Question

MONTGOMERY INC. Comparative Balance Sheets December 31, 2014 and 2013
		2014				2013
Assets
Cash	$	30,400			$	30,550
Accounts receivable, net		10,050				12,150
Inventory		90,100				70,150
Equipment		49,900				41,500
Accum. depreciation—Equipment		(22,500	)			(15,300	)
Total assets	$	157,950			$	139,050
Liabilities and Equity
Accounts payable	$	23,900			$	25,400
Salaries payable		500				600
Common stock, no par value		110,000				100,000
Retained earnings		23,550				13,050
Total liabilities and equity	$	157,950			$	139,050

MONTGOMERY INC. Income Statement For Year Ended December 31, 2014
Sales			$	45,575
Cost of goods sold				(18,950	)
Gross profit				26,625
Operating expenses
Depreciation expense	$	7,200
Other expenses		5,550
Total operating expense				12,750
Income before taxes				13,875
Income tax expense				3,375
Net income			$	10,500

Additional Information

a.	No dividends are declared or paid in 2014.
b.	Issued additional stock for $10,000 cash in 2014.
c.	Purchased equipment for cash in 2014; no equipment was sold in 2014.

(1)	Use the above financial statements and additional information to prepare a statement of cash flows for the year ended December 31, 2014, using the indirect method. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

MONTGOMERY INC.
Cash Flow Statement
For year ended 31st December 2014
A. Cash Flows from Operating Activity
Net Income		$      10,500.00
Adjustments
Depreciation expense	$        7,200.00
Decrease in salaries payable	$         (100.00)
Decrease in Accounts receivables	$        2,100.00
Increase in Inventories	$   (19,950.00)
Decrease in Accounts Payable	$     (1,500.00)
		$    (12,250.00)
Net cash flow from Operating activities		$      (1,750.00)
B. Cash flows from Investing Activities
Purchase of Equipment	$     (8,400.00)
Net Cash flows from Investing activities		$      (8,400.00)
C. Cash Flows from Financing activities
Issuance of Common Stock	$     10,000.00
Cash flows from Financing activities		$      10,000.00
Net Increase (Decrease) in Cash [A+B+C]		$          (150.00)
Cash at the beginning		$      30,550.00
Cash at the end		$      30,400.00

General notes for cash flow
Cash is increased when Current liability increase or Current asset Decrease.
Cash is Decreased when Current liability Decrease or Current asset Increase.
Depreciation or loss on sale of any asset is a non cash expense hence it will be added to net income to get operating cash
Profit on sale of asset or investment is a non cash profit and hence will be deducted from operating income.