University:
Massachusetts Institute of Technology
Course:
15.501 | Introduction To Financial And Managerial Accounting
Academic year:

2023
Views:

104

Pages:

3
Author:

Tristin Dillon

XYZ Company: An E xercise for Pre paring the Statem ent of Cash F lows Using the Direct and Indirect Methods Transactions at 1/1/99: (T1) Issues stock and receives $1,000 in cash. (T2) Issues 10%, 2-year bond for $2,000 cash. Part of the principle ($1,000) is due on 12/31/99. Interest is not paid until 12/31/00. (T3) Buys equipment, issuing an 8% note payable, for $1,500. There is no expected salvage value, and the estimated useful life is 3 years. (T4) Buys inventory for $1,000 cash. Transactions during the year: (T5) Sells inventory with original cost of $600 for $5,000 on account. (T6) Collects $500 of the receivables noted in T5. Transactions at 12/31/99: (T7) Pays $1,000 of the bond principle. (T8) Records interest accrued on the bond of $200 (10% of $2,000). (T9) Records and pays interest on the note payable of $120 (8% of $1,500). (T10) Records depreciation of $500 on the equipment. (T11) Sells equipment for $1,800 cash. (T12) Pays dividend to shareholder of $2,000 cash. Required: 1. Record the Balance Sheet Equation (BSE) effects of these 12 transactions. 2. Prepare a Statement of Cash Flows (SCF) for 1999, using the direct method for “Cash Flows from Operating Activities.” 3. Prepare an Income Statement for 1999. 4. Prepare a Balance Sheet as of 12/31/99. 5. Redo the Statement of Cash Flows (SCF) for 1999, using the indirect method for “Cash Flows from Operating Activities.” Background reading: Pratt, Chapter 14 and/or Understanding the Statement of Cash Flows from the Course Pack. Some students find that the latter provides a more intuitive explanation of the Indirect method. Transactions Template for XYZ Company BB Cash + Inv’y + A/R +PP&E - Acc. Dep. = Notes Payable + Int. Payable +Bonds Payable + Cont. Capital + Ret. Earn. 0 0 0 0 0 = 0 0 0 0 0 T1 = T2 = T3 = T4 = T5 = = T6 = T7 = T8 = T9 = T10 = T11 = T12 = EB = SCF -- Direct Method Cash from Operations: Cash Received from Customers: ______ Cash Paid to Suppliers: ______ Cash Paid for Interest: ______ ______ Total Cash from Investing: Proceeds from Selling PP&E ______ ______ Total Cash from Financing: Issuing Stock ______ Issuing Bonds ______ Repayments of Bonds ______ Payment of Dividends ______ Total Total Change in Cash ______ _______