Question

use the direct method

GAZY CORPORATION Comparative Balance Sheets December 31, 2015 and 2014 Add al A , AIR, inventory PPIIR 1 20 2015 2014 supplies Box 100 (Cox 801 Assets Cash Accounts receivable... Merchandise inventory Prepaid expenses..... Total current asset... Equipment. Accum depreciation Equipment $123,450 77.100 240.500 15.100 456.250 262.250 (110,7501 $607.750 $61.550 1.750 250,700 17.000 410.000 200.000 195,000 5515.000 Total assets GAZY CORPORATION Income Statement For Year Ended December 31, 2015 $102,000 Liabilities and Equity Accounts payable Short-term notes payable Total current abilities Long term notes payable Totale .. $1,185,000 595,000 590,000 10.000 $ 17.750 15.000 32.750 100,000 132.750 112.000 77,500 189,500 Cost of goods sold.... Gross profit.. Operating expenses. Depreciation expense Other expenses Total operating expenses. $ 38,600 362.350 101.450 188550 215.000 200,000 Equity Common stock, 35 par. Paid in capital in excess... of par common stock. Retained earnings .... Total abilities and equity 30.000 230.000 5607750 Other als losses Loss on sale of equipment Income before taxes Income taxes expense. Net Income .......... 125.500 $515.000 12.100) 186,450 28,350 150.100 $ Additional Information on Year 2015 Transactions a. The loss on the cash sale of equipment was $2,100 (details in b). b. Sold equipment costing 551,000, with accumulated depreciation of $22,850, for $26,050 cash. c. Purchased equipment costing $113,250 by paying $43.250 cash and signing a long-term note payable for the balance d. Borrowed $5,000 cash by signing a short-term note payable. e. Paid $47,500 cash to reduce the long-term notes payable. f. Issued 3,000 shares of common stock for $15 cash per share. 9. Declared and paid cash dividends of $53,600. Required 1. Prepare a complete statement of cash flows reportite complete statement of cash flows; report its operating activities using the Disclose any noncash investing and financing activities in a note. direct method. Analysis Components 2. Analyze and discuss the statement of cash flows pe ad discuss the statement of cash flows prepared in part 1, giving special attention to the wisdom of the cash dividend payment. DV Cr Check Cash from operating activities. $130.200

Answer 1

Answer with working notes is given below

Working notes: opening balance Bank (balance paid) Long term note Equipment $200,000 Accumulated Dep $43,250 Bank $70,000 P and L Account _closing balance $313,250 $22,850 $26,050 $2,100 $262,250 $313,250 GAZY CORPORATION Cash Flow Statement under Direct method Cash flows from Operating Activities Amount Cash received from customers $1,188,650 Less: Cash payments for Cash paid for Suppliers -$669,150 Cash paid for operating expense -$360,950 Cash paid for Income taxes -$28,350 Net Cash provided by Operating Activities $130,200 Cash flows from Investing Activities Purchase of Equipment -$43,250 Sale of Equipment $26,050 Net Cash used by Investing Activities -$17,200 Cash flows from Financing Activities Long term notes repaid -$47,500 Short term notes raised $5,000 Issue of Common stock $45,000 Dividend paid -$53,600 Net Cash used by Financing Activities -$51,100 Net Cash inflow/outflow) $61,900 Opening balance of cash $61,550 Closing balance of cash $123,450 $95,000 $38,600 Accumulated Depreciation-Equipment Equipment $22,850 Opening Balance (Dep on Equip sold) P and L Account Closing balance $110,750 (Depreciation during the year) $133,600 $133,600 Note: Significant non cash transaction Non Cash Investing and Financing Activity Equipment purchased by issue of Long term note payable $70,000 2 Analysis of cash flow statement Cash flow from operating activities is driven by cash collections from Customers Operating cash flow is positive $132,800 Cash from Financing activities is outflow mainly due to repayment of long term notes and payment of dividend to common shareholders. The free cash flows (Cash flow from Operating activities - investment in fixed assets) is positive during the year. Dividend is declared out of net income for the year Working notes: Amount of cash received from Customers Sales Add: Decrease in Accounts receivable Net cash received from customers $1,185,000 $3,650 $1,188,650 B Cost of inventory purchased Cost of Goods sold Less : Decrease in inventory Merchandise purchase $595,000 $10,100 $584,900 Amount of cash paid to suppliers of merchandise cost of purchase Add: Decrease in Accounts payable Cash paid for Suppliers $584,900 $84,250 $669,150 C Amount of cash paid to Operating expense operating expenses less: Decrease in prepaid expense Net cash paid for operating expense $362,850 -$1,900 $360,950 D Cash paid for income tax Income tax expense $28,350 Net cash paid for Income tax $28,350