Practice Problems: Statement of Cash Flows

Complete the practice problems. Check your answers after you finish.

Dells Company
Statement of cash flows
For the year ended 2010 June 30
Cash flows from operating activities:
Net income		$ 70,000
Adjustments to reconcile net income to net cash provided by operating activities:
Increase in accounts receivable	(60,000)
Increase in merchandise inventory	(30,000)
Increase in prepaid rent	(10,000)
Increase in accounts payable	10,000
Decrease in salaries payable	(10,000)
Increase in federal income taxes payable	10,000
Loss on sale of equipment	7,000
Depreciation expense	20,000
Net cash provided by operating activities		$7,000
Cash flows from investing activities:
Proceeds from sale of equipment	$ 3,000
Purchase of equipment	(220,000)
Net cash used by investing activities		(217,000)
Cash flows from financing activities:
Proceeds from issuing common stock	$250,000
Repayment of bank note	(50,000)
Dividends paid	(40,000)
Net cash provided by financing activities		160,000
Net increase (decrease) in cash		$(50,000)

Dells Corporation
Working paper to convert income statement from accrual basis to cash basis
For the year ended 2010 June 30
	Accrual basis		Add	Deduct	Cash basis	(Cash flows From operating activities)
Sales		$1,000,000		$60,000^a		$940,000
Cost of goods sold	$600,000		$30,000^b	10,000^c	$620,000
Salaries and wages expense	200,000		10,000^d		210,000
Rent expense	40,000		10,000^e		50,000
Depreciation expense	20,000			20,000	-0-
Interest expense	3,000				3,000
Loss on sale of equipment	7,000			7,000	-0-
Federal income taxes	60,000			10,000^f	50,000
		930,000				933,000
Net income		$70,000				$ 7,000
^aIncrease in accounts receivable.
^BIncrease in merchandise inventory.
^C Increase in accounts payable.
^D Decrease in salaries payable.
^EIncrease in prepaid rent.
^FIncrease in Federal Income Taxes Payable.

Dells Corporation
Partial Statement of cash flows- Direct Method
For the Year Ended 2010 June 30
Cash flows from operating activities:
Cash received from customers	$ 940,000
Cash paid for merchandise	(620,000)
Salaries and wages paid	(210,000)
Rent paid	(50,000)
Interest paid	(3,000)
Federal income taxes paid	(50,000)
Net cash provided by operating activities		$ 7,000