Question

Statement of Cash Flows (Direct Method)

The Geary Company’s income statement and comparative balance sheets as of December 31 of 2019 and 2018 follow:

GEARY COMPANY Income Statement For the Year Ended December 31, 2019
Service Fees Earned		$320,000
Dividend and Interest Income		16,000
		$336,000
Wages and Other Operating Expenses	$288,000
Depreciation Expense	55,000
Franchise Amortization Expense	10,000
Loss on Sale of Equipment	7,000
Gain on Sale of Investments	(17,000)	343,000
Net Loss		$(7,000)

GEARY COMPANY Balance Sheets
	Dec. 31, 2019	Dec. 31, 2018
Assets
Cash	$21,000	$33,000
Accounts Receivable	14,000	18,000
Interest Receivable	-	4,000
Prepaid Expenses	16,000	10,000
Long-term Investments—Available for Sale	-	70,000
Fair Value Adjustment to Investments	-	10,000
Plant Assets	656,000	655,000
Accumulated Depreciation	(237,000)	(185,000)
Franchise	91,000	29,000
Total Assets	$561,000	$644,000
Liabilities and Stockholders’ Equity
Accrued Liabilities	$12,000	$14,000
Notes Payable	-	26,000
Common Stock ($10 par value)	535,000	535,000
Retained Earnings	34,000	59,000
Unrealized Gain on Investments	-	10,000
Treasury Stock	(20,000)	-
Total Liabilities and Stockholders’ Equity	$561,000	$644,000

During the year, the following transactions occurred:
1. Sold equipment for $9,000 cash that originally cost $19,000 and had $3,000 accumulated depreciation.
2. Sold long‑term investments that had cost $70,000 for $87,000 cash. Unrealized gains totaling $10,000 related to these investments had been recorded in earlier years. At year‑end, the fair value adjustment and unrealized gain account balances were eliminated.
3. Paid cash to extend the company’s exclusive franchise for another three years.
4. Paid off a note payable at the bank on January 1.
5. Declared and paid an $18,000 dividend.
6. Purchased treasury stock for cash.
7. Purchased land valued at $20,000.

Required

a. Compute the change in cash that occurred during 2019.
b. Prepare a statement of cash flows using the direct method. Use one cash outflow for “cash paid for wages and other operating expenses.” Accounts payable relates to inventory purchases only.

a. Change in Cash during 2019 $Answer

AnswerIncreaseDecrease

b. Use a negative sign with cash outflow answers.

GEARY COMPANY Statement of Cash Flows For Year Ended December 31, 2019
Cash Flow from Operating Activities
Cash Received from Customers	Answer
Cash Received as Dividends and Interest	Answer	Answer
Cash Paid for Wages and Other Operating Expenses		Answer
Cash Provided by Operating Activities		Answer
Cash Flow from Investing Activities
Sale of Equipment	Answer
Purchase of Land	Answer
Sale of Investments	Answer
Extension of Franchise	Answer
Cash Provided by Investing Activities		Answer
Cash Flow from Financing Activities
Payment of Notes Payable	Answer
Payment of Dividends	Answer
Purchase of Treasury Stock	Answer
Cash Used by Financing Activities		Answer
Net Change in Cash		Answer
Cash at Beginning of Year		Answer
Cash at End of Year

Answer 1

a-Compute the change in cash that occurred during 2019.

Cash at Beginning of Year	33,000
Cash at End of Year	-21,000
Decrease in Cash	12,000

b.

Statement of Cash Flows
For Year Ended December 31, 2019
Cash Flow from Operating Activities
Cash Received from Customers	3,24,000
Cash Received as Dividends and Interest	20,000
Cash Paid for Wages and Other Operating Expenses	-296000
Cash Provided by Operating Activities		48,000
Cash Flow from Investing Activities
Sale of Equipment	9,000
Purchase of Land	-20000
Sale of Investments	87,000
Extension of Franchise	-72000
Cash Provided by Investing Activities		4,000
Cash Flow from Financing Activities
Payment of Notes Payable	-26000
Payment of Dividends	-18000
Purchase of Treasury Stock	-20000
Cash Used by Financing Activities		-64000
Net Change in Cash		-12,000
Cash at Beginning of Year		33,000
Cash at End of Year		21,000

Notes:

Cash Received from Customers
Service Fees Earned	3,20,000
Accounts Receivable-2018	18,000
Accounts Receivable-2019	-14,000
	3,24,000
Cash Received as Dividends and Interest
Dividend and Interest Income	16,000
Interest Receivable Received(2018)	4,000
	20,000
Cash Paid for Wages and Other Operating Expenses
Wages and Other Operating Expenses	2,88,000
Prepaid Expenses:2018	-10,000
Prepaid Expenses:2019	16,000
Accrued Liabilities-2018	14,000
Accrued Liabilities-2019	-12,000
	2,96,000
Franchise
Closing-2019	91000
Opening-2018	-29000
Amortized during the year	10000
Paid during the year	72000

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