| Statement of Cash Flows | ||
| Cash Flows from Operating Activities | ||
| Net Income | 42,900 | |
| Adjustments | ||
| Depreciation | 30,000 | |
| Increase in marketable securities | (200) | |
| Decrease in accounts receivable | 9000 | |
| Prepaid Expenses | 100 | |
| Increase in inventories (less A/P) | (24,000) | |
| Decrease in accruals | (1,000) | |
| Decrease in notes payable | (2,000) | |
| Net cash provided by operating activities | | $11,900 |
| $54,800 | ||
| Cash Flows from Investing Activities | ||
| *** Increase in gross plant and equipment | (14,000) | |
| $40,800 | ||
| Cash Flows from Financing Activities | ||
| Decrease in debt | (10,000) | |
| Dividends | (31,800) | |
| Net cash provided by financing activities | ($41,800) | |
| Net decrease in cash | (1,000) | |
| Cash, January 1, 2010 | 15,000 | |
| Cash, December 31, 2010 | 14,000 |
Problems for this Q
1. Why the amount of increasing in inventory is (24,000) but not (33,000)? And why account payable doesn’t exist?
2. Why the amount of increasing in Net plant and equipment is (14,000)?
I will answer all of these questions for you to get a clear picture for this problem.
A for the Q above
1. I know most of you get 33,000 for the amount of increase in inventories, but why I got 24,000
Actually, it is not magic but it is about accounting knowledge that we have been learnt since we were in secondary school. Based on the Balance sheet in this Q, we found that Account payable was increase from 48,000 to 57,000 by the year 2010. That’s mean the firm was bought inventories in term of credit.please refer to the text book page 56 for more details information about account payable. Therefore, we can add the amount of increase in inventories with amount of 9000 because the firm purchased the inventories in credit.
Increase in inventories (33000)
Add 9000
(33000) + 9000= (24,000)
Actually if you wanna make it separately, it is still acceptable. You still get the same result of cash flows from operating activities. This way just wants to show your understanding in accounting knowledge.
| Statement of Cash Flows | ||
| Cash Flows from Operating Activities | ||
| Net Income | 42,900 | |
| Adjustments | ||
| Depreciation | 30,000 | |
| Increase in marketable securities | (200) | |
| Decrease in accounts receivable | 9000 | |
| Prepaid Expenses | 100 | |
| Increase in inventories | (33,000) | |
| increase in account payable | 9000 | |
| Decrease in accruals | (1,000) | |
| Decrease in notes payable | (2,000) | |
| Net cash provided by operating activities | | $11,900 |
| $54,800 | ||
| Cash Flows from Investing Activities | ||
| Increase in gross plant and equipment | (14,000) | |
| $40,800 | ||
| Cash Flows from Financing Activities | ||
| Decrease in debt | (10,000) | |
| Dividends | (31,800) | |
| Net cash provided by financing activities | ($41,800) | |
| Net decrease in cash | (1,000) | |
| Cash, January 1, 2010 | 15,000 | |
| Cash, December 31, 2010 | 14,000 | |
2. Wow increase in plant and equipment was (14,000), sounds weird isn’t it?
Once again the Q wants to test your understanding in the accounting horizon.
According to the balance sheet given above, it shows the amount of NET plant and equipment in 2009 and 2010. Is it possible if you wanna report the amount of increase in Net plan and equipment in the cash flows? No way man.. because you have to report the original cost of a firm’s plant and equipment in the statement of cash flows. So how to get the original cost of plant and equipment from the financial statement that provided above. It is not big deal bro..
Firstly, you have to indentify the amount of depreciation expenses. Did u get it?? Do you still remember about how to find the depreciation expenses and accumulated depreciation? Based on the income statement from this Q, the amount of depreciation expenses is 30,000 USD, therefore the accumulated depreciation for the year of 2010 is 60,000. Why? Because it is using a straight line method for this Q.
Income Statement
For the year Ending
| 2009 | 2010 | 2011 | 2012 |
| Depreciation Expenses 30000 | 30,000 | 30,000 | 30,000 |
Balance sheet
End of year
| | 2009 | 2010 | 2011 | 2012 |
| Gross Fixed assets | Calculate by your own ok | Calculate by your own ok | | |
| Accumulated depreciation | 30,000 | 60,000 | 90,000 | 120,000 |
| Net fixed assts | 286,000 | 270,000 | | |
| DATA | | | |
| Balance Sheet: | 2009 | 2010 | |
| Cash | $15,000 | $14,000 | ($1,000) |
| Marketable Securities | 6,000 | 6,200 | $200 |
| Receivables | 42,000 | 33,000 | ($9,000) |
| Inventory | 51,000 | 84,000 | $33,000 |
| Prepaid expenses | 1,200 | 1,100 | ($100) |
| Total current assets | 115,200 | 138,300 | $23,100 |
| Gross plant and equipment | 316,000 | 330,000 | $14,000 |
| Less: accumulated depreciation | (30,000) | (60,000) | ($30,000) |
| Total assets | $401,200 | $408,300 | $7,100 |
| 2009 | 2010 | ||
| Accounts payable | $48,000 | $57,000 | $9,000 |
| Accruals | 6,000 | 5,000 | ($1,000) |
| Notes payable | 15,000 | 13,000 | ($2,000) |
| Total current liabilities | 69,000 | 75,000 | $6,000 |
| Long-term debt | 160,000 | 150,000 | ($10,000) |
| Common stock | 172,200 | 183,300 | $11,100 |
Total liabilities and equity | $401,200 | $408,300 | $7,100 |
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