What items were included in The Carpet Company’s balance sheets in 2010 and 2009?

  

Verify the answers in the attachment are correct, and help me write the 200-300 word statement for Question #3 at the end.Assignment Details:Complete the following exercise. Fill in the Excel spreadsheet provided via the link below to provide your answers to parts a and b. Then paste the Excel data into a Word document on which you can also write the answer to part c.Label each exercise or problem clearly. Use APA formatting and citation if needed.The Carpet Company’s 20X2 and 20X3 balance sheets included the following items:December 3120102009DebitsCash$10,500$ 4,000Accounts receivable8,0009,000Merchandise inventory21,00018,000Equipment18,00015,000Totals$57,500$46,000CreditsAccumulated depreciation, equipment$4,000$3,000Accounts payable7,0005,000Taxes payable1,0002,000Dividends payable1,5000Common stock, $10 par value27,00025,000Contributed capital in excess of par, common stock6,0005,000Retained earnings11,0006,000Totals$57,500$46,000The Carpet Company’s income statement was as follows:CARPET COMPANYIncome StatementFor the Year Ended December 31, 2010Sales$61,000Cost of goods sold$40,000Wages and other operating expenses6,300Income taxes expense4,200Depreciation expense1,50052,000Net income 9,000Additional information includes the following:Equipment costing $3,500 was purchased during the year.Fully depreciated equipment that cost $500 was discarded and its cost and accumulated depreciation were removed from the accounts.Two hundred shares of stock were sold and issued at $15 per share.The company declared $4,000 of cash dividends and paid $2,500.Required:Prepare the statement of cash flow under the direct method for the year ended December 31, 20X3.Prepare the statement of cash flow under the indirect method for the year ended December 31, 20X3.Provide a statementbetween 200 and 300 wordsin length for senior management. The topic is the status of the company based on cash flow.
All negative cash outlflows should be entered as a negative number including a net loss
Carpet Company- Statement of Cash Flows (Direct Method) For Year Ending Dec. 31, 2010
h Flow from Direct Operating Activities
Cash flows from operating:
Cash received from customers:
Cash paid for merchandise:
Cash paid for wages/other operating expenses:
Cash paid for income taxes:
Net cash flow – operating activities: (Total)
Cash flows from investing:
Cash paid for equipment: _________
Net cash flow – operating activities: (Total)
————————————- +I15
Cash flows from financing:
Cash received from issuing stock: ________
Cash paid for Dividends: ________
Net cash flow financing activities:
———————————————— +I19+I20
Reconciliation Statement of Ca
Net
Cas
Cas
See: Next page for Carpet Company- Sta
Carpet Company- Statement of Cash Flows (Indirect Method) For Year Ending Dec. 31, 2010
Cash flows from operating:
Net income:________
The following are the adjustments
to reconcile net income to cash provided by operations.
Adjustment in accounts receivables: ________
Adjustment in merchandise inventory: ________
Adjustment in accounts payable: ________
Adjustment in income taxes payable: ________
Add back depreciation expense: ________
Net cash flow – operating activities: (Total)
———————- _______________
(Cash flow from Investing and from financing activities and reconciliation are the same under direct and indirect m
Cash flows from investing:
Cash paid for equipment: _________
Net cash flow – operating activities: (Total)
————————————- +I15
Cash flows from financing:
Cash received from issuing stock: ________
Cash paid for Dividends: ________
Net cash flow financing activities:
———————————————— +I19+I20
Reconciliation Statement of Ca
Net
Cas
Cas
For Indirect Method- Cash Flow Rules- These rules are based on comparison of a previous year’s balance sheet to
assets and liabilities line items from a previous year’s balance to a current year’s balance.
Cash Flow Rules are:
If Assets go up from the previous year to the current year, it is a use of cash (Company increased assets and decre
If Assets go down from the previous year to the current year, it is a source of cash (Company sold assets and incre
If Liabilities go up from the previous year to the current year, it is a source of cash (Company increased its cash flo
If Liabilities go down from the previous year to the current year, it is a use of cash (Company decreased cash flow
61000
-40000
-6300
-5200
9500
-3500
-3500
3000
-2500
500
iliation Statement of Cash Flows (Direct Method)- For Year Ending Dec. 31, 2010
Net increase in cash from 2009 to 2010: __________ 6500
4000
Cash balance at prior year (2009): __________
10500
Cash balance at current year-end (2010): __________
age for Carpet Company- Statement of Cash Flows (Indirect Method) For Year Ending Dec. 31, 2010
9000
1000
-3000
-1000
2000
1500
9500
under direct and indirect methods)
-3500
-3500
3000
-2500
500
iliation Statement of Cash Flows (Direct Method)- For Year Ending Dec. 31, 2010
Net increase in cash from 2009 to 2010: __________ 6500
4000
Cash balance at prior year (2009): __________
10500
Cash balance at current year-end (2010): __________
year’s balance sheet to a current balance sheet and apply to the
reased assets and decreased cash)
any sold assets and increased cash)
any increased its cash flow by using debt)
any decreased cash flow by paying debt)

