Question 5 Chapman Company, a major retailer of bicycles

| June 12, 2016

Question
Question 5

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, 2014, are as follows. The company is preparing its statement of cash flows.

CHAPMAN COMPANY
COMPARATIVE BALANCE SHEET
AS OF MAY 31

2014

2013

Current assets

Cash

$28,500

$20,480

Accounts receivable

75,970

58,490

Inventory

220,790

250,840

Prepaid expenses

9,728

7,600

Total current assets

334,988

337,410

Plant assets

Plant assets

600,710

502,110

Less: Accumulated depreciation—plant assets

150,360

125,750

Net plant assets

450,350

376,360

Total assets

$785,338

$713,770

Current liabilities

Accounts payable

$123,990

$115,220

Salaries and wages payable

47,720

72,640

Interest payable

27,160

25,500

Total current liabilities

198,870

213,360

Long-term debt

Bonds payable

70,040

100,090

Total liabilities

268,910

313,450

Stockholders’ equity

Common stock, $10 par

370,570

280,710

Retained earnings

145,858

119,610

Total stockholders’ equity

516,428

400,320

Total liabilities and stockholders’ equity

$785,338

$713,770

CHAPMAN COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED MAY 31, 2014

Sales revenue

$1,255,540

Cost of goods sold

722,970

Gross profit

532,570

Expenses

Salaries and wages expense

252,910

Interest expense

75,310

Depreciation expense

24,610

Other expenses

8,580

Total expenses

361,410

Operating income

171,160

Income tax expense

43,340

Net income

$127,820

The following is additional information concerning Chapman’s transactions during the year ended May 31, 2014.

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 $98,600 were purchased by paying $24,600 in cash and issuing 7,400 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 1,586 shares of common stock at par value.

7.

Cash dividends of $101,572 were declared and paid at the end of the fiscal year.

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Your answer is incorrect. Try again.

Prepare a statement of cash flows for Chapman Company for the year ended May 31, 2014, using the direct method. (A reconciliation of net income to net cash provided is not required.)(Show amounts that decrease cash flow with either a – sign e.g. -15,000 or in parenthesis e.g. (15,000).)

CHAPMAN COMPANY
Statement of Cash Flows (Partial)
For the Year Ended May 31, 2014

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Cash payments:

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Your answer is incorrect. Try again.

Using the indirect method, calculate only the net cash flow from operating activities for Chapman Company for the year ended May 31, 2014.

CHAPMAN COMPANY
Statement of Cash Flows (Partial)
For the Year Ended May 31, 2014

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Adjustments to reconcile net income to

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