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Statement of Cash Flow for Bannack Corp.

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P12-12A
Bannack Corp. is in the process of preparing its statement of cash flows for the year ended June 30,
2010. An income statement for the year and comparative balance sheets are as follows:
For the Year Ended June 30, 2010
Sales revenue $400,000
Cost of goods sold 240,000
Gross profit $160,000
General and administrative expenses $40,000
Depreciation expense 80,000
Loss on sale of plant assets 10,000
Total expenses and losses $130,000
Income before interest and taxes $30,000
Interest expense 15,000
Income before taxes $15,000
Income tax expense 5,000
Net income $10,000

June 30
2010 2009
Cash $25,000 $40,000
Accounts receivable 80,000 69,000
Inventory 75,000 50,000
Prepaid rent 2,000 18,000
Total current assets $182,000 $177,000
Land $60,000 $150,000
Plant and equipment 575,000 500,000
Accumulated depreciation (310,000) (250,000)
Total long-term assets $325,000 $400,000
Total assets $507,000 $577,000

Accounts payable $145,000 $140,000
Other accrued liabilities 50,000 45,000
Income taxes payable 5,000 15,000
Total current liabilities $200,000 $200,000
Long-term bank loan payable $75,000 $150,000
Common stock $100,000 $100,000
Retained earnings 132,000 127,000
Total stockholders' equity $232,000 $227,000
Total liabilities and stockholders' equity $507,000 $577,000

Dividends of $5,000 were declared and paid during the year. New plant assets were purchased during the year for
$125,000 in cash. Also, land was sold for cash at its book value. Plant assets were sold during the year for
$20,000 in cash. The original cost of the assets sold was $50,000, and their book value was $30,000.
A portion of the bank loan was repaid.

Required
1. Prepare a statement of cash flows for 2010 using the indirect method in the Operating Activities
section.
BANNACK CORP.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2010

Cash Flows from Operating Activities
T F
T
T
T F
T F
T F
T F
T F
T F
T F
T F
T F
Cash Flow from Investing Activities
T F
T $
T $
T F
Cash Flow from Financing Activities
T F
T $
T F
T F
Cash balance, June 30, 2009 F
Cash balance, June 30, 2010 F

2. Evaluate the following statement: Whether a company uses the direct or indirect method to
report cash flows from operations is irrelevant because the amount of cash flow from operating
activities is the same regardless of which method is used.

T
T
T
T

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Solution Summary

The solution prepares cash flow statement with given data.

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