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    Cash flow- direct & indirect methods, income statement

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    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.

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    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.