cash flow information direct and indirect methods the comparative year end balance s 502381 | Homework Solutions
Cash flow information: Direct and indirect methods The comparative year-end balance sheets of Sign Graphics, Inc., revealed the following activity in the company’s current accounts:
19X5
19X4
(Increase / Decrease)
Current assets Cash
$55,400
$35,200
$20,200
Accounts receivable (net)
83,800
88,000-4,200
Inventory
243,400
233,800
9,600
Prepaid expenses
25,400
24,200
1,200
Current liabilities Accounts payable
$123,600
$140,600
($17,000)
Taxes payable
43,600
49,200-5,600
Interest payable
9,000
6,400
2,600
Accrued liabilities
38,800
60,400-21,600
Note payable
44,000
44,000
The accounts payable were for the purchase of merchandise. Prepaid expenses and accrued liabilities related to the firm’s selling and administrative expenses. The company’s condensed income statement follows.
SIGN GRAPHICS, INC. Income Statement For the Year Ended December 31, 19X5
Sales
$713,800
Less: Cost of goods sold
323,000= Gross profit $390,800
Less: Selling & administrative expenses $186,000 Depreciation expense 17,000 Interest expense 27,000 Total operating expenses: 230,000 $160,800 Add: Gain on sale of land 21,800 Income before taxes Income taxes $182,600 36,800 Net income $145,800 Other data:
1. Long-term investments were purchased for cash at a cost of $74,600.
2. Cash proceeds from the sale of land totaled $76,200.
3. Store equipment of $44,000 was purchased by signing a short-term note payable. Also, a $150,000 telecommunications system was acquired by issuing 3,000 shares of preferred stock.
4. A long-term note of $49,400 was repaid.
5. Twenty thousand shares of common stock were issued at $5.19 per share.
6. The company paid cash dividends amounting to $128,600. Instructions:
a. Prepare the operating activities section of the company’s statement of cash flows, assuming use of:1.
The direct method.
2. The indirect method.
b. Prepare the investing and financing activities sections of the statement of cash flows.
