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The Statement of Cash Flows— Direct Method
DEMONSTRATION PROBLEM The financial statements of Bolero Corporation follow.
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1
Bolero Corporation Income Statement For Year Ended June 30, 2005 Revenue from Sales: Sales Less Sales Returns and Allowances Net Sales Cost of Good Sold: Merchandise Inventory, July 1, 2004 Purchases Less: Purchases Returns and Allowances Purchases Discounts
$570,960.00 12,960.00 $558,000.00
$163,200.00 $372,720.00 $6,360.00 5,520.00
Net Purchases Add Freight In Delivered Cost of Purchases Cost of Goods Available for Sale Less Merchandise Inventory, June 30, 2005 Cost of Good Sold Gross Profit Operating Expenses: Salary Expense Payroll Tax Expense Advertising Expense Depreciation Expense, Building Depreciation Expense, Equipment Supplies Expense Insurance Expense Miscellaneous Expense Total Operating Expenses Income from Operations Other Income: Interest Income Other Expenses: Interest Expense Income Before Income Taxes Income Tax Expense Net Income
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11,880.00 $360,840.00 18,360.00 379,200.00 $542,400.00 170,400.00 372,000.00 $186,000.00 $ 88,200.00 9,780.00 4,260.00 14,400.00 8,400.00 1,920.00 1,260.00 840.00 129,060.00 $ 56,940.00 $
840.00 12,000.00
11,160.00 $ 45,780.00 11,880.00 $ 33,900.00
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Bolero Corporation Statement of Retained Earnings For Year Ended June 30, 2005 Unappropriated Retained Earnings Unappropriated Retained Earnings, July 1, 2004 Net Income for the Year Less: Cash Dividends Declared Transfer to Appropriations for Plant Expansion (see below) Unappropriated Retained Earnings, June 30, 2005 Appropriated Retained Earnings: Appropriated for Plant Expansion July 1, 2004 Add Appropriation for the Year (see above) Retained Earnings Appropriated, June 30, 2005 Total Retained Earnings
Copyright © Houghton Mifflin Company. All rights reserved.
$35,640.00 33,900.00 $15,600.00
$69,540.00
6,000.00
21,600.00 $47,940.00
$24,000.00 6,000.00 30,000.00 $77,940.00
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Bolero Corporation Comparative Balance Sheet June 30, 2005 and June 30, 2004
2005
2004
Increase or (Decrease)
$ 29,820.00 0.00 56,700.00 28,860.00 170,400.00 360.00 180.00 37,200.00 264,000.00 ( 129,600.00) 44,400.00 ( 25,200.00) $477,120.00
$ 22,020.00 10,800.00 37,440.00 0.00 163,200.00 240.00 420.00 37,200.00 264,000.00 ( 115,200.00) 44,400.00 ( 16,800.00) $447,720.00
$ 7,800.00 ( 10,800.00) 19,260.00 28,860.00 7,200.00 120.00 ( 240.00) 0.00 0.00 ( 14,400.00) 0.00 ( 8,400.00) $29,400.00
$ 35,220.00 2,520.00 1,140.00 1,320.00 129,600.00 $169,800.00
$ 51,360.00 2,940.00 840.00 1,560.00 136,800.00 $193,500.00
($16,140.00) ( 420.00) 300.00 ( 240.00) ( 7,200.00) ($23,700.00)
$172,200.00 25,860.00 31,320.00 47,940.00
$166,800.00 0.00 27,780.00 35,640.00
$ 5,400.00 25,860.00 3,540.00 12,300.00
30,000.00 $307,320.00 $477,120.00
24,000.00 $254,220.00 $447,720.00
6,000.00 $53,100.00 $29,400.00
Assets Cash Notes Receivable Accounts Receivable (net) Subscriptions Receivable, Common Stock Merchandise Inventory Supplies Prepaid Insurance Land Building Less Accumulated Depreciation Equipment Less Accumulated Depreciation Total Assets Liabilities Accounts Payable Salaries Payable Income Tax Payable Interest Payable Mortgage Payable Total Liabilities Stockholder's Equity Common Stock Common Stock Subscribed Paid-in Capital in Excess of Par Value Unappropriated Retained Earnings Retained Earnings Appropriated for Plant Expansion Total Stockholders' Equity Total Liabilities and Stockholders' Equity
Transactions recorded: a. Paid $7,200 on the principal plus $12,000 interest on the mortgage. b. Collected note receivable, $10,800, plus $840 interest. c. Received subscription for common stock, $34,800, having a par value of $31,260. d. Received $5,940 from subscribers of common stock, having a par value of $5,400, and issued the stock.
