Question

Brecker Inc., a greeting card company, had the following statements prepared as of December 31, 2017.

BRECKER INC. COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2017 AND 2016
		12/31/17			12/31/16
Cash		$6,000			$7,000
Accounts receivable		62,000			51,000
Short-term debt investments (available-for-sale)		35,000			18,000
Inventory		40,000			60,000
Prepaid rent		5,000			4,000
Equipment		154,000			130,000
Accumulated depreciation—equipment		(35,000	)		(25,000	)
Copyrights		46,000			50,000
Total assets		$313,000			$295,000
Accounts payable		$46,000			$40,000
Income taxes payable		4,000			6,000
Salaries and wages payable		8,000			4,000
Short-term loans payable		8,000			10,000
Long-term loans payable		60,000			69,000
Common stock, $10 par		100,000			100,000
Contributed capital, common stock		30,000			30,000
Retained earnings		57,000			36,000
Total liabilities & stockholders’ equity		$313,000			$295,000

BRECKER INC. INCOME STATEMENT FOR THE YEAR ENDING DECEMBER 31, 2017
Sales revenue				$338,150
Cost of goods sold				175,000
Gross profit				163,150
Operating expenses				120,000
Operating income				43,150
Interest expense		$11,400
Gain on sale of equipment		2,000		9,400
Income before tax				33,750
Income tax expense				6,750
Net income				$27,000

Additional information:

1.		Dividends in the amount of $6,000 were declared and paid during 2017.
2.		Depreciation expense and amortization expense are included in operating expenses.
3.		No unrealized gains or losses have occurred on the investments during the year.
4.		Equipment that had a cost of $20,000 and was 70% depreciated was sold during 2017.

Prepare a statement of cash flows using the DIRECT method.

Answer 1

BRECKER INC.
Statements of cash flow under direct method
For the year ended December 31, 2017
All amounts are expressed in Dollars
operating activity
Cash Received from Sales	327,150
Less: Cash paid for Inventory purchase	(149,000)
Less: Other operating expense Paid	(89,000)
Less: Interest expense Paid	-11,400
Less: Income Tax expense Paid	(8,750)
Net cash flow from operating activity		69,000
Investing activity
Purchase of Short-term debt investments (18000-35000)	(17,000)
Sale proceeds from equipment	8,000
Cash paid for Purchase of equipment	(44,000)
Net cash flow from investing activity		(53,000)
Financing activity
Dividend Paid	(6,000)
Repayment of Long terms Loan payable (60000-69000)	(9,000)
Repayment of short term loan payable (8000-10000)	(2,000)
Net cash flow from financing activity		(17,000)
		-
Net change in cash		(1,000)
Add: beginning cash balance		7,000
Ending cash balance		6,000

Cost of equipment sold	20,000
Less: Accumulated depreciation on equipment sold (20000*70%)	14,000
Book value of equipment sold	6,000
Add: Gain on sale of equipment	2,000
Cash received from equipment sold	8,000
Equipment at Dec 31, 2017	154,000
Add: Cost of Assets sold	20,000
Less: Equipment at Dec 31, 2016	(130,000)
Purchase of Property and Equipment	44,000
Accumulated depreciation at Dec 31, 2017	35,000
Add: Accumulated depreciation on assets sold	14,000
Less: Accumulated depreciation at Dec 31, 2016	(25,000)
Depreciation expense on equipment	24,000
Total Operating expenses	120,000
Less: Depreciation expense on equipment	24,000
Less: Amortization expense on Copyrights (50000 -46000)	4,000
Total Cash Operating expenses (Cash Type Expense)	92,000
Total Cash Operating expenses (Cash Type Expense)	92,000
Add: Increase in Prepaid rent (5000-4000)	1,000
Less: Increase in Salaries and wages payable (4000-8000)	(4,000)
Cash paid for Operating expenses	89,000

account receivable at beginning	51,000
add: sales revenue	338,150
Less: account receivable at ending	(62,000)
cash received from sales	$        327,150
inventory at ending	40,000
add: cost of goods sold	175,000
Less: inventory at beginning	(60,000)
purchase of inventory	155,000
account payable at beginning	40,000
add: purchase of inventory	155,000
Less: account payable at ending	(46,000)
cash paid for inventory purchase	$        149,000
Income taxes payable at beginning	6,000
add: Income tax expense	6,750
Less: Income taxes payable at ending	(4,000)
cash paid for inventory purchase	$            8,750