Question
Galley Corp., a merchandiser, recently completed its 2015 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect
| Galley Corp., a merchandiser, recently completed its 2015 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, (5) Other Expenses are all cash expenses, and (6) any change in Income Tax Payable reflects the accrual and cash payment of tax. The companys statements of financial position and income statement follow. |
| GALLEY CORPORATION Comparative Statements of Financial Position December 31, 2015 and 2014 | |||||
| 2015 | 2014 | ||||
| Assets | |||||
| Cash | $ | 167,000 | $ | 130,000 | |
| Accounts receivable | 84,000 | 70,000 | |||
| Merchandise inventory | 610,000 | 530,000 | |||
| Equipment | 340,000 | 274,000 | |||
| Accum. depreciationEquipment | (158,000) | (101,000) | |||
| Total assets | $ | 1,043,000 | $ | 903,000 | |
| Liabilities and Equity | |||||
| Accounts payable | $ | 141,000 | $ | 118,000 | |
| Income tax payable | 24,000 | 21,000 | |||
| Share capitalOrdinary, $2 par value | 596,000 | 570,000 | |||
| Share premiumOrdinary | 199,000 | 160,000 | |||
| Retained earnings | 83,000 | 34,000 | |||
| Total liabilities and equity | $ | 1,043,000 | $ | 903,000 | |
| GALLEY CORPORATION Income Statement For Year Ended December 31, 2015 | |||||
| Sales | $ | 1,799,000 | |||
| Cost of goods sold | 1,087,000 | ||||
| Gross profit | 712,000 | ||||
| Operating expenses | |||||
| Depreciation expense | $ | 57,000 | |||
| Other expenses | 498,000 | 555,000 | |||
| Profit before tax | 157,000 | ||||
| Income tax expense | 23,000 | ||||
| Net profit | $ | 134,000 | |||
| Additional Information on Year 2015 Transactions | |
| a. | Purchased equipment for $66,000 cash. |
| b. | Issued 13,000 ordinary shares for $5 cash per share. |
| c. | Declared and paid $85,000 in cash dividends.The company's management wants to classify payments for dividends as financing activities. |
| Required: | |
| Prepare a complete statement of cash flows; report its cash inflows and cash outflows from operating activities according to the indirect method. (Amounts to be deducted should be indicated with a minus sign. Omit the "$" sign in your response.) |
| GALLEY CORPORATION Statement of Cash Flows For Year Ended December 31, 2015 | ||
| Cash flows from operating activities | ||
| (Click to select)Profit before taxProfit after tax | $ | |
| Adjustments to reconcile profi to net cash provided by operating activities: | ||
| (Click to select)Increase in inventoryDecrease in accounts payableIncrease in accounts receivableCash paid for equipmentCash paid for cash dividendsDepreciation expenseIncome tax paid | ||
| (Click to select)Income tax paidDepreciation expenseIncrease in inventoryDecrease in accounts payableCash paid for equipmentIncrease in accounts receivableCash paid for cash dividends | ||
| (Click to select)Cash paid for cash dividendsIncrease in accounts receivableIncome tax paidDecrease in accounts payableIncrease in inventoryDepreciation expenseCash paid for equipment | ||
| (Click to select)Cash paid for equipmentIncome tax paidDecrease in accounts payableCash paid for cash dividendsDepreciation expenseIncrease in accounts receivableIncrease in inventory | ||
| Cash generated from operations | ||
| (Click to select)Income tax paidCash paid for equipmentCash paid for cash dividendsIncrease in accounts receivableDecrease in accounts payableIncrease in inventoryDepreciation expense | ||
| Net cash (Click to select)fromused in operating activities | $ | |
| Cash flows from investing activities | ||
| (Click to select)Decrease in accounts payableIncrease in inventoryIncrease in accounts receivableCash received from issuing stockCash paid for cash dividendsCash paid for equipmentDepreciation expense | ||
| Cash flows from financing activities | ||
| (Click to select)Decrease in accounts payableIncrease in tax payableDepreciation expenseCash paid for equipmentCash received from issuing sharesIncrease in inventoryCash paid for cash dividends | ||
| (Click to select)Increase in inventoryCash paid for cash dividendsDepreciation expenseIncrease in tax payableCash received from issuing sharesCash paid for equipmentDecrease in accounts payable | ||
| Net cash (Click to select)fromused in financing activities | ||
| (Click to select)Net decrease in cashNet increase in cashCash paid for cash dividendsDecrease in accounts payableIncrease in inventoryDepreciation expenseIncrease in accounts receivable | $ | |
| Cash balance at beginning of 2015 | ||
| Cash balance at end of 2015 | $ | |
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Auditing Cases An Interactive Learning Approach
Authors: Steven M Glover, Douglas F Prawitt
4th Edition
0132423502, 978-0132423502
