Statement of Cash Flows Using a Work Sheet—Indirect Method (Appendix)
Wabash Corp. just completed another successful year, as
indicated by the following income statement:
For the Year Ended December 31, 2017 | |
Sales revenue | $2,460,000 |
Cost of goods sold | 1,400,000 |
Gross profit | $1,060,000 |
Operating expenses | 460,000 |
Income before interest and taxes | $600,000 |
Interest expense | 100,000 |
Income before taxes | $500,000 |
Income tax expense | 150,000 |
Net income | $350,000 |
Presented here are comparative balance sheets:
December 31 | |||
2017 | 2016 | ||
Cash | $140,000 | $210,000 | |
Accounts receivable | 60,000 | 145,000 | |
Inventory | 200,000 | 180,000 | |
Prepayments | 15,000 | 25,000 | |
Total current assets | $415,000 | $560,000 | |
Land | $600,000 | $700,000 | |
Plant and equipment | 850,000 | 600,000 | |
Accumulated depreciation | (225,000) | (200,000) | |
Total long-term assets | $1,225,000 | $1,100,000 | |
Total assets | $1,640,000 | $1,660,000 | |
Accounts payable | $140,000 | $120,000 | |
Other accrued liabilities | 50,000 | 55,000 | |
Income taxes payable | 80,000 | 115,000 | |
Total current liabilities | $270,000 | $290,000 | |
Long-term bank loan payable | $200,000 | $250,000 | |
Common stock | $450,000 | $400,000 | |
Retained earnings | 720,000 | 720,000 | |
Total stockholders' equity | $1,170,000 | $1,120,000 | |
Total liabilities and stockholders' equity | $1,640,000 | $1,660,000 |
Other information is as follows:
The president has asked you some questions about the year's results. She is very impressed with the profit margin of 14% (net income divided by sales revenue). She is bothered, however, by the decline in the company's cash balance during the year. One of the conditions of the existing bank loan is that the company maintain a minimum cash balance of $100,000.
Required:
1. Using the format in the chapter's appendix, prepare a statement of cash flows work sheet. If an amount box does not require an entry, leave it blank.
Balances | Cash Inflows (Outflows) | |||||
Accounts | 12/31/17 | 12/31/16 | Changes | Operating | Investing | Financing |
Cash | ||||||
Accounts Receivable | ||||||
Inventory | ||||||
Prepayments | ||||||
Land | ||||||
Plant and Equipment | ||||||
Accumulated Depreciation | ||||||
Accounts Payable | ||||||
Other Accrued Liabilities | ||||||
Income Taxes Payable | ||||||
Long-Term Bank Loan Payable | ||||||
Common Stock | ||||||
Retained Earnings | ||||||
Net Income | ||||||
Totals | $ | $ | $ | $ | $ | $ |
Net increase (decrease) in cash | $ |
1) Statement of cash flow worksheet is shown as follows:-
Balances | Cash Inflows (Outflows) | |||||
Accounts | 12/31/17 (A) | 12/31/16 (B) | Changes (A-B) | Operating | Investing | Financing |
Cash | 140,000 | 210,000 | (70,000) | |||
Accounts Receivable | 60,000 | 145,000 | (85,000) | 85,000 | ||
Inventory | 200,000 | 180,000 | 20,000 | (20,000) | ||
Prepayments | 15,000 | 25,000 | (10,000) | 10,000 | ||
Land | 600,000 | 700,000 | (100,000) | 100,000 | ||
Plant and Equipment | 850,000 | 600,000 | 250,000 | (250,000) | ||
Accumulated Depreciation | 225,000 | 200,000 | 25,000 | 25,000 | ||
Accounts Payable | 140,000 | 120,000 | 20,000 | 20,000 | ||
Other Accrued Liabilities | 50,000 | 55,000 | (5,000) | (5,000) | ||
Income Taxes Payable | 80,000 | 115,000 | (35,000) | (35,000) | ||
Long-Term Bank Loan Payable | 200,000 | 250,000 | (50,000) | (50,000) | ||
Common Stock | 450,000 | 400,000 | 50,000 | 50,000 | ||
Retained Earnings | 720,000 | 720,000 | 0 | |||
Net Income | (350,000-dividends paid 350,000) | 0 | ||||
Totals | 3,730,000 | 3,720,000 | 10,000 | 80,000 | (150,000) | 0 |
Net increase (decrease) in cash | (70,000) |
Notes:-
1) Under indirect method, net income is adjusted for calculating operating cash flows. Increase in current assets and decrease in current liabilities are deducted from net income and decrease in current assets and increase in current liabilities are added to net income. All these are part of operating activities only. Non cash expenses such as depreciation is also added to net income.
2) Net income for the year 2017 is $350,000 and dividends paid in 2017 is also $350,000. Hence net effect on retained earnings is zero.
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