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Accounting: Cash Flow - Indirect Method

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8. Cash flow from operations activities-indirect method
An analysis of the 2001 financial statements of Gourmet Provisions reveals the following:
(a) Accounts payable to suppliers of merchandise decreased by $40,000 during 2001.
(b) Dividends of$120,000 were declared in November 2001, to be paid in Januazy 2002.
(c) Dividends of $105,000, declared in November 2000, were paid in Januaiy 2001.
(d) Inventory levels increased by $76,000 during 2001.
(e) Depreciation expense for 2001 amounted to $39,000.
(f) Land, which had a cost of $200,000, was sold in 2001 for $320,000 cash, resulting in a
gain of S 120,000.
(g) Net income for 2001 was $630,000.
Using only the above information, follow the indirect method to compute Gourmet Provisions' net cash flow from operating activities for 2001.

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Using indirect method, we can calculate the CFO from these information.

Starting from (g) NI = 630000
(a) minus decrease ...

Solution Summary

Cash flow is calculated based on the indirect method. The financial statements of gourmet provisions revealing functions are given.

$2.19
See Also This Related BrainMass Solution

Preparing a Statement of Cash Flow with the Indirect Method

Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. If needed, use the minus sign to indicate cash outflows, negative amounts, net loss, or a decrease in cash.

The comparative balance sheet of Mills Engine Co. at December 31, 2013 and 2012, is as follows:
Dec. 31, 2013 Dec. 31, 2012
Assets
Cash $ 741,530 $ 799,300
Accounts receivable (net) 674,790 615,470
Inventories 1,023,310 941,740
Prepaid expenses 23,730 28,180
Land 255,090 385,600
Buildings 1,179,030 726,700
Accumulated depreciation-buildings (333,690) (311,440)
Equipment 415,260 367,060
Accumulated depreciation-equipment (114,200) (128,280)
$3,864,850 $3,424,330
Liabilities and Stockholders Equity
Accounts payable (merchandise creditors) $ 734,320 $ 774,900
Bonds payable 216,430 0
Common stock, $20 par 254,000 94,000
Paid-in capital in excess of par-common stock 611,000 451,000
Retained earnings 2,049,100 2,104,430
$3,864,850 $3,424,330
The noncurrent asset, noncurrent liability, and stockholders' equity accounts for 2013 are as follows:
ACCOUNT Land ACCOUNT NO.
Date Item Debit Credit Balance
2013 Debit Credit
Jan. 1 Balance 385,600
Apr. 20 Realized $121,400 cash from sale 130,510 255,090

ACCOUNT Buildings ACCOUNT NO.
Date Item Debit Credit Balance
2013 Debit Credit
Jan. 1 Balance 726,700
Apr. 20 Acquired for cash 452,330 1,179,030

ACCOUNT Accumulated Depreciation-Buildings ACCOUNT NO.
Date Item Debit Credit Balance
2013 Debit Credit
Jan. 1 Balance 311,440
Dec. 31 Depreciation for year 22,250 333,690

ACCOUNT Equipment ACCOUNT NO.
Date Item Debit Credit Balance
2013 Debit Credit
Jan. 1 Balance 367,060
Jan. 26 Discarded, no salvage 40,400 326,660
Aug. 11 Purchased for cash 88,600 415,260

ACCOUNT Accumulated Depreciation-Equipment ACCOUNT NO.
Date Item Debit Credit Balance
2013 Debit Credit
Jan. 1 Balance 128,280
Jan. 26 Equipment discarded 40,400 87,880
Dec. 31 Depreciation for year 26,320 114,200

ACCOUNT Bonds Payable ACCOUNT NO.
Date Item Debit Credit Balance
2013 Debit Credit
May 1 Issued 20-year bonds 216,430 216,430

ACCOUNT Common Stock, $ 20 par ACCOUNT NO.
Date Item Debit Credit Balance
2013 Debit Credit
Jan. 1 Balance 94,000
Dec. 7 Issued 8,000 shares of common
stock for $40 per share 160,000 254,000

ACCOUNT Paid-in Capital in Excess of Par-Common Stock ACCOUNT NO.
Date Item Debit Credit Balance
2013 Debit Credit
Jan. 1 Balance 451,000
Dec. 7 Issued 8,000 shares of common
stock for $40 per share 160,000 611,000

ACCOUNT Retained Earnings ACCOUNT NO.
Date Item Debit Credit Balance
2013 Debit Credit
Jan. 1 Balance 2,104,430
Dec. 31 Net loss 26,640 2,077,790
Dec. 31 Cash dividends 28,690 2,049,100

Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. If needed, use the minus sign to indicate cash outflows, negative amounts, net loss, or a decrease in cash.

Mills Engine Co.

Statement of Cash Flows

For the Year Ended December 31, 2013

Cash flows from operating activities:

$

Adjustments to reconcile net income to net cash
flow from operating activities:

Changes in current operating assets and liabilities:

Net cash flow from operating activities

$

Cash flows from investing activities:

$

$

Net cash flow used for investing activities

Cash flows from financing activities:

$

$

Net cash flow provided by financing activities

$

Cash at beginning of the year

Cash at end of the year

$

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