Cash Flow Review

1) DEF Corporation has the following information on its 2018 balance sheet

DEF Corporation
Comparative Balance Sheet Information
December
31
201
8 2017
Cash 125 45
Accounts Receivable 112 120
Inventory 88 79
Prepaid Expenses 4 3
Accounts Payable 8 5
Accrued Liabilities 18 16
Income Tax Payable 12 14
120
Property Plant and Equipment 0 1235
Retained Earnings 294 250
A) Find cash inflow or outflow from operations using the indirect method

Start with net Income (calculated as the change in retained earnings)

Adjusted for:

Decrease in current asset accounts results in an increase in cash

Increase in Current Asset accounts results in a decrease in cash

Decrease in Current liabilities results in a decrease in cash

Increase in Current Liabilities results in an increase in cash

Losses are added back to cash

Gains are subtracted from Cash

Always add back depreciation (Calculated as the change in Property, Plant and Equipment)
Cash flows from operating activities

Net Income 44

Decrease in A/R 8

Increase in Inventory (9)

Increase in Prepaid Expenses (1)

Increase in A/P 3

Increase in Liabilities 2

Decrease in Taxes Payable (2)

Depreciation 35

Net Cash inflow from operatons 80

2) The following information has been supplied by 123 Corporation relating to 2018.

Profit 58,000
Inventory increase 23,000
Depreciation Expense 15,000
Accounts Receivable decrease 5,500
Accounts payable decrease 4,000
Income Taxes payable decrease 1,200
Loss on sale of equipment 7,500
Gain on retirement of bonds 8,900
Wages Payable Increase 950

Find Cash from Operations using the indirect method.

Cash flows from operating activities

Profit 58,000

Increase in Inventory (23,000)

Depreciation 15,000

Accounts Receivable Decrease 5,500

A/P Decrease (4,000)

Tax Payable Decrease (1,200)

Loss on Sale 7,500

Gain on retirement of Bonds (8,900)

Wage Payable Increase 950

Net Cash inflow from operating activities 49,850

3) The following information has been supplied from Selkirk Bicycle Corporation’s Balance sheet

December 31
2018 2017
1,325,00 1,350,00
PPE (net) 0 0

In addition the following transactions occurred during the year:

i. Equipment with a purchase price of $30,000 and accumulated depreciation of $14,500 was
sold for a loss of $6,000.
ii. Equipment worth was purchased for $45,000.
a) Calculated the cash proceeds for the equipment that was sold

Recreate the journal entry (from Chapter 9, disposal of an asset)

Debit Loss on Sale 6,000

Debit Cash x=9,500

Debit Accumulated Dep 14,500

Credit Equipment 30,000

b) Calculate depreciation for 2018

 PPE (net) equals the total of Property Plant and Equipment less accumulated depreciation. To
calculate depreciation, we will find out what the balance in the account would be before
depreciation, and the difference between that and the ending balance is our depreciation.

PPE(net) before depreciation= 1,350,000(opening value)-30,000(cost of equipment disposed)

+14,500(accumulated depreciation on equipment disposed)+45,000(cost of equipment
purchased)=1,379,500

1,325,000(closing balance)=1,379,500-x (depreciation for the year)

X=54,500

c) Prepare the cash in/outflow from investing activities.

Cash flow investing activities

Cash received on sale of equipment 9,500

Cash paid for equipment (45,000)

Net cash outflow from investing activities (35,500)

4) During 2018, ABC Corporation had the following transactions:

i. Issued cash and paid cash dividends of $48,000

ii. Issued 10,000 common shares for $175,000

iii. Paid principal of $45,000 on outstanding bonds

iv. Received cash for a long term note for $15,000

a) Prepare the cash flow from financing activities for ABC Corporation

Cash flow from Financing Activites

Cash paid for dividends (48,000)

Cash received for issuance of shares 175,000

Cash paid for bonds (45,000)

Cash received for LT Note 15,000

Net Cash inflow from financing activities 97,000

5) In 2017, DEF Corporation had a balance of retained earnings of $450,000, in 2018 they had
$525,000. There 2018 net income was $150,000. Were dividends paid? If so, how much?

Yes. If they didn’t pay a dividend they would have closing retained earnings of 600,000, since
it is only 525,000, the difference of $75,000 is the dividend paid.
 6) Tucker Industrial Products has the following information on its 2018 balance sheet

Account 2018 Balance 2017 Balance

Note Payable 90,000 100,000
Bond payable 450,000 0
Premium on Bond Payable 72,435.33 0
Common Shares 400,000 475,000
Contributed Capital from
Share Repurchase 25,000 0
Retained Earnings 167,000 125,000

In 2018 Tucker Industrial Products had a net income of 78,000.

