Question

Statement of Cash Flows—Indirect Method

The comparative balance sheet of Merrick Equipment Co. for December 31, 20Y9 and 20Y8, is as follows:

		Dec. 31, 20Y9		Dec. 31, 20Y8
Assets
Cash		$293,780		$272,340
Accounts receivable (net)		106,430		97,810
Inventories		300,420		289,590
Investments		0		112,200
Land		154,100		0
Equipment		331,470		256,040
Accumulated depreciation—equipment		(77,600)		(69,040)
	Total assets	$1,108,600		$958,940
Liabilities and Stockholders' Equity
Accounts payable		$200,660		$188,910
Accrued expenses payable		19,950		24,930
Dividends payable		11,090		8,630
Common stock, $10 par		59,860		46,990
Paid-in capital: Excess of issue price over par-common stock		225,050		130,420
Retained earnings		591,990		559,060
	Total liabilities and stockholders’ equity	$1,108,600		$958,940

Additional data obtained from an examination of the accounts in the ledger for 20Y9 are as follows:

1. Equipment and land were acquired for cash.
2. There were no disposals of equipment during the year.
3. The investments were sold for $100,980 cash.
4. The common stock was issued for cash.
5. There was a $78,000 credit to Retained Earnings for net income.
6. There was a $45,070 debit to Retained Earnings for cash dividends declared.

Required:

Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Use the minus sign to indicate cash outflows, cash payments, decreases in cash, or any negative adjustments.

Merrick Equipment Co.
Statement of Cash Flows
For the Year Ended December 31, 20Y9
Cash flows from operating activities:
	$
Adjustments to reconcile net income to net cash flow from operating activities:
Changes in current operating assets and liabilities:
Net cash flow from operating activities		$
Cash flows from (used for) investing activities:
	$
Net cash flow used for investing activities
Cash flows from (used for) financing activities:
Net cash flow from financing activities
		$
Cash at the beginning of the year
Cash at the end of the year		$

Answer 1

Statement of cash flows

Particulars	$	$
I. Cash flow from Operating Activities
Net income	78,000
Add: Adjustments to reconcile net income to net cash provided by operating activities
Depreciation expense	8,560
Loss on sale of investment	11,220
Changes in current operating assets and liabilities:
Accounts receivable increase	- 8,620
Inventory increase	- 10,830
Accounts payable increase	11,750
Accrued expenses payable decrease	- 4,980
Net cash provided by Operating Activities		85,100
II. Cash flow from Investing Activities
Sale of investments	100,980
Purchase of Land	- 154,100
Purchase of equipment	- 75,430
Net cash used in Investing Activities		- 128,550
III. Cash flow from Financing Activities
Issue of common stock	107,500
Cash Dividend paid	- 42,610
Net cash provided by Financing Activities		64,890
Net increase in Cash and Cash Equivalents(I +II +III)		21,440
Add: Cash in the beginning of the period		272,340
Cash at the end of the period		293,780

Cash dividend paid = Dividend declared + Dividend payable, beginning - Dividend payable, ending

= 45,070 + 8,630 - 11,090

= $42,610

Cash received from issue of common stock = Common stock, ending - Common stock, beginning + Paid-in capital: Excess of issue price over par-common stock, ending - Paid-in capital: Excess of issue price over par-common stock, beginning

= 59,860 - 46,990 + 225,050 - 130,420

= $107,500