Question

2020 2019 Cash $1,800 $1,150 Receivables 1,750 1,300 Inventory 1,600 1,900 Plant assets 1,900 1,700 Accumulated depreciation (1,200 ) (1,170 ) Long-term investments (held-to-maturity) 1,300 1,420 $7,150 $6,300 Accounts payable $1,200 $900 Accrued liabilities 200 250 Bonds payable 1,400 1,550 Common stock 1,900 1,700 Retained earnings 2,450 1,900 $7,150 $6,300 PAT METHENY COMPANY INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2020 Sales revenue $6,900 Cost of goods sold 4,700 Gross margin 2,200 Selling and administrative expenses 930 Income from operations 1,270 Other revenues and gains Gain on sale of investments 80 Income before tax 1,350 Income tax expense 540 Net income 810 Cash dividends 260 Income retained in business $550

Prepare a statement of cash flows using the direct method.

Answer 1

Answer and Explanation:

The presentation of the cash flow statement using the direct method is shown below:

Pat Methney Company

Statement of cash flow

For year ended Dec-31,2020

Cash flow from operating activities :

Cash collection from customers($1,300+$6,900-$1,750) $6,450

Less: Cash paid for merchandise($1,600+$4,700+$900-$1,900-$1200) $4,100

Cash paid for selling($250+$930-$30-$200) $950

Cash paid for income taxes $540 $5,590

Net cash provided by operating activities($6,450-$5,590) $860

Cash flow from investing activities :

Sale of held-to-maturity investments ($1420-$1300+$80) $200

Less: Purchase of plant assets ($1,900-$1,700-$70) $130

Net cash provided $70

Cash flow from financing activities :

Issuance of capital stock($1,900-$1700-$70) $130

Less: Retirements of bonds payable $150

Less: Payment of cash dividend $260

Net cash used by financing activities $280

Net increase in cash $650

Add Cash as on Jan-1,2020 $1,150

Cash as on Dec-31,2020 $1,800

Non-cash investing and financing activities :

Issuance of common stock for plant assets $70