Compute the cash flows from operations with the use of indirect method.

Question

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Answer 1

Question

Chapter 14, Problem 48P

1.

To determine

Compute the cash flows from operations with the use of indirect method.

1.

Expert Solution

Explanation of Solution

Cash Flows from Operating Activities:

This category of a cash flow statement shows the operational and profit generating activities in a firm. The operating cash flows increase or decrease the current assets and current liabilities of a firm.

The cash flows from operations for B Company for 20X2 using indirect method is shown below:

Particulars	Amount ($)
Cash flows from operating activities:
Net income	450,000
Add/ Less:
Decrease in accounts receivable¹	68,750
Decrease in accounts payable²	(62,500)
Increase in inventories³	(25,000)
Depreciation expense⁴	125,000
Gain on sale of equipment⁵	(50,000)
Net cash from operating activities	506,250

Table (1)

Therefore, the net cash from operating activities is $506,250.

Working Note:

1.

Calculation of difference in accounts receivable:

(Difference inAccounts Receivable)=(Amount of Accounts Receivable of 20X2−Amount of Accounts Receivable of 20X1)=($281,250−$350,000)=−$68,750

2.

Calculation of difference in accounts payable:

(Difference inAccounts Payable)=(Amount of Accounts Payable of 20X2−Amount of Accounts Payable of 20X1)=($237,500−$300,000)=−$62,500

3.

Calculation of difference in inventories:

(Difference inInventories)=(Amount of Inventories of 20X2−Amount of Inventories of 20X1)=($150,000−$125,000)=$25,000

4.

Calculation of depreciation expense:

Depreciation Expense=(Ending Value of Accumulated Depreciation−Beginning Value of Accumulated Depreciation+Accumulated Depreciation for Asset Sold)=($525,000−$500,000+$100,000)=$125,000

5.

Calculation of gain on value of equipment:

Gain on Value of Equipment=(Original Value of Equipment−Sales Value of Equipment)=($225,000−$175,000)=$50,000

2.

To determine

Chart the statement of cash flows.

2.

Expert Solution

Explanation of Solution

Cash Flow Statement:

Cash flow statement is a financial statement prepared to provide information about the sources and uses of cash in a firm. In this statement, the activities increasing cash are referred as cash inflows and the activities that decrease cash are referred as cash outflows.

The statement of cash flows for the B Manufacturing for year ending 20X2 is as shown below:

B Company
Cash Flows from Operations
For the year ended December31, 20X2
Particulars	Amount ($)	Amount ($)
Cash flows from operating activities:
Net income	450,000
Add/ Less:
Decrease in accounts receivable¹	68,750
Decrease in accounts payable²	(62,500)
Increase in inventories³	(25,000)
Depreciation expense⁴	125,000
Gain on sale of equipment⁵	(50,000)
Net cash from operating activities		506,250
Cash flows from investing activities:
Sale of equipment	175,000
Purchase of equipment⁶	(250,000)
Purchase of land⁷	(218,750)
Net cash from investing activities		(293,750)
Cash flows from financing activities:
Mortgage received	250,000
Payment of dividends	(225,000)
Net cash from financing activities		25,000
Net increase in cash		237,500

Table (2)

Therefore, there is a net increase in cash of $237,500.

Working Note:

1.

Calculation of difference in accounts receivable:

(Difference inAccounts Receivable)=(Amount of Accounts Receivable of 20X2−Amount of Accounts Receivable of 20X1)=($281,250−$350,000)=−$68,750

2.

Calculation of difference in accounts payable:

(Difference inAccounts Payable)=(Amount of Accounts Payable of 20X2−Amount of Accounts Payable of 20X1)=($237,500−$300,000)=−$62,500

3.

Calculation of difference in inventories:

(Difference inInventories)=(Amount of Inventories of 20X2−Amount of Inventories of 20X1)=($150,000−$125,000)=$25,000

4.

Calculation of depreciation expense:

Depreciation Expense=(Ending Value of Accumulated Depreciation−Beginning Value of Accumulated Depreciation+Accumulated Depreciation for Asset Sold)=($525,000−$500,000+$100,000)=$125,000

5.

Calculation of gain on value of equipment:

Gain on Value of Equipment=(Original Value of Equipment−Sales Value of Equipment)=($225,000−$175,000)=$50,000

6.

Calculation of purchase value of equipment:

Purchase Value of Equipment=(Ending Value of Equipment−Beginning Value of Equipment+Sales Value)=($1,025,000−$100,000+$225,000)=$250,000

7.

Calculation of purchase value of land:

Purchase Value of Land=(Value of Land in 20X2−Value of Land in 20X1)=($718,750−$500,000)=$218,750

3.

To determine

Identify the method used in preparing the statement of cash flows of a company. Also, explain the manner in which the net income is compared with the operating cash flows and to the change in cash flows.

