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(a) (b) (C TAKING IT FURTHER

1O - -
2I + - An operating activity may increase cash but not profit since
3I + + some operating activities are for credit. By using accrual
4I - NE system, income will change without receiving or paying cash.
Cash will increase when there is a collection from credit
5F - NE customers but the corresponding entry for revenue has been
6 O/F - - entered through sale and receivable.
7O NE +
8O - NE
9F NE NE
10 O - NE
11 O + +
12 O NE -
13 I + +
14 I + +
15 F + NE
16 F - NE
17 O + NE
18 O + +
ut not profit since
y using accrual
ving or paying cash.
on from credit
or revenue has been
DIATESSARON INC.
Statement of Cash Flows
For Year Ended December 31, 2014

Cash flows from operating activities


Net income $ 68,000
Adjustments to reconcile net income to net
cash provided by operating activities
Increase in accounts receivable (26,000)
Increase in merchandise inventory (49,500)
Increase in accounts payable 10,500
Decrease in income taxes payable (1,000)
Depreciation expense 43,500
Loss on sale of plant assets 3,000
Net cash provided by operating activities $ 48,500

Cash flows from investing activities


Purchase of debt investment (101,500)
Cash received from sale of equipment 6,000
Cash paid for equipment (105,000)
Net cash used in investing activities (200,500)

Cash flows from financing activities


Issuance of note 28,000
Payment on note payable (3,000)
Cash received from share issuance 105,000
Cash paid for dividends (9,000)
Net cash used in financing activities 121,000

Net increase in cash $ (31,000)


Cash balance at prior year-end 98,000
Cash balance at current year-end $ 67,000
DIATESSARON INC.
Statement of Cash Flows
For Year Ended December 31, 2014
Cash flows from operating activities
Cash Receipts from Operating Activities
Cash received from customers $ 637,000
Interest earned on investments 4500
Total cash receipts $ 641,500
Cash Payments for Operating Activities
Cash paid for merchandise (471,000)
Cash paid for wages and other operating expenses (104,000)
Cash paid for interest (3,000)
Cash paid for taxes (15,000)
Total cash payments (593,000)
Net cash provided by operating activities $ 48,500

TAKING IT FURTHER
It is necessary to know that Accounts Payable is used for purchases of inventory when using
the direct method because this affects the computation of cash payments for merchandise.
Chen Chuan
Net Sales 1,849,035 539,038
Cost of goods sold 1,060,490 57.35% 338,006 62.71%
Gross Profit 788,545 42.65% 201,032 37.29%
Operating expenses 502,275 27.16% 89,000 16.51%
Profir from operations 286,270 15.48% 112,032 20.78%
Interest expense 6,800 0.37% 1,252 0.23%
Profit before income tax 279,470 15.11% 110,780 20.55%
Income tax expense 83,841 4.53% 27,695 5.14%
Profit 195,629 10.58% 83,085 15.41%
SCHWENKE CORPORATION
Income Statement
Year Ended December 31, 2014

Net sales 100%


Cost of goods sold 60%
Gross profit 40%
Operating expenses 333,750
Profit from operations
Interest expense 10,500
Profit before income taxes
Income tax expense 20%
Profit 124,600

Asset turnover = net sales/ave. total assets (1.5 times)


Gross profit = 40%
income tax rate = 20 %
inventory turnover = 8 times
current ratio = 3:1
SCHWENKE CORPORATION
Income Statement
Year Ended December 31, 2014

Assets
Current assets
Cash 7,500
Accounts receivable
Inventory
Total current assets
Property, plant, and equipment
Total assets
Liabilities
Current liabilities
Non-current liabilities 120,000
Total liabilities
Shareholders' Equity
Common shares 250,000
Retaine earning 400,000
Total shareholders' equity 650,000
Total liabilities and shareholders' equity

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