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    Financial accounting: statement of cash flows using direct method for Star Company together with a reconciliation schedule. Explanatory notes are provided for better understanding of the statement and particularly the reconciliation.

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    Star company
    Comparative balance sheets
    As of December 31, 2007 and 2006

    2007 2006
    Cash $15,000 $4,000
    A/R 17,500 12,950
    Short term invest 20,000 30,000
    Inventory 42,000 35,000
    Prepaid rent 3,000 12,000
    Prepaid insurance 2100 900
    Office Supplies 1,000 750
    Land 125,000 175,000
    Building 350,000 350,000
    Accum Dep (105,000) (87,500)
    Equip 525,000 400,000
    Accu Dep (130,000) (112,000)
    Patent 45,000 50,000

    Total assets 910,600 871,100

    A/P 27,000 32,000
    Tax payable 5,000 4,000
    Wages payable 5,000 3,000
    Short term N/P 10,000 10,000
    Long term N/P 60,000 70,000
    Bonds payable 400,000 400,000
    Premium on bonds payable 20303 25853
    Common stock 240,000 220,000
    Paid in capital in excess of Par
    20,000 17,500
    Retained earnings 123,297 88,747

    Total liabilities and stockholder's equity
    910,600 871,100

    Star Company
    Income Statement
    For the year ended Dec 31, 2007

    Sales Revenue $1,160,000
    Cost of goods sold (748,000)
    ------------------------
    412,000
    Gross Margin

    Operating expenses
    Selling expenses 79,200
    Adm expenses 156,700
    Dep/Amortization Exp 40,500

    Total operating expense : (276,400)

    Income from operations 135,600

    Other revenues/expense
    Gain on sale of land 8,000
    Gain on sale of short term investment
    4,000
    Dividend revenue 2400
    Int expense (51,750)
    (37,350)
    Income before taxes 98,250
    income tax expense (39,400)

    Net income 58,850

    Div to common stockholders (24,300)

    To retained earnings 34,550

    Require:
    Prepare a statement of cash flows for Star Company using the direct method accompanied by a reconciliation schedule. Assume the short term investments are available-for-sale securities

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    Start Company
    Cash Flow from Operating Activities
    For the Year Ended Dec 31, 2007
    Direct Method
    $
    Cash Receipts
    Net Sales per Income Statement 1,160,000
    Add: Beginning Accounts Receivables 12,950
    Less: Ending Accounts Receivable (17,500)
    Cash Receipts from Customers 1,155,450
    Add: Dividend Revenue 2,400
    Total cash receipts 1,157,850

    B. Cash payments for inventory:
    Cost of Sales 748,000
          +Ending Inventory 42,000
          -Beginning Inventory 35,000
          +Beginning A/P 32,000
          -Ending A/P 27,000
          Cash paid for inventory 760,000

    Cash paid for operating expenses
    Operating expenses per the ...

    Solution Summary

    The solutions presents a properly formatted Statement of Cash Flows under the direct method for Star Company including a reconciliation schedule.

    $2.19

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