Financial information for Flagstone Inc.'s balance sheet for fiscal 2018 and 2017 follows:
Additional information:
1.Preferred shares were converted to common shares during the year at their book value.
2.The recorded increase in the bonds payable account was due to the amortization of the discount.
3.Net income was $318,000.
4.There was a common stock dividend valued at $20,000 and cash dividends were also paid.
5.Interest expense for the year was $95,000.Income tax expense was $57,000.
6.Flagstone arranged for a $500,000 bank loan to finance the purchase of the equipment.
7.Flagstone has adopted a policy of reporting cash flows arising from the payment of interest and dividends as operating and financing activities,respectively.
8.The held-for-trading investments are not cash equivalents.
9.Sales = 1,900,000; cost of goods sold = 450,000; and,sales and administration expenses = 980,000 (includes depreciation expense)
Required:
a.Prepare the cash flows from operating activities section of the statement of cash flows using the direct method.
b.Prepare the cash flows from operating activities section of the statement of cash flows using the indirect method.
c.Compare and contrast the cash flows from operating activities using the direct method (a)and the indirect method (b).Which statement provides investors and other users of the financial statements with more useful information? Why?

Question

Financial information for Flagstone Inc.'s balance sheet for fiscal 2018 and 2017 follows:
  Additional information:
1.Preferred shares were converted to common shares during the year at their book value.
2.The recorded increase in the bonds payable account was due to the amortization of the discount.
3.Net income was $318,000.
4.There was a common stock dividend valued at $20,000 and cash dividends were also paid.
5.Interest expense for the year was $95,000.Income tax expense was $57,000.
6.Flagstone arranged for a $500,000 bank loan to finance the purchase of the equipment.
7.Flagstone has adopted a policy of reporting cash flows arising from the payment of interest and dividends as operating and financing activities,respectively.
8.The held-for-trading investments are not cash equivalents.
9.Sales = 1,900,000; cost of goods sold = 450,000; and,sales and administration expenses = 980,000 (includes depreciation expense)
Required:
a.Prepare the cash flows from operating activities section of the statement of cash flows using the direct method.
b.Prepare the cash flows from operating activities section of the statement of cash flows using the indirect method.
c.Compare and contrast the cash flows from operating activities using the direct method (a)and the indirect method (b).Which statement provides investors and other users of the financial statements with more useful information? Why?

Quizplus · Accepted Answer

The Answer of Financial information for Flagstone Inc.'s balance sheet for fiscal 2018 and 2017 follows:
  Additional information:
1.Preferred shares were converted to common shares during the year at their book value.
2.The recorded increase in the bonds payable account was due to the amortization of the discount.
3.Net income was $318,000.
4.There was a common stock dividend valued at $20,000 and cash dividends were also paid.
5.Interest expense for the year was $95,000.Income tax expense was $57,000.
6.Flagstone arranged for a $500,000 bank loan to finance the purchase of the equipment.
7.Flagstone has adopted a policy of reporting cash flows arising from the payment of interest and dividends as operating and financing activities,respectively.
8.The held-for-trading investments are not cash equivalents.
9.Sales = 1,900,000; cost of goods sold = 450,000; and,sales and administration expenses = 980,000 (includes depreciation expense)
Required:
a.Prepare the cash flows from operating activities section of the statement of cash flows using the direct method.
b.Prepare the cash flows from operating activities section of the statement of cash flows using the indirect method.
c.Compare and contrast the cash flows from operating activities using the direct method (a)and the indirect method (b).Which statement provides investors and other users of the financial statements with more useful information? Why?

Financial Information for Flagstone Inc