Question

Required:

Prepare the statement of cash flows using the indirect method. Disclose any noncash transactions in an accompanying note.

P11–4A The income statement, balance sheets, and additional information for Video Phones, Inc., are provided.

VIDEO PHONES, INC. Income Statement For the year ended December 31, 2018
Net sales		$3,636,000
Expenses:
Cost of goods sold	$2,450,000
Operating expenses	958,000
Depreciation expense	37,000
Loss on sale of land	9,000
Interest expense	20,000
Income tax expense	58,000
Total expenses		3,532,000
Net income		$ 104,000

VIDEO PHONES, INC. Balance Sheets December 31
	2018	2017
Assets
Current assets:
Cash	$ 254,600	$227,800
Accounts receivable	92,000	70,000
Inventory	105,000	145,000
Prepaid rent	14,400	7,200
Long-term assets:
Investments	115,000	0
Land	220,000	260,000
Equipment	290,000	220,000
Accumulated depreciation	(81,000)	(44,000)
Total assets	$1,010,000	$886,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$ 75,000	$ 91,000
Interest payable	7,000	12,000
Income tax payable	16,000	15,000
Long-term liabilities:
Notes payable	305,000	235,000
Stockholders' equity:
Common stock	400,000	400,000
Retained earnings	207,000	133,000
Total liabilities and stockholders' equity	$1,010,000	$886,000

Additional Information for 2018: 1. Purchase investment in bonds for $115,000. 2. Sell land costing $40,000 for only $31,000, resulting in a $9,000 loss on sale of land. 3. Purchase $70,000 in equipment by borrowing $70,000 with a note payable due in three years. No cash is exchanged in the transaction. 4. Declare and pay a cash dividend of $30,000. Prepare the statement of cash flows using the indirect method. Disclose any noncash transactions in an accompanying note.

Answer 1

Video Phones, Inc. Statement of Cash Flows - Indirect Method For the Year Ended December 31
Cash Flows from Operating Activities
Net income	104,000
Adjustments for noncash effects:
Depreciation expense	37,000
Loss on sale of land	9,000
Increase in accounts receivable 70000- 92000	(22,000)
Decrease in inventory 145,000-105000	40,000
Increase in prepaid rent 7200-14,400	(7,200)
Decrease in accounts payable 75,000-91000	(16,000)
Decrease in interest payable 7,000-12000	(5,000)
Increase in income tax payable 16,000-15000	1,000
Net cash flows from operating activities		140,800
Cash Flows from Investing Activities
Purchase investment in bonds	(115,000)
Sale of land	31,000
Net cash flows from investing activities		(84,000)
Cash Flows from Financing Activities
Payment of cash dividends	(30,000)
Net cash flows from financing activities		(30,000)
Net increase (decrease) in cash		26,800
Cash at the beginning of the period		227,800
Cash at the beginning of the period		254,600