Explore BrainMass

Cash flow- direct & indirect methods, income statement

Prepare 2 cash flow statements: direct and indirect methods.

(See attached file for full problem description)
Company X
Debits 31-Dec-05 01-Jan-05
Cash and Cash Equivalents $176,400 $58,000
Accounts Receivable 32,000 26,600
Inventory 21,000 25,400
Prepaid Insurance 5,600 4,000
Lomg-Term Investments (at cost) 6,000 16,800
Equipment 80,000 66,000
Treasury Stock (at cost) 10,000 20,000
Cost of Goods Sold 368,000
Operating Expenses 185,000
Income Tax Expense 37,600
Loss on Sale of Equipment 1,000
Total Debits $922,600 $216,800

Credits 31-Dec-05 01-Jan-05
Accumulated Depreciation -Equipment $19,000 $18,000
Accounts Payable 7,000 11,200
Interest Payable 1,000 2,000
Income Tax Payable 12,000 8,000
Notes Payable- Long Term 16,000 24,000
Common stock 110,000 100,000
Paid-in Capital in Excess of Par 32,000 30,000
Retained Earnings 19,600 23,600
Sales 704,000
gain on Sale of Long-Term Investments 2,000
Total Credits $922,600 $216,800

Additional information
a) all purchases and sales were on account
b) equipment costing $10,000 was sold for $3,000; a loss of $1,000 was recognized on the sale
c) the operating expenses included depreciation expense of $7,000; interest expense of $2,800; and insurance expense of $2,400
equipment was purchased during the year by issuing common stock and by paying balance ($12,000) in cash
treasury stock was sold for $4,000 less than it cost; the decrease in owner's equity was recorded by reducing Retained Earnings.
No dividends were paid during the year.

1. Prepare a statement of cash flow for the year ended December 31, 2005, using direct method
of reporting cash flows from operating activities
2. Prepare separate statement of cash flow using indirect method for the year ended December 31, 2005.
3. Prepare an income statement, for the year ended December 31, 2005.

© BrainMass Inc. brainmass.com July 19, 2018, 11:17 pm ad1c9bdddf


Solution Preview

The attached file has the details.
The change in equipment is 14,000. Since 10,000 of equipment is sold so the total increase should be 24,000. Of this 12,000 is paid in cash and is shown in the cash flow statement, the remaining 12,000 is disclosed in supplemental ...

Solution Summary

The solution explains the preparation of a statement of cash flows using direct and indirect method as also an income statement.