Question

Prepare a statement of cash flows for Henderson ?Industries, Inc., for the year ended December? 31, 2017?, using the indirect method.

Henderson Industries, Inc.

Income Statement

For the Year Ended December 31, 2017

Sales revenues

$950,000

Less: Cost of goods sold

378,000

Gross profit

$572,000

Less operating expenses:

Salaries and wages expense

$187,000

Insurance expense

14,500

Depreciation expense

48,400

Other operating expenses

88,000

Total operating expenses

337,900

Operating income

$234,100

Plus other income and less other expenses:

Interest expense

$5,900

Gain on sale of PP&E

3,000

Total other income and expenses

2,900

Income before income taxes

$231,200

Less: Income tax expense

69,360

Net income

$161,840

Henderson Industries, Inc.
Comparative Balance Sheets
December 31, 2017 and 2016
Assets		2017	2016
Current assets:
Cash		$472,000	$287,000
Accounts receivable		76,000	126,000
Inventory		335,000	211,000
Prepaid insurance		7,000	3,500
Total current assets		$890,000	$627,500
Property, plant, and equipment		$615,000	$600,000
Less: Accumulated depreciation		(151,000)	(112,000)
Investments		88,000	76,000
Total assets		$1,442,000	$1,191,500
Liabilities
Current liabilities:
Accounts payable (inventory purchases)		$56,000	$37,000
Wages payable		16,000	17,000
Interest payable		1,600	800
Income taxes payable		60,360	11,500
Other accrued expenses payable		6,800	3,000
Total current liablities		$140,760	$69,300
Long-term liabilities		60,000	20,000
Total liabilities		$200,760	$89,300
Stockholders' equity
Common stock		$603,000	$603,000
Retained earnings		638,240	499,200
Total stockholders' equity		$1,241,240	$1,102,200
Total liabilities and equity		$1,442,000	$1,191,500

Answer 1

Henderson Industries, Inc.

Statement of Cash Flows

For the year ended December 31, 2017

I. Cash flows from operating activities
Net income	161,840
Add: Income tax expense	69,360
Profit before tax	231,200
Adjustments for non-cash and non-operating expenses and gains:
Depreciation expense	48,400
Interest expense	5,900
Less: Gain on sale of PP and E	- 3,000
Operating profit before working capital changes	282,500
Decrese in accounts receivables	50,000
Increse in inventory	-124,000
Increase in prepaid insurance	- 3,500
Increase in accounts payable	19,000
Decrease in wages payable	-1,000
Increase in other accrues expense payable	3,800
	226,800
Less: tax paid	- 20,500
Net cash flows from operating activities		206,300
II. Cash flows from Investing activities
Purchase of property, plant and equipment	- 21,400
Purchase of investment	-12,000
Net cash flows from Investing activities		- 33,400
III. Cash flows from Financing activities
Increse in long term liabilities	40,000
Interest paid	- 5,100
Cash dividend paid	- 22,800
Net cash flows from financing activities		12,100
Net increase in cash (I + II + III)		185,000
Opening balance of cash		287,000
Closing balance of cash		472,000

Working notes:

Income tax payable account

Cash (Tax paid)	20,500	Balance b/d	11,500
Balance c/d	60,360	Provision for tax made	69,360
	80,860		80,860

Property,plant and equipment account

Balance b/d	600,000	Accu. dep	9,400
Gain on sale	3,000
Cash(purchase)	21,400
(Bal. fig.)		Balance c/d	615,000
	624,400		624,400

Accumulated depreciation account

Property(accum. dep)	9,400	Balance b/d	112,000
Balance c/d	151,000	Depreciation provided	48,400
	160,400		160,400

Interest payable account

Cash(interest paid)	5,100	Balance b/d	800
Balance c/d	1,600	Interest of current year	5,900
	6,700		6,700

Calculation of cash dividend paid

Net income = $161,840

Profit transferred to reatained earnings = 638,240 - 499,200

= $139,040

Hence, remaining profit must have been used as dividend paid = 161,840 - 139,040

= $22,800