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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.

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Cash flow information Direct and indirect methodsThe comparat.docx

  • 1. 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
  • 2. 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
  • 3. 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
  • 4. 223,000 Gross profit $468,800 Less: Selling & administrative expenses $177,000 Depreciation expense 18,000
  • 5. Interest expense 27,000 222,000 Add: gain on sale of land $246,800 18,800
  • 6. Income before taxes $265,600 Income taxes 38,300 Net income $227,300 Other data: 1.
  • 7. 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