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Classified Income Statement and Statement of Cash Flows

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Comparative Balance Sheet

Assets 2oo3 2002
Cash $30,000 35,000
Accounts Receivable 85,000 53,000
Merchandise Inventory 120,000 132,000
Prepaid Insurance 15,000 25,000
Investments in other companies 85,000 75,000
Buildings 315,000 250,000
Accumulated depreciation (65,000) (60,000)
Total 585,000 510,000

Liabilities and Stockholders' Equity
Accounts Payable 85,000 75,000
Salaries Payable 29,000 24,000
Bonus Payable 130,000 160,000
Common Stock 215,000 170,000
Retained Earnings 126,000 81,000
Total 585,000 510,000

Account Information for Income Statement preparation
Cost of Goods Sold 250,000
Income Taxes expense 22,000
Interest Expense 16,000
Operating expense 77,000 (included the depreciation expense of 17,000)
Sales Discounts 120,000
Sales returns and Allowance 90,000
Sales revenue 630,000

? New building costing $90,000 were purchased in cash in 2003
? Old building costing 25,000 were sold for 13,000 cash when accumulated depreciation was 12,000
? Bonus were repaid in cash
? A cash dividend of 10,000 was declared and paid during the year
? Additional common stock was issued
? New investments into other companies were made in cash
Please comment on the differences between the company net income and cash flows from operations activities. In addition, mention at least 3 reasons causing the differences.

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Solution Preview

Please see the attached file

Since we need the net income in the statement of cash flows, we first make the classified income statement
Income Statement
Sales revenue 630,000
Less: Sales Returns and Allowances (90,000)
Sales Discounts (120,000)
Net Sales 420,000
Cost Of Goods Sold (250,000)
Gross Margin 170,000
Operating Expense (77,000)
Operating Income 93,000
Interest Expense (16,000)
Income Before Tax 77,000
Income Tax Expense (22,000)
Net Income 55,000

We now make the statement of cash ...

Solution Summary

The solution explains how to prepare a classified income statement and statement of cash flows

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