Chapter 12, Problem 23E

(Supplement 12B) Preparing a Statement of Cash Flows, Indirect Method: T-Account Approach
Golf Universe is a regional and online golf equipment retailer. The company reported the following for the current year:
• Purchased a long-term investment for cash, $15,000.
• Paid cash dividend, $12,000.
• Sold equipment for $6,000 cash (cost, $21.000; accumulated depreciation, $15,000).
• Issued shares of no-par stock, 500 shares at $12 cash per share.
• Net income was $20,200.
• Depreciation expense was $3,000.
Its comparative balance sheet is presented as follows.

Required:
1. Following Supplement 12B, complete a T-account worksheet to be used to prepare the statement of cash flows for the current year.
2. Based on the T-account worksheet, prepare the statement of cash flows for the current year in proper format.

To determine

(a)

Concept introduction:

Cash flow statements: It shows the inflow and outflow of cash along with the reasons, during a particular period of time. All the cash transactions are categorized in three types of activities i.e., operating, investing and financing activities.

To show:

The t-shape accounts for all the items.

Explanation of Solution

T-shape accounts for non-cash items:

Accounts Receivable
Particulars	$ (debit)	Particulars	$ (credit)
Beginning Bal	22,000
Increase	0
Ending Balance	22,000

Inventory
Particulars	$ (debit)	Particulars	$ (credit)
Beginning Bal	68,000
Increase	7,000
Ending Balance	75,000

Investment
Particulars	$ (debit)	Particulars	$ (credit)
Beginning Bal	0
Purchased	15,000
Ending Balance	15,000

Equipment
Particulars	$ (debit)	Particulars	$ (credit)
Beginning Bal	114,500
		Disposal	21,000
Ending Balance	93,500

Accumulated Depreciation
Particulars	$ (debit)	Particulars	$ (credit)
		Beginning Bal	32,000
Decrease	12,000
		Ending Balance	20,000

Accounts Payable
Particulars	$ (debit)	Particulars	$ (credit)
		Beginning Bal	17,000
Decrease	3,000
		Ending Balance	14,000

Salaries and Wages Payable
Particulars	$ (debit)	Particulars	$ (credit)
		Beginning Bal	2,500
Decrease	1,500
		Ending Balance	1,000

Income Tax Payable
Particulars	$ (debit)	Particulars	$ (credit)
		Beginning Bal	3,000
Decrease	1,500
		Ending Balance	4,500

Notes Payable (long-term)
Particulars	$ (debit)	Particulars	$ (credit)
		Beginning Bal	54,000
		Increase	0
		Ending Balance	54,000

Common Stock
Particulars	$ (debit)	Particulars	$ (credit)
		Beginning Bal	100,000
Decrease	6,000
		Ending Balance	106,000

Retained Earnings
Particulars	$ (debit)	Particulars	$ (credit)
		Beginning Bal	16,500
Dividend	12,000	Net Income	20,200
		Ending Balance	24,700

T-shape accounts for cash account:

Particulars	$ (debit)	Particulars	$ (credit)
Operating Activities
Net Income	20,200	Inventory	7,000
Depreciation Expense	3,000	Accounts Payable	3,000
Income tax payable	1,500	Salaries and Wages Payable	1,000
Net Cash flow from operating 13,700
Investing Activities
Sold Equipment	6,000	Purchased Investments	15,000
		Net cash used by Investing	9,000
Financing
Proceed from issue of stock	6,000	Paid Dividends	12,000
		Net Cash used by Financing Activities	6,000
Net decrease in cash	1,300
Beginning Cash	20,500
Ending cash	19,200

To determine

(b)

Concept introduction:

Cash flow statements: It shows the inflow and outflow of cash along with the reasons, during a particular period of time. All the cash transactions are categorized in three types of activities i.e., operating, investing and financing activities.

To prepare:

The cash flow statement.

Explanation of Solution

Particulars	$
Operating Activities:
Net Income	20,200
Depreciation	3,000
Cashflow from operating activities before working capital changes	23,200
(-) Increase in inventory	(7,000)
(-) Decrease in Accounts Payable	(3,000)
(-) Decrease in Wages and Salaries Payable	(1,000)
(+) Increase in Income tax payable	1,500
Cashflow from operating activities	13,700
Investing Activities:
(+) Cash proceeds from sale of equipment	6,000
(-) Purchase of investments	(15,000)
Cashflow used in investing activities	(9,000)
Financing Activities:
Proceeds from issue of stock	6,000
(-) Paid dividends	(12,000)
Cashflow used in financing activities	(6,000)
Net decrease in cash	(1,300)
Beginning Cash	20,500)
Ending Cash	19,200