Question

The comparative balance sheets and income statement of Piura Manufacturing follow. Piura Manufacturing Comparative Balance Sheets For the Years Ended June 30, 20X1 and 20X2 1 20X1 20X2 2 Assets: 3 Cash $72,000.00 $146,400.00 4 Accounts receivable 44,000.00 48,000.00 5 Inventory 64,000.00 44,000.00 6 Plant and equipment 104,000.00 112,000.00 7 Accumulated depreciation (52,000.00) (48,000.00) 8 Land 20,000.00 20,000.00 9 Total assets $252,000.00 $322,400.00 10 Liabilities and equity: 11 Accounts payable $32,000.00 $48,000.00 12 Wages payable 4,000.00 2,400.00 13 Bonds payable 24,000.00 16,000.00 14 Preferred stock (no par) 4,000.00 12,000.00 15 Common stock 30,000.00 36,000.00 16 Paid-in capital in excess of par 50,000.00 76,000.00 17 Retained earnings 108,000.00 132,000.00 18 Total liabilities and equity $252,000.00 $322,400.00 Piura Manufacturing Income Statement For the Year Ended June 30, 20X2 1 Sales $320,000.00 2 Cost of goods sold (200,000.00) 3 Gross margin $120,000.00 4 Operating expenses (88,000.00) 5 Net income $32,000.00 Additional transactions for 20X2 were as follows: A. Cash dividends of $8,000 were paid. B. Equipment was acquired by issuing common stock with a par value of $6,000. The fair market value of the equipment is $32,000. C. Equipment with a book value of $12,000 was sold for $6,000. The original cost of the equipment was $24,000. The loss is included in operating expenses. D. Two thousand shares of preferred stock were sold for $4 per share.

Required: 1. Prepare a schedule of operating cash flows using (a) the indirect method and (b) the direct method. 2. Prepare a statement of cash flows using the indirect method. 3. Prepare a statement of cash flows using a worksheet similar to the one shown in Example 14.8 (p. 804). 4. As far as the direct and indirect methods, which would investors prefer?

Answer 1

Answer is given below

For question No.3 need format since it is not given in question. Format is needed to give in similar way

rest all are answered.

1a) Working notes: Piura Manufacturing Schedule of operating cash flows - Indirect method For the year ended June 30, 20X2 Cash flows from Operating Activities Net Income $32,000 Add: Adjustments to reconcile net income to Depreciation $8,000 Loss on sale of equipment $6,000 Changes in Working Capital Increase in Accounts Receivable -$4,000 Decrease in Inventory $20,000 Increase in Account payable $16,000 Decrease in wages payable -$1,600 Net Cash provided by Operating Activities $76,400 Plant and Equipment opening balance $104,000 Accumulated Dep Common stock $6,000 Bank Paid in capital in excess of par $26,000 P and L Account $12,000 $6,000 $6,000 closing balance $136,000 $112,000 $136,000 1b) $52,000 $8,000 Piura Manufacturing Schedule of operating cash flows - Direct method | Cash flows from Operating Activities Cash collections from customers $316,000 Payment for Suppliers -$164,000 Payment for Operating expenses -$75,600 Cash flow from Operating activities $76,400 Accumulated Depreciation- Plant and Equipment Equipment $12,000 Opening Balance (Dep on Equip sold) P and L Account Closing balance $48,000 (Depreciation during the year) $60,000 $60,000 working notes: A Amount of cash received from Customers Sales Add: Increase in Accounts receivable Net cash received from customers $320,000 $4,000 $316,000 B payment to suppliers Cost of Goods sold Less: Decrease in inventory Less: Increase in Accounts payable Cash paid for Suppliers $200,000 -$20,000 -$16,000 $164,000 C Operating expenses Less: Depreciation Less: Loss on sale of equipment Decrease in wages payable Net cash paid for operating expense $88,000 -$8,000 -$6,000 $1,600 $75,600 Piura Manufacturing Cash Flow Statement under Indirect method For the year ended June 30, 20X2 Cash flows from Operating Activities Net Income $32,000 Add: Adjustments to reconcile net income to Depreciation $8,000 Loss on sale of equipment $6,000 Changes in Working Capital Increase in Accounts Receivable -$4,000 Decrease in Inventory $20,000 Increase in Account payable $16,000 Decrease in wages payable -$1,600 Net Cash provided by Operating Activities $76,400 Cash flows from Investing Activities Sale of equipment $6,000 Net Cash used by Investing Activities $6,000 Cash flows from Financing Activities Repayment of Bond payable -$8,000 Issue of preferred stock $8,000 Dividend paid -$8,000 Net Cash provided by Financing Activities -$8,000 Net Cash inflow/outflow) $74,400 Opening balance of cash $72,000 Closing balance of cash $146,400 3 Need format 4 Investors would prefer indirect method since the cash flow statement can be drawn based on Balance Sheet Cash flow from operating activities can be calculated with balances in Balance sheet