Using transaction data to prepare a statement of cash flows— Direct method
Store Company engaged in the following transactions during the 2011 accounting period. The
beginning cash balance was $28,600 and ending cash balance was $6,025.
1. Sales on account were $250,000. The beginning receivables balance was $87,000 and the ending balance was $83,000.
2. Salaries expense for the period was $56,000. The beginning salaries payable balance was $3,500 and the ending balance was $2,000.
3. Other operating expenses for the period were $125,000. The beginning other operating expenses payable balance was $4,500 and the ending balance was $8,500.
4. Recorded $19,500 of depreciation expense. The beginning and ending balances in the Accumulated Depreciation account were $14,000 and $33,500, respectively.
5. The Equipment account had beginning and ending balances of $210,000 and $240,000 respectively. There were no sales of equipment during the period.
6. The beginning and ending balances in the Notes Payable account were $50,000 and $150,000, respectively. There were no payoffs of notes during the period.
7. There was $6,000 of interest expense reported on the income statement. The beginning and ending balances in the Interest Payable account were $1,500 and $1,000, respectively.
8. The beginning and ending Merchandise Inventory account balances were $90,000 and $108,000, respectively. The company sold merchandise with a cost of $156,000 (cost of goods sold for the period was $156,000). The beginning and ending balances of Accounts Payable were $9,500 and $11,500, respectively.
9. The beginning and ending balances of Notes Receivable were $5,000 and $10,000, respectively. Notes receivable result from long-term loans made to employees. There were no collections from employees during the period.
10. The beginning and ending balances of the Common Stock account were $100,000 and $ 120,000, respectively. The increase was caused by the issue of common stock for cash.
11. Land had beginning and ending balances of $50,000 and $41,000, respectively. Land that cost $9,000 was sold for $12,200, resulting in a gain of $3,200.
12. The tax expense for the period was $7,700. The Taxes Payable account had a $950 beginning balance and an $875 ending balance.
13. The Investments account had beginning and ending balances of $25,000 and $29,000, respectively. The company purchased investments for $18,000 cash during the period, and investments that cost $14,000 were sold for $9,000, resulting in a $5,000 loss.
Required
a. Determine the amount of cash flow for each item and indicate whether the item should appear in the operating, investing, or financing activities section of a statement of cash flows. If an item does not affect the cash flow statement, make a statement indicating that the cash statement will not be affected. Assume Store Company uses the direct method for showing net cash flow from operating activities.
b. Prepare a statement of cash flows based on the information you developed in Requirement a.
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