Question

The comparative balance sheet of Iglesias Inc. for December 31, 20Y3 and 20Y2, is shown as follows:

1		Dec. 31, 20Y3	Dec. 31, 20Y2
2	Assets
3	Cash	$186,000.00	$180,000.00
4	Accounts receivable (net)	540,000.00	480,000.00
5	Inventories	924,000.00	900,000.00
6	Investments	0.00	120,000.00
7	Land	600,000.00	0.00
8	Equipment	1,680,000.00	1,440,000.00
9	Accumulated depreciation-equipment	(720,000.00)	(600,000.00)
10	Total assets	$3,210,000.00	$2,520,000.00
11	Liabilities and Stockholders’ Equity
12	Accounts payable	$408,000.00	$360,000.00
13	Accrued expenses payable	54,000.00	60,000.00
14	Dividends payable	36,000.00	30,000.00
15	Common stock, $4 par	840,000.00	720,000.00
16	Excess of paid-in capital over par	240,000.00	210,000.00
17	Retained earnings	1,632,000.00	1,140,000.00
18	Total liabilities and stockholders’ equity	$3,210,000.00	$2,520,000.00

Additional data obtained from an examination of the accounts in the ledger for 20Y3 are as follows:

a.	The investments were sold for $210,000 cash.
b.	Equipment and land were acquired for cash.
c.	There were no disposals of equipment during the year.
d.	The common stock was issued for cash.
e.	There was a $600,000 credit to Retained Earnings for net income.
f.	There was a $108,000 debit to Retained Earnings for cash dividends declared.

Required:

Prepare a statement of cash flows, using the indirect method of presenting cash flows from (used for) operating activities. Be sure to complete the heading of the statement. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. Use the minus sign to indicate cash outflows, decreases in cash and a net cash outflow for each section, if required.

Answer 1

Solution:

Iglesias Inc.
Statement of Cash Flows
For the Year Ended December 31, 20Y3
Cash flows from operating activities:
Net Income	$       600,000
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation expense	$       120,000
Gain on sale of long term investment	$       (90,000)
Changes in current operating assets and liabilities
Increase in Account Receivables [480000-540000]	$       (60,000)
Increase in Merchandise Inventory [900000-924000]	$       (24,000)
Increase in Accounts payable [408000-360000]	$         48,000
Decrease in Accounts payable [54000-60000]	$         (6,000)
Net cash provided by operating activities[A]		$        588,000
Cash flow from investing activities:
Sale of Investments	$       210,000
Sale of Machinery [1440000-1680000]	$    (240,000)
Purchase of Land	$    (600,000)
Net cash used by investing activities[B]		$      (630,000)
Cash flow from financing activities:
Issue of Bonds Payable [(840000-720000)+(240000-210000)]	$       150,000
Payment of dividend	$    (102,000)
Net Cash used by financing activities (C )		$          48,000
Net increase(decrease) in cash		$             6,000
Cash at the beginning of the year		$        180,000
Cash at the end of the year		$        186,000