Posted: April 7th, 2016

Prepare a statement of cash flows using the direct method. Changes in accounts receivable and in accounts payable relate to sales and cost of sales?

E23-3 Preparation of Operating Activities Section – Indirect Method, Periodic Inventory

The income statement of Rodriquez Company is shown below.

RODRIQUEZ COMPANY
Income Statement
For The Year Ended December 31, 2012
Sales $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 expenses 450,000
Administrative expenses 700,000 1,150,000
Net income $1,050,000

Additional information:
1. Accounts receivable decreased 0,000 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, 2012, for Rodriquez Company, using the indirect method.

P23-3

SCF – Direct Method
Mortonson Company has not yet prepared a formal statement of cash flows for the 2012 fiscal year. Comparative balance sheets as of December 31, 2011, and 2012, and a statement of income and retained earnings for the year ended December 31, 2012, are presented below.

MORTONSON COMPANY
Statement of Income and Retained Earnings
For The Year Ended December 31, 2012
($000 Omitted)
Sales $3,800
Expenses
Cost of goods sold $1,200
Salaries and benefits 725
Heat, light, and power 75
Depreciation 80
Property taxes 19
Patent amortization 25
Miscellaneous expenses 10
Interest 30 2,164
Income before income taxes 1,636
Income taxes 818
Net income 818
Retained earnings – January 1, 2012 310
1,128
Stock dividend declared and issued 600
Retained earnings – December 31, 2012 $528

MORTONSON COMPANY
Comparative Balance Sheet
December 31
($000 Omitted)
Assets 2012 2011
Current assets
Cash $333 $100
U.S. Treasury notes (Available-for-sale) 10 50
Accounts receivable 780 500
Inventory 720 560
Total current assets 1,843 1,210
Long-term assets
Land 150 70
Buildings and equipment 910 600
Accumulated depreciation (200) (120)
Patents (less amortization) 105 130
Total long-term assets 965 680
Total assets $2,808 $1,890

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable $420 $330
Income taxes payable 40 30
Notes payable 320 320
Total current liabilities 780 680
Long-term notes payable – due 2014 200 200
Total liabilities 980 880
Stockholders’ equity
Common stock outstanding 1,300 700
Retained earnings 528 310
Total stockholders’ equity 1,828 1,010
Total liabilities and stockholders’ equity $2,808 $1,890

Instructions:
Prepare a statement of cash flows using the direct method. Changes in accounts receivable and in accounts payable relate to sales and cost of sales. Do not prepare a reconciliation schedule.