3.

Expert Solution

Explanation of Solution

Generally, companies use indirect method to prepare the statement of cash flows. The net income after making all the adjustments of the noncash and non-operating expenses is equal to the operating cash flows. The net income changes with respect to the increase and decrease in cash flows.

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Students have asked these similar questions

Refer to the information for Booth Manufacturing above.Required:1. Calculate the cash flows from operations using the indirect method.2. Prepare a statement of cash flows.3. CONCEPTUAL CONNECTION Search the Internet to find a statement of cash flows.Which method was used—the indirect method or the direct method? How does the netincome reported compare to the operating cash flows? To the change in cash flows?

he comparative balance sheet of Orange Angel Enterprises Inc. at December 31, 20Y8 and 20Y7, is as follows: abels and Amount Descriptions Labels Dec. 31, Dec. 31, December 31, 20Y8 For the Year Ended December 31, 20Y8 Amount Descriptions Cash paid for equipment Cash received from issuing common 20Y8 20Υ7 12 Assets 3 Cash $145,670.00 $179,640.00 4 Accounts receivable (net) 225,480.00 241,430.00 stock 5 Merchandise inventory 320,660.00 298,210.00 Cash dividends 6 Prepaid expenses 12,990.00 8,900.00 Cash paid to retire mortgage note 7 Equipment 655,730.00 537,410.00 payable Decrease in merchandise inventory 8 Accumulated depreciation-equipment (171,620.00) (132,200.00) Total assets $1,188,910.00 $1,133,3 Decrease in accounts payable Decrease in accounts receivable 10 Liabilities and Stockholders' Equity Decrease in prepaid expenses Depreciation Increase in accounts payable 11 Accounts payable (merchandise creditors) $250,770.00 $237.180.00 12 Mortgage note payable 00 336,110.00 13 Common…

abels and Amount Descriptions Instructions Labels Dec. 31, Dec. 31, December 31, 20Y3 20Y3 20Y2 For the Year Ended December 31, 20Y3 Amount Descriptions Assets 3 Cash $625,680.00 $586,230.00 Cash received from sale of investments 228,100.00 208,850.00 4 Accounts receivable (net) 5 Inventories Cash paid for purchase of land Cash paid for purchase of equipment Cash received from issuing common 640,910.00 617,650.00 0.00 240,620.00 6 Investments 7 Land 328,090.00 0,00 stock 704,540.00 553,320.00 8 Equipment 9 Accumulated depreciation-equipment Cash dividends (166,310.00) (147840.00) Decrease in accounts payable Decreașe in accounts receivable Decrease in accrued expenses payable 10 Total assets $2,361,010.00 $2,058,830.00 11 Liabilities and Stockholders' Equity $425,280.00 $404,550.00 52,020.00 12 Accounts payable Decrease in inventories 41,990.00 13 Accrued expenses payable Depreciation 24,190.00 20,170.00 14 Dividends payablie Gain on sale of investments 15 Common stock, $4 par…

Answer 2

Question

Chapter 14, Problem 48P

1.

To determine

Compute the cash flows from operations with the use of indirect method.

1.

Expert Solution

Explanation of Solution

Cash Flows from Operating Activities:

This category of a cash flow statement shows the operational and profit generating activities in a firm. The operating cash flows increase or decrease the current assets and current liabilities of a firm.

The cash flows from operations for B Company for 20X2 using indirect method is shown below:

Particulars	Amount ($)
Cash flows from operating activities:
Net income	450,000
Add/ Less:
Decrease in accounts receivable¹	68,750
Decrease in accounts payable²	(62,500)
Increase in inventories³	(25,000)
Depreciation expense⁴	125,000
Gain on sale of equipment⁵	(50,000)
Net cash from operating activities	506,250

Table (1)

Therefore, the net cash from operating activities is $506,250.

Working Note:

1.

Calculation of difference in accounts receivable:

(Difference inAccounts Receivable)=(Amount of Accounts Receivable of 20X2−Amount of Accounts Receivable of 20X1)=($281,250−$350,000)=−$68,750

2.

Calculation of difference in accounts payable:

(Difference inAccounts Payable)=(Amount of Accounts Payable of 20X2−Amount of Accounts Payable of 20X1)=($237,500−$300,000)=−$62,500

3.

Calculation of difference in inventories:

(Difference inInventories)=(Amount of Inventories of 20X2−Amount of Inventories of 20X1)=($150,000−$125,000)=$25,000

4.

Calculation of depreciation expense:

Depreciation Expense=(Ending Value of Accumulated Depreciation−Beginning Value of Accumulated Depreciation+Accumulated Depreciation for Asset Sold)=($525,000−$500,000+$100,000)=$125,000

5.

