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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.

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

Attachments

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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.

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