Question

Problem 16-4A Indirect: Statement of cash flows LO P1, P2, P3

Golden Corp., a merchandiser, recently completed its 2013 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, (5) Other Expenses are all cash expenses, and (6) any change in Income Taxes Payable reflects the accrual and cash payment of taxes. The company’s balance sheets and income statement follow.

    

GOLDEN CORPORATION Comparative Balance Sheets December 31, 2013 and 2012
	2013			2012
Assets
Cash	$	185,000		$	132,000
Accounts receivable		90,000			70,000
Merchandise inventory		613,000			532,000
Equipment		346,000			311,000
Accum. depreciation—Equipment		(165,000	)		(110,000	)
Total assets	$	1,069,000		$	935,000
Liabilities and Equity
Accounts payable	$	90,000		$	77,000
Income taxes payable		40,000			31,000
Common stock, $2 par value		600,000			580,000
Paid-in capital in excess of par value, common stock		196,000			166,000
Retained earnings		143,000			81,000
Total liabilities and equity	$	1,069,000		$	935,000

  

GOLDEN CORPORATION Income Statement For Year Ended December 31, 2013
Sales				$	1,822,000
Cost of goods sold					1,092,000
Gross profit					730,000
Operating expenses
Depreciation expense	$	55,000
Other expenses		500,000			555,000
Income before taxes					175,000
Income taxes expense					23,000
Net income				$	152,000

  

Additional Information on Year 2013 Transactions
a.	Purchased equipment for $35,000 cash.
b.	Issued 10,000 shares of common stock for $5 cash per share.
c.	Declared and paid $90,000 in cash dividends.

  

Required:

Prepare a complete statement of cash flows; report its cash inflows and cash outflows from operating activities according to the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

Serial Problem Success Systems (Indirect) LO P1, P2, P3

Adria Lopez, owner of Success Systems, decides to prepare a statement of cash flows for her business. (Although the serial problem allowed for various ownership changes in earlier chapters, we will prepare the statement of cash flows using the following financial data.)

SUCCESS SYSTEMS
Income Statement
For Three Months Ended March 31, 2014
Computer services revenue				$	24,807
Net sales					17,693
Total revenue					42,500
Cost of goods sold	$	14,352
Depreciation expense—Office equipment		340
Depreciation expense—Computer equipment		1,210
Wages expense		2,650
Insurance expense		545
Rent expense		2,175
Computer supplies expense		1,305
Advertising expense		520
Mileage expense		260
Repairs expense—Computer		950
Total expenses					24,307
Net income				$	18,193

SUCCESS SYSTEMS
Comparative Balance Sheets
December 31, 2013, and March 31, 2014
	2014				2013
Assets
Cash	$	80,297			$	60,142
Accounts receivable		24,267				4,668
Merchandise inventory		694				0
Computer supplies		2,075				560
Prepaid insurance		1,070				1,615
Prepaid rent		805				805
Office equipment		7,500				7,500
Accumulated depreciation—Office equipment		(680	)			(340	)
Computer equipment		19,100				19,100
Accumulated depreciation—Computer equipment		(2,420	)			(1,210	)
Total assets	$	132,708			$	92,840
Liabilities and Equity
Accounts payable	$	0			$	1,170
Wages payable		955				510
Unearned computer service revenue		0				2,100
Common stock		110,000				81,000
Retained earnings		21,753				8,060
Total liabilities and equity	$	132,708			$	92,840

Required:

Prepare a statement of cash flows for Success Systems using the indirect method for the three months ended March 31, 2014. Recall that the owner Adria Lopez contributed $29,000 to the business in exchange for additional stock in the first quarter of 2014 and has received $4,500 in cash dividends. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Answer to Problem 16-4A: