Question

Prepare the 2010 statement of cash flows for the Benz Company, using the information below. All the information is provided; assume no other data. Prepare the statement using the direct method format by entering cash flows and reconciling items into the form below. In column A, the name or description has been entered for you. In column B, enter the amount of each item using parentheses for outflows or negative amounts. In column C, enter your net cash flow amounts and other subtotals. Enter 0 if no other amount is appropriate.

Information from the Benz Company's 2010 annual report appears below. This information will be used to prepare the firm's 2010 statement of cash flows.

Income Statement for the Year Ended 12/31/10

Sales	$400
Wages expense	(125)
Rent expense	(100)
Depreciation expense	(75)
Net income	$100

Comparative Balance Sheets 12/31/10

	2009	2010
Cash	$100	$155
AR	50	75
Prepaid rent	70	50
Equipment	300	400
Accum. Dep.	(75)	(150)
Total Assets	$445	$530
Wages payable	30	10
Capital stock	200	230
Retained earnings	215	290
Total L+OE	$445	$530

A1 lock copy cut paste
	A	B	C
1	Benz Company Statement of Cash Flows For the Year Ended December 31, 2010
2	Operating Activities
3	Collections from customers	375	0
4	Wages paid	(145)	0
5	Rent paid	(80)	0
6	Net cash flows from operations	0	150
7	Investing Activities
8	Purchase equipment	(100)	0
9	Net cash flows from investing	0	(100)
10	Financing Activities
11	Issue capital stock	30	0
12	Dividends paid	(25)	0
13	Net cash flows from financing	0	5
14	Increase in cash, 2010	0	55
15	Cash, 1/1/10	0	100
16	Cash, 12/31/10	0	155
17	Reconciliation of Net income and Net Flow from Operations
18	Net income	100	0
19	Accounts receivable increase	(25)	0
20	Wages payable decrease	(20)	0
21	Prepaid rent decrease	20	0
22	Depreciation expense	75	0
23	Net cash flows from operations	0	150

The above are all correct answers. However, I was confused how to get them. Could you please show me the step of the solutions?

Thank you for the help.

Answer 1

Amount ($) Benz Company Cash Flow Statement for the Year Ending 31st Dec, 2010 Direct Method Particulars Cash Flow From Operating Activities Cash Received From Sales ( W Note 1) Less: Wages paid ( W Note 2) Less :Rent paid (w Note 3) Net Cash Flow From Operating Activities (A) 375 (145) (80) 150 Cash Flow From Investing Activities Purchase of Equipment Net Cash Flow From Investing Activities (B) (100) (100) Cash Flow From Financing Activities - Cash Received from Common Stock Dividend Paid ( W Note 4) Net Cash Flow From Financing Activities (C) 25 Net Cash Flows from All Activities (A+B+C) - Cash and cash equivalents at the beginning of the year - Cash and cash equivalents at the end of the year 55 100 155

Working Note 1 Calculation of Collection from customers Account Receivable (2009) Add : Sales during the Year Total Less : Accounts Receivable (2010) Cash Received From Sales 50 400 450 1751 30 Working Note 2 Calculation of Wages Paid Wages Payable (2009) Add: Wages for year 2010 Total Less:Wages Payable (2010) Wages Paid During the Year 125 155 (10) 145

46 Working Note 3 77 Calculation of Rent Paid 78 Prepaid Rent (2010) 19 Add: Rent for year 2010 50 Total 51 Less :Prepaid Rent (2009) 52 Rent Paid During the Year 50 100 150 (70) 80 54 Working Note 4 55 Calculation of Dividend Paid 57 Retained Earnings (2009) 58 Add: Net Income 59 Total 50 Less : Retained Earnings (2010) 51 Dividend Paid During the Year 215 100 315 (290)

Solution : 2 Benz Company Cash Flow Statement for the Year Ending 31st Dec, 2010 Indirect Method Particulars Cash Flow From Operating Activities Net Income Amount ($) 100 75 175 Adjustments :- Add :Depreciation For the year Operating Profit before working capital changes Changes in Working Capital :- Increase in Account Receivable Decrease in Wages Payable Decrease in Prepaid rent Total (25) (20) 20 150 Net Cash Flow From Operating Activities (A) 150