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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