Avatar Company Uses the Direct Method to Prepare Its Statement

question 42

Essay

Avatar Company uses the direct method to prepare its statement of cash flows. Refer to the following financial statement information for the year ending December 31, 2015:


Additional information provided by the company includes the following:
Equipment costing $60,000 was purchased for cash.
Equipment with a net asset value of $10,000 was sold for $16,000
During 2014, the company repaid $43,000 of Long-Term Notes Payable.
During 2014, the company borrowed $34,000 on a new Note Payable
There were no stock retirements during the year.
There were no sales of Treasury Stock during the year.
Prepare a complete statement of cash flows using the direct method.
Assume Accrued Liabilities relate to Other Operating Expense

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Definitions:

Income Statement Approach

The income statement approach is a method for preparing financial statements, focusing on calculating net income by summarizing revenues and expenses.

Allowance Account

An account used in accounting to estimate the portion of accounts receivable that may not be collectible.

Credit Balance

A Credit Balance occurs when the total credits in an account exceed the total debits, often indicating the amount owed to the customer or client in financial contexts.

Debit Balance

A condition where the sum of debits in an account exceeds the sum of credits, implying assets or expenses.