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Chapman Company a and b

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Chapman Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company. The comparative balance sheet and income statement for Chapman as of May 31, 2012, are shown on the next page. The company is preparing its statement of cash flows.

Chapman Company
Comparative Balance Sheet
As of May 31
  2012 2011
Current Assets
Cash  $28,250  $20,000
Accounts receivable  75,000  58,000
Inventory  220,000  250,000
Prepaid expenses  9,000  7,000
Total current assets  332,250  335,000
Plant assets
Plants assets  600,000  502,000
Less accumulated depreciation - plant assets  150,000  125,000
Net plant assets  450,000  377,000
Total assets  $782,250  $712,000
Current Liabilities
Accounts payable  $123,000  $115,000
Salaries and wages payable  47,250  72,000
Interest payable  27,000  25,000
Total current liabilities  197,250  212,000
Long-term debt
Bonds payable  70,000  100,000
Total liabilities  267,250  312,000
Stockholders' equity
Common stock $10 par  370,000  280,000
Retained earnings  145,000  120,000
Total stockholders' equity  515,000  400,000
Total liabilities and stockholders' equity  $782,250  $712,000
Chapman Company
Income Statement
For the Year Ended May 31, 2012
Sales  $1,255,250
Cost of goods sold  722,000
Gross profit  533,250
Salaries and wages expense  252,100
Interest expense  75,000
Depreciation expense  25,000
Other expenses  8,150
Total expenses  360,250
Operating income  173,000
Income tax expense  43,000
Net income  $130,000
The following is additional information concerning Chapman’s transactions during the year ended
May 31, 2012.

1. All sales during the year were made on account.
2. All merchandise was purchased on account, comprising the total accounts payable account.
3. Plant assets costing $98,000 were purchased by paying $28,000 in cash and issuing 7,000 shares of
4. The “other expenses” are related to prepaid items.
5. All income taxes incurred during the year were paid during the year.
6. In order to supplement its cash, Chapman issued 2,000 shares of common stock at par value.
7. Cash dividends of $105,000 were declared and paid at the end of the fiscal year.


(a) Prepare a statement of cash flows for Chapman Company for the year ended May 31, 2012, using
the direct method. Be sure to support the statement with appropriate calculations. (A reconciliation
of net income to net cash provided is not required.)

(b) Using the indirect method, calculate only the net cash flow from operating activities for Chapman
Company for the year ended May 31, 2012.

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