Financial Accounting and Reporting

Content Type

User Generated

User

zpynera11

Subject

Business Finance

Description

The SCQ Corporation manufactures specialty medical tools ranging from $10,000 to$15,000 per unit. The tools are used in hospitals, clinics, and the home hospitality market. SCQ Corporation has contracted with YOUCPA to assist in creating its cash flow statement. In the past, its income statement and balance sheet have been prepared by the internal accountant.

It would like you to assist in preparing the cash flows using both the direct and indirect method. Sales and balance sheet information for the years 2009–2010 are below:

Balance Sheet SCQ Corporation For period ending 12/31/2010
Assets	2010	2009	Liabilities	2010	2009
Cash	150	100
Account receivable	600	400	Accounts payable	400	300
Inventory	750	500	Accrued taxes payable	200	100
Current assets	1,500	1,000	Current liabilities	600	400
Land	50	50
Equipment	1,300	1,200	Note payable	330	300
Less: Acc. depreciation	700	600	Deferred taxes	35	20
Net fixed assets	600	600	Equity:
Total fixed assets	650	650	Common stock	640	500
			Paid-in capital	80	80
			Retain earnings	465	350
			Total equity	1,185	930
Total assets	2,150	1,650	Total equity and liabilities	2,150	1,650

Income Statement SCQ Corporation For period ending 12/31/ 2010

Items	2010	2009
Revenue	1,000	900
Cost of goods sold	400	350
Gross profit	600	550
Wages expense	110	100
Interest expense	50	40
Depreciation expense	100	90
Insurance expense	50	50
Other misc. expenses	90	80
Total expenses	400	360
Operating income	200	190
Taxes:
Deferred taxes	15	20
Taxes expense	70	67
Net income after taxes	115	103
Additions to retains earnings	115	103

The information below can be used to complete the direct method of cash flow:

Cash flows from operating activities	2010
Cash receipts
Received from sales of goods	930
Paid for inventory	400
Paid for employees	110
Paid for interest	50
Paid for taxes	70
Paid for other expenses	320
Cash paid for equipment	100
Cash received for common stock	120
Cash received from note payable	30

Assignment Guidelines:

Indirect method cash flow/cash flow statement:
1. What is the operational cash flow?
2. What is the investing cash flow?
3. What is the financing cash flow?
Direct method cash flow:
1. What is the operational cash flow?
2. What is the investing cash flow?
3. What is the financing cash flow?
What are the differences in the cash flow concepts and procedures between the direct and indirect methods

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Explanation & Answer

Attached.

Balance Sheet
SCQ Corporation
For period ending 12/31/2010
Assets
Cash
Account receivable
Inventory
Current assets
Land
Equipment
Less: Acc. depreciation
Net fixed assets
Total fixed assets

2010
150
600
750
1,500
50
1,300
700
600
650

2009
100
400
500
1,000
50
1,200
600
600
650

Total assets

2,150

1,650

Liabilities
Accounts payable
Accrued taxes payable
Current liabilities
Note payable
Deferred taxes
Equity:
Common stock
Paid-in capital
Retain earnings
Total equity
Total equity and liabilities

The information below can be used to complete the direct method of cash flow:
Cash flows from operating activities2010
Cash receipts
Received from sales of goods
930
Paid for inventory
400
Paid for employees
110
Paid for interest
50
Paid for taxes
70
Paid for other expenses
320
Cash paid for equipment
100
Cash received for common stock 120
Cash received from note payable 30

Income Statement
SCQ Corporation
For period ending 12/31/ 2010
2010

2009

400
200
600

300
100
400

330
35

300
20

640
80
465
1,185
2,150

500
...