Question

Sharp Screen Films, Inc., is developing its annual financial statements at December 31, the current year. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized as follows:

Current Year Prior Year
Cash 70,550 65,900
Balance sheet at December 31 19,150 25,750
Accounts receivable 25,750 20,300
Property and equipment 213,450 152,600
Less: Accumulated depreciation (62,700) (47,750)
$266,200 $216,800
Accounts payable $13,100 $ 23,200
Wages payable 7,200 3,900
Note payable, long-term 63,300 76,000
Contributed capital 103,900 67,500
Retained earnings 78,700 46,200
$266,200 $216,800
Income statement for current year
Sales $211,000
Cost of goods sold 108,000
Depreciation expense 14,950
Other expenses 44,600
Net income $43,450

Additional Data:
a. Bought equipment for cash, $60,850.
b. Paid $12,700 on the long-term note payable.
c. Issued new shares of stock for $36,400 cash.
d. Dividends of $10,950 were declared and paid.
e. Other expenses all relate to wages.
f. Accounts payable includes only inventory purchases made on credit.

Required:
Prepare the statement of cash flows using the direct method for the year ended December 31, current year.

Answer 1

Answer:

Detailed step-wise solution in tabular form is given below:

Answer 2

The preparation of Sharp Screen Films, Inc.'s Statement of Cash Flows, using the direct method is as follows:

Sharp Screen Films, Inc.'s

Statement of Cash Flows

For the year ended December 31, Current Year:

Cash from Operating Activities:

Cash Flow from Revenue                          $205,550

Cash Payments for Goods                         ($111,500)

Cash Payments for other expenses           ($41,300)

Net Cash Flow from operating activities    $52,750

Cash from Financing Activities:

Issuance of new shares                              $36,400

Payment of long-term note payable            (12,700)

Payment of dividends                                  (10,950)

Net Cash Flow from financing activities    $12,750

Cash from Investing Activities:

Purchase of Equipment                            ($60,850)

Net Cash Flow from investing activities ($60,850)

Net Cash Flows                                          $4,650

Reconciliation of Cash:

Cash at the beginning $65,900

Increase in cash               4,650

Cash at the end           $70,550

Data and Calculations:

Sharp Screen Films, Inc.

Balance Sheet

As of December 31,

                                                Current Year    Prior Year     Differences

Cash                                                70,550       65,900          +$4,650

Inventory at December 31               19,150       25,750             -6,600

Accounts receivable                      25,750       20,300            +5,450

Property and equipment              213,450     152,600          +60,850

Less: Accumulated depreciation (62,700)     (47,750)            14,950

                                                  $266,200   $216,800

Accounts payable                         $13,100   $ 23,200            -10,100

Wages payable                                7,200        3,900            +3,300

Note payable, long-term              63,300      76,000           +12,700

Contributed capital                     103,900      67,500          +36,400

Retained earnings                        78,700      46,200          +32,500

                                                $266,200   $216,800

Sharp Screen Films, Inc.

Income statement for current year

Sales                               $211,000

Cost of goods sold         108,000

Depreciation expense      14,950

Other expenses               44,600

Net income                    $43,450

Purchases of goods = Ending inventory + Cost of goods sold - Beginning Inventory

= $101,400 ($19,150 + $108,000 - $25,750)

Cash received from customers = $205,550 ($20,300 + $211,000 - $25,750)

Cash paid to suppliers of goods = $111,500 ($23,200 + $101,400 - $13,100)

Cash paid to workers = $41,300 ($3,900 + $44,600 - $7,200)

a. Equipment purchase = $60,850

b. Payment of long-term note payable = $12,700

c. Proceeds from new shares = $36,400

d. Payment of dividends = $10,950 ($43,450 - $32,500)

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