Answer The Following Questions On A Separate Microsoft Word
Cleaned instructions:
Answer the following questions on a separate Microsoft Word or Excel document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link in Blackboard.
Exercises E13-3. Cushenberry Corporation had the following transactions:
1. Sold land (cost $12,000) for $15,000.
2. Issued common stock at par for $20,000.
3. Recorded depreciation on buildings for $17,000.
4. Paid salaries of $9,000.
5. Issued 1,000 shares of $1 par value common stock for equipment worth $8,000.
6. Sold equipment (cost $10,000, accumulated depreciation $7,000) for $1,200.
Instructions: For each transaction above, (a) prepare the journal entry, and (b) indicate how it would affect the statement of cash flows using the indirect method.
E13-4. Gutierrez Company reported net income of $225,000 for 2015.
Gutierrez also reported depreciation expense of $45,000 and a loss of $5,000 on the disposal of equipment. The comparative balance sheet shows a decrease in accounts receivable of $15,000 for the year, a $17,000 increase in accounts payable, and a $4,000 decrease in prepaid expenses.
Instructions: Prepare the operating activities section of the statement of cash flows for 2015. Use the indirect method.
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Answer The Following Questions On A Separate Microsoft Wor
These questions require preparing journal entries and analyzing their impact on the financial statements, specifically focusing on cash flows using the indirect method. The first set involves transactions for Cushenberry Corporation, including sales of land and equipment, issuance of stock, depreciation, and salary payments. The second problem revolves around the cash flow statement preparation for Gutierrez Company, based on net income, depreciation, asset disposals, and changes in working capital.
Paper For Above instruction
Part 1: Cushenberry Corporation Transactions and their Impact
1. Sale of Land
The transaction involves selling land with a cost of $12,000 for $15,000. The journal entry records the cash received, removes the land from assets, and recognizes the gain. The entry is:
- Debit Cash: $15,000
- Credit Land: $12,000
- Credit Gain on Sale of Land: $3,000
This sale increases cash (an asset) by $15,000. In the statement of cash flows, this is reported as an investing activity inflow of $15,000.
2. Issuance of Common Stock
The issuance of common stock at par value for $20,000 results in:
- Debit Cash: $20,000
- Credit Common Stock: $20,000
This transaction boosts cash and increases stockholders' equity, reflected in financing activities in the cash flow statement as an inflow of $20,000.
3. Depreciation Expense on Buildings
Recording depreciation for $17,000 entails:
- Debit Depreciation Expense: $17,000
- Credit Accumulated Depreciation: $17,000
This does not affect cash directly but reduces net income. In the indirect method, depreciation expense is added back to net income in the operating activities section.
4. Payment of Salaries
Payment of salaries of $9,000 is recorded as:
- Debit Salaries Expense: $9,000
- Credit Cash: $9,000
This results in cash outflow from operating activities.
5. Issuance of Common Stock for Equipment
Issuing 1,000 shares of $1 par stock for equipment worth $8,000 records as:
- Debit Equipment: $8,000
- Credit Common Stock: $1,000
- Credit Additional Paid-in Capital: $7,000
This non-cash transaction is disclosed separately; it does not affect cash flow directly but is important for comprehensive cash flow reporting (usually in supplemental disclosures).
6. Sale of Equipment
For equipment with a cost of $10,000 and accumulated depreciation of $7,000, sold for $1,200, the journal entry is:
- Debit Cash: $1,200
- Debit Accumulated Depreciation: $7,000
- Credit Equipment: $10,000
- Credit Gain on Sale of Equipment: $200
The cash received is reported as an investing outflow in the cash flow statement. The gain impacts net income, and adjustments are made in the operating activities section when preparing the statement via the indirect method.
Part 2: Gutierrez Company Cash Flows from Operating Activities
Given the net income of $225,000, depreciation expense of $45,000, and loss of $5,000 on disposal, along with changes in working capital, we prepare the operating activities section as follows:
Start with net income: $225,000
- Add depreciation expense: $45,000
- Add loss on disposal: $5,000
Total adjustments for non-cash expenses and losses: $50,000, increasing net income to approximate cash provided by operations.
Adjustments for changes in working capital:
- Decrease in accounts receivable of $15,000: increases cash inflow
- Increase in accounts payable of $17,000: increases cash inflow
- Decrease in prepaid expenses of $4,000: increases cash inflow
Summing these adjustments yields a significant boost to cash flows from operating activities. Therefore, the operating section in the statement of cash flows using the indirect method is as follows:
Operating Activities Section:
- Net income: $225,000
- Add: Depreciation expense: $45,000
- Add: Loss on disposal: $5,000
- Add: Decrease in accounts receivable: $15,000
- Add: Increase in accounts payable: $17,000
- Add: Decrease in prepaid expenses: $4,000
Total cash provided by operating activities = $311,000
Conclusion
These transactions and adjustments illustrate the interplay between non-cash expenses, asset transactions, and working capital changes in preparing accurate cash flow statements. Proper documentation and understanding of journal entries support transparent financial reporting, aiding stakeholders in assessing a company's cash management and operational efficiency.
References
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