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:
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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