Gallery Corporation - Cash Flow Statement (100% Correct Solution)

Galley Corp., a merchandiser, recently completed its 2011 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, (5) Other Expenses are all cash expenses, and (6) any change in Income Taxes Payable reflects the accrual and cash payment of taxes. The company’s balance sheets and income statement follow.

GALLEY CORPORATION
Comparative Balance Sheets
December 31, 2011 and 2010

2011

2010

  Assets

  Cash

$

156,327   

$

134,694   

  Accounts receivable

101,303   

93,003   

  Merchandise inventory

700,944   

615,744   

  Equipment

439,149   

343,149   

  Accum. depreciation—Equipment

(173,690)  

(117,590)  

  Total assets

$

1,224,033   

$

1,069,000   

  Liabilities and Equity

  Accounts payable

$

69,000   

$

100,000   

  Income taxes payable

31,094   

27,794   

  Common stock, $2 par value

549,800   

515,800   

  Paid-in capital in excess of par value, common stock

255,075   

187,075   

  Retained earnings

319,064   

238,331   

  Total liabilities and equity

$

1,224,033   

$

1,069,000   

GALLEY CORPORATION
Income Statement
For Year Ended December 31, 2011

  Sales

$

2,013,800  

  Cost of goods sold

1,228,418  

  Gross profit

785,382  

  Operating expenses

       Depreciation expense

$

56,100  

       Other expenses

514,707  

570,807  

  Income before taxes

214,575  

  Income taxes expense

41,842  

  Net income

$

172,733  

Additional Information on Year 2011 Transactions

a.

Purchased equipment for $96,000 cash.

b.

Issued 17,000 shares of common stock for $6.00 cash per share.

c.

Declared and paid $92,000 in cash dividends.

Required:

Prepare a complete statement of cash flows using a spreadsheet; report operating activities under the indirect method.

a.

Net income was $172,733.

b.

Accounts receivable increased.

c.

Merchandise inventory increased.

d.

Accounts payable decreased.

e.

Income taxes payable increased.

f.

Depreciation expense was $56,100.

g.

Purchased equipment for $96,000 cash.

h.

Issued 17,000 shares at $6.00 cash per share.

i.

Declared and paid $92,000 of cash dividends.