Homework SourseStatement of Cash Flows Direct Method The Wolff Companys inc
Statement of Cash Flows (Direct Method) The Wolff Company’s income statement and comparative balance sheets at December 31 of 2016 and 2015 are shown below:
Cash dividends of $36,000 were declared and paid during 2016. Plant assets were purchased for cash and bonds payable were issued for cash. Bond interest is paid semiannually on June 30 and December 31. Accounts payable relate to merchandise purchases.
Required
a. Calculate the change in cash that occurred during 2016.
b. Prepare a statement of cash flows using the direct method.
c. Compute free cash flow.
d. Compute the operatingcashflowtocurrentliabilities ratio. Round to two decimal points.
e. Compute the operatingcashflowtocapitalexpenditures ratio. Round to two decimal points.
a. Change in Cash during 2016 $Answer AnswerIncreaseDecrease
| WOLFF COMPANY Income Statement For the Year Ended December 31, 2016 | ||
|---|---|---|
| Sales Revenue | $645,000 | |
| Cost of Goods Sold | $430,000 | |
| Wages Expense | 86,000 | |
| Insurance Expense | 12,000 | |
| Depreciation Expense | 13,000 | |
| Interest Expense | 12,000 | |
| Income Tax Expense | 29,000 | 582,000 |
| Net Income | $63,000 |
Solution
Answer for question no.a:
Change in cash that occured during 2016 is Closing balance of the current year- Opening balance of the current year
=$52,000-$8,000
=$46,000.
Answer for question no.b:
Answer for question no.c:
Free cash flows= Cash from operating activities - Cash expended on purchase of capital assets in the present case it is purchase of equipment.
Free cash flow=$38,000 - Purchase of equipment worth ie., 24,000.
=$38,000-$24,000.
=$14,000.
Answer for question no.4:
Operating cash flow to current liabilities ratio = Cash from operations/ Current liabilities
Current liabilities=Accounts payable+Wages payable+Income tax payable in the current case.
=$38,000/22000
=1.727
| Particulars | Amount | Calculation | |
| Cash receied from customers(1) | 636000 | Sales+Opening accouts receivables-Closing accounts receivables | |
| Minus: | |||
| Cost of goods sold paid in cash | 463000 | Purchases= Cost of goods sold+Closing stock - Opening stock Payment made for purchases=Accounts payable opening balance+Purchases-Accounts payable closing balance | |
| Wages expenses paid in cash | 83000 | Opening balance of Wages expenses payable+Wages expenses- Closing balance of Wages expenses | |
| Insurance expense | 10000 | Actual insurance expense paid in cash=Insurance expense-Prepaid insurance opening balance+Prepaid insurance closing balance | |
| Interest expense | 12000 | ||
| Income tax expense | 30000 | Actual income tax expense paid in cash = Income tax expense+ Opening balance in Income tax payable- Closing balance in income tax payable | |
| Total cash operating expenses(2) | 598000 | ||
| Cash from Operations(3)=(1)-(2) | 38000 | ||
| Investing activities | |||
| Minus:Purchase of plant assets | -24000 | ||
| Cash from Investing activities(4) | -24000 | ||
| Financing activities | |||
| Issue of bonds | 66000 | ||
| Dividends paid | -36000 | ||
| Net cash from Financing activities(5) | 30000 | ||
| Total cash generated duing the year(3)+(4)+(5) | 44000 | ||
| Add: Opening balance | 8000 | ||
| Closing balance | 52000 |
