Question

The comparative balance sheet of Livers Inc. for December 31, 20Y3 and 20Y2, is shown 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 (merchandise creditors)	$340,000.00	$300,000.00
13	Accrued expenses payable (operating expenses)	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

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 $500,000 credit to Retained Earnings for net income.
	f. There was a $90,000 debit to Retained Earnings for cash dividends declared.

Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. Be sure to complete the heading of the statement. Enter amounts that represent cash outflows as negative numbers using a minus sign.

Answer 1

Solution

Livers Inc.
Statement of Cash Flows
For the Year Ended December 31, 20Y3
A. Cash Flows from Operating Activity
Net Income	$    500,000.00
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation expense	$    100,000.00
Gain on sale of Investment	$    (75,000.00)
Changes in current operating assets and liabilities:
Increase in Accounts Receivables	$    (50,000.00)
Increase in Inventory	$    (20,000.00)
Increase in Accounts Payable	$      40,000.00
Decrease in Accrued expenses	$      (5,000.00)
Net cash flow from Operating activities		$     490,000.00
B. Cash flows from Investing Activities
Cash received from Sale of Investment	$    175,000.00
Cash paid for Purchase of Land	$ (500,000.00)
Cash paid for Purchase of Equipment	$ (200,000.00)
Net Cash flows from Investing activities		$   (525,000.00)
C. Cash Flows from Financing activities
Cash received from sale of Common stock	$    125,000.00
Cash paid for dividends	$    (85,000.00)
Cash flows from Financing activities		$       40,000.00
Net Increase (Decrease) in Cash [A+B+C]		$          5,000.00
Cash at the beginning		$     150,000.00
Cash at the end		$     155,000.00

.Working

Calculation of Cash Dividend paid
Opening Balance of Dividends Payable	$ 25,000
Add: Dividends Declared during the year	$ 90,000
Total Dividend Liability	$ 115,000
Less: Closing Balance of Dividends	$ 30,000
Dividends Paid in cash During the year	$ 85,000