Question

A comparative balance sheet for Lomax Company containing data for the last two years is as follows:

Lomax Company Comparative Balance Sheet
	This Year		Last Year
Assets
Current assets:
Cash and cash equivalents	$	91,000	$	66,000
Accounts receivable		630,000		660,000
Inventory		632,000		440,000
Prepaid expenses		26,000		15,000
Total current assets		1,379,000		1,181,000
Property, plant, and equipment		2,470,000		1,880,000
Less accumulated depreciation		639,000		578,000
Net property, plant, and equipment		1,831,000		1,302,000
Long-term investments		122,000		190,000
Loans to subsidiaries		140,000		80,000
Total assets	$	3,472,000	$	2,753,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	902,000	$	590,000
Accrued liabilities		37,000		60,000
Income taxes payable		159,000		134,000
Total current liabilities		1,098,000		784,000
Bonds payable		720,000		460,000
Total liabilities		1,818,000		1,244,000
Stockholders’ equity:
Common stock		1,130,000		1,020,000
Retained earnings		524,000		489,000
Total stockholders’ equity		1,654,000		1,509,000
Total liabilities and stockholders' equity	$	3,472,000	$	2,753,000

The following additional information is available about the company’s activities during this year:

1. The company declared and paid a cash dividend this year.

2. Bonds with a principal balance of $400,000 were repaid during this year.

3. Equipment was sold during this year for $80,000. The equipment had cost $170,000 and had $64,000 in accumulated depreciation on the date of sale.

4. Long-term investments were sold during the year for $150,000. These investments had cost $68,000 when purchased several years ago.

5. The subsidiaries did not repay any outstanding loans during the year.

6. Lomax did not repurchase any of its own stock during the year.

The company reported net income this year as follows:

Sales					$	3,400,000
Cost of goods sold						2,108,000
Gross margin						1,292,000
Selling and administrative expenses						1,036,000
Net operating income						256,000
Nonoperating items:
Gain on sale of investments	$	82,000
Loss on sale of equipment		(26,000	)			56,000
Income before taxes						312,000
Income taxes						100,000
Net income					$	212,000

Required:

Using the indirect method, prepare a statement of cash flows for this year. (List any deduction in cash outflows as negative amounts.)

Answer 1

Lomax Company
Statement of Cash Flows
Operating activities:
Net income		212,000
Adjustments to convert net income to cash basis:
Depreciation	125,000
Gain on sale of investments	(82,000)
Loss on sale of equipment	26,000
Decrease in accounts receivable	30,000
Increase in inventory	(192,000)
Increase in prepaid expenses	(11,000)
Increase in accounts payable	312,000
Decrease in accrued liabilities	(23,000)
Increase in income taxes payable	25,000
		210,000
Net cash provided by operating activities		422,000
Investing activities:
Loan to subsidiaries	(60,000)
Proceeds from sale of long-term investments	150,000
Additions to plant and equipment	(760,000)
Proceeds from sale of equipment	80,000
Net cash used in investing activities		(590,000)
Financing activities:
Issuance of bonds payable	660,000
Issuance of common stock	110,000
Retirement of bonds payable	(400,000)
Cash dividends to stockholders	(177,000)
Net cash provided by financing activities		193,000
Net increase in cash and cash equivalents		25,000
Beginning cash and cash equivalents		66,000
Ending cash and cash equivalents		91,000