Calculation of gain on value of equipment:

Gain on Value of Equipment=(Original Value of Equipment−Sales Value of Equipment)=($225,000−$175,000)=$50,000

2.

To determine

Chart the statement of cash flows.

2.

Expert Solution

Explanation of Solution

Cash Flow Statement:

Cash flow statement is a financial statement prepared to provide information about the sources and uses of cash in a firm. In this statement, the activities increasing cash are referred as cash inflows and the activities that decrease cash are referred as cash outflows.

The statement of cash flows for the B Manufacturing for year ending 20X2 is as shown below:

B Company
Cash Flows from Operations
For the year ended December31, 20X2
Particulars	Amount ($)	Amount ($)
Cash flows from operating activities:
Net income	450,000
Add/ Less:
Decrease in accounts receivable¹	68,750
Decrease in accounts payable²	(62,500)
Increase in inventories³	(25,000)
Depreciation expense⁴	125,000
Gain on sale of equipment⁵	(50,000)
Net cash from operating activities		506,250
Cash flows from investing activities:
Sale of equipment	175,000
Purchase of equipment⁶	(250,000)
Purchase of land⁷	(218,750)
Net cash from investing activities		(293,750)
Cash flows from financing activities:
Mortgage received	250,000
Payment of dividends	(225,000)
Net cash from financing activities		25,000
Net increase in cash		237,500

Table (2)

Therefore, there is a net increase in cash of $237,500.

Working Note:

1.

Calculation of difference in accounts receivable:

(Difference inAccounts Receivable)=(Amount of Accounts Receivable of 20X2−Amount of Accounts Receivable of 20X1)=($281,250−$350,000)=−$68,750

2.

Calculation of difference in accounts payable:

(Difference inAccounts Payable)=(Amount of Accounts Payable of 20X2−Amount of Accounts Payable of 20X1)=($237,500−$300,000)=−$62,500

3.

Calculation of difference in inventories:

(Difference inInventories)=(Amount of Inventories of 20X2−Amount of Inventories of 20X1)=($150,000−$125,000)=$25,000

4.

Calculation of depreciation expense:

Depreciation Expense=(Ending Value of Accumulated Depreciation−Beginning Value of Accumulated Depreciation+Accumulated Depreciation for Asset Sold)=($525,000−$500,000+$100,000)=$125,000

5.

Calculation of gain on value of equipment:

Gain on Value of Equipment=(Original Value of Equipment−Sales Value of Equipment)=($225,000−$175,000)=$50,000

6.

Calculation of purchase value of equipment:

Purchase Value of Equipment=(Ending Value of Equipment−Beginning Value of Equipment+Sales Value)=($1,025,000−$100,000+$225,000)=$250,000

7.

Calculation of purchase value of land:

Purchase Value of Land=(Value of Land in 20X2−Value of Land in 20X1)=($718,750−$500,000)=$218,750

3.

To determine

Identify the method used in preparing the statement of cash flows of a company. Also, explain the manner in which the net income is compared with the operating cash flows and to the change in cash flows.

3.

Expert Solution

Explanation of Solution

Generally, companies use indirect method to prepare the statement of cash flows. The net income after making all the adjustments of the noncash and non-operating expenses is equal to the operating cash flows. The net income changes with respect to the increase and decrease in cash flows.

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Answer 3

Question

Chapter 14, Problem 48P

1.

To determine

Compute the cash flows from operations with the use of indirect method.

1.

Expert Solution

Explanation of Solution

Cash Flows from Operating Activities:

This category of a cash flow statement shows the operational and profit generating activities in a firm. The operating cash flows increase or decrease the current assets and current liabilities of a firm.

The cash flows from operations for B Company for 20X2 using indirect method is shown below:

Particulars	Amount ($)
Cash flows from operating activities:
Net income	450,000
Add/ Less:
Decrease in accounts receivable¹	68,750
Decrease in accounts payable²	(62,500)
Increase in inventories³	(25,000)
Depreciation expense⁴	125,000
Gain on sale of equipment⁵	(50,000)
Net cash from operating activities	506,250

Table (1)

Therefore, the net cash from operating activities is $506,250.

Working Note:

1.

Calculation of difference in accounts receivable:

(Difference inAccounts Receivable)=(Amount of Accounts Receivable of 20X2−Amount of Accounts Receivable of 20X1)=($281,250−$350,000)=−$68,750

2.

Calculation of difference in accounts payable:

(Difference inAccounts Payable)=(Amount of Accounts Payable of 20X2−Amount of Accounts Payable of 20X1)=($237,500−$300,000)=−$62,500

3.

Calculation of difference in inventories:

(Difference inInventories)=(Amount of Inventories of 20X2−Amount of Inventories of 20X1)=($150,000−$125,000)=$25,000

4.