Prepare Tucker Industrials Products’ cash flow from financing activities for 2018:

Cash Flow Financing Activities

Cash paid for note payable (10,000)

Cash Received for Bond Payable 522,435.33

Cash paid for share repurchase (50,000)

Cash paid for dividends (36,000)

Net Cash inflow from Financing activities 426,435.33

7) The following information has been provided for Craigco

Craigco
Income Statement
For the year ended December 31, 2018
350,00
Sales 0
225,00
Cost of Goods sold 0
125,00
Gross profit 0
Operating Expenses
12,50
Depreciation 0
42,00
Other Expenses 0
Total Operating
Expenses 54,500
Profit from Operations 70,500
Income Taxes 14,100
Profit from Operations 56,400

Craig Co
Comparative Balance Sheet Information
December 31
2018 2017
212,90 150,00
Cash 0 0
Accounts
Receivable 15,000 22,000
Inventory 85,000 72,000
350,00 320,00
Equipment 0 0

Accum. 132,50 120,00

Depreciation 0 0
 Accounts Payable 45,000 43,000
Wages Payable 12,000 16,000
income tax payable 5,000 4,000
prepaid expenses 1,000 2,000

a) Find cash received from customers

=Net Sales + decrease in A/R or – increase in A/R

=350,000+7,000=357,000

b) Find cash paid for merchandise

Cash paid for goods=Cost of goods sold+ increase in inventory – decrease in inventory
=225,000+13,000=238,000
Cash paid for merchandise = Cash paid for goods + decrease in A/P- increase in A/P
238,000-2,000
Cash paid for merchandise=236,000
c) Find cash paid for operating expenses

Cash Paid for operating expenses= Operating Expenses (not including Depreciation)+decrease
in wages payable – increase in wages payable + increase in prepaid expenses – decrease in
prepaid expenses

=42,000+4,000-1,000

Cash paid for operating expenses=45,000

d) Find cash paid for taxes

Cash paid for taxes=Income tax expense+decrease in taxes payable – increase in taxes payable

Cash paid for taxes = 14,100-1,000=13,100

e) Using the direct method find the net cash inflow/outflow from operating activities.
Cash flows from operating Activities
Cash received from customers 357,000
Cash paid for merchandise (236,000)
Cash paid for operating expenses (45,000)
Cash paid for taxes (13,100)
Net Cash inflow from operating activities 62,900
f) Find the cash inflow/outflow from operating activities using the indirect method
Cash flow from operating Activities

Net Income 56,400

Depreciation 12,500

Accounts receivable decrease 7,000

Increase in Inventory (13,000)

Increase in A/P 2,000

Decrease in Wages Payable (4,000)

Increase in taxes payable 1,000

Decrease in Prepaid Expenses 1,000

Net Cash inflow from Operating Activities 62,900

8) ABC Corporation has the following information for 2018

ABC Corporation
Comparative Balance Sheet Information
December 31
2018 2017
Cash $ 91,135.00 $ 45,000.00
Accounts Receivable $ 65,240.00 $ 55,875.00
Prepaid Expense $ 10,500.00 $ 9,500.00
PPE (net) $ 300,000.00 $ 250,000.00
Accounts Payable $ 8,500.00 $ 12,000.00
Unearned Revenue $ 2,000.00 $ 5,000.00
Accrued Liabilities $ 7,000.00 $ 9,000.00
Common Shares $ 90,000.00 $ 60,000.00
Retained Earnings $ 245,000.00 $ 180,000.00
Additional information

1) Equipment valued at $120,000 was purchased for cash

2) Loss on sale of equipment is $14,800, cost of
 45,000, depreciation $15,000
3) Issued a long term note payable for $20,000 in exchange for cash
4) Declared and paid a cash dividend of $25,000
Prepare a cash flow statement for 2018 using the indirect method.

Prepare a cash flow statement for 2018 using the indirect method.

ABC Corporation

Statement of Cash Flows

For the Year ended December 31, 2018

Cash flows from operating activities

Profit 90,000

Adjustments to reconcile profits to cash

Increase in Accounts receivable (9,365)

Increase in Prepaid Expenses (1,000)

Depreciation 40,000

Decrease in Accounts Payable (3,500)

Decrease in unearned revenue (3,000)

Decrease in Accrued Liabilities (2,000)

Loss on sale of equipment 14,800

Net Cash from Operating Activities $125,935

Cash Flows from Investing Activities:

Cash Received in sale of equipment 15,200

Cash paid for equipment (120,000)

Net Cash outflow from investing (104,800)

Cash Flows from Financing activities

Dividends paid (25,000)

Common shares issued 30,000

Note Payable issue 20,000

Net Cash inflow from financing 25,000

Net Increase in cash 46,135

Opening Cash 2018 45,000

Closing Cash 2018 91,135