Question

1) The net income for Shepherd Corporation was $80,433 for the year ended December 31, 2016. Related information follows: Depreciation of equipment 10,620 Loss on the sale of land 3,947 Cash dividends paid 13,246 Increase in accounts receivable 15,250 Decrease in salaries payable 11,312 Increase in long-term notes payable 12,054 Sale of preferred stock for cash 5,964 Cash flows from operating activities during 2016 should be reported as:__________ 2) If sales revenue is $104,739 and accounts receivable decreased by $11,199, the amount of cash received from customers $_____________

Answer 1

Solution 1:

Working Note:

1. Depreciation is to be added back since it is anon-cash expense.

2. Loss on sale of land is a non-cash expense which is to be added back. Also, it will be taken care of in Cash Flow from Investing activities.

3. Increase in accounts receivable is to be deducted since it increases the working capital.

4. Decrease in Salaries payable is to be deducted since it is decrease in current liability involving cash outflow.

5. Dividend paid of cash will be treated under Cash Flow from Financing activities.

6. Increase in Notes payable is also nature of financing activity.

7. Sale of preferred stock for cash would be entered in Cash Flow from Operating activity.

Solution 2:

If the sales are $104,739 and at the same point of time Accounts receivable has decreased by $11,199; it means that Company has received inflow of $104,739 and $11,199 from Accounting receivable in cash totalling to $115,938.

This can also be understood by making a ledger:

Assuming that Accounts Receivable has opening balance of $11,199 in start of year and is Zero as closing balance . After Entering Sales number, the cash collected would appear as $115,938.

Same logic can also be applied for Increase in Accounts Receivable and Decrease in Salaries Payable (Solution 1).