Question

Comparative balance sheets for 2018 and 2017 and a statement of income for 2018 are given below.

METAGROBOLIZE INDUSTRIES Comparative Balance Sheets December 31, 2018 and 2017 ($ in 000s)
	2018				2017
Assets
Cash	$	390			$	190
Accounts receivable		450				240
Inventory		600				375
Land		600				560
Building		900				900
Less: Accumulated depreciation		(300	)			(285	)
Equipment		2,750				2,450
Less: Accumulated depreciation		(430	)			(400	)
Patent		1,500				1,650
	$	6,460			$	5,680
Liabilities
Accounts payable	$	700			$	550
Accrued expenses payable		200				175
Lease liability—land		130				0
Shareholders' Equity
Common stock		3,110				3,000
Paid-in capital—excess of par		550				485
Retained earnings		1,770				1,470
	$	6,460			$	5,680

METAGROBOLIZE INDUSTRIES Income Statement For the Year Ended December 31, 2018 ($ in 000s)
Revenues
Sales revenue	$	2,765
Gain on sale of land		55		$	2,820
Expenses
Cost of goods sold	$	900
Depreciation expense—building		15
Depreciation expense—equipment		300
Loss on sale of equipment		10
Amortization of patent		150
Operating expenses	$	550			1,925
Net income				$	895

Additional information from the accounting records:

Annual payments of $20,000 on the finance lease liability are paid each January 1, beginning in 2018.

During 2018, equipment with a cost of $300,000 (90% depreciated) was sold.

The statement of shareholders’ equity reveals reductions of $175,000 and $420,000 for stock dividends and cash dividends, respectively.

Required:
Prepare the statement of cash flows for Metagrobolize Industries using the indirect method. (Enter your answers in thousands. (i.e., 10,000 should be entered as 10).) Amounts to be deducted should be indicated with a minus sign)

Answer 1

SOLUTION

Particulars	Amount ($)	Amount ($)
Cash flow from Operating activities
Net income		895
Adjustments -
Depreciation (15+300)	315
Amortization of patent	150
Gain on sale of land	(55)
Loss on sale of Patent	10
Changes in working capital-
Increase in accounts receivable (450-240)	(210)
Increase in inventory (600-375)	(225)
Increase in accounts payable (700-550)	150
Increase in Accrued expenses payable (200-175)	25	160
Net cash flows from operating activities (A)		1,055
Cash flow from Investing activities
Purchase of equipment [300+(2,750-2,450)]	(600)
Sale of Land (600-560+55)	95
Sale of Equipment (30-10)	20
Net cash used in Investing activities (B)		(485)
Cash flow from Financing activities
Payment of cash dividend	(420)
Payment of lease liability	(20)
Net cash used in Financing activities (B)		(440)
Net increase in cash (A+B+C)		200
Beginning cash balance		190
Ending cash balance		390