Presentation on theme: "For the year ended December 31, 2005"— Presentation transcript:
1 For the year ended December 31, 2005 Exercise 1E The income statement of Vince Gill Company is shown below :Vince Gill CompanyIncome StatementFor the year ended December 31, 2005Sales $ 6,900,000Cost of goods soldBeginning inventory $ 1,900,000Purchases $ 4,400,000Goods available for sale $ 6,300,000Ending inventory $ 1,600, $ 4,700,000Gross profit $ 2,200,000Operating expensesSelling expenses $ 450,000Administrative expenses $ 700,000 $ 1,150,000Net Income $ 1,050,000Additional information :Accounts receivable decreased $ 360,000 during the yearPrepaid expenses increased $ 170,000 during the yearAccounts payable to suppliers of merchandise decreased $ 275,000 during the yearAccrued expenses payable decreased $ 100,000 during the yearAdministrative expenses include depreciation expense of $ 60,000Instructions : Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2005 for Vince Gill Company, using the indirect method
2 Partial Statement of Cash Flows For the Year Ended December 31, 2005 Answer of Exercise 1Vince Gill Company Partial Statement of Cash Flows For the Year Ended December 31, 2005 Cash flows from operating activities Net income $ 1,050,000 Adjustments to reconcile net income to net cashprovided by operating activities: Depreciation expense $ 60,000 Decrease in accounts receivable $ 360,000 Decrease in inventory $ 300,000 Increase in prepaid expenses $ (170,000)Decrease in accounts payable $ (275,000)Decrease in accrued expenses payable $ (100,000) $ ,000 Net cash provided by operating activities $ 1,225,000
3 Exercise 2P Mardi Gras Company has not yet prepared a formal statement of cash flows for the 2005 fiscal year. Comparative balance sheets as of December 31, 2004 and 2005, and a statement of income and retained earnings for the year ended December 31, 2005, are presented below :Mardi Gras CompanyStatement of Income and Retained EarningsYear ended December 31, 2005 ($ 000 omitted)Sales $ 3,800Expenses : Cost of goods sold $ 1,200Salaries and benefits $Heat, light and power $Depreciation $Property taxes $Patent amortization $Miscellaneous expenses $Interest $ _ $ 2,164Income before income taxes $ 1,636Income taxes $Net Income $Retained earnings Jan 1, $$ 1,128Stock dividend declared and issued $Retained earnings Dec 31, $
4 Comparative Balance Sheets Exercise 2Mardi Gras CompanyComparative Balance SheetsDecember 31 ($ 000 omitted)AssetsCurrent Assets : Cash $ $US Treasury notes (available for sale)Accounts ReceivableInventory _ _Total Current Assets $ 1, $ 1,210Long Term Assets : Land $ $Buildings and equipmentAccumulated depreciation (200) (120)Patents (less amortization) _ _Total long term assets $ $Total Assets $ 2, $ 1,890Liabilities and Stockholders EquityCurrent Liabilities : Account Payable $ $Income taxes payableNotes payable _ _Total current liabilities $ $Long term note payable due $ $Total liabilities $ $Stockholders Equity : Common Stock $ 1, $Retained earnings _ _Total Liabilities and Stockholders Equity $ 2, $ 1,890Instructions : Prepare a statement of cash flows using the direct method. Changes in A/R and A/P relate to sales and cost of goods sold. Do not prepare a reconciliation schedule.
5 Statement Of Cash Flows For the Year Ended December 31, 2005 Answer of Exercise 2Mardi Gras CompanyStatement Of Cash FlowsFor the Year Ended December 31, 2005Cash flows from operating activities :Cash receipts from customers $ 3,560,000 (a)Payments for merchandise $ 1,280,000 (b)Salaries and benefits $ ,000Heat, light, and power $ ,000Property taxes $ ,000Interest $ ,000Miscellaneous $ ,000Income taxes $ , $ 2,937,000 (c)Net cash provided by operating activities $ ,000Cash flows from investing activities :Sale of available-for-sale investments $ ,000Purchase of buildings and equipment $ (310,000)Purchase of land $ (80,000)Net cash used by investing activities $ (340,000)Increase in cash $ ,000Cash, January 1, $ ,000Cash, December 31, $ ,000
6 Answer of Exercise 2 Sales $ 3,800,000 Ending accounts receivable $ (740,000)$ 3,060,000Beginning accounts receivable $ ,000Cash receipts (collections from customers) $ 3,560,000Cost of goods sold $ 1,200,000Ending inventory $ ,000Goods available for sale $ 1,920,000Beginning inventory $ (560,000)Purchases $ 1,360,000Ending accounts payable $ (420,000) $ ,000Beginning accounts payable $ ,000Cash purchases (payments for merchandise) $ 1,280,000Income taxes $ 818,000Ending taxes payables $ (40,000)$ 778,000Beginning taxes payable $ ,000Income taxes (cash) $ 798,000