PROBLEM 23-4

MICHAELS COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2017
(Direct Method)
Cash flows from operating activities
Cash receipts:
Cash received from customers.................................... $1,152,450a
Dividends received....................................................... 2,400 $1,154,850
Cash payments:
To suppliers.................................................................. 765,000b
For operating expenses................................................ 226,350c
For taxes........................................................................ 38,400d
For interest................................................................... 57,300e 1,087,050
Net cash provided by operating activities............................ 67,800
Cash flows from investing activities
Sale of short-term investments
($8,000 + $4,000)....................................................... 12,000
Sale of land ($175,000 – $125,000) + $8,000............... 58,000
Purchase of equipment................................................ (125,000)
Net cash used by investing activities.......................... (55,000)
Cash flows from financing activities
Proceeds from issuance of common stock.................. 27,500
Principal payment on long-term debt........................ (10,000)
Dividends paid.............................................................. (24,300)
Net cash used by financing activities.......................... (6,800)
Net increase in cash............................................................... 6,000
Cash, January 1, 2017........................................................... 4,000
Cash, December 31, 2017...................................................... $ 10,000

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 a
Sales revenue....................................................................... $1,160,000
– Increase in Accounts receivable........................................ (7,550)
Cash received from customers............................................. $1,152,450
b
Cost of Goods Sold................................................................. $ 748,000
+ Increase in Inventory.......................................................... 7,000
+ Decrease in Accounts Payable............................................ 10,000
Cash paid to suppliers............................................................ $ 765,000

c
Operating Expenses......................................................... $276,400
– Depreciation/Amortization expense............................. (40,500)
– Decrease in prepaid rent............................................... (9,000)
+ Increase in prepaid insurance...................................... 1,200
+ Increase in supplies....................................................... 250
– Increase in salaries and wages payable....................... (2,000)
Cash payments for operating expenses.................. $226,350

d
Income tax expense......................................................... $ 39,400
– Increase in income taxes payable................................. (1,000)
Taxes paid................................................................. $ 38,400

e
Interest Expense.............................................................. $ 51,750
+ Decrease in bond premium........................................... 5,550
Interest paid.............................................................. $ 57,300

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 (Direct Method)

Reconciliation of Net Income to Net Cash

Provided by Operating Activities:
Net income......................................................................... $58,850
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation/amortization expense........................ $40,500
Decrease in prepaid rent.......................................... 9,000
Increase in income taxes payable............................ 1,000
Increase in salaries and wages payable.................. 2,000
Increase in accounts receivable............................... (7,550)
Increase in inventory............................................... (7,000)
Increase in prepaid insurance................................. (1,200)
Increase in supplies.................................................. (250)
Decrease in accounts payable.................................. (10,000)
Gain on sale of land.................................................. (8,000)
Gain on sale of short-term investments.................. (4,000)
Amortization of bond premium.............................. (5,550)
Total adjustments............................................. 8,950
Net cash provided by operating activities...................... $67,800

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BRIEF EXERCISE 23-1
(a) P-I (g) P-F (m) N
(b) A (h) D (n) D
(c) R-F (i) P-I (o) R-F
(d) A (j) A (p) P-F
(e) R-I (k) D (q) R-I, A
(f) R-I, D (l) R-F (r) P-F

BRIEF EXERCISE 23-2

Cash flows from investing activities
Sale of land................................................................................. $ 180,000
Purchase of equipment.............................................................. (415,000)
Purchase of available-for-sale securities................................. (59,000)
Net cash used by investing activities........................................ $(294,000)

BRIEF EXERCISE 23-3

Cash flows from financing activities
Issuance of common stock......................................................... $ 250,000
Issuance of bonds payable......................................................... 510,000
Payment of dividends................................................................ (350,000)
Purchase of treasury stock........................................................ (46,000)
Net cash provided by financing activities................................ $ 364,000

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BRIEF EXERCISE 23-4
Cash flows from operating activities
Cash received from customers
($200,000 – $12,000)................................................... $188,000
Cash payments:
To suppliers
($120,000 + $11,000 – $13,000)......................... $118,000
For operating expenses
($50,000 – $21,000)............................................. 29,000 147,000
Net cash provided by operating activities................... $ 41,000

BRIEF EXERCISE 23-5

Cash flows from operating activities
Net income..................................................................... $30,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation expense............................................ $21,000
Increase in accounts payable............................... 13,000
Increase in accounts receivable........................... (12,000)
Increase in inventory............................................ (11,000) 11,000
Net cash provided by operating activities................... $41,000

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BRIEF EXERCISE 23-6
Sales revenue........................................................................... $420,000
Add: Decrease in accounts receivable
($72,000 – $54,000)...................................................... 18,000
Cash receipts from customers................................................ $438,000

BRIEF EXERCISE 23-7

Cost of goods sold.................................................................... $500,000
Add: Increase in inventory ($113,000 – $95,000)................ 18,000
Purchases................................................................................. 518,000
Deduct: Increase in accounts payable
($69,000 – $61,000)................................................ 8,000
Cash payments to suppliers.................................................... $510,000

BRIEF EXERCISE 23-8

Net cash provided by operating activities................................... $531,000
Net cash used by investing activities............................................ (963,000)
Net cash provided by financing activities.................................... 585,000
Net increase in cash....................................................................... 153,000
Cash, 1/1/17.................................................................................... 333,000
Cash, 12/31/17................................................................................ $486,000

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EXERCISE 23-1
(a) Investing activity.
(b) Financing activity.
(c) Investing activity.
(d) Operating—add to net income.
(e) Significant noncash investing and financing activity.
(f) Financing activity.
(g) Operating—add to net income.
(h) Financing activity.
(i) Significant noncash investing and financing activity.
(j) Financing activity.
(k) Operating—deduct from net income.
(l) Operating—add to net income.