Question: Directions -Prepare a statement of cash flows using the indirect method. -In the first question, you prepared a SOCF using the indirect method. GAAP also
Directions
-Prepare a statement of cash flows using the indirect method.
-In the first question, you prepared a SOCF using the indirect method. GAAP also allows the use of the direct method to calculate the SOCF. Detail the differences between the two methods and explain what method is most commonly used in business.
-Discuss what method you prefer and why (indirect or direct).
Make sure to show your work and provide a description. Please make sure to cite them appropriately for my review.
Start by reviewing the Comparative Balance Sheet, the Income Statement, and the additional data below.
Comparative Balance Sheet: December 31
| Assets | 2020 | 2019 |
|---|---|---|
| Cash | $38,000 | $20,000 |
| Accounts Receivable | $33,000 | $14,000 |
| Inventory | $27,000 | $20,000 |
| PP&E | $60,000 | $78,000 |
| Accum Depn | ($32,000) | ($24,000) |
| Total | $126,000.00 | $108,000.00 |
| Liabilities and Stockholders' Equity | ||
| Accounts Payable | $24,000 | $15,000 |
| Income Taxes Payable | $7,000 | $8,000 |
| Bonds Payable | $27,000 | $33,000 |
| Common Stock | $18,000 | $14,000 |
| Retailed Earnings | $50,000 | $38,000 |
| Total | $126,000 | $108,000 |
Income Statement: For The Year Ended December 31, 2020
| Sales | 242,000 | |
|---|---|---|
| COGS | 175,00 | |
| Gross Profit | 67,000 | |
| Selling Expense | 18,000 | |
| Administrative Expenses | 6,000 | 24,000 |
| Income From Operations | 43,000 | |
| Interest Expense | 3,000 | |
| Income Before Income Taxes | 40,000 | |
| Income Tax Expense | 8,000 | |
| Net Income | 32,000 |
Additional Data
Dividends declared and paid were $20,000.
During the year, equipment was sold for $8,500 cash. This equipment cost $18,000 originally and had a book value of $8,500 at the time of sale.
All depreciation expense is in the selling expense category.
All sales and purchases are on account.
Directions
Prepare a statement of cash flows using the indirect method.
In the first question, you prepared a SOCF using the indirect method. GAAP also allows the use of the direct method to calculate the SOCF. Detail the differences between the two methods and explain what method is most commonly used in business.
Discuss what method you prefer and why (indirect or direct).
Make sure to show your work and provide a description. If sources are quoted and utilized in your paper, make sure to cite appropriately.
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