Calculation of depreciation expense:

Depreciation Expense=(Ending Value of Accumulated Depreciation−Beginning Value of Accumulated Depreciation+Accumulated Depreciation for Asset Sold)=($525,000−$500,000+$100,000)=$125,000

5.

Calculation of gain on value of equipment:

Gain on Value of Equipment=(Original Value of Equipment−Sales Value of Equipment)=($225,000−$175,000)=$50,000

2.

To determine

Chart the statement of cash flows.

2.

Expert Solution

Explanation of Solution

Cash Flow Statement:

Cash flow statement is a financial statement prepared to provide information about the sources and uses of cash in a firm. In this statement, the activities increasing cash are referred as cash inflows and the activities that decrease cash are referred as cash outflows.

The statement of cash flows for the B Manufacturing for year ending 20X2 is as shown below:

B Company
Cash Flows from Operations
For the year ended December31, 20X2
Particulars	Amount ($)	Amount ($)
Cash flows from operating activities:
Net income	450,000
Add/ Less:
Decrease in accounts receivable¹	68,750
Decrease in accounts payable²	(62,500)
Increase in inventories³	(25,000)
Depreciation expense⁴	125,000
Gain on sale of equipment⁵	(50,000)
Net cash from operating activities		506,250
Cash flows from investing activities:
Sale of equipment	175,000
Purchase of equipment⁶	(250,000)
Purchase of land⁷	(218,750)
Net cash from investing activities		(293,750)
Cash flows from financing activities:
Mortgage received	250,000
Payment of dividends	(225,000)
Net cash from financing activities		25,000
Net increase in cash		237,500

Table (2)

Therefore, there is a net increase in cash of $237,500.

Working Note:

1.

Calculation of difference in accounts receivable:

(Difference inAccounts Receivable)=(Amount of Accounts Receivable of 20X2−Amount of Accounts Receivable of 20X1)=($281,250−$350,000)=−$68,750

2.

Calculation of difference in accounts payable:

(Difference inAccounts Payable)=(Amount of Accounts Payable of 20X2−Amount of Accounts Payable of 20X1)=($237,500−$300,000)=−$62,500

3.

Calculation of difference in inventories:

(Difference inInventories)=(Amount of Inventories of 20X2−Amount of Inventories of 20X1)=($150,000−$125,000)=$25,000

4.

Calculation of depreciation expense:

Depreciation Expense=(Ending Value of Accumulated Depreciation−Beginning Value of Accumulated Depreciation+Accumulated Depreciation for Asset Sold)=($525,000−$500,000+$100,000)=$125,000

5.

Calculation of gain on value of equipment:

Gain on Value of Equipment=(Original Value of Equipment−Sales Value of Equipment)=($225,000−$175,000)=$50,000

6.

Calculation of purchase value of equipment:

Purchase Value of Equipment=(Ending Value of Equipment−Beginning Value of Equipment+Sales Value)=($1,025,000−$100,000+$225,000)=$250,000

7.

Calculation of purchase value of land:

Purchase Value of Land=(Value of Land in 20X2−Value of Land in 20X1)=($718,750−$500,000)=$218,750

3.

To determine

Identify the method used in preparing the statement of cash flows of a company. Also, explain the manner in which the net income is compared with the operating cash flows and to the change in cash flows.

3.

Expert Solution

Explanation of Solution

Generally, companies use indirect method to prepare the statement of cash flows. The net income after making all the adjustments of the noncash and non-operating expenses is equal to the operating cash flows. The net income changes with respect to the increase and decrease in cash flows.

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Answer 4

Question

Chapter 14, Problem 48P

1.

To determine

Compute the cash flows from operations with the use of indirect method.

1.

Expert Solution

Explanation of Solution

Cash Flows from Operating Activities:

This category of a cash flow statement shows the operational and profit generating activities in a firm. The operating cash flows increase or decrease the current assets and current liabilities of a firm.

The cash flows from operations for B Company for 20X2 using indirect method is shown below:

Particulars	Amount ($)
Cash flows from operating activities:
Net income	450,000
Add/ Less:
Decrease in accounts receivable¹	68,750
Decrease in accounts payable²	(62,500)
Increase in inventories³	(25,000)
Depreciation expense⁴	125,000
Gain on sale of equipment⁵	(50,000)
Net cash from operating activities	506,250

Table (1)

Therefore, the net cash from operating activities is $506,250.

Working Note:

1.

Calculation of difference in accounts receivable:

(Difference inAccounts Receivable)=(Amount of Accounts Receivable of 20X2−Amount of Accounts Receivable of 20X1)=($281,250−$350,000)=−$68,750

2.

Calculation of difference in accounts payable:

(Difference inAccounts Payable)=(Amount of Accounts Payable of 20X2−Amount of Accounts Payable of 20X1)=($237,500−$300,000)=−$62,500

3.

