Question

. PPE with a cost of $20,000 and a book value of $15,000 was sold for cash. 2. PPE was purchased during the year for cash. 3. No patents were sold. 4. Assume Accounts Receivable relate to sales and Accounts Payable relate to purchases of inventory. 5. 2,000 shares of common stock, originally issued for $5 per share, were retired at a cost of $6 per share. 6. The only item in Accumulated Other Comprehensive Income is Unrealized Gains and Losses on AFS. 7. Any purchase or sale of investments was a cash transaction. Required: Prepare a statement of cash flows for “That’s a Wrap” using the direct method.

Answer 1

The question asks for the preparation of a statement of cash flows using the direct method, which is divided into three sections: Operating, Investing, and Financing activities. Specific information about transactions is provided, but complete financial details for the full year are missing to prepare a complete statement.

Step-by-step explanation:

To prepare a statement of cash flows using the direct method for 'That’s a Wrap', we would need to construct a table with three main sections: Cash Flows from Operating Activities, Cash Flows from Investing Activities, and Cash Flows from Financing Activities. However, since the question does not provide complete information, such as revenues and expenses, changes in current assets and liabilities, or the details of investment activities, we can only provide a partial view of the statement of cash flows based on the provided transactions.

• Cash Flows from Operating Activities: This section would reflect the cash transactions related to the core business operations, such as cash collected from customers and cash paid for inventory, wages, and operating expenses. We don't have the specifics to compute the actual cash flow from operating activities.
• Cash Flows from Investing Activities: Here, the purchase of Property, Plant, and Equipment (PPE) during the year for cash would reflect as a cash outflow, while the sale of PPE with a book value of $15,000 for cash would represent a cash inflow.
• Cash Flows from Financing Activities: The retirement of 2,000 shares of common stock at $6 per share would be reported as a cash outflow. Since the original issue price was $5 per share, this transaction indicates a cash payment of $12,000 (2,000 shares x $6).

It is also important to note that the effects on the investment in securities (AFS) or any dividends paid would also be reported in the investing and financing activities sections, respectively. However, without specific values, we cannot provide the exact cash flows.