Introduction:
The Carpet Company’s financial statements for the years 2010 and 2009 were analyzed to develop a statement of cash flows. The company’s income statement for the year ended December 31, 2010, displays its sales, cost of goods sold, wages and other operating expenses, depreciation expense, income taxes expense, and net income. The balance sheets for the years 2010 and 2009 show the company’s assets, including cash, accounts receivable, merchandise inventory, and equipment, and its liabilities, including accounts payable, taxes payable, dividends payable, common stock, and contributed capital in excess of par, common stock, and retained earnings.

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Description:
The Carpet Company’s financial statements were analyzed for 2010 and 2009 to prepare the statement of cash flows for the year ended December 31, 2010. The statement of cash flows for direct and indirect methods was developed using the information from the balance sheets, income statement, and additional information provided. The company’s net income, adjustments to reconcile net income to cash provided by operations, and the changes in the investing and financing activities were identified to prepare the statement of cash flows for both methods. The direct method of reporting cash flows from operating activities shows the cash received from customers, cash paid for merchandise, wages, and other operating expenses, income taxes, and the net cash flow from operating activities. The indirect method adjusted net income for changes in accounts receivable, merchandise inventory, account payable, income tax payable, and depreciation expense to derive the net cash flows from operating activities. Lastly, a statement from 200-300 words was prepared for senior management to summarize the company’s status based on cash flow, including all negative cash outflows presented as negative numbers and incorporating a net loss.

Statement for Senior Management:
The Carpet Company’s statement of cash flows showed that the company had a net cash inflow from operations of $12,300 using the indirect method and $13,200 using the direct method. The company had cash inflows of $13,000 from issuing stocks, but it also had cash outflows of $4,000 for dividends. These activities resulted in a net cash inflow from financing activities of $9,000. Additionally, the company had cash outflow of $3,500 for equipment purchases, resulting in a net cash outflow from investing activities of $3,500. Overall, the company had a net cash inflow of $8,800 for the year, which is positive for the business. However, the net income of the company was reported at $9,000, meaning the cash inflow did not cover the net income, and the company did not generate enough cash to pay dividends of $2,500 in cash. The negative difference between the net income and net cash inflow from operating activities is a concern, and the management must focus on ensuring that the company’s cash inflows match its net income in the future.

Objectives: To understand the process of preparing a statement of cash flows, to learn about the direct and indirect methods of preparing the statement of cash flows, and to analyze the financial status of a company based on its statement of cash flows.

Learning Outcomes: After completing this exercise, the learner will be able to distinguish between the direct and indirect methods of preparing a statement of cash flows, will be able to prepare a statement of cash flows using both methods, and will be able to interpret the financial status of a company based on its statement of cash flows.

Statement for Senior Management:

The Carpet Company’s statement of cash flows for the year ended December 31, 2010 shows that the company had a net increase in cash and cash equivalents of $12,000. This is a positive sign as it indicates that the company was able to generate sufficient cash from its operations to meet its financial obligations, invest in new equipment, and pay dividends to its shareholders. The statement of cash flows also shows that the company was able to raise additional funds through the issuance of shares for $3,000.

The company’s cash inflows from operations were $61,000, which was mainly due to the increase in accounts payable and the reduction in merchandise inventory. However, the cash outflows from operations were relatively high at $50,500, which is a concern. This was due to the cash paid for merchandise, wages/other operating expenses, and income taxes.

The company’s cash outflows from investing activities were $3,500, which was mainly due to the purchase of new equipment. The cash outflows from financing activities were $1,500, which was due to the payment of dividends. The overall cash flow from financing activities was positive due to the proceeds from the issuance of shares.

In conclusion, the statement of cash flows shows that the Carpet Company has a positive cash flow and was able to meet its obligations, invest in new equipment, and pay dividends to its shareholders. However, the company needs to keep a close eye on its operating expenses to ensure that its cash outflows do not exceed its inflows in the future.

Solution 1: Statement of Cash Flow – Direct Method

Carpet Company – Statement of Cash Flows (Direct Method) For Year Ending Dec. 31, 20X3.

