accounting 248

Cash flow information: Direct and indirect methods
The comparative year-end balance sheets of USA Graphics, Inc., revealed the following activity in the company’s current accounts:

	20X8	20X7	Increase / Decrease)
Current assets
Cash	$55,400	$35,200	$20,200
Accounts receivable (net)	83,800	88,000	-4,200
Inventory	243,400	233,800	9,600
Prepaid expenses	25,400	24,200	1,200
Current liabilities
Accounts payable	$123,600	$140,600	($17,000)
Taxes payable	43,600	49,200	-5,600
Interest payable	9,000	6,400	2,600
Accrued liabilities	38,800	60,400	-21,600
Note payable	44,000	—	44,000

The accounts payable were for the purchase of merchandise. Prepaid expenses and accrued liabilities relate to the firm’s selling and administrative expenses. The company’s condensed income statement follows.

 

 

 

 

 

USA GRAPHICS INC.
Income Statement
for the Year Ended December 31, 20X8
Sales							$691,800
Less: Cost of goods sold							223,000
Gross profit							$468,800
Less: Selling & administrative expenses					$177,000
Depreciation expense					18,000
Interest expense					27,000		222,000
Add: gain on sale of land							$246,800
							18,800
Income before taxes							$265,600
Income taxes							38,300
Net income							$227,300

 

Other data:

1.      Long-term investments were purchased for cash at a cost of $64,200.

2.      Cash proceeds from the sale of land totaled $74,200.

3.      Store equipment of $34,000 was purchased by signing a short-term note payable. Also, a $140,000 telecommunications system was acquired by issuing 3,000 shares of preferred stock.

4.      A long-term note of $42,200 was repaid.

5.      Twenty thousand shares of common stock were issued at $5.19 per share.

6.      The company paid cash dividends amounting to $125,000.

 

Instructions:

a.       Prepare the operating activities section of the company’s statement of cash flows, assuming use of:

1.      The direct method.

2.      The indirect method.

 

b.      Prepare the investing and financing activities sections of the statement of cash flows.