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    Indirect And Direct Approach: Rodriquez Company

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    E23-3 Preparation of Operating Activities Section - Indirect Method, Periodic Inventory

    The income statement of Rodriquez Company is shown below.

    RODRIQUEZ COMPANY
    Income Statement
    For The Year Ended December 31, 2012
    Sales $6,900,000
    Cost of goods sold
    Beginning inventory $1,900,000
    Purchases 4,400,000
    Goods available for sale 6,300,000
    Ending inventory 1,600,000
    Cost of goods sold 4,700,000
    Gross profit 2,200,000
    Operating expenses
    Selling expenses 450,000
    Administrative expenses 700,000 1,150,000
    Net income $1,050,000

    Additional information:
    1. Accounts receivable decreased $310,000 during the year.
    2. Prepaid expenses increased $170,000 during the year.
    3. Accounts payable to suppliers of merchandise decreased $275,000 during the year.
    4. Accrued expenses payable decreased $120,000 during the year.
    5. Administrative expenses include depreciation expense of $60,000

    Instructions:
    Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2012, for Rodriquez Company, using the indirect method.

    P23-3

    SCF - Direct Method
    Mortonson Company has not yet prepared a formal statement of cash flows for the 2012 fiscal year. Comparative balance sheets as of December 31, 2011, and 2012, and a statement of income and retained earnings for the year ended December 31, 2012, are presented below.

    MORTONSON COMPANY
    Statement of Income and Retained Earnings
    For The Year Ended December 31, 2012
    ($000 Omitted)
    Sales $3,800
    Expenses
    Cost of goods sold $1,200
    Salaries and benefits 725
    Heat, light, and power 75
    Depreciation 80
    Property taxes 19
    Patent amortization 25
    Miscellaneous expenses 10
    Interest 30 2,164
    Income before income taxes 1,636
    Income taxes 818
    Net income 818
    Retained earnings - January 1, 2012 310
    1,128
    Stock dividend declared and issued 600
    Retained earnings - December 31, 2012 $528

    MORTONSON COMPANY
    Comparative Balance Sheet
    December 31
    ($000 Omitted)
    Assets 2012 2011
    Current assets
    Cash $333 $100
    U.S. Treasury notes (Available-for-sale) 10 50
    Accounts receivable 780 500
    Inventory 720 560
    Total current assets 1,843 1,210
    Long-term assets
    Land 150 70
    Buildings and equipment 910 600
    Accumulated depreciation (200) (120)
    Patents (less amortization) 105 130
    Total long-term assets 965 680
    Total assets $2,808 $1,890

    Liabilities and Stockholders' Equity
    Current liabilities
    Accounts payable $420 $330
    Income taxes payable 40 30
    Notes payable 320 320
    Total current liabilities 780 680
    Long-term notes payable - due 2014 200 200
    Total liabilities 980 880
    Stockholders' equity
    Common stock outstanding 1,300 700
    Retained earnings 528 310
    Total stockholders' equity 1,828 1,010
    Total liabilities and stockholders' equity $2,808 $1,890

    Instructions:
    Prepare a statement of cash flows using the direct method. Changes in accounts receivable and in accounts payable relate to sales and cost of sales. Do not prepare a reconciliation schedule.

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    Your tutorial is in excel with instructional notes about how to decide "which way" the adjustment does (up or down). This rule takes the guess work out of this assignment. Each is on its own separate tab.

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