Question

The following balance sheets are taken from the records of Golding Company (numbers are expressed in thousands):

	20X1	20X2
Assets
Cash	$130,000	$150,000
Accounts receivable	25,000	20,000
Plant and equipment	50,000	60,000
Accumulated depreciation	(20,000)	(25,000)
Land	10,000	10,000
Total assets	$195,000	$215,000
Liabilities and equity
Accounts payable	$ 10,000	$ 5,000
Bonds payable	8,000	18,000
Common stock	120,000	120,000
Retained earnings	57,000	72,000
Total liabilities and equity	$195,000	$215,000

Additional information is as follows:

A.	Equipment costing $10,000,000 was purchased at year-end. No equipment was sold; and
B.	Net income for the year was $25,000,000; $10,000,000 in dividends were paid.

Required:

1.	Prepare a statement of cash flows using the indirect method.
2.	Conceptual Connection: Assess Golding’s ability to use cash to acquire Lemmons Company. Consider the information in Exhibit 14.2 (p. 795) and Example 14.6 (p. 800) as part of your analysis.

Answer 1

                                                       Statement of cash flows

                                            

Particulars	$	$
Cash flow from Operating Activities
Net income	25,000
Add: Adjustments to reconcile net income to net cash provided by operating activities
Depreciation on property, plant and equipment	5,000
Accounts receivable	5,000
Accounts payable	- 5,000
Net cash provided by Operating Activities		30,000
Cash flow from Investing Activities
Purchase of equipment	- 10,000
Net cash used in Investing Activities		- 10,000
Cash flow from Financing Activities
Issue of Bonds	10,000
Dividend paid	- 10,000
Net cash provided by Financing Activities		0
Net increase in Cash and Cash Equivalents(I +II +III)		20,000
Add: Cash in the beginning of the period		130,000
Cash at the end of the period		150,000