(SCF – Direct and Indirect Methods from Comparative Financial Statements)
Chapman Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company. The comparative balance sheet and income statements for Chapman as of May 31, 2012, are shown on the next page.
The company is preparing its statement of cash flows.
Chapman Company
Comparative Balance Sheet
As of May 31
|
2012 |
2011 |
|
|
Current assets |
||
|
Cash |
28,250 |
20,000 |
|
Accounts receivable |
75,000 |
58,000 |
|
Inventory |
220,000 |
250,000 |
|
Prepaid expenses |
9,000 |
7,000 |
|
Total current assets |
332,250 |
335,000 |
|
Plant assets |
||
|
Plant assets |
600,000 |
502,000 |
|
Less: Accumulated depreciation – plant assets |
150,000 |
125,000 |
|
Net plant assets |
450,000 |
377,000 |
|
Total Assets |
$782,250 |
$712,000 |
|
Current liabilities |
||
|
Accounts payable |
123,000 |
115,000 |
|
Salaries and wages payable |
47,250 |
72,000 |
|
Interest payable |
27,000 |
25,000 |
|
Total current liabilities |
197,250 |
212,000 |
|
Long-term debt |
||
|
Bonds payable |
70,000 |
100,000 |
|
Total Liabilities |
$267,250 |
$312,000 |
|
Stockholders’Equity |
||
|
Common Stock, $10 par |
370,000 |
280,000 |
|
Retained Earnings |
145,000 |
120,000 |
|
Total Stockholders’Equity |
515,000 |
400,000 |
|
Total Liabilities & Stockholders’Equity |
$782,250 |
$712,000 |
Chapman Company
Income Statement
For the Year Ended May 31, 2012
|
Sales |
1,255,250 |
|
Cost of Goods Sold |
722,000 |
|
Gross Profit |
533,250 |
|
Expenses: |
|
|
Salaries and Wages Expense |
252,100 |
|
Interest Expense |
75,000 |
|
Depreciation Expense |
25,000 |
|
Other Expenses |
8,150 |
|
Total Expenses |
360,250 |
|
Operating Income |
173,000 |
|
Income Tax Expense |
43,000 |
|
Net Income |
$130,000 |
The following is additional information concerning Chapman’s transaction during the year ended May 31, 2012.
1. All sales during the year were made on account.
2. All merchandise was purchased on account, comprising the total accounts payable account.
3. Plant assets costing $98,000 were purchased by paying $28,000 in cash and issuing 7,000 shares of stock.
4. The “other expenses” are related to prepaid items.
5. All income taxes incurred during the year were paid during the year.
6. In order to supplement its cash, Chapman issued 2,000 shares of common stock at par value.
7. Cash dividends of $105,000 were declared and paid at the end of the fiscal year.
Instruction:
a. Compare and contrast the direct method and the indirect method for reporting cash flows from operating activities.
b. Prepare a statement of cash flows for Chapman Company for the year ended May 31, 2012, using the direct method. Be sure to support the statement with appropriate calculations. (A reconciliation of net income to net cash provided is not required.)
c. Using the indirect method, calculate only the net cash flow from operating activities from Chapman Company for the year ended May 31, 2012.