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Problem 1

To compare statement of cash flow reporting under the direct and indirect methods, enter a check mark to indicate which items are used with each method.

Cash Flows			Statement of Cash Flows Method
(and related changes)			Direct	Indirect
	1.	Salaries payable increase or decrease
	2.	Payments to employees
	3.	Cash collections from customers
	4.	Prepaid rent increase or decrease
	5.	Payments to suppliers
	6.	Inventory increase or decrease
	7.	Utilities payable, increase or decrease
	8.	Depreciation expense
	9.	Net income
	10.	Cash flows from operating activities
	11.	Cash flows from investing activities
	12.	Cash flows from financing activities
	13.	Net increase or decrease in cash during the period

Problem 2

A company completed its income statement and balance sheet for the year and provided the following information:

Income Statement

Service Revenue $55,000

Expenses:

Salaries 42,500

Rent 7,200

Depreciation 6,800

Amortization of copyrights 1,000

Total Expenses 57,500

Net loss $(2,500)

Partial Balance Sheet

Current Year Prior Year

Accounts receivable $ 7,000 $16,000

Salaries Payable 14,000 7,200

Prepaid rent 6,200 2,400

In addition, the company bought a small piece of equipment costing $6,500.

Required:

Prepare the operating activities section of the statement of cash flows using the indirect method.

Explain why the company was able to report positive operating cash flow despite having a net loss for the year.

Problem 3

For the most recent accounting year, a company reported the following operating and cash activities:

Investments in other companies	(8,628)
Increase in inventories	(2,685)
Depreciation and amortization	35,254
Long-term debt repayment	(165,243)
Net income	28,961
Proceeds from issuance of common stock	13,485
Proceeds from sale of property and equipment	3,590
Payment of dividends	(6,255)
Proceeds from long-term debt issuance	61,785
Purchases of property and equipment	(25,400)
Decrease in accounts receivable	5,291
Decrease in accounts payable	(8,466)

Requirements:

Prepare the operating, investing and financing sections of the cash flow statement.

Explain the major sources and uses of cash for the year.

Problem 4

The balance sheet and income statement for a company are provided below, along with selected additional financial information.

	Current Year	Prior Year
Balance Sheet
Cash	79,250	73,840
Accounts Receivable	18,820	24,185
Merchandise Inventory	15,354	6,976
Property and equipment	285,735	175,000
Accumulated Depreciation	(89,000)	(72,630)
Total Assets	310,159	207,371
Accounts Payable	8,500	18,200
Wages Payable	3,208	2,194
Notes payable, long-term	72,840	86,100
Contributed capital	84,255	65,980
Retained earnings	141,356	34,897
Total Liabilities and Stockholders’ Equity	310,159	207,371

Income Statement
Sales	284,955
Cost of goods sold	91,357
Wages	32,187
Depreciation expense	16,370
Other Expense	22,358
Net income	122,683