Colonial Company
Statement of Retained Earnings
Year Ended December 31, 2019
Retained Earnings, January 1, 2019
$78,000
Add: Net income
52,000
Less: Dividends
15,000
Retained Earnings, December 31, 2019
$115,000
Prepare the operating activities section of the statement of cash flows, using the direct method. Accrued
liabilities relate to other operating expenses.
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Diff: 3
LO: 14-4
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2: Cash Flows From Operating Activities
93
35) Williamsburg Company uses the direct method to prepare its statement of cash flows. Refer to the
following financial statement information for the year ending December 31, 2018:
Williamsburg Company
Comparative Balance Sheet
December 31, 2018 and 2017
2018
2017
Increase
(Decrease)
Cash
$33,000
$13,000
$20,000
Accounts Receivable
29,000
36,000
(7,000)
Merchandise Inventory
56,000
29,000
27,000
Plant and Equipment, net
126,000
92,000
34,000
Total Assets
$244,000
$170,000
$74,000
Accounts Payable
$9,000
$13,000
$(4,000)
Accrued Liabilities
7,000
3,000
4,000
Long-term Notes Payable
70,000
79,000
(9,000)
Total Liabilities
$86,000
$95,000
$(9,000)
Common Stock
$55,000
$3,000
$52,000
Retained Earnings
115,000
78,000
37,000
Treasury Stock
(12,000)
(6,000)
(6,000)
Total Stockholders’ Equity
$158,000
$75,000
$83,000
Total Liabilities and Stockholders’ Equity
$244,000
$170,000
$74,000
Williamsburg Company
Income Statement
Year Ended December 31, 2018
Sales Revenue
$291,300
Interest Revenue
1,000
Gain on Sale of Plant Assets
6,000
Total Revenues and Gains
$298,300
Cost of Goods Sold
145,000
Salaries and Wages Expense
49,000
Depreciation Expense—Plant Assets
16,000
Other Operating Expenses
25,000
Interest Expense
3,500
Income Tax Expense
7,800
Total Expenses
246,300
Net Income
$52,000
Additional information provided by the company includes the following:
Equipment costing $60,000 was purchased for cash.
Equipment with a net asset value of $10,000 was sold for $16,000.
During 2018, the company repaid $43,000 of long-term notes payable.
During 2018, the company borrowed $34,000 on a new note payable.
There were no stock retirements during the year.
There were no sales of Treasury Stock during the year.
Prepare a complete statement of cash flows using the direct method.
Accrued Liabilities relate to other operating expenses.
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Williamsburg Company
Statement of Cash Flows
Year Ended December 31, 2018
Cash Flows from Operating Activities:
Receipts
Collections from Customers $298,300
Interest Received 1,000
Total Cash Receipts $299,300
Payments
To Suppliers (197,000)
To Employees (49,000)
For Interest (3,500)
For Income Tax (7,800)
Total Cash Payments (257,300)
Net Cash Provided by Operating Activities $42,000
Cash Flows from Investing Activities:
Cash Payment for Acquisition of Equipment (60,000)
Cash Receipt from Disposal of Equipment 16,000
Net Cash Used for Investing Activities (44,000)
Cash Flows from Financing Activities:
Cash Receipt from Issuance of Notes Payable 34,000
Cash Payment of Notes Payable (43,000)
Cash Receipt from Issuance of Common Stock 52,000
Cash Payment for Purchase of Treasury Stock (6,000)
Cash Payment of Dividends (15,000)
Net Cash Provided by Financing Activities 22,000
Net Increase (Decrease) in Cash $20,000
Cash Balance, December 31, 2017 13,000
Cash Balance, December 31, 2018 $33,000
Diff: 3
LO: 14-4
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2: Cash Flows From Operating Activities
96
36) The income statement and a partial balance sheet of Hart Alloy Company for the year ended
December 31, 2018 is presented below. Prepare the operating activities section of the statement of cash
flows using the direct method. Accrued Liabilities relate to miscellaneous operating expenses.
Hart Alloy Company
Income Statement
For the Year Ended December 31, 2018
Sales Revenues $1,500,000
Cost of Goods Sold 1,170,000
Gross Profit $330,000
Operating Expenses:
Salaries Expense $210,000
Depreciation Expense 60,000
Miscellaneous Expenses 30,000 300,000
Net Income $30,000
Hart Alloy Company
Partial Balance Sheet
December 31, 2018 and 2017
2018 2017
Cash $240,000 $195,000
Accounts Receivable (net) 150,000 150,000
Inventories 306,000 258,000
Accrued Liabilities 13,500 15,000
Accounts Payable (Merchandise Inventory) 174,000 153,000
Salaries Payable 22,500 18,000
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Answer: Hart Alloy Company
Partial Statement of Cash Flows
For the Year Ended December 31, 2018
Cash Flows from Operating Activities:
Receipts
Collections from Customers 1,500,000
Payments
To Suppliers $(1,228,500)
To Employees (205,500)
Total Cash Payments (1,434,000)
Net Cash Provided by Operating Activities $66,000
Explanation:
Accounts Receivable, beginning balance $150,000
Add: Sales Revenue 1,500,000
Less: Accounts Receivable, ending balance (150,000)
Collection from Customers $1,500,000
Merchandise Inventory, ending balance 306,000
Add: Cost of Goods Sold 1,170,000
Less: Merchandise Inventory, beginning balance (258,000)
Purchases 1,218,000
Add: Accounts Payable, beginning balance 153,000
Less: Accounts Payable, ending balance (174,000)
Cash Paid for Merchandise Inventory $1,197,000
Accrued Liabilities, beginning balance 15,000
Add: Miscellaneous Operating Expenses 30,000
Less: Accrued Liabilities, ending balance (13,500)
Cash Paid for Miscellaneous Operating Expenses $31,500
Salaries Payable, beginning balance 18,000
Add: Salary Expense $210,000
Less: Salaries Payable, ending balance (22,500)
Cash Paid to Employees $205,500
Diff: 3
LO: 14-4
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2: Cash Flows From Operating Activities
98
37) Lone Star Hat Company uses the direct method for its statement of cash flow. Assume Accrued
Liabilities relate to Operating Expenses. It reports the following information regarding the year ending
December 31, 2018:
Lone Star Hat Company
Income Statement
For the Year Ended December 31, 2018
Sales Revenue $312,000
Cost of Goods Sold 247,000
Operating expenses 32,500
Net Income $32,500
Lone Star Hat Company
Partial Balance Sheet
December 31, 2018 and 2017
2018 2017
Accounts Receivable (net) $19,500 $15,600
Merchandise Inventory 23,400 28,600
Accrued Liabilities 1,560 3,900
Accounts Payable (Merchandise Inventory) 15,600 9,100
Assume that there were no sales of long-term assets, no interest revenue, and no expenses other than the
expenses shown above. Also, assume that Accounts Payable is for purchases of merchandise inventory
only. Prepare the operating activities section of the statement of cash flows.