Preparing the Statement of Cash Flows (Direct Format) Planet Accessories Company reported the following balance sheet and income statement at year end 2004. In addition, dividends totaling $1,000 were paid.
Required
A. Assume the company uses the direct format to prepare its statement of cash flows. What amounts would be reported on the 2004 statement of cash flows for each of the following?
1. Cash collections from customers (Hint: Inspect Sales Revenue and the change in Accounts Receivable.)
2. Cash paid to suppliers of inventory (Hint: Assume all purchases were made for cash.)
3. Cash paid for insurance (Hint: Inspect the insurance expense account and the change in the prepaid insurance account.)
4. Cash paid for rent (Hint: Inspect Rent Expense and the change in Rent Payable.)
5. Cash paid for depreciation
6. Cash paid for wages
B. What items and amounts would be reported under cash flow from investing activities?
(Hint: Inspect the changes in long term asset accounts.)
C. What items and amounts would be reported under cash flow from financing activities? (Hint: Inspect the changes in long term liability and stockholders’ equity accounts.)
D. Prepare a statement of cash flows using the direct format.
|
Balance Sheets at December 31 |
2004 |
2003 |
Income Statement for 2004 |
|
|
Cash |
$826 |
$553 |
Sales revenue |
$135,800 |
|
Accounts receivable |
8,950 |
8,000 |
Cost of goods sold |
54,300 |
|
Inventories |
11,600 |
10,100 |
Gross profit |
81,500 |
|
Prepaid insurance |
400 |
300 |
Operating expenses: |
|
|
Property, plant and equipment |
8,750 |
3,735 |
Advertising |
17,029 |
|
Less: Accumulated depreciation |
2,900 |
1,900 |
Depreciation |
1,000 |
|
Land |
5,850 |
4,850 |
Insurance |
4,800 |
|
Total assets |
$33,476 |
$25,638 |
Rent |
14,255 |
|
Rent payable |
$3,750 |
$4,000 |
Wages |
33,400 |
|
Wages payable |
1,750 |
1,400 |
Operating income |
11,016 |
|
Loan payable, long term |
9,200 |
5,200 |
Interest expense |
650 |
|
Common stock, $1 par value |
5,400 |
4,400 |
Income before taxes |
10,366 |
|
Retained earnings |
17,950 |
12,212 |
Taxes |
3,628 |
|
Treasury stock |
4,574 |
1,574 |
Net income |
$6,738 |
|
Total liabilities and shareholders’ equity |
$33,476 |
$25,638 |