Calculation of difference in inventories:

(Difference inInventories)=(Amount of Inventories of 20X2−Amount of Inventories of 20X1)=($150,000−$125,000)=$25,000

4.

Calculation of depreciation expense:

Depreciation Expense=(Ending Value of Accumulated Depreciation−Beginning Value of Accumulated Depreciation+Accumulated Depreciation for Asset Sold)=($525,000−$500,000+$100,000)=$125,000

5.

Calculation of gain on value of equipment:

Gain on Value of Equipment=(Original Value of Equipment−Sales Value of Equipment)=($225,000−$175,000)=$50,000

2.

To determine

Chart the statement of cash flows.

2.

Expert Solution

Explanation of Solution

Cash Flow Statement:

Cash flow statement is a financial statement prepared to provide information about the sources and uses of cash in a firm. In this statement, the activities increasing cash are referred as cash inflows and the activities that decrease cash are referred as cash outflows.

The statement of cash flows for the B Manufacturing for year ending 20X2 is as shown below:

B Company
Cash Flows from Operations
For the year ended December31, 20X2
Particulars	Amount ($)	Amount ($)
Cash flows from operating activities:
Net income	450,000
Add/ Less:
Decrease in accounts receivable¹	68,750
Decrease in accounts payable²	(62,500)
Increase in inventories³	(25,000)
Depreciation expense⁴	125,000
Gain on sale of equipment⁵	(50,000)
Net cash from operating activities		506,250
Cash flows from investing activities:
Sale of equipment	175,000
Purchase of equipment⁶	(250,000)
Purchase of land⁷	(218,750)
Net cash from investing activities		(293,750)
Cash flows from financing activities:
Mortgage received	250,000
Payment of dividends	(225,000)
Net cash from financing activities		25,000
Net increase in cash		237,500

Table (2)

Therefore, there is a net increase in cash of $237,500.

Working Note:

1.

Calculation of difference in accounts receivable:

(Difference inAccounts Receivable)=(Amount of Accounts Receivable of 20X2−Amount of Accounts Receivable of 20X1)=($281,250−$350,000)=−$68,750

2.

Calculation of difference in accounts payable:

(Difference inAccounts Payable)=(Amount of Accounts Payable of 20X2−Amount of Accounts Payable of 20X1)=($237,500−$300,000)=−$62,500

3.

Calculation of difference in inventories:

(Difference inInventories)=(Amount of Inventories of 20X2−Amount of Inventories of 20X1)=($150,000−$125,000)=$25,000

4.

Calculation of depreciation expense:

Depreciation Expense=(Ending Value of Accumulated Depreciation−Beginning Value of Accumulated Depreciation+Accumulated Depreciation for Asset Sold)=($525,000−$500,000+$100,000)=$125,000

5.

Calculation of gain on value of equipment:

Gain on Value of Equipment=(Original Value of Equipment−Sales Value of Equipment)=($225,000−$175,000)=$50,000

6.

Calculation of purchase value of equipment:

Purchase Value of Equipment=(Ending Value of Equipment−Beginning Value of Equipment+Sales Value)=($1,025,000−$100,000+$225,000)=$250,000

7.

Calculation of purchase value of land:

Purchase Value of Land=(Value of Land in 20X2−Value of Land in 20X1)=($718,750−$500,000)=$218,750

3.

To determine

Identify the method used in preparing the statement of cash flows of a company. Also, explain the manner in which the net income is compared with the operating cash flows and to the change in cash flows.

3.

Expert Solution

Explanation of Solution

Generally, companies use indirect method to prepare the statement of cash flows. The net income after making all the adjustments of the noncash and non-operating expenses is equal to the operating cash flows. The net income changes with respect to the increase and decrease in cash flows.

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Answer 5

Chapter 14, Problem 48P

1.

To determine

Compute the cash flows from operations with the use of indirect method.

1.

Expert Solution

Explanation of Solution

Cash Flows from Operating Activities:

This category of a cash flow statement shows the operational and profit generating activities in a firm. The operating cash flows increase or decrease the current assets and current liabilities of a firm.

The cash flows from operations for B Company for 20X2 using indirect method is shown below:

Particulars	Amount ($)
Cash flows from operating activities:
Net income	450,000
Add/ Less:
Decrease in accounts receivable¹	68,750
Decrease in accounts payable²	(62,500)
Increase in inventories³	(25,000)
Depreciation expense⁴	125,000
Gain on sale of equipment⁵	(50,000)
Net cash from operating activities	506,250

Table (1)

Therefore, the net cash from operating activities is $506,250.

Working Note:

1.

Calculation of difference in accounts receivable:

(Difference inAccounts Receivable)=(Amount of Accounts Receivable of 20X2−Amount of Accounts Receivable of 20X1)=($281,250−$350,000)=−$68,750

2.

