Question

Hi,

I have to prepare the statement of cash flows for Dux Company using the indirect method. See my work below, and please correct it if necessary.

Cash Flow from Operating Activities:
Net Income		$             40.00
Adjustments:
Allowance/uncollectible accounts	$               1.00
Depreciation expense	$             15.00
Amortization of discount	$               6.00
Loss on sale of building	$               2.00
Decrease accounts receivable	$               8.00
Increase dividends receivable	$             (1.00)
Increase inventory	$           (10.00)
Decrease accounts payable	$               1.00
Decrease salaries payable	$           (12.00)
Increase interest payable	$             (1.00)
Decrease income tax payable	$             (1.00)
Net Cash Flow from Operating Activities		$               8.00
		$             48.00
Cash Flow from Investing Activities:
Sales of building	$             13.00
Purchase of equipment	$             20.00
Purchase of long term investment	$           (10.00)
Purchase of Land	$           (42.00)
Net Cash Flows from Investing Activities		$           (19.00)
Cash Flow from Financing Activities:
Notes Payable	$             42.00
Bonds Issued	$             30.00
Payment of cash dividends	$           (30.00)
Purchase of treasury stock	$           (13.00)
Net Cash Flow from Financing Activities		$             29.00
Net increase in cash		$             58.00
Cash balance, January 1		$             25.00
Cash balance, December 31		$             83.00

Please see the project's infomation below:

The comparative balance sheets for 2018 and 2017 and the statement of income for 2018 are given below for Dux

Company. Additional information from Dux’s accounting records is provided also.

DUX COMPANY

Comparative Balance Sheets

December 31, 2018 and 2017

($ in 000s)

2018 2017

Assets

Cash $ 43 $ 25

Accounts receivable 49 57

Less: Allowance for uncollectible accounts (4) (3)

Dividends receivable 7 6

Inventory 65 55

Long-term investment 25 15

Land 87 45

Buildings and equipment 220 260

Less: Accumulated depreciation (30) (60)

$462 $400

Liabilities

Accounts payable $ 18 $ 30

Salaries payable 7 8

Interest payable 9 8

Income tax payable 12 13

Notes payable 42 0

Bonds payable 105 75

Less: Discount on bonds (7) (13)

Shareholders' Equity

Common stock 215 205

Paid-in capital—excess of par 31 25

Retained earnings 43 49

Less: Treasury stock (13) 0

$462 $400

DUX COMPANY

Income Statement

For Year Ended December 31, 2018

($ in 000s)

Revenues

Sales revenue $245

Dividend revenue 3

Total Revenue $ 248

Expenses

Cost of goods sold 125

Salaries expense 30

Depreciation expense 15

Bad debt expense 1

Interest expense 13

Loss on sale of building 2

Income tax expense 22

Total Expenses 208

Net income $ 40

Additional information from the accounting records:

a. A building that originally cost $60,000, and which was three-fourths depreciated, was sold for $13,000.

b. The common stock of Byrd Corporation was purchased for $10,000 as a long-term investment.

c. Property was acquired by issuing a 10%, seven-year, $42,000 note payable to the seller.

d. New equipment was purchased for $20,000 cash.

e. On January 1, 2018, bonds were sold at their $30,000 face value.

f. On January 19, Dux issued a 3% stock dividend (1,000 shares). The market price of the $10 par value

common stock was $16 per share at that time.

g. Cash dividends of $30,000 were paid to shareholders.

h. On November 26,000 shares of common stock were repurchased as treasury stock at a cost of $13,000.

Required:

1. Prepare the statement of cash flows for Dux Company using the indirect method.

2. What inferences can you make about the financial health of the company based on the statement of cash flows and the accompanying balance sheet and income statement?

Answer 1

Your work is partially correct.

1)cash flow from operating activity:

Decrease in accounts payable will be added ($ 1 )

Increase in interest payable will be subtracted by $ 1

so overall cash flow from operating activity will remain same as 48

2)cash flow from investing activity:

purchase of equipment will be subtracted by (20)

so cash flow from investing activity will be : 13-20-10-42= (59)

3)cash flow from financing activity will be 29

4)Increase /(decrease) in cash = 48-59+29 = 18

beginning cash                                            25

Cash at end                                                  43 .

part b)The company has performed well in terms of financials since the net income is positive .Also the cash balance of company has increased from last year resulting in excess cash available (free cash ) .