Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA.

QUESTION:

Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. The financial statements of Harlan Mining Co. for 2011 and 2010 are provided below.

Balance Sheets:

INCOME STATEMENT:

For the Year Ended December 31, 2011

Sates ………………………………………….….…………………….… $4,200,000

Cost of sales …………………………………..………………………….. 3,576.000

Gross profit ………………………………………..……………………..… 624,000

Selling Expenses ………………………….…… $300,000 ………….……………

Administrative expenses ……………………..… 96,000 …….….. 396.000

Income from operations ………………………………………….…… 228,000

Interest expense …………………………………………………………… 36,000

Income before taxes ……………………………..……………………… 192,000

Income taxes …………………………………………………..…………… 48,000

Net Income …………………………………………………………….… $ 144,000

INCOME STATEMENT:

BALANCE SHEETS:

INCOME STATEMENT:

For the Year Ended December 31, 2011

Sales……………………………………………….……….……………… $4,200,000

Cost of sales …………………………………..……….………….……… 3,576,000

Gross profit …………………………………………………………….…… 624,000

Selling Expenses ……………………………………..………………… $300,000

Administrative expenses ………………………… 96,000 ……….. 396,000

Income from operations …………………………………………….… 228,000

Interest expense …………………………………………………………… 36,000

Income before taxes ………………………………………………….… 192,000

Income taxes ……………………………………………………….….…… 48,000

Net Income ………………………………………………………….… $   144,000

The following additional data were provided:

Dividends for the year 2011 were $96,000.

During the year, equipment was sold for $120,000. This equipment cost $176,000 originally and had a book value of $144,000 at the time of sale. The loss on sale was incorrectly charged to the cost of sales.

All depreciation expense is in the selling expense category.

The net cash provided by operating activities is $204,000

The net cash provided (used) by investing activities is $120,000.

Under the direct method, the cash received from customers is $4,128,000

Under the direct method, the total taxes paid is $68,000.

The net cash provided (used) by financing activities is $(216,000)

Prepare a Direct Method Cash Flow Statement in good accounting form.


Answer:

Prepare a cash flow statement:

H M Co.
Cash flow statement (using the direct method)
For the year ended December 31st, 2011

Particulars Amount in $
Cash flow from operating activities:
Cash collected from customers 4.128.000
Cash paid to suppliers (3,464,000)
Selling expenses paid (260,000)
Administrative expenses paid (96,000)
Interest expense (36,000)
Income tax paid (68,000)
Net cash flow from operating activities (A) 204,000
Cash flow from investing activities:
Cash received from the sale of equipment 120,000
cash flow from investing activities (8) 120,000
Cash paid for the redemption of bonds (120,000)
Dividend paid (96,000)
Cash flow from financing activities (C) (216,000)
Net increase in cash (A) + (B) + (C) 108,000
Ad& Cash opening balance 96,000
Cash Balance at the ending balance 204,000

Working notes:

Sales 4,200,000
Add: Accounts receivable – Beginning 108,000
Less: Accounts receivable – Ending (180,000)
Cash collected from customers 4, 128,000

Cash paid to suppliers:

Cost of sales 3,576,000
Less: Loss on sale of equipment (24,000)
Add: Accounts payable – Beginning 48,000
Less: Accounts payable – Ending (88,000)
Add: Inventory – Ending 192,000
Less: Inventory – Beginning (240,000)
Cash paid to suppliers 3,464,000

 

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