The Income Statement And Other Selected Data For Frish Company Follow:
Required
a. Prepare a schedule of change from accrual basis to cash basis income statement.
b. Using the schedule of change from accrual basis to cash basis income statement computed in (a), present the cash provided by operations, using (1) the direct approach and (2) the indirect approach.
EXPERT ANSWER
Cash basis Income statement for the year ended December 31, 2011 is shown below:
| F CompanyStatement of IncomeFor the year ended December 31, 2011 | ||||
| Particulars | Amount $ | Adjustments | Increase/(Decrease) | Cash Basis |
| Net Sales | $640,000 | Increase in accounts receivable | (27,000) | $613,000 |
| Cost of goods sold | 360,000 | Increase in accountspayable | (15,000) | |
| Operating expenses: | Increase in inventories | 35,000 | ||
| Depreciation expense | (15,000) | 365,000 | ||
| Selling and administrative expenses | 43,000 | Decrease in prepaidexpenses | $(1,000) | |
| Increase in accruedliabilities | (3,000) | |||
| Depreciation expense | (5,000) | 34,000 | ||
| Other expense | 2,000 | Amortization of patent | $(3,000) | |
| Amortization of bondpremium | 1,000 | 0 | ||
| Total Expenses | 405,000 | Total Expenses | 399,000 | |
| Income before income tax | 235,000 | 214,000 | ||
| Income tax | 92,000 | Decrease in incometaxes payable | $1,000 | 102,000 |
| Net income | $143,000 | $112,00 |
b.
Statement of cash provided by operations is shown below:
1.
Direct Method
Calculation of the cash receipts from customers:
Statement of cash provided by the operation using direct method is shown below:
| F companyStatement of cash flowsFor the year ended December 31, 2011 | ||
| Particulars | Amount $ | Amount $ |
| cash receipts from customers | $613,000 | |
| Add: | ||
| Payments to suppliers | $(365,000) | |
| Selling and administrative expenses | (34,000) | |
| Income taxes paid | (102,00) | (501,000) |
| Cash flow from operating activities | $112,000 |
2.
Indirect Method
Calculation of the increase/decrease in the Assets/Liabilities:
| PARTICULARS | Increase/(Decrease ) |
| Amount $ | |
| Account Receivable | 27,000 |
| Inventory | 35,000 |
| Accounts payable | 15,000 |
| Pre-paid expenses | (1,000) |
| Accrued liability | 3,000 |
| Taxes payable | (10,000) |
Statement of cash provided by operations using indirect method is shown below:
| F companyStatement of cash flowsFor the year ended December 31, 2011 | ||
| Particulars | Amount $ | Amount $ |
| Net Income | 143,000 | |
| Add: | ||
| Depreciation Expense | $20,000 | |
| Amortization of patent | 3,000 | |
| Amortization of Bond premium | (1,000) | |
| Increase in accounts receivable | (27,000) | |
| Increase in inventory | (35,000) | |
| Increase in accounts payable | 15,000 | |
| Decrease in prepaid expenses | 1,000 | |
| Increase in Accrued liability | 3,000 | |
| Increase in taxes payable | (10,000) | ($31,000) |
| Cash flow from operating activities | $ 112,000 |