Cash flows from operating activities:

Cash received from customers: $61,000

Cash paid for merchandise: $(40,000)

Cash paid for wages/other operating expenses: $(6,300)

Cash paid for income taxes: $(4,200)

Net cash flow – operating activities: $10,500

Cash flows from investing:

Cash paid for equipment: $(3,500)

Net cash flow – investing activities: $(3,500)

Cash flows from financing:

Cash received from issuing stock: $3,000 (200 shares * $15 per share)

Cash paid for dividends: $(4,000)

Net cash flow – Financing activities: $(1,000)

Reconciliation Statement of Cash Flows:

Net Cash Flow from Operating Activities (as calculated above): $10,500

Net Cash Flow from Investing Activities (as calculated above): $(3,500)

Net Cash Flow from Financing Activities (as calculated above): $(1,000)

Net Increase in Cash: $6,000
Beginning Cash Balance: $4,000
Ending Cash Balance: $10,000

Solution 2: Statement of Cash Flow – Indirect Method

Carpet Company – Statement of Cash Flows (Indirect Method) For Year Ending Dec. 31, 20X3.

Cash flows from operating activities:

Net income: $9,000

Adjustments for non-cash items:

Add back depreciation expense: $1,500

Adjustments for changes in working capital:

Decrease in accounts receivable: $1,000 ($9,000 – $8,000)

Increase in merchandise inventory: $(3,000) ($21,000 – $18,000)

Increase in accounts payable: $2,000 ($7,000 – $5,000)

Decrease in taxes payable: $(1,000) ($2,000 – $1,000)

Net cash flow from operating activities: $9,500

Cash flows from investing activities:

Cash paid for equipment: $(3,500)

Net cash flow – investing activities: $(3,500)

Cash flows from financing activities:

Cash received from issuing stock: $3,000 (200 shares * $15 per share)

Cash paid for dividends: $(4,000)

Net cash flow – Financing activities: $(1,000)

Reconciliation Statement of Cash Flows:

Net Cash Flow from Operating Activities (as calculated above): $9,500

Net Cash Flow from Investing Activities (as calculated above): $(3,500)

Net Cash Flow from Financing Activities (as calculated above): $(1,000)

Net Increase in Cash: $5,000
Beginning Cash Balance: $5,500
Ending Cash Balance: $10,500

Statement for Senior Management:

The Carpet Company’s cash flow statement for the year ending December 31, 20X3 shows a net increase in cash of $6,000 (Direct Method) or $5,000 (Indirect Method). The increase in cash resulted primarily from positive cash flow from operating activities and additional cash received from issuing stock. Despite paying dividends of $4,000 during the year (which is accounted as a negative cash flow from financing activities), the company still managed to increase its cash balance.

The positive cash flow from operating activities was driven mainly by cash received from customers (sales) although it was reduced by cash paid for merchandise, wages, and income taxes. The company’s investments in equipment reduced the cash balance. However, the company still managed to receive cash from issuing stock which helped to partially offset this reduction.

Overall, the company’s cash flow statement suggests that the Carpet Company is in a stable financial position with significant investments in property, plant, and equipment. Moreover, the company has managed to increase its cash balance despite paying cash dividends. Nonetheless, it is important for the company to continue to focus on improving operational efficiencies, and keeping adequate cash balances to help meet any future cash needs or contingencies.

Suggested Resources/Books:
– Financial Accounting for Dummies by Maire Loughran
– Accounting Principles by Jerry J. Weygandt
– Intermediate Accounting by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield

Similar Asked Questions:
1. How to prepare the statement of cash flows using the direct method?
2. What are the adjustments required for the indirect method statement of cash flows?
3. How does the statement of cash flows differ from the income statement and balance sheet?
4. What does a negative cash flow signify for a company?
5. How to determine cash flow from investing activities in a business?

Statement for senior management regarding the status of the company based on cash flow:

As per the statement of cash flows for the year ended December 31, 20X3, it can be analyzed that the company had a cash balance of $10,500 at the beginning of the year, and a cash balance of $24,500 at the end of the year. The company’s cash inflows were mainly generated from operating activities, and cash outflows were largely invested in equipment purchases and financing activities like dividends and stock issuances.

However, the company showed a net decrease in cash due to the high cash outflows as well as the net loss incurred during the year. Although the company’s operating activities generated a positive cash flow, it was not sufficient to cover the cash investments made in equipment and financing activities. Therefore, the company must develop a strategy to increase cash inflows or reduce cash outflows to maintain positive cash balances in the future.

In conclusion, based on the statement of cash flows, it is recommended that the company should focus on improving its cash management practices by either increasing the profits generated through the sales or identifying opportunities to reduce the costs associated with the operations. The company should also analyze the allocation of resources to ensure that the cash outflows are optimized and keep the business running smoothly.

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