Calculation of difference in accounts payable:

(Difference inAccounts Payable)=(Amount of Accounts Payable of 20X2−Amount of Accounts Payable of 20X1)=($237,500−$300,000)=−$62,500

3.

Calculation of difference in inventories:

(Difference inInventories)=(Amount of Inventories of 20X2−Amount of Inventories of 20X1)=($150,000−$125,000)=$25,000

4.

Calculation of depreciation expense:

Depreciation Expense=(Ending Value of Accumulated Depreciation−Beginning Value of Accumulated Depreciation+Accumulated Depreciation for Asset Sold)=($525,000−$500,000+$100,000)=$125,000

5.

Calculation of gain on value of equipment:

Gain on Value of Equipment=(Original Value of Equipment−Sales Value of Equipment)=($225,000−$175,000)=$50,000

2.

To determine

Chart the statement of cash flows.

2.

Expert Solution

Explanation of Solution

Cash Flow Statement:

Cash flow statement is a financial statement prepared to provide information about the sources and uses of cash in a firm. In this statement, the activities increasing cash are referred as cash inflows and the activities that decrease cash are referred as cash outflows.

The statement of cash flows for the B Manufacturing for year ending 20X2 is as shown below:

B Company
Cash Flows from Operations
For the year ended December31, 20X2
Particulars	Amount ($)	Amount ($)
Cash flows from operating activities:
Net income	450,000
Add/ Less:
Decrease in accounts receivable¹	68,750
Decrease in accounts payable²	(62,500)
Increase in inventories³	(25,000)
Depreciation expense⁴	125,000
Gain on sale of equipment⁵	(50,000)
Net cash from operating activities		506,250
Cash flows from investing activities:
Sale of equipment	175,000
Purchase of equipment⁶	(250,000)
Purchase of land⁷	(218,750)
Net cash from investing activities		(293,750)
Cash flows from financing activities:
Mortgage received	250,000
Payment of dividends	(225,000)
Net cash from financing activities		25,000
Net increase in cash		237,500

Table (2)

Therefore, there is a net increase in cash of $237,500.

Working Note:

1.

Calculation of difference in accounts receivable:

(Difference inAccounts Receivable)=(Amount of Accounts Receivable of 20X2−Amount of Accounts Receivable of 20X1)=($281,250−$350,000)=−$68,750

2.

Calculation of difference in accounts payable:

(Difference inAccounts Payable)=(Amount of Accounts Payable of 20X2−Amount of Accounts Payable of 20X1)=($237,500−$300,000)=−$62,500

3.

Calculation of difference in inventories:

(Difference inInventories)=(Amount of Inventories of 20X2−Amount of Inventories of 20X1)=($150,000−$125,000)=$25,000

4.

Calculation of depreciation expense:

Depreciation Expense=(Ending Value of Accumulated Depreciation−Beginning Value of Accumulated Depreciation+Accumulated Depreciation for Asset Sold)=($525,000−$500,000+$100,000)=$125,000

5.

Calculation of gain on value of equipment:

Gain on Value of Equipment=(Original Value of Equipment−Sales Value of Equipment)=($225,000−$175,000)=$50,000

6.

Calculation of purchase value of equipment:

Purchase Value of Equipment=(Ending Value of Equipment−Beginning Value of Equipment+Sales Value)=($1,025,000−$100,000+$225,000)=$250,000

7.

Calculation of purchase value of land:

Purchase Value of Land=(Value of Land in 20X2−Value of Land in 20X1)=($718,750−$500,000)=$218,750

3.

To determine

Identify the method used in preparing the statement of cash flows of a company. Also, explain the manner in which the net income is compared with the operating cash flows and to the change in cash flows.

3.

Expert Solution

Explanation of Solution

Generally, companies use indirect method to prepare the statement of cash flows. The net income after making all the adjustments of the noncash and non-operating expenses is equal to the operating cash flows. The net income changes with respect to the increase and decrease in cash flows.

Answer 6

Chapter 14, Problem 48P

1.

To determine

Compute the cash flows from operations with the use of indirect method.

1.

Expert Solution

Explanation of Solution

Cash Flows from Operating Activities:

This category of a cash flow statement shows the operational and profit generating activities in a firm. The operating cash flows increase or decrease the current assets and current liabilities of a firm.

The cash flows from operations for B Company for 20X2 using indirect method is shown below:

Particulars	Amount ($)
Cash flows from operating activities:
Net income	450,000
Add/ Less:
Decrease in accounts receivable¹	68,750
Decrease in accounts payable²	(62,500)
Increase in inventories³	(25,000)
Depreciation expense⁴	125,000
Gain on sale of equipment⁵	(50,000)
Net cash from operating activities	506,250

Table (1)

Therefore, the net cash from operating activities is $506,250.

