(Solved by Humans)-AC 313 Statement of Cash Flows Assessment (50 Points) Presented

Question

Additional Info:?

There is a prior period adjustment to retained earnings of $20. See additional information #6 on the assignment. You should adjust the beginning balance to $388 and add $20 to the Cash paid for income taxes.

Prepare an indirect and direct statement of cash flows

AC 313 Statement of Cash Flows Assessment (50 Points)
Presented below are the balance sheets of Trout Corporation as of December 31, Year 1 and Year
2, and the income statement for the year ended December 31, Year 2. The statement of retained
earnings for the year ended December 31, Year 2 is on the next page. All dollars are in thousands.

Trout Corporation
Balance Sheets
December 31, Year 1 and Year 2
Year 1

Year 2

Cash
Treasury Bills & Commercial Paper
Accounts Receivable, net
Inventories
Land
Plant and Equipment
Accumulated Depreciation
Total Assets

$204
143
495
780
250
900
(170)
$2,602

$403
106
695
895
350
1,398
(295)
$3,552

Liabilities & Stockholders? Equity
Accounts Payable
Dividends Payable
Accrued Liabilities
Notes Payable, Long-Term
Bonds Payable
Bond Discount
Common Stock, Par Value $20
Additional Paid-In Capital
Retained Earnings
Total Liabilities & Stockholders? Equity

$700
-168
-500
(18)
600
244
408
$2,602

$650
10
413
450
500
(16)
640
304
601
$3,552

Assets

Trout Corporation
Income Statement
For the Year Ended December 31, Year 2
Net Sales Revenue
Operating Expenses:
Cost of Goods
Selling & Administrative Expenses
Operating Income
Other Income (Expense):
Interest Expense
Gain on Sale of Equipment
Pre-Tax Income from Continuing Operations
Less: Income Tax Expense:

$2,000
$1,126
456

1,582
$418



$(80)
5

(75)
$343
90

Net Income

$253

Trout Corporation
Statement of Retained Earnings
For the Year Ended December 31, Year 2
Retained Earnings as of January 1, Year 2
Prior Period Adjustment
Adjusted prior period
Add:
Net Income
Deduct: Dividend Declared, October 10, Year 2
Retained Earnings, December 31, Year 2

$408
(20)
388
$ 253
(40)

213
$601

Additional Information:
1. On April 15, Year 2, Trout issued 2 shares of its common stock for land having a fair value
of $100.
2. On May 25, Year 2, Trout borrowed money from an insurance company. The underlying
promissory note bears interest at 15% and is payable in three equal annual installments of
$150. The first payment is due on May 25, Year 3.
3. On July 1, Year 2, Trout sold equipment costing $52 for $33 cash.
4. On October 10, Year 2, Trout declared a cash dividend of $40 on its common stock.
5. The Selling and Administrative Expense account includes Depreciation Expense.
6. On September 1, Year 2, Trout paid a $20 additional tax assessment for Year 1 due to an

error in tax calculation discovered by the Internal Revenue Service. This payment was
appropriately recorded by Trout as a prior period adjustment.

Required:
Create an EXCEL worksheet with one tab for the Direct Method and one
tab for the Indirect Method. (You can earn up to an additional 5 points for
formatting.)
A. Using EXCEL, prepare a statement of cash flows for Trout Corporation using the direct
method of reporting cash flows from operating activities for the year ended December 31,
Year 2.
B. Using the same EXCEL workbook and a second tab, prepare the operating activities
section only for the statement of cash flows for Trout Corporation using the indirect method
for the year ended December 31, Year 2.

C. Using Microsoft Word answer the following 1. Using the Accounts Receivable account, explain how a company may report net
income on its income statement using the accrual basis but report negative cash flow
from operating activities on its statement of cash flows using the cash basis. [Hint:

Assume that you calculate an excess of revenues over expenses (i.e., net income on
the accrual basis) but your calculation of cash flow from operating activities
(i.e., the cash basis) produces a negative number. That is, cash is used rather than
provided. See chapters 1, 4 and 21.]
2. What steps do you recommend be taken to ensure that net cash flow from operating
activities is positive next year? [Hint: Analyze the Accounts Receivable account.]