Question

DAIR COMPANY Income Statement For Year Ended December 31, 2013 $700,000 Sales ..... $440,000 95,000 22,000 7,000 10,000 36,000 5,000 Cost of goods sold Wages and other operating expenses. Depreciation expense.. Amortisation expense. Interest expense . Income tax expense Loss on bond retirement. 615,000 Net income..... $ 85,000 DAIR COMPANY Balance Sheets Dec. 31, 2013 Dec. 31, 2012 Assets $ 27,000 53,000 $ 18,000 48,000 Cash...... Accounts receivable 103,000 12,000 Inventory .... Prepaid expenses Plant assets.... 109,000 10,000 360,000 (87,000) 43,000 336,000 (84,000) 50,000 Accumulated depreciation Intangible assets.. Total assets.... $487,000 $511,000 Liabilities and Shareholders' Equity Accounts payable . Interest payable... Income tax payable. Bonds payable... Share capital .. Retained earnings . $ 32,000 $ 26,000 4,000 7,000 8,000 6,000 60,000 252,000 157,000 120,000 228,000 98,000 Total liabilities and equity ...... $511,000 $487,000

Prepare a statement of cash flows for Dair Company using:

a. the indirect method

b. the direct method

Answer 1

DAIR COMPANY statement of cash flows (using indirect method) for the year ended December 31, 2013 cash flow from operating activities net income $85,000 adjustments to reconcile net income to cash flow from operating activities depreciation expense $22,000 amortization expense $7,000 loss on bond retirement $5,000 changes in operating current assets and current liabilities increase in accounts receivable -$5,000 decrease in inventory $6,000 increase in prepaid expenses -$2,000 increase in accounts payable $6,000 increase in interest payable -$3,000 increase in income tax payable -$2,000 net cash flow from operating activities $119,000 cash flow from investing activities purchase of plant assets sale of plant assets net cash flow from investing activities -$43,000 cash flow from financing activities payment of dividend -$26,000 retirement of bonds payable -$65,000 issue of common stock $24,000 net cash flow from financing activities -$67,000 net change in cash beginning cash balance ending cash balance $9,000 $18,000 $27,000

X for b. AB DAIR COMPANY statement of cash flows (using direct method) for the year ended December 31, 2013 cash flow from operating activities receipts from customers $ 695,000 payments to suppliers -$ 428,000 payments for wages and operating expenses $ 97,000 payment for interest expense -$ 13,000 payment for income tax expense -$ 38,000 net cash flow from operating activities $ 119,000 cash flow from investing activities purchase of plant assets sale of plant assets net cash flow from investing activities -$ 43,000 cash flow from financing activities payment of dividend $ 26,000 retirement of bonds payable -$ 65,000 issue of common stock $ 24,000 net cash flow from financing activities -$ 67,000 net change in cash beginning cash balance ending cash balance $ 9,000 $ 18,000 $ 27,000

NOTE -you haven't provided at what price plant assets are sold. however, the total of cash flow from sale and purchase of plant assets shall be -$43,000 i.e. if plant assets are sold for $10,000 then plant assets are purchased from -$53,000

For formulas and calculations, refer to the image below -

DAIR COMPANY statement of cash flows (using direct method) for the year ended December 31, 2013 cash flow from operating activities receipts from customers =700000+48000-53000 payments to suppliers --(440000+103000-109000+26000-32000) payments for wages and operating expenses |-- (95000+12000-10000) payment for interest expense --(10000+7000-4000) payment for income tax expense =-(36000+8000-6000) net cash flow from operating activities =SUM(D6:010) cash flow from investing activities purchase of plant assets sale of plant assets net cash flow from investing activities =E24-E11-E22 cash flow from financing activities payment of dividend --(85000-(157000-98000)) retirement of bonds payable =-65000 issue of common stock 24000 net cash flow from financing activities =SUM(D19:D21) net change in cash beginning cash balance ending cash balance =E26-E25 18000 27000

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