Example 2:
This example continues from Example 1. During the year Shiner Corporation paid
dividends of $18,000. Shiner also issued $150,000 in bonds and purchased land, a building,
and some equipment for cash.
Comparative Balance Sheet |
|||
Shiner Corporation |
|||
| Assets | Dec 31, 1996 | Dec 31, 1995 | |
| Cash | $37,000 | $49,000 | |
| Accounts Receivable | $26,000 | $36,000 | |
| Prepaid Expenses | $6,000 | $0 | |
| Land | $70,000 | $0 | |
| Building | $200,000 | $0 | |
| Accumulated Depreciation | $11,000 | $189,000 | $0 |
| Equipment | $68,000 | $0 | |
| Accumulated Depreciation | $10,000 | $58,000 | $0 |
| Total Assets | $386,000 | $85,000 | |
| Liabilities and Stockholder Equity | |||
| Accounts Payable | $40,000 | $5,000 | |
| Bonds Payable | $150,000 | $0 | |
| Common Stock | $60,000 | $0 | |
| Retained Earnings | $136,000 | $20,000 | |
| Total Liabilities and Stockholder Equity | $386,000 |
$85,000 |
|
| Income Statement | ||
| Shiner Corporation |
||
| Revenue | $492,000 | |
| Operating Expenses | $269,000 | |
| Depreciation | $21,000 | $290,000 |
| Income before Income Taxes | $202,000 | |
| Income Tax Expense | $68,000 | |
| Net Income | $134,000 | |
| Step 1: | Change in Cash: Dec 31, 96 Balance minus Dec 31, 95 balance ($37,000-$49,000)=($12,000) |
| Step 2: Net Cash flow from Operating Activities | ||
| Direct Method: | ||
| Cash collected from Revenues | $502,000 | |
| Cash payments for Expenses | $240,000 | |
| Income before Income Taxes | $262,000 | |
| Cash payment of taxes | $68,000 | |
| Net cash flow from Operating Activities | $194,000 |
|
| Comments: The $502,000 was derived by adding the change in Accts Receivable to Revenues for the period. The cash payments for expenses was derived by adding the increase in prepaid assets and subtracting the change in Accts Payable. | ||
| Indirect Method: | ||
| Net Income | $134,000 | |
| Adjustments to reconcile net income to net cash | ||
| Accts Receivable decrease | $10,000 | |
| Prepaid Expense | ($6,000) | |
| Accts Payable Increase | $35,000 | |
| Depreciation | $21,000 | |
| $60,000 | ||
| Net cash flow from Operating Activities | $194,000 | |
| Step 3: | |
| Investing Activities: | |
| Land Purchase | $70,000 |
| Building Purchase | $200,000 |
| Equipment Purchase | $68,000 |
| Financing Activities : | |
| Dividend payment to shareholders | $18,000 |
| Issuance of Bonds Payable | $150,000 |
| Statement of Cash Flows |
|||
| Cash Flow from Operating Activities | |||
| Net Income | $134,000 | ||
| Adjustments to reconcile net income to net cash | |||
| Accts Receivable decrease | $10,000 | ||
| Prepaid Expense increase | ($6,000) | ||
| Accts Payable Increase | $35,000 | ||
| Depreciation | $21,000 | ||
| $60,000 | |||
| Net cash provided from Operating Activities | $194,000 | ||
| Investing Activities | |||
| Land Purchase | ($70,000) | ||
| Building Purchase | ($200,000) | ||
| Equipment Purchase | ($68,000) | ($338,000) |
|
| Financing Activities | |||
| Dividend payment to shareholders | ($18,000) | ||
| Issuance of Bonds Payable | $150,000 | $132,000 | |
| Net Decrease in Cash | ($12,000) | ||
| Cash Jan 1, 1996 | $49,000 | ||
| Cash Dec 31, 1996 | $37,000 | ||