1 answer

Indirect Method of presenting cash flows from operating activities

Question:

Dec 31,2013 Dec 31,2012
Assets:
Cash $227,110 $210,050
Accounts Receivable(net) 82,270 75,440
Inventories 232,260 223,360
Investments 0 86,540
Land 119,130 0
Equipment 256,250 197,480
Accumulated Depreciation
Equipment (59,990) (53,250)
TOTAL 857,030 739,620
Liabilities &Stockholders
Equity:
Accounts Payable
Merchandise Creditors 155,120 145,710
Accrued Expenses Payable
(operating expenses) 15,430 19,230
Dividends Payable 8,750 6,660
Common Stock, $10 par 46,280 36,240
Paid in Capital in excess
of oar common stock 173,980 100,590
Retained Earnings 457,650 431,190
TOTAL: 857,030 739,620
The following additional information was taken from the records
(a) The investments were sold for $101,250 cash
(b) Equipment &land were acquired for cash
(c) There were no disposals of equipment during the year
(d) The common stock was issued for cash
(e) There was a $61,220 credit to Retained Earnings for net income
(f) There was a $34,760 debit to Retained Earnings for cash dividends declared
*Prepare a statement of cash flows, using the indirect method of presenting CASH FLOWS FROM OPERATING ACTIVITIES. Use a minus sign to indicate cash outflows, negativeamounts or a decrease in cash

Answers

Note: Liabilities & Stockholders Equity total amount is given as $857,030 but it's actual & correct total is $857,210. Difference is $180, due to this reason closing cash balance as per cash flow statement is differ from given balance sheet cash closing balance, difference amount is $180.
Cash Flow Statement:
( Indirect Method)
Cash flow from operating activities:
Net income
$61,220
(+) Depreciation
6740
(+) Increase in creditors
9410
(+) Increase in dividend payable
2090
(-) Increase in accounts receivables
-6830
(-) Increase in Inventories
-8900
(-) Profit on sale of investments
-14710
(-) Decrease in accrued expense payable
-3800
-16000
Net cash flow from operating activities:
$45,220
Cash flow from Investing activities:
(+) Sale of investments
101250
(-) Purchase of land
-119130
(-) Purchase of equipment
-58770
Net cash floe from Investing activities:
-76650
($31,430)
Cash flow from Financing activities:
(+) Issue of common stock
10040
(+) Increase in paid in capital in excess
73390
(-) Dividends paid
-34760
Net cash flow from Financing activities:
48670
$17,240
Add: Biginning Cash Balance
$210,050
Closing Cash Balance:
$227,290

Difference in closing cash balance $180 (227290 - 227110), is occured due to mis balance of assets and liabilities.
Thank you....
.

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