Question

Galley Corp., a merchandiser, recently completed its 2015 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, (5) Other Expenses are all cash expenses, and (6) any change in Income Tax Payable reflects the accrual and cash payment of tax. The company’s statements of financial position and income statement follow.

GALLEY CORPORATION Comparative Statements of Financial Position December 31, 2015 and 2014 2015 2014 Assets Cash $ 162,000 $ 139,000 Accounts receivable 85,000 71,000 Merchandise inventory 625,000 515,000 Equipment 340,000 232,000 Accum. depreciation—Equipment (156,000) (101,000) Total assets $ 1,056,000 $ 856,000 Liabilities and Equity Accounts payable $ 164,000 $ 80,000 Income tax payable 20,000 17,000 Share capital—Ordinary, $2 par value 586,000 560,000 Share premium—Ordinary 201,000 162,000 Retained earnings 85,000 37,000 Total liabilities and equity $ 1,056,000 $ 856,000 GALLEY CORPORATION Income Statement For Year Ended December 31, 2015 Sales $ 1,796,000 Cost of goods sold 1,088,000 Gross profit 708,000 Operating expenses Depreciation expense $ 55,000 Other expenses 500,000 555,000 Profit before tax 153,000 Income tax expense 20,000 Net profit $ 133,000 Additional Information on Year 2015 Transactions a. Purchased equipment for $108,000 cash. b. Issued 13,000 ordinary shares for $5 cash per share. c. Declared and paid $85,000 in cash dividends.The company's management wants to classify payments for dividends as financing activities. Required: Prepare a complete statement of cash flows; report its cash inflows and cash outflows from operating activities according to the indirect method. (Amounts to be deducted should be indicated with a minus sign. Omit the "$" sign in your response.) GALLEY CORPORATION Statement of Cash Flows For Year Ended December 31, 2015 Cash flows from operating activities (Click to select) $ Adjustments to reconcile profi to net cash provided by operating activities: (Click to select) (Click to select) (Click to select) (Click to select) Cash generated from operations (Click to select) Net cash (Click to select) operating activities $ Cash flows from investing activities (Click to select) Cash flows from financing activities (Click to select) (Click to select) Net cash (Click to select) financing activities (Click to select) $ Cash balance at beginning of 2015 Cash balance at end of 2015 $

Answer 1

GALLEY CORPORATION                                                          Statement of Cash Flows                                                   For Year Ended December 31, 2015
Cash flows from operating activities
Profit before tax	$ 133,000
Adjustments to reconcile profit to net cash provided by operating activities:
Increase in inventory	(110,000)
Increase in accounts payable	84,000
Increase in accounts receivable	(14,000)
Increase in Income Tax payable	3,000
Depreciation expense	55,000
Net cash provided by operating activities		$ 151,000
Cash flows from investing activities
Cash paid for equipment	$(108,000)
Net cash used in financing activities		$(108,000)
Cash flows from financing activities
Cash received from stock issuance	$ 65,000
Cash paid for cash dividends	(85,000)
Net cash used in financing activities		$ (20,000)
Net increase (decrease) in cash		23,000
Cash balance at beginning of 2015		$ 139,000
Cash balance at the end of 2015		$ 162,000