Unit 3

Cashflow Statements
 QUESTION ONE
Vancare Company
Income Statement
For the year ended December 31, 2018
Sales revenue $6,900,000

Cost of goods sold

Beginning inventory $1,900,000

Purchases $4,400,000

Goods available for sale $6,300,000

Ending inventory $1,600,000

Cost of goods sold $4,700,000

Gross Profit $2,200,000

Operating expenses

Selling expense $ 450,000

Administrative expense $ 700,000 $1,150,000

Net Income $1,050,000

 QUESTION ONE
Additional information:
• 1. Accounts receivable decreased $310,000 during the year.
• 2. Prepaid expenses increased $170,000 during the year.
• 3. Accounts payable to suppliers of merchandise decreased $275,000
during the year.
• 4. Accrued expenses payable decreased $120,000 during the year.
• 5. Administrative expenses include depreciation expense of $60,000.
• Instructions
• Prepare the operating activities section of the statement of cash flows for
the year ended December 31, 2018, for Vancare Company, using (1) the
indirect method (2) the direct method.
 QUESTION ONE
VANCARE
Partial Statement of Cash Flows (INDIRECT)
For the Year Ended December 31, 2010
Cash flows from operating activities
Net income $1,050,000

Adjustments to reconcile net income

to net cash provided by operating activities:
Depreciation expense $ 60,000
Decrease in accounts receivable 310,000
Decrease in inventory 300,000
Increase in prepaid expenses (170,000)
Decrease in accounts payable (275,000)
Decrease in accrued expenses payable (120,000) 105,000
Net cash provided by operating activities $1,155,000
 QUESTION ONE
Computations:
a) Cash receipts from customers
Sales $6,900,000

Add: Decrease in accounts

receivable 310,000

Cash receipts from customers $7,210,000

b) Cash payments to suppliers

Cost of goods sold $4,700,000

Deduct: Decrease in inventories 300,000

Purchases 4,400,000
Add: Decrease in accounts
payable 275,000

Cash payments to suppliers $4,675,000

 QUESTION ONE
(c) Cash payments for operating

Expenses

Operating expenses, exclusive

of depreciation $1,090,000*

Add: Increase in prepaid

expenses $170,000

Add: Decrease in accrued

Add: expenses payable 120,000 290,000

Cash payments for operating

expenses $1,380,000
 QUESTION ONE
VANCARE COMPANY

Partial Statement of Cash Flows (DIRECT)

For the Year Ended December 31, 2010

Cash flows from operating activities

Cash receipts from customers $7,210,000 (a)

Cash payments

To suppliers $4,675,000 (b)

For operating expenses 1,380,000 (c) 6,055,000

Net cash provided by operating

activities $1,155,000
 QUESTION TWO
STEELES COMPANY

COMPARATIVE STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, 2015 AND 2014

2015 2014
Debt investments (held for collection) $1,300 $1,470
Plant assets $1,900 $1,700
Accumulated depreciation ($1,200) ($1,170)

Inventory $1,600 $1,900

Accounts receivable $1,750 $1,300
Cash $1,800 $1,100
$7,150 $6,300

Share capital- ordinary $1,900 $1,700

Retained earnings $2,450 $1,900
Bonds payable $1,400 $1,650
Accounts Payable $1,200 $ 800
Accrued liabilities $ 200 $ 250
$7,150 $6,300
 QUESTION TWO
STEELES COMPANY

INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2015

Sales revenue $6,900

Cost of goods sold $4,,700
Gross margin $2,200
Selling and administrative expense $ 930
Income from operations $1,270
Other income and expense
Gain on sale of investments $ 80
Income before tax $1,350
Income tax expense $ 540
Net income $ 810
 QUESTION TWO
Additional information
During the year, $70 of ordinary shares were issued in exchange for
plant assets. No plant assets were sold in 2015. Cash dividends were
$260.

Instructions
Prepare a statement of cash flows using the indirect method.
 QUESTION TWO
STEELES COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2010
(Indirect Method)
Cash flows from operating activities
Net income $ 810
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense (€1,200 – €1,170) $ 30
Gain on sale of investments (80)
Decrease in inventory 300
Increase in accounts payable 400
Increase in receivables (450)
Decrease in accrued liabilities (50) 150
Net cash provided by operating activities 960

Cash flows from investing activities

Sale of held for collection investments
[(€1,470 – €1,300) + €80] 250
Purchase of plant assets [(€1,900 – €1,700) – €70] (130)
Net cash provided by investing activities 120
 QUESTION TWO
Cash flows from financing activities
Issuance of ordinary shares [(€1,900 – €1,700) – €70] 130
Retirement of bonds payable (250)
Payment of cash dividends (260)
Net cash used by financing activities (380)

Net increase in cash 700

Cash, January 1, 2010 1,100
Cash, December 31, 2010 $1,800

Non-cash investing and financing activities*

Issuance of ordinary shares for plant assets $ 70