Question

Problem 23-6 Comparative balance sheet accounts of Ayayai Inc. are presented below.

AYAYAI INC.

COMPARATIVE BALANCE SHEET ACCOUNTS

AS OF DECEMBER 31, 2017 AND 2016 December 31

Debit Accounts 2017 2016

Cash $41,700 $33,500

Accounts Receivable 69,900 59,800

Inventory 30,000 24,200

Equity investments 22,400 38,100

Machinery 30,100 18,800

Buildings 67,400 56,700

Land 7,600 7,600

$269,100 $238,700

Credit Accounts

Allowance for Doubtful Accounts $2,200 $1,500

Accumulated Depreciation—Machinery 5,500 2,300

Accumulated Depreciation—Buildings 13,400 8,900

Accounts Payable 35,200 24,700

Accrued Payables 3,400 2,600

Long-Term Notes Payable 21,300 31,300

Common Stock, no-par 150,000 125,000

Retained Earnings 38,100 42,400

$269,100 $238,700

Additional data (ignoring taxes):

1. Net income for the year was $41,700.

2. Cash dividends declared and paid during the year were $21,000.

3. A 20% stock dividend was declared during the year. $25,000 of retained earnings was capitalized.

4. Equity investments (level of ownership is less than 20%) that cost $24,800 were sold during the year for $28,600. No unrealized gains and losses were recorded on these investments in 2017.

5. Machinery that cost $3,800, on which $750 of depreciation had accumulated, was sold for $2,250.

Ayayai’s 2017 income statement follows (ignoring taxes).

Sales revenue $535,400

Less: Cost of goods sold 376,600

Gross margin 158,800

Less: Operating expenses (includes $8,450 depreciation and $5,377 bad debts) 120,100

Income from operations 38,700

Other: Gain on sale of investments $3,800

Loss on sale of machinery (800 ) 3,000

Net income $41,700

(a) Compute net cash flow from operating activities using the direct method.

Net cash flow from operating activities?

(b) Prepare a statement of cash flows using the indirect method.

Answer 1

Answer is given below

T accounts is also given to get the amounts required for cash flow statement

AYAYI INC Net cash flow from Operating Activities (Direct method) For the year ended December 31,2017 Cash flows from Operating Activities Cash received from customers $526,000 Less: Cash payments for Cash paid for merchandise purchased -$371,900 Cash paid for operating expense -$110,850 -$482,750 Net Cash provided by Operating Activities $43,250 Working notes: A Amount of cash received from Customers Sales Less: Increase in Accounts receivable Add: Increase in allowance for doubtful accounts Net cash received from customers $535,400 -$10,100 $700 $526,000 Cost of inventory purchased Cost of Goods sold Add : Increase in inventory Merchandise purchase $376,600 $5,800 $382,400 Amount of cash paid to suppliers of merchandise cost of purchase Less: Increase in Accounts payable Cash paid for merchandise purchased $382,400 -$10,500 $371,900 Amount of cash paid to Operating expense Operating expenses Add: Increase in salaries and wages payable Net cash paid for operating expense $111,650 -$800 $110,850 Working notes: opening balance Bank (balance paid) Machinery $18,800 Accumulated Dep $15,100 Bank Loss on sale of closing balance $33,900 $750 $2,250 $800 $30,100 $33,900 $2,300 $3,950 AYAYI INC Cash Flow Statement under Indirect method For the year ended December 31, 2017 Cash flows from Operating Activities Amount Net Income $41,700 Add: Adjustments to reconcile net income to cash| Depreciation $8,450 Gain on sale of investments -$3,800 Loss on sale of machinery $800 Changes in Working Capital Increase in Accounts Receivable $10,100 Increase in Inventory -$5,800 Increase in allowance for doubtful debts $700 Increase in Accounts payable $10,500 Increase in Accrued payable $800 Net Cash provided by Operating Activities $43,250 Cash flows from Investing Activities Purchase of investment -$9,100 Sale of investments $28,600 Sale of Machinery $2,250 Purchase of Machinery -$15,100 Purchase of Building -$10,700 Net Cash used by Investing Activities -$4,050 Cash flows from Financing Activities Repayment of long term notes payable -$10,000 Dividend paid -$21,000 Net Cash provided by Financing Activities -$31,000 Net Cash inflow/(outflow) Opening balance of cash $33,500 Closing balance of cash $41,700 Accumulated Depreciation- Machinery Equipment $750 Opening Balance (Dep on Equip sold) P and L Account Closing balance $5,500 (Depreciation during the year) $6,250 $6,250 opening balance Bank (balance paid) (Purchase) Buildings $56,700 $10,700 closing balance $67,400 $67,400 $67,400 $8,200 $8,900 $4,500 Accumulated Depreciation- Buildings Opening Balance P and L Account Closing balance $13,400 (Depreciation during the year) $13,400 $13,400 Non Cash Financing Activity 20% stock dividend declared during the year $25,000 Retained earnings capitalized $28,600 opening balance Bank Profit and loss accou Equity Investments $38,100 Bank $9,100 $3,800 closing balance $51,000 $22,400 $51,000