Instructions Prepare a statement of cash flows.
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SOLUTION Cash Receipts from Customers: Net Sales + Beginning Accounts Receivable = Total – – Ending Accounts Receivable = Cash Receipts from Customers
+
Cash Payments for Merchandise Purchases: Delivered Cost of Purchases + Beginning Accounts Payable = Total – Ending Accounts Payable = Cash Payments for Merchandise Purchases
+
Cash Payments to Employees: Salary Expense + Beginning Salaries Payable = Total – Ending Salaries Payable = Cash Payments to Employees
+
Cash Payments for Supplies: Supplies Expense + Ending Supplies = Total – Beginning Supplies = Cash Payments for Supplies
+
Cash Payments for Insurance: Insurance Expense + Ending Prepaid Insurance = Total – Beginning Prepaid Insurance = Cash Payments for Insurance
+
Cash Payments for Interest: Interest Expense + Beginning Interest Payable = Total – Ending Interest Payable = Cash Payments for Interest Cash Payments for Income Taxes: Income Tax Expense + Beginning Income Tax Payable = Total – Ending Income Tax Payable = Cash Payments for Income Taxes
Copyright © Houghton Mifflin Company. All rights reserved.
$558,000 37,440 $595,440 – 56,700 $538,740 $379,200 51,360 $430,560 – 35,220 $395,340 $ 88,200 2,940 $ 91,140 – 2,520 $ 88,620 $ $ – $ $ $ – $
1,920 360 2,280 240 2,040 1,260 180 1,440 420 1,020
$ 12,000 + 1,560 $ 13,560 – 1,320 $ 12,240 $ 11,880 840 $ 12,720 – 1,140 $ 11,580
+
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SOLUTION (continued) GENERAL JOURNAL DATE 1 2
2004 a.
3 4
DESCRIPTION
POST. REF.
PAGE
DEBIT
CREDIT 1
Mortgage Payable Interest Expense Cash
7,200.00 12,000.00
Cash Notes Receivable Interest Income
11,640.00
Subscriptions Receivable, Common Stock Common Stock Subscribed Paid-in Capital in Excess of Par Value
34,800.00
2 3
19,200.00
5 6
5
b.
7 8
6
10,800.00 840.00
9 10
12
16
31,260.00 3,540.00
19
11 12 13
d.
Cash Subscriptions Receivable, Common Stock
5,940.00
14 15
5,940.00
17 18
8
10
13
15
7
9
c.
11
14
4
16 17
Common Stock Subscribed Common Stock
20
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5,400.00
18
5,400.00
19 20
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SOLUTION (continued) Bolero Corporation Statement of Cash Flows For Year Ended June 30, 2005 Cash Flows from (used by) Operating Activities: Cash Receipts from: Customers Interest Total Cash Receipts Cash Payments for: Merchandise Purchases Operating Expenses: Employees Payroll Taxes Advertising Supplies Insurance Miscellaneous Total Interest Income Taxes Total Cash Payments Net Cash Flows from Operating Activities Cash Flows from (used by) Investing Activities: Proceeds of Notes Receivable Net Cash Flows from Investing Activities Cash Flows from (used by) Financing Activities: Repayment of Mortgage Issuance of Common Stock Payment of Dividends Net Cash Flow used by Financing Activities Net Increase (Decrease) in Cash
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$538,740.00 840.00 $539,580.00 $395,340.00 $88,620.00 9,780.00 4,260.00 2,040.00 1,020.00 840.00 106,560.00 12,240.00 11,580.00 525,720.00 $ 13,860.00 $ 10,800.00 10,800.00 ($ (
7,200.00) 5,940.00 15,600.00) ( 16,860.00) $ 7,800.00
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