Question

Statement of Cash Flows-Direct Method The comparative balance sheet of Canace Products Inc. for December 31, 2016 and 2015, is as follows: Dec 31, 2016 Dec. 31, 2015 $272.890 98,860 279,060 Assets Cash Accounts receivable (net) Inventories Investments Land Equipment Accumulated depreciation equipment Total assets 5252,390 90,650 268.380 103,980 143,140 307,900 (72,080) $1,029,770 237,280 (63,990) SBBB.690 $175,070 23,110 8,000 43,550 120,860 518,100 $888,690 Liabilities and Stockholders' Equity Accounts payable $186,390 Accrued expenses payable 18,540 Dividends payable 10,300 Common stock, $10 par 55,610 Paid-in capital: Excess of issue price over par-common stock 209,040 Retained earnings 549,890 Total liabilities and stockholders' equity $1,029,770 The income statement for the year ended December 31, 2016, is as follows: Sales $1,628,330 Cost of merchandise sold 670,500 Gross profit $957,830 Operating expenses: Depreciation expense $8,090 Other operating expenses 845,510 Total operating expenses 853,600 Operating income $104,230 Other expense: Loss on sale of investments (28,070) Income before income tax $76,160 Income tax expense 24,370 Net income $51,790 Additional data obtained from an examination of the accounts in the lediger for 2016 are as follows: a. Equipment and land were acquired for cash. b. There were no disposals of equipment during the year. c. The investments were sold for $75,910 cash d. The common stock was issued for cash e. There was a $20,000 debit to Retained Earnings for cash dividends declared. Required: Prepare a statement of cash flows, using the direct method of presenting cash flows from operating activities. Use the minus sign to indicate cash outflows, cash payments, decreases in cash, or any negative adjustments.

Answer 1

Statement of Cash flows for the year ended December 31,2016

Cash flow from operating activities
Cash received from customers (1)	$1,620,120
Less: cash payments for merchandise (2)	($669,860)
Cash payments for operating expenses (3)	($850,080)
Cash payments for income tax	($24,370)
Net cash flow from operating activities		$75,810
Cash flow from Investing activities
Cash received from sale of investments	$75,910
Less: cash paid for purchase of land	($143,140)
Cash paid for purchase of equipment	($70,620)
Net cash flow from Investing activities		($137,850)
Cash flow from Financing activities
Cash received from sale of common stock	$100,240)
Less: cash paid for dividends (4)	($17,700)
Net cash flow from Financing activities		$82,540
Increase in cash		$20,500
Cash at the beginning of the year		$252,390
Cash at the end of the year		$272,890

Reconciliation of net income with cash flow from operating activities

Net income	$51,790
Adjustment to reconcile net income to cash flow from operations
Depreciation	$8,090
Loss on sale of investment	$28,070
Changes in current operating Assets and liabilities
Increase in accounts receivable	($8,210)
Increase in inventories	($10,680)
Increase in accounts payable	$11,320
Decrease in accured expense payable	($4,570)
Net cash flow	$75,810

Working notes:

1.	Sales	$1,628,330
	Deduct: Increase I'm accounts receivable	($8,210)
	Cash received from customers	$1,620,120
2.	Cost of merchandise sold	$670,500
	Add: increase in inventories	$10,680
	Deduct: increase in accounts payable	($11,320)
	Cash payments for merchandise	$669,860
3.	Operating expenses other than depreciation	$845,510
	Add: decrease in accured expense payable	$4,570
	Cash payments for operating expenses	$850,080

4. Dividends paid = $20,000+$8,000-$10,300 =$17,700

_____×_____

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