beginning of the year Cash at end of the year

Explanation / Answer

Solution:

Cash Flow Statement using direct method

Cash Flow Statement (Direct Method)

Cash Flow from Operating Activities:

Cash receipts from customers (Refer Note 1)

$1,720,280

(-) Cash payments to merchandise (Note 2)

-$710,850

(-) Cash payment for operating expenses (as calculated in part 4)

-$902,800

(-) Cash payment for Income taxes

-$25,610

-$1,639,260

Net Cash Flow from Operating Activities (A)

$81,020

Cash Flow from Investing Activities

Cash received from sale of investment

$82,820

Less: cash paid for purchase of land

-$155,640

Less: cash paid for purchase of equipment (334800 - 258900)

-$75,900

-$231,540

Net Cash Flow from Investing Activities (B)

-$148,720

Cash Flow from Financing Activities

Cash received from sale of common stock (60460-47510+227300-131880)

108370

Less: cash paid for dividends (Note 5)

-$19,330

$89,040

Net Cash Flow from Financing Activities (c)

Increase in cash (A+B+C)

$21,340

Add: Beginning Cash Balance

$275,390

Ending Cash Balance

$296,730

Note 1 -- Cash receipts from Customers

Beginning Accounts Receivable

$98,910

Plus: Credit Sales made during the year

$1,728,860

Less: Ending Accounts Receivable

-$107,490

Cash Collected from Customers

$1,720,280

Note 2 -- Cash payment for merchandise

Beginning Accounts Payable

$191,030

Plus: Purchases made during the year (refer note 3)

$722,490

Less: Ending Accounts Payable

-$202,670

Cash Paid to Supplier during the year

$710,850

Note 3 -- Purchase made during the year

Cost of Goods Sold

$711,900

Plus: Ending Inventory

$303,440

Less: Beginning Inventory

-$292,850

Purchases made during the year

$722,490

Note 4 -- Cash paid for operating expenses

Other operating expenses incurred during the year

$897,740

Add: Beginning Operating Expense payable

$25,210

Less: Ending Operating Expenses payable

-$20,150

Cash paid for operating expenses

$902,800

Note 5 –

Note 5 --- Dividend Payable

Cash(Dividend Paid during year)

$19,330

Beg. Bal

$8,730

Ending Bal.

$11,200

Declared during year

$21,800

$30,530

$30,530

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Cash Flow Statement (Direct Method)

Cash Flow from Operating Activities:

Cash receipts from customers (Refer Note 1)

$1,720,280

(-) Cash payments to merchandise (Note 2)

-$710,850

(-) Cash payment for operating expenses (as calculated in part 4)

-$902,800

(-) Cash payment for Income taxes

-$25,610

-$1,639,260

Net Cash Flow from Operating Activities (A)

$81,020

Cash Flow from Investing Activities

Cash received from sale of investment

$82,820

Less: cash paid for purchase of land

-$155,640

Less: cash paid for purchase of equipment (334800 - 258900)

-$75,900

-$231,540

Net Cash Flow from Investing Activities (B)

-$148,720

Cash Flow from Financing Activities

Cash received from sale of common stock (60460-47510+227300-131880)

108370

Less: cash paid for dividends (Note 5)

-$19,330

$89,040

Net Cash Flow from Financing Activities (c)

Increase in cash (A+B+C)

$21,340

Add: Beginning Cash Balance

$275,390

Ending Cash Balance

$296,730

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