Working Note:

1.

Calculation of difference in accounts receivable:

(Difference inAccounts Receivable)=(Amount of Accounts Receivable of 20X2−Amount of Accounts Receivable of 20X1)=($281,250−$350,000)=−$68,750

2.

Calculation of difference in accounts payable:

(Difference inAccounts Payable)=(Amount of Accounts Payable of 20X2−Amount of Accounts Payable of 20X1)=($237,500−$300,000)=−$62,500

3.

Calculation of difference in inventories:

(Difference inInventories)=(Amount of Inventories of 20X2−Amount of Inventories of 20X1)=($150,000−$125,000)=$25,000

4.

Calculation of depreciation expense:

Depreciation Expense=(Ending Value of Accumulated Depreciation−Beginning Value of Accumulated Depreciation+Accumulated Depreciation for Asset Sold)=($525,000−$500,000+$100,000)=$125,000

5.

Calculation of gain on value of equipment:

Gain on Value of Equipment=(Original Value of Equipment−Sales Value of Equipment)=($225,000−$175,000)=$50,000

Answer 7

Chapter 14, Problem 48P

1.

To determine

Compute the cash flows from operations with the use of indirect method.

Answer 8

1.

Expert Solution

Explanation of Solution

Cash Flows from Operating Activities:

This category of a cash flow statement shows the operational and profit generating activities in a firm. The operating cash flows increase or decrease the current assets and current liabilities of a firm.

The cash flows from operations for B Company for 20X2 using indirect method is shown below:

Particulars	Amount ($)
Cash flows from operating activities:
Net income	450,000
Add/ Less:
Decrease in accounts receivable¹	68,750
Decrease in accounts payable²	(62,500)
Increase in inventories³	(25,000)
Depreciation expense⁴	125,000
Gain on sale of equipment⁵	(50,000)
Net cash from operating activities	506,250

Table (1)

Therefore, the net cash from operating activities is $506,250.

Working Note:

1.

Calculation of difference in accounts receivable:

(Difference inAccounts Receivable)=(Amount of Accounts Receivable of 20X2−Amount of Accounts Receivable of 20X1)=($281,250−$350,000)=−$68,750

2.

Calculation of difference in accounts payable:

(Difference inAccounts Payable)=(Amount of Accounts Payable of 20X2−Amount of Accounts Payable of 20X1)=($237,500−$300,000)=−$62,500

3.

Calculation of difference in inventories:

(Difference inInventories)=(Amount of Inventories of 20X2−Amount of Inventories of 20X1)=($150,000−$125,000)=$25,000

4.

Calculation of depreciation expense:

Depreciation Expense=(Ending Value of Accumulated Depreciation−Beginning Value of Accumulated Depreciation+Accumulated Depreciation for Asset Sold)=($525,000−$500,000+$100,000)=$125,000

5.

Calculation of gain on value of equipment:

Gain on Value of Equipment=(Original Value of Equipment−Sales Value of Equipment)=($225,000−$175,000)=$50,000

Answer 9

1.

Expert Solution

Answer 10

1.

Expert Solution

Answer 11

Expert Solution

Answer 12

2.

To determine

Chart the statement of cash flows.

2.

Expert Solution

Explanation of Solution

Cash Flow Statement:

Cash flow statement is a financial statement prepared to provide information about the sources and uses of cash in a firm. In this statement, the activities increasing cash are referred as cash inflows and the activities that decrease cash are referred as cash outflows.

The statement of cash flows for the B Manufacturing for year ending 20X2 is as shown below:

B Company
Cash Flows from Operations
For the year ended December31, 20X2
Particulars	Amount ($)	Amount ($)
Cash flows from operating activities:
Net income	450,000
Add/ Less:
Decrease in accounts receivable¹	68,750
Decrease in accounts payable²	(62,500)
Increase in inventories³	(25,000)
Depreciation expense⁴	125,000
Gain on sale of equipment⁵	(50,000)
Net cash from operating activities		506,250
Cash flows from investing activities:
Sale of equipment	175,000
Purchase of equipment⁶	(250,000)
Purchase of land⁷	(218,750)
Net cash from investing activities		(293,750)
Cash flows from financing activities:
Mortgage received	250,000
Payment of dividends	(225,000)
Net cash from financing activities		25,000
Net increase in cash		237,500

Table (2)

Therefore, there is a net increase in cash of $237,500.

Working Note:

1.

Calculation of difference in accounts receivable:

(Difference inAccounts Receivable)=(Amount of Accounts Receivable of 20X2−Amount of Accounts Receivable of 20X1)=($281,250−$350,000)=−$68,750

2.

Calculation of difference in accounts payable:

(Difference inAccounts Payable)=(Amount of Accounts Payable of 20X2−Amount of Accounts Payable of 20X1)=($237,500−$300,000)=−$62,500

3.

