Teal Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company. The comparative balance sheet and income statement for Teal as of May 31, 2020, are as follows. The company is preparing its statement of cash flows.
TEAL COMPANY |
||||
2020 |
2019 |
|||
Current assets | ||||
Cash |
$28,100 |
$20,000 |
||
Accounts receivable |
75,000 |
58,300 |
||
Inventory |
220,600 |
247,900 |
||
Prepaid expenses |
9,100 |
7,000 |
||
Total current assets |
332,800 |
333,200 |
||
Plant assets | ||||
Plant assets |
601,900 |
506,700 |
||
Less: Accumulated depreciation—plant assets |
150,600 |
124,800 |
||
Net plant assets |
451,300 |
381,900 |
||
Total assets |
$784,100 |
$715,100 |
||
Current liabilities | ||||
Accounts payable |
$123,400 |
$113,800 |
||
Salaries and wages payable |
47,600 |
71,900 |
||
Interest payable |
26,900 |
25,100 |
||
Total current liabilities |
197,900 |
210,800 |
||
Long-term debt | ||||
Bonds payable |
70,000 |
100,000 |
||
Total liabilities |
267,900 |
310,800 |
||
Stockholders’ equity | ||||
Common stock, $10 par |
370,000 |
280,000 |
||
Retained earnings |
146,200 |
124,300 |
||
Total stockholders’ equity |
516,200 |
404,300 |
||
Total liabilities and stockholders’ equity |
$784,100 |
$715,100 |
TEAL COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED MAY 31, 2020
Sales revenue $1,253,000
Cost of goods sold 717,300
Gross profit 535,700
Expenses
Salaries and wages expense 252,500
Interest expense 74,600
Depreciation expense 25,800
Other expenses 8,100
Total expenses 361,000
Operating income 174,700
Income tax expense 43,000
Net income $131,700
The following is additional information concerning
Teal’s transactions during the year ended May 31,
2020.
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 $95,200 were purchased by paying $25,200 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, Teal issued 2,000 shares of common stock at par value. | |
7. | Cash dividends of $109,800 were declared and paid at the end of the fiscal year. |
Direct Method:
Indirect Partial:
TEAL COMPANY | |||
Cash Flow Statement (Direct Method) | |||
FOR THE YEAR ENDED MAY 31, 2020 | |||
Cash flow from (used) operating activities | |||
Cash received from customers | $ 1,236,300 | 1253000+58300-75000 | |
Cash to customers | $ (680,400) | 717300+113800-123400+220600-247900 | |
Cash paid for Salaries and wages | $ (276,800) | 252500+71900-47600 | |
Cash paid for Interest expense | $ (72,800) | 74600+25100-26900 | |
Cash paid for Other expenses | -10200 | 8100-7000+9100 | |
Cash paid for income tax expenses | $ (43,000) | ||
Net cash flow from operating activities | $ 153,100 | ||
Cash flows from investing activities | |||
Purchase of plant assets | $ (25,200) | ||
Net cash used by investing activities | $ (25,200) | ||
Cash flows from financing activities | |||
Cash received from common stock | $ 20,000 | ||
Cash paid for dividends | $ (109,800) | ||
Cash paid to retire bonds payable | $ (30,000) | ||
Net cash used in financing activities | $ (119,800) | ||
Net increase in cash and cash equivalents | $ 8,100 | ||
Cash and cash equivalents at beginning of period | $ 20,000 | ||
Cash and cash equivalents at end of period | $ 28,100 |
TEAL COMPANY | ||
Cash Flow Statement (Indirect Method) | ||
FOR THE YEAR ENDED MAY 31, 2020 | ||
Cash flows from operating activities | ||
Net Income | $ 131,700 | |
Adjustments to reconcile net income: | ||
Depreciation expense | $ 25,800 | |
Increase in accounts receivable | $ (16,700) | |
Decrease in inventory | $ 27,300 | |
Increase in prepaid expense | $ (2,100) | |
Increase in accounts payable | $ 9,600 | |
Decrease in salaries and wages payable | $ (24,300) | |
Increase in interest payable | $ 1,800 | |
$ 21,400 | ||
Net cash provided by operating activities | $ 153,100 |
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