Question

The comparative balance sheet of Livers Inc. for December 31, 20Y3 and 20Y2, is as follows:

1		Dec. 31, 20Y3	Dec. 31, 20Y2
2	Assets
3	Cash	$625,820.00	$586,050.00
4	Accounts receivable (net)	227,530.00	209,880.00
5	Inventories	641,480.00	616,920.00
6	Investments	0.00	240,910.00
7	Land	327,510.00	0.00
8	Equipment	704,830.00	554,110.00
9	Accumulated depreciation-equipment	(165,750.00)	(148,570.00)
10	Total assets	$2,361,420.00	$2,059,300.00
11	Liabilities and Stockholders’ Equity
12	Accounts payable (merchandise creditors)	$424,970.00	$405,330.00
13	Accrued expenses payable (operating expenses)	42,810.00	51,640.00
14	Dividends payable	23,200.00	19,840.00
15	Common stock, $2 par	150,000.00	100,000.00
16	Paid-in capital: Excess of issue price over par—common stock	417,500.00	280,000.00
17	Retained earnings	1,302,940.00	1,202,490.00
18	Total liabilities and stockholders’ equity	$2,361,420.00	$2,059,300.00

The income statement for the year ended December 31, 20Y3, is as follows:

1	Sales		$5,368,400.00
2	Cost of goods sold		?3,305,660.00
3	Gross profit		$2,062,740.00
4	Operating expenses:
5	Depreciation expense	$17,180.00
6	Other operating expenses	1,754,452.00
7	Total operating expenses		1,771,632.00
8	Operating income		$291,108.00
9	Other income:
10	Gain on sale of investments		39,110.00
11	Income before income tax		$330,218.00
12	Income tax expense		133,998.00
13	Net income		$196,220.00

Additional data obtained from an examination of the accounts in the ledger for 20Y3 are as follows:

	a. The investments were sold for $280,020 cash.
	b. Equipment and land were acquired for cash.
	c. There were no disposals of equipment during the year.
	d. The common stock was issued for cash.
	e. There was a $95,770 debit to Retained Earnings for cash dividends declared.

Prepare a statement of cash flows, using the direct method of presenting cash flows from operating activities. Be sure to complete the heading of the statement. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. Enter amounts that represent cash outflows as negative numbers using a minus sign.

Answer 1

Cash flow statements shows the details of cash inflows or sources of cash and cash outflow or uses of cash   between two balance sheet dates

Cash flow is shown in three heads

Cash flow from operating activities which shows the details of sources and uses of company main operating activities

Cash flow from investing activities shows sources and uses of cash for long tern assets / investments

Cash flows from financing activities shows sources and uses of cash from changes in owners’ equity and long term liabilities, payments of dividends on shares

Cash flow statement will shown the opening balance in cash and cash equivalents in opening balance sheet and changes in above mentioned three activities and the total of opening cash & cash equivalents plus total of cash inflow/(outflow) of three activities will be equal to closing balance of cash & cash equivalents in the latest balance sheets

Cash flow as per direct method following assumptions are taken

• Only cash inflow and out flow related to operating activities is shown
• Non cash expenses are not shown
• Non operating expenses like interest paid and non operating income like dividend received , profit on sale of assets , investments is not shown

Livers Inc.
STATEMENT OF CASHFLOWS
For the year ended December 31, 20Y3
Inflow
	Cash received from customers				5,350,750.00	5,350,750
OutFlow
	Cash payments for merchandise					-$3,286,020
	Cash payments for operating expenses					-$1,763,282
Net cash flow from operating activities						$301,448

Working notes

To calculate cash received from customers

= Accounts receivable opening balance in + sales for year – closing balance of accounts receivable

= $ 209,880.00 + 5,368,400.00 - 227,530.00

Calculate Cash payments for merchandise

= Accounts payable (merchandise creditors) balance in Dec. 31, 20Y2+ Cost of goods sold December 31, 20Y3- Accounts payable (merchandise creditors) Dec. 31, 20Y3

=

=$3,286,020

Calculate Cash payments for operating expenses

=
Accrued expenses payable (operating expenses) balance in Dec. 31, 20Y2 + Other operating expenses December 31, 20Y3- Accrued expenses payable (operating expenses) Dec. 31, 20Y3

= $51,640.00+$ 1,754,452.00-$ 42,810.00

=$1,763,282