Question

ERISA MAGAMBO A/S
Comparative Statements of Financial Position
December 31

Assets                            2017                2016
Land                            € 75,000           €100,000
Equipment                        250,000            200,000
Accumulated depreciation—equipment       (66,000)            (42,000)
Inventory                        180,000           187,000
Accounts receivable                    85,000            76,000
Cash                            58,000            22,000
Total                            €582,000            €543,000
Equity and Liabilities
Share capital—ordinary (€1 par)            €214,000            €164,000
Retained earnings                    184,000           134,000
Bonds payable                    150,000            200,000
Accounts payable                    34,000            45,000
Total                           €582,000           €543,000
Additional information:
1. Net income for 2017 was €120,000.
2. Cash dividends of €70,000 were declared and paid.
3. Bonds payable amounting to €50,000 were redeemed for cash €50,000.
4. Ordinary shares were issued for €50,000 cash.
5. Depreciation expense was €24,000.
6. Sales for the year were €978,000.
Required
Prepare a worksheet for a statement of cash flows for 2017 using the indirect method. Enter the reconciling items directly on the worksheet, using letters to cross-reference each entry.

Answer 1

Answer:

ERISA MAGAMBO A/S
Statement of Cash Flows-Indirect method
For the year ended December 31,2017
Cash flows from operating activities:
Net income	€ 120,000
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation Expense	€ 24,000
Changes in current operating assets and liabilities:
Increase in accounts receivable	-€ 9,000
Decrease in inventories	€ 7,000
Decrease in accounts payable	-€ 11,000
Net cash flow from operating activities (i)	€ 131,000
Investing activities:
Sale of land	€ 25,000
Purchase of equipment	-€ 50,000
Net cash flow from investing activities (ii)	-€ 25,000
Financing activities:
Redemption of bonds	-€ 50,000
Issuance of ordinary for cash	€ 50,000
Cash paid for dividends	-€ 70,000
Net cash flow from financing activities (iii)	-€ 70,000
Net increase(decrease) in cash (i)+(ii)+(iii)	€ 36,000
Cash balance, Dec 31,2016	€ 22,000
Cash balance, Dec 31,2017	€ 58,000