Practice Problems: Statement of Cash Flows
Demonstration problem
The following comparative balance sheets are for Dells Corporation as of 2010 June 30, and 2009 June 30. Also provided is the statement of income and retained earnings for the year ended 2010 June 30, with additional data.
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Dells Company |
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Comparative balance sheet |
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2010 June 30 and 2009 |
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Assets |
2010 |
2009 |
Increase (Decrease) |
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Current assets: |
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Cash |
$ 30,000 |
$ 80,000 |
$ (50,000) |
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Accounts receivable, net |
160,000 |
100,000 |
60,000 |
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Merchandise inventory |
100,000 |
70,000 |
30,000 |
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Prepaid rent |
20,000 |
10,000 |
10,000 |
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Total current assets |
$310,000 |
$260,000 |
$ 50,000 |
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Property, plant, and equipment: |
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Equipment |
$400,000 |
$200,000 |
$200,000 |
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Accumulated depreciation – equipment |
(60,000) |
(50,000) |
(10,000) |
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Total property, plant, and equipment |
$340,000 |
$150,000 |
$190,000 |
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Liabilities and stockholders' equity |
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Current liabilities: |
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Accounts payable |
$ 50,000 |
$ 40,000 |
$ 10,000 |
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Notes payable – bank |
-0- |
50,000 |
(50,000) |
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Salaries payable |
10,000 |
20,000 |
(10,000) |
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Federal income taxes payable |
30,000 |
20,000 |
10,000 |
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Total current liabilities Stockholders' equity: |
$ 90,000 |
$130,000 |
$ (40,000) |
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Common stock, $10 par |
$300,000 |
$100,000 |
$200,000 |
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Paid-in capital in excess of par |
50,000 |
-0- |
50,000 |
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Retained earnings |
210,000 |
180,000 |
30,000 |
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Total stockholders' equity |
$560,000 |
$280,000 |
$280,000 |
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Total liabilities and stockholders' equity |
$650,000 |
$410,000 |
$240,000 |
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Dells Corporation |
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Statement of income and retained earnings |
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For the year ended 2010 June 30 |
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Sales |
$1,000,000 |
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Cost of goods sold |
$600,000 |
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Salaries and wages expense |
200,000 |
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Rent expense |
40,000 |
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Depreciation expense |
20,000 |
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Interest expense |
3,000 |
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Loss on sale of equipment |
7,000 |
870,000 |
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Income before federal income taxes |
$ 130,000 |
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Deduct: Federal income taxes |
60,000 |
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Net income |
$ 70,000 |
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Retained earnings, 2009 July 1 |
180,000 |
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$ 250,000 |
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Deduct: Dividends |
40,000 |
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Retained earnings, 2010 June 30 |
$210,000 |
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Equipment with a cost of USD 20,000, on which USD 10,000 of depreciation had been recorded, was sold for USD 3,000 cash. Additional equipment was purchased for USD 220,000.
Stock was issued for USD 250,000 cash.
The USD 50,000 bank note was paid. Using the data given for Dells Corporation:
a. Prepare a statement of cash flows - indirect method.
b. Prepare a working paper to convert net income from an accrual basis to a cash basis. Then prepare a partial statement of cash flows - direct method, showing only the cash flows from operating activities section.