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scf—direct and Indirect Methods From Comparative Financial

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scf—direct and Indirect Methods From Comparative Financial Statements)

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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. 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

Plant 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
Expenses

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 stock.
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.
Instructions
(a)
Compare and contrast the direct method and the indirect method for reporting cash flows from operating activities.
(b)
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.)
(c)
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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Customer: replied 3 years ago.

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