Question

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

1

Dec. 31, 20Y3

Dec. 31, 20Y2

2

Assets

3

Cash

$155,000.00

$150,000.00

4

Accounts receivable (net)

450,000.00

400,000.00

5

Inventories

770,000.00

750,000.00

6

Investments

0.00

100,000.00

7

Land

500,000.00

0.00

8

Equipment

1,400,000.00

1,200,000.00

9

Accumulated depreciation-equipment

(600,000.00)

(500,000.00)

10

Total assets

$2,675,000.00

$2,100,000.00

11

Liabilities and Stockholders’ Equity

12

Accounts payable

$340,000.00

$300,000.00

13

Accrued expenses payable

45,000.00

50,000.00

14

Dividends payable

30,000.00

25,000.00

15

Common stock, $4 par

700,000.00

600,000.00

16

Paid-in capital: Excess of issue price over par—common stock

200,000.00

175,000.00

17

Retained earnings

1,360,000.00

950,000.00

18

Total liabilities and stockholders’ equity

$2,675,000.00

$2,100,000.00

The income statement for the year ended December 31, 20Y3, is as follows:

1

Sales

$3,000,000.00

2

Cost of merchandise sold

 1,400,000.00

3

Gross profit

$1,600,000.00

4

Operating expenses:

5

Depreciation expense

$100,000.00

6

Other operating expenses

950,000.00

7

Total operating expenses

1,050,000.00

8

Operating income

$550,000.00

9

Other income:

10

Gain on sale of investments

75,000.00

11

Income before income tax

$625,000.00

12

Income tax expense

125,000.00

13

Net income

$500,000.00

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

A.

The investments were sold for $175,000 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 $90,000 debit to Retained Earnings for cash dividends declared.

Prepare a statement of cash flows, using the direct method of presenting cash flows from operating activities <javascript:void(0)>. 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 out flows, cash payments, decreases in cash, or any negative adjustments.

Answer 1

Narvaria Inc.
Cash Flow statement ( Direct Method)
For the year ended 31 December ,20Y3
Particulars		Amount in $	Working
Cash flows from operating activities
Cash received from accounts receivable	2,950,000		(400,000 + 3,000,000 - 450,000 )
Cash paid to accounts payable (including increase in Inventories )	-1380,000		(300,000 + 1,400,000 - 340,000 ) + (770,000 - 750,000 )
Cash paid for accured expenses	-955,000		(50,000 + 950,000 - 45,000 )
Income Tax Paid	-125,000		Given
Cash flows from operating activities		490,000
Cash flows from investing activities
Sale of Investment	175,000		Given
Purchase of land	-500,000		Given
Purchase of equipment	-200,000		(1,400,000 - 1,200,000 )
Cash flows from (used in ) investing activities		-525,000
Cash flows from financing activities
Proceeds from issue of Common Stock	125,000		(700,000 + 200,000 ) - (600,000 + 175,000 )
Cash Dividend Paid	-85,000		(25,000 + 90,000 - 30,000 )
Cash flows from financing activities		40,000
Net increase in cash and cash equivalents (A)		5,000
Cash and cash equivalents at beginning of period (B)		150,000
Cash and cash equivalents at end of period =A+B		155,000
		-