{"id":203788,"date":"2025-03-20T16:42:43","date_gmt":"2025-03-20T16:42:43","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=203788"},"modified":"2025-03-20T16:42:46","modified_gmt":"2025-03-20T16:42:46","slug":"comparative-balance-sheetsyear-1assets-cash-69000accounts-receivable","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/03\/20\/comparative-balance-sheetsyear-1assets-cash-69000accounts-receivable\/","title":{"rendered":"Comparative Balance SheetsYEAR 1Assets Cash $ 69,000Accounts receivable"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">Comparative Balance SheetsYEAR 1Assets Cash $ 69,000Accounts receivable, net 76,000Inventory 124,000Prepaid expenses 10,400Total current assets 279,400Machinery 140,000Accumulated depreciation\u2014Machinery (21,500)Total assets $ 397,900Liabilities Accounts payable $ 67,500Salaries payable 20,000Income taxes payable 8,800Total current liabilities 96,300Notes payable (long term) 85,000Total liabilities 181,300Equity Common stock, no par value 185,000Retained earnings 31,600Total liabilities and equity $ 397,900YEAR 2Assets Cash $ 92,500 Accounts receivable, net 102,500Inventory 88,800 Prepaid expenses 6,900 Total current assets 290,700 Machinery 149,000 Accumulated depreciation\u2014Machinery (39,500) Total assets $ 400,200 Liabilities Accounts payable $ 50,000 Salaries payable 8,500 Income taxes payable 5,900 Total current liabilities 64,400 Notes payable (long term) 55,000 Total liabilities 119,400 Equity Common stock, no par value 270,000 Retained earnings 10,800 Total liabilities and equity $ 400,200<br>Income StatementFor Year Ended December 31, Year 2Sales $ 803,000Cost of goods sold 436,000Gross profit 367,000Operating expenses (excluding depreciation) 92,000Depreciation expense 83,600 191,400Other gains (losses) Gain on sale of machinery 4,500Income before taxes 195,900Income taxes expense 46,390Net income $149,510<br>Additional Information1. A $30,000 note payable is retired at its $30,000 carrying (book) value in exchange for cash.2. The only changes affecting retained earnings are net income and cash dividends paid.3. New machinery is acquired for $82,600 cash.4. Received cash for the sale of machinery that had cost $73,600, yielding a $4,500 gain.5. Prepaid Expenses and Salaries Payable relate to Operating Expenses on the income statement.6. All purchases and sales of inventory are on credit.<br>Prepare a statement of cash flows using the indirect method for the year ended December 31, Year 2<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-ast-global-color-6-color\">The correct answer and explanation is:<\/mark><\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Here is the statement of cash flows using the indirect method:<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Statement of Cash Flows<\/strong><br><strong>For the Year Ended December 31, Year 2<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Cash Flows from Operating Activities<\/strong><br>Net income: $149,510<br>Adjustments to reconcile net income to net cash provided by operating activities:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Depreciation expense: $83,600<\/li>\n\n\n\n<li>Gain on sale of machinery: $(4,500)<\/li>\n\n\n\n<li>Changes in current assets and liabilities:\n<ul class=\"wp-block-list\">\n<li>Increase in accounts receivable: $(26,500)<\/li>\n\n\n\n<li>Decrease in inventory: $35,200<\/li>\n\n\n\n<li>Decrease in prepaid expenses: $3,500<\/li>\n\n\n\n<li>Decrease in accounts payable: $(17,500)<\/li>\n\n\n\n<li>Decrease in salaries payable: $(11,500)<\/li>\n\n\n\n<li>Decrease in income taxes payable: $(2,900)<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Net cash provided by operating activities: <strong>$208,910<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Cash Flows from Investing Activities<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Purchase of new machinery: $(82,600)<\/li>\n\n\n\n<li>Cash received from sale of machinery: $78,100<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Net cash used in investing activities: <strong>$(4,500)<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Cash Flows from Financing Activities<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Repayment of note payable: $(30,000)<\/li>\n\n\n\n<li>Issuance of common stock: $85,000<\/li>\n\n\n\n<li>Cash dividends paid: $(170,310)<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Net cash used in financing activities: <strong>$(115,310)<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Net Increase in Cash: $89,100<\/strong><br>Cash at Beginning of Year: $69,000<br><strong>Cash at End of Year: $92,500<\/strong><\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\">Explanation:<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The statement of cash flows using the indirect method starts with <strong>net income<\/strong> of $149,510. Non-cash expenses like <strong>depreciation ($83,600)<\/strong> are added back, while <strong>gains on sales of machinery ($4,500)<\/strong> are subtracted.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Changes in <strong>working capital accounts<\/strong> (current assets and liabilities) impact cash flows. An <strong>increase in accounts receivable ($26,500)<\/strong> means more sales on credit, reducing cash. A <strong>decrease in inventory ($35,200)<\/strong> frees up cash. <strong>Prepaid expenses decrease ($3,500)<\/strong>, adding cash, while <strong>reductions in accounts payable ($17,500), salaries payable ($11,500), and income taxes payable ($2,900)<\/strong> reduce cash flow.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Investing activities include <strong>purchasing new machinery for $82,600<\/strong> and <strong>selling old machinery for $78,100<\/strong> (which had a book value of $73,600, yielding a gain of $4,500). The net impact is a <strong>$4,500 cash outflow<\/strong>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Financing activities show a <strong>$30,000 repayment of long-term debt<\/strong>, <strong>$85,000 raised from issuing stock<\/strong>, and <strong>$170,310 in dividends paid<\/strong>, leading to a <strong>net cash outflow of $115,310<\/strong>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Finally, adding up all sections results in a <strong>net cash increase of $89,100<\/strong>, aligning with the change in cash from <strong>$69,000 to $92,500<\/strong> over the year.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Now, generating the image.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Here is the generated infographic for the statement of cash flows. Let me know if you need any modifications or explanations!<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" src=\"https:\/\/learnexams.com\/blog\/wp-content\/uploads\/2025\/03\/image-1098.png\" alt=\"\" class=\"wp-image-203791\"\/><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>Comparative Balance SheetsYEAR 1Assets Cash $ 69,000Accounts receivable, net 76,000Inventory 124,000Prepaid expenses 10,400Total current assets 279,400Machinery 140,000Accumulated depreciation\u2014Machinery (21,500)Total assets $ 397,900Liabilities Accounts payable $ 67,500Salaries payable 20,000Income taxes payable 8,800Total current liabilities 96,300Notes payable (long term) 85,000Total liabilities 181,300Equity Common stock, no par value 185,000Retained earnings 31,600Total liabilities and equity $ 397,900YEAR 2Assets Cash [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-203788","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/203788","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=203788"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/203788\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=203788"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=203788"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=203788"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}