To explain and illustrate the direct method, we will use the transactions of Juarez Company for 2010, to prepare a statement of cash flows. Illustration presents information related to 2010 for Juarez Company.
|
JUAREZ COMPANY |
|||
|
Assets |
2010 |
2009 |
Change Increase/Decrease |
|
Cash |
$191,000 |
$159,000 |
$ 32,000 Increase |
|
Accounts receivable |
12,000 |
15,000 |
3,000 Decrease |
|
Inventory |
170,000 |
160,000 |
10,000 Increase |
|
Prepaid expenses |
6,000 |
8,000 |
2,000 Decrease |
|
Land |
140,000 |
80,000 |
60,000 Increase |
|
Equipment |
160,000 |
–0– |
160,000 Increase |
|
Accumulated depreciation—equipment |
(16,000) |
–0– |
16,000 Increase |
|
Total |
$663,000 |
$422,000 |
|
|
Liabilities and Stockholders’ Equity |
|||
|
Accounts payable |
$ 52,000 |
$ 60,000 |
$ 8,000 Decrease |
|
Accrued expenses payable |
15,000 |
20,000 |
5,000 Decrease |
|
Income taxes payable |
12,000 |
–0– |
12,000 Increase |
|
Bonds payable |
130,000 |
–0– |
130,000 Increase |
|
Common stock |
360,000 |
300,000 |
60,000 Increase |
|
Retained earnings |
94,000 |
42,000 |
52,000 Increase |
|
Total |
$663,000 |
$422,000 |
|
|
JUAREZ COMPANY |
||
|
Revenues |
$975,000 |
|
|
Cost of goods sold |
$660,000 |
|
|
Operating expenses (excluding depreciation) |
176,000 |
|
|
Depreciation expense |
18,000 |
|
|
Loss on sale of store equipment |
1,000 |
855,000 |
|
Income before income taxes |
120,000 |
|
|
Income tax expense |
36,000 |
|
|
Net income |
$ 84,000 |
|
Additional information:
1. In 2010, the company declared and paid a $32,000 cash dividend.
2. Bonds were issued at face value for $130,000 in cash.
3. Equipment costing $180,000 was purchased for cash.
4. Equipment costing $20,000 was sold for $17,000 cash when the book value of the equipment was $18,000.
5. Common stock of $60,000 was issued to acquire land.