Question

Presented below is information related to the operations of Phantom Corporation.

                                                         December

                                         2015              2014                           

Cash $125,000     $ 80,000        

Accounts receivable             110,000              94,000                    

Inventory                                60,000                43,000                    

Prepaid expenses                  30,000            42,000                 

Land                                       70,000              40,000   

Buildings                               200,000         200,000       

Accumulated depreciation—                     

  buildings                             (34,000)        (16,000)  

Equipment                            116,000              160,000       

Accumulated depreciation—                                             

  equipment                           (30,000)         (40,000)     

      Total                             $647,000      $603,000

Accounts payable                   $  80,000        $ 55,000

Bonds payable                                     0           200,000

Common stock                          400,000               200,000

Retained earnings                    167,000          148,000

      Total                                  $647,000      $603,000

Additional information:

(a) The net income in 2015 is $ 53,000 including $28,000 of depreciation expense.

(b)    In 2015, Simpson declared and paid a cash dividend.

Hint: You need to calculate the dividend paid

(c)    The company converted $200,000 of bonds into common stock.

(d)    Equipment with a cost of $44,000 and a book value of $24,000 was sold for $17,000. Land costing $30,000 was also acquired for cash.

Required:

Prepare a statement of cash flows in proper form for 2015, using the indirect method.

Answer 1

Statement of Cash Flow for year ended 2015
Particulars	Amount in $	Working
Cash flows from operating activities
Net Income	53,000	Given
Adjustments to arrive cash flow from operating activities:
Depreciation expense	28,000	Given
Loss on sale of equipment	7,000	(24,000 - 17,000 )
Increase in accounts receivables	-16,000	(94,000 - 110,000 )
Increase in Inventory	-17,000	(43,000 - 60,000 )
Decrease in Prepaid Expenses	12,000	(42,000 - 30,000 )
Increase in Accounts Payable	25,000	(80,000 - 55,000 )
Net Cash flow from operating activities	92,000
Cash flows from investing activities
Sale of Equipment	17,000	Given
Purchase of Land	-30,000	Given
Net Cash flow from (used in ) Investing activities	-13,000
Cash flows from financing activities
Cash Dividend paid	-34,000	(148,000 + 53,000 -167,000 )
Net Cash flows from (used in )financing activities	-34,000
Net increase(decrease) in cash and cash equivalents (A)	45,000
Cash and cash equivalents at beginning of period (B)	80,000	Given
Cash and cash equivalents at end of period =A+B	125,000