Calculation of difference in inventories:

(Difference inInventories)=(Amount of Inventories of 20X2−Amount of Inventories of 20X1)=($150,000−$125,000)=$25,000

4.

Calculation of depreciation expense:

Depreciation Expense=(Ending Value of Accumulated Depreciation−Beginning Value of Accumulated Depreciation+Accumulated Depreciation for Asset Sold)=($525,000−$500,000+$100,000)=$125,000

5.

Calculation of gain on value of equipment:

Gain on Value of Equipment=(Original Value of Equipment−Sales Value of Equipment)=($225,000−$175,000)=$50,000

6.

Calculation of purchase value of equipment:

Purchase Value of Equipment=(Ending Value of Equipment−Beginning Value of Equipment+Sales Value)=($1,025,000−$100,000+$225,000)=$250,000

7.

Calculation of purchase value of land:

Purchase Value of Land=(Value of Land in 20X2−Value of Land in 20X1)=($718,750−$500,000)=$218,750

Answer 13

2.

To determine

Chart the statement of cash flows.

Answer 14

2.

Expert Solution

Explanation of Solution

Cash Flow Statement:

Cash flow statement is a financial statement prepared to provide information about the sources and uses of cash in a firm. In this statement, the activities increasing cash are referred as cash inflows and the activities that decrease cash are referred as cash outflows.

The statement of cash flows for the B Manufacturing for year ending 20X2 is as shown below:

B Company
Cash Flows from Operations
For the year ended December31, 20X2
Particulars	Amount ($)	Amount ($)
Cash flows from operating activities:
Net income	450,000
Add/ Less:
Decrease in accounts receivable¹	68,750
Decrease in accounts payable²	(62,500)
Increase in inventories³	(25,000)
Depreciation expense⁴	125,000
Gain on sale of equipment⁵	(50,000)
Net cash from operating activities		506,250
Cash flows from investing activities:
Sale of equipment	175,000
Purchase of equipment⁶	(250,000)
Purchase of land⁷	(218,750)
Net cash from investing activities		(293,750)
Cash flows from financing activities:
Mortgage received	250,000
Payment of dividends	(225,000)
Net cash from financing activities		25,000
Net increase in cash		237,500

Table (2)

Therefore, there is a net increase in cash of $237,500.

Working Note:

1.

Calculation of difference in accounts receivable:

(Difference inAccounts Receivable)=(Amount of Accounts Receivable of 20X2−Amount of Accounts Receivable of 20X1)=($281,250−$350,000)=−$68,750

2.

Calculation of difference in accounts payable:

(Difference inAccounts Payable)=(Amount of Accounts Payable of 20X2−Amount of Accounts Payable of 20X1)=($237,500−$300,000)=−$62,500

3.

Calculation of difference in inventories:

(Difference inInventories)=(Amount of Inventories of 20X2−Amount of Inventories of 20X1)=($150,000−$125,000)=$25,000

4.

Calculation of depreciation expense:

Depreciation Expense=(Ending Value of Accumulated Depreciation−Beginning Value of Accumulated Depreciation+Accumulated Depreciation for Asset Sold)=($525,000−$500,000+$100,000)=$125,000

5.

Calculation of gain on value of equipment:

Gain on Value of Equipment=(Original Value of Equipment−Sales Value of Equipment)=($225,000−$175,000)=$50,000

6.

Calculation of purchase value of equipment:

Purchase Value of Equipment=(Ending Value of Equipment−Beginning Value of Equipment+Sales Value)=($1,025,000−$100,000+$225,000)=$250,000

7.

Calculation of purchase value of land:

Purchase Value of Land=(Value of Land in 20X2−Value of Land in 20X1)=($718,750−$500,000)=$218,750

Answer 15

2.

Expert Solution

Answer 16

2.

Expert Solution

Answer 17

Expert Solution

Answer 18

3.

To determine

Identify the method used in preparing the statement of cash flows of a company. Also, explain the manner in which the net income is compared with the operating cash flows and to the change in cash flows.

3.

Expert Solution

Explanation of Solution

Generally, companies use indirect method to prepare the statement of cash flows. The net income after making all the adjustments of the noncash and non-operating expenses is equal to the operating cash flows. The net income changes with respect to the increase and decrease in cash flows.

Answer 19

3.

To determine

Identify the method used in preparing the statement of cash flows of a company. Also, explain the manner in which the net income is compared with the operating cash flows and to the change in cash flows.

Answer 20

3.

Expert Solution

Explanation of Solution

Generally, companies use indirect method to prepare the statement of cash flows. The net income after making all the adjustments of the noncash and non-operating expenses is equal to the operating cash flows. The net income changes with respect to the increase and decrease in cash flows.