Concept explainers
1.
To identify: the amount deducted by each company on the income statement related to inventory.
1.
Answer to Problem 14E
The amount deducted by the each company on the income statement related to inventory is the amount of the cost of goods sold of each company. The amounts deducted by each company on the income statement are shown below.
Corporation A | B Unlimited | C Cycles | |
Cost of goods sold |
$ 175 | $ 175 | $ 350 |
Table (1)
Explanation of Solution
The amount deducted by the each company on the income statement related to inventory is the amount of cost of goods sold.
2.
To identify: the total amount, each company pay out in cash during the period related to inventory purchased with cash and on account.
2.
Explanation of Solution
The total amount, each company pay out in cash during the period related to inventory purchased with cash and on account are shown as below.
Corporation A | B Unlimited | C Cycles | |
Cash purchases | $ 200 | $ 0 | $ 200 |
Payments on account |
0 | 160 | 160 |
Total cash paid | $ 200 | $ 160 | $ 360 |
Table (2)
3.
the difference amount of the requirements 1 and 2 for each company.
3.
Explanation of Solution
The difference amount is determined as follows:
Corporation A | B Unlimited | C Cycles | |
Cost of goods sold |
$ 175 | $ 175 | $ 350 |
Total cash paid | 200 | 160 | 360 |
Difference | $ (25) | $ 15 | $ (10) |
Table (3)
4.
To identify: the amount of increase (decrease) for each company’s inventory and accounts payable.
4.
Answer to Problem 14E
The amount increased (decreased) by each company’s inventory and accounts payable.
Corporation A | B Unlimited | C Cycles | |
Inventory increase | $ 25 | $ 25 | $ 50 |
Accounts payable increase |
0 | 40 | 40 |
Table (4)
Explanation of Solution
Calculate the increase (decrease) inventory for each company.
Calculate the increase (decrease) inventory for each company.
5.
To identify: the amounts that each company added (deduct) from the net income to convert from accrual to cash basis using indirect method of presentation.
5.
Answer to Problem 14E
The amounts added or deducted under indirect method is as follows:
Corporation A | B Unlimited | C Cycles | |
Subtract : inventory increase |
$ (25) | $ (25) | $ (50) |
Add: accounts payable increase |
0 | 40 | 40 |
Total | $ (25) | $ 15 | $ (10) |
Table (5)
Explanation of Solution
To convert the net income from accrual basis to cash basis under indirect method is as follows:
Adjustments to the net income:
Add: accounts payable increased
Less: increase in inventory
6.
To describe: the similarities between the requirements 3 and 5. Explain the reasons.
6.
Explanation of Solution
Requirement 3 and 5 for each company should be similar. Because the requirement 3 is to determinethe difference amount of the requirements 1 and 2 for each company that is difference between the cash basis and accrual based amounts by identifying that were recorded during the year.
In the requirement 5 it was toidentify that the amounts each company added (deducted) from the net income to convert from accrual to cash basis using indirect method of presentation. It determines the changes in the year end balances of the accounts affected by the inventory purchases.
Both the requirements are having same goal which is to adjust the net income as per the cash basis. These two are having same goals but different directions to achieve the goal.
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Chapter 12 Solutions
Fundamentals Of Financial Accounting
- Financial data for Otto Company follow: a. Compute the ratio of cash to monthly cash expenses. b. Interpret the results computed in (a).arrow_forwardView previous at Required information Assume a company prepares the statement of cash flows using the indirect method. The company purchases its Inventory on credit from suppliers. How should a decrease in accounts payable be reflected In the section that reconciles net income to cash flow from operating activitles? Multiple Choice It would be added if the section starts with net income and subtracted if it starts with a net loss It would be added in reconciling net income to cash flow from operafing activities It would be subtracted in reconciling net income to cash flow from operating activities A change in accounts payable does not affect the reconciliation of net income to cash flow from operating activities < Prev 15 of 15 Next Form 1040Sch...pdf 6 Form1040 Sch...pdf B1040 Sohedul...pdf Form8829 (1).pdf MacBook Airarrow_forwardThe following selected account balances appeared on the financial statements of the Washington Company. Use these balances to answer the questions that follow. Accounts Receivable, Jan. 1 Accounts Receivable, Dec. 31 Accounts Payable, Jan. 1 Accounts Payable, Dec. 31 Inventory, Jan. 1 Inventory, Dec. 31 15,279 Sales 66,715 Cost of Goods Sold 36,365 The Washington Company uses the direct method to calculate net cash flow from operating activities. Assume that all accounts payable are owed to merchandise suppliers. $13,081 Oa. $73,715 Ob. $70,015 Oc. $66,715 Od. $59,715 6,081 5,652 9,352 7,633arrow_forward
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