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Statement of Cash Flows

Using given information in attachment (sheet 1) prepare a statement of cash flows using direct method.

See the attached file.

21st CENTURY TECHNOLOGIES
Income Statement
For the Year Ended December 31, 2005

Revenue:
Net sales $3,200,000
Interest revenue 40,000
Gain on sales of marketable securities 34,000
Total revenue and gains $3,274,000
Costs and expenses:
Cost of goods sold $1,620,000
Operating expenses (including $150,000 depreciation) 1,240,000
Interest expense 42,000
Income taxes 100,000
Loss on sales of plant assets 12,000
Total costs, expense, and losses 3,014,000
Net income $260,000

Changes in balance sheet accounts:
1. Increase in accounts receivable $60,000
2. Decrease in accrued interest receivable 2,000
3. Decrease in inventory 60,000
Decrease in accounts payable to merchandise suppliers 16,000
4. Increase in short-term prepayments of operating expenses 6,000
Decrease in accrued operating expenses 8,000
5. Increase in accrued interest payable 4,000
6. Decrease in accrued income taxes payable 14,000
7. Debit and credit entries in selected balance sheet accounts:
Debit Credit
Marketable Securities $60,000 $38,000
Notes Receivable (cash loans made to borrowers) 44,000 28,000
Plant Assets (see paragraph 8) 500,000 36,000
Notes Payable (short term borrowing) 92,000 82,000
Capital Stock 20,000
Additional Paid-in Capital - Capital Stock 160,000
Retained Earnings (see paragraph 9) 120,000 260,000

8. Plant assets account credit represents all plant assets sold
or retired during year
9. Retained earnings debit represents dividends declared and paid
Retained earnings credit represents net income
10. All investing and financing activities were cash transactions
11. Cash and cash equivalents, beginning of year 244,000
Cash and cash equivalents, end of year 164,000

Attachments

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21st CENTURY TECHNOLOGIES
Statement of Cash Flows
For the Year Ended December 31, 2005

Cash flows from operations:
Cash received from customers (1) $3,140,000
Interest received (2) 42,000
Cash provided by operating activities $3,182,000
Cash paid to suppliers and employees (3) $(2,680,000)
Interest paid (4) (38,000)
Income taxes paid (5) (114,000)
Cash disbursed for operating activities (2,832,000)
Net cash flow from operating activities $350,000 «- Correct!

Cash flows from investing activities:
Purchases of marketable securities $(60,000)
Proceeds from sales of marketable securities (6) 72,000
Loans made to borrowers (44,000)
Collections on loans 28,000
Cash paid to acquire plant assets (500,000)
Proceeds from sales of plant assets (7) 24,000
Net cash used by investing activities (480,000) «- Correct!

Cash flows from financing activities:
Proceeds from short-term borrowing $82,000
Payments to settle short-term debts (92,000)
Proceeds from issuing capital stock (8) 180,000
Dividends paid (120,000)
Net cash provided by ...

Solution Summary

The solution explains how to prepare a statement of cash flows using the direct method for 21st Century Technologies

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