Question

Presented below are the balance sheets of Andrew's Corporation as of December 31, Year 1 and Year 2, and the income statement for the year ended December 31, Year 2. The Income Statement for the year ended December 31, Year 2 as well as additional information from the accounting records are on the next page. All dollars are in thousands. Andrew's Corporation Balance Sheets December 31, Year 1 and Year 2 Year 1 $ 90 Year 2 $ 152 260 269 (5) 10 240 70 170 260 (80) 30 $ 1,045 248 46 170 296 (109) 28 $1,099 Assets Cash Accounts receivable Less: Allowance for doubtful accounts Prepaid insurance Inventory Long-term investment Land Buildings and equipment Less: Accumulated depreciation Trademark Total Assets Liabilities & Stockholders' Equity Accounts payable Salaries payable Deferred tax liability Lease liability Bonds Payable Less: Discount on bonds Common Stock Paid-In Capital-in excess of par Preferred Stock Retained Earnings Total Liabilities & Stockholders' Equity $ 52 $ 37 120 280 (27) 260 (25) 300 110 80 80 380 $1,045 384 $ 1.099

In the tab labeled Direct Method SCFs, prepare a complete statement of cash flows for Andrew’s Corporation using the direct method of reporting cash flows from operating activities for the year ended December 31, Year 2. Use the spreadsheet method as a tool with supporting t-accounts, summary entries or a combination of both. For both the direct and indirect method you will need to analyze the impact the Allowance for doubtful accounts has on accounts receivable and cash.

Answer 1

Please find attached Direct Method of statement of cash flow:

Statement of Cash Flow Cash flow from Operating Activities Cash Receipts (decrease/ (increase) from customer AR & Allowance for doubtful accounts Cash payments for suppliers & Other Expenses Cash payments for Income Tax Amount invested /(utilized) Change in following accounts (7) (20) Inventory, Prepaid Expense, AP & Salaries Payable Deferred Tax Liability A (23) Cash flow from Investing Activites Additions/(deletions) to Fixed Asset Additions/(deletions) to Long Term Investment (Additions)/deletions to long term liability Building, Trademark Long Term Investment (5) 24 Lease Liability and Bond Payable (88) (69) Cash flow from financing acti Change in Equity ties 150 Net Income Dividend Paid Proceeds from capital contributed 24 Dividends Paid (20) C 154 Net Increase/decrease in cash D A+B+C 62 E Opening Balance of cash 90 Closing Balance of Cash D+E 152

Allowance for doubtful account has increased in year 2 as compared to year 1 and this implies net cash received in year 2, on the o/s balance of year 1 is less,as the same considered as bad and doubtful debts.