Question

. Mayflower Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Mayflower for 2019 and 2018 are provided below.

BALANCE SHEETS

                                                                                                 12/31/19                            12/31/18

Cash                                                                                       $408,000                          $ 192,000

Accounts receivable                                                                 360,000                             216,000

Inventory                                                                                   384,000                             480,000

Property, plant and equipment                          $608,000                           $960,000

Less accumulated depreciation                        (320,000)    288,000      (304,000)     656,000

                                                                                             $1,440,000                        $1,544,000

Accounts payable                                                                  $ 176,000                          $ 96,000

Income taxes payable                                                              352,000                             392,000

Bonds payable                                                                          360,000                             600,000

Common stock                                                                         216,000                             216,000

Retained earnings                                                                  336,000                           240,000

                                                                                             $1,440,000                        $1,544,000

INCOME STATEMENT

For the Year Ended December 31, 2019

Sales revenue                                                                                                                $8,400,000

Cost of sales                                                                                                                  7,152,000

Gross profit                                                                                                                      1,248,000

Selling expenses                                                                                         $600,000

Administrative expenses                                                                               192,000        792,000

Income from operations                                                                                                      456,000

Interest expense                                                                                                                   72,000

Income before taxes                                                                                                           384,000

Income taxes                                                                                                                        96,000

Net income                                                                                                                      $ 288,000

The following additional data were provided:

Dividends for the year 2019 were $192,000.

During the year, equipment was sold for $240,000. This equipment cost $352,000 originally and had a book value of $288,000 at the time of sale. The loss on sale was incorrectly charged to cost of sales.

All depreciation expense is in the selling expense category.

Questions relate to a statement of cash flows (indirect method) for the year ended December 31^st, 2019, for Harlan Mining Company.

3. How much is depreciation expense during the year?

4. Calculate cash from operating activities during the year using the indirect method.

Answer 1

3.

Accumulated depreciation on 12/31/19	$   320,000
Less: Accumulated depreciation on 12/31/18	$ (304,000)
Add: Accumulated depreciation on sold equipment ($352,000-$288,000)	$      64,000
Depreciation expense for the year	$      80,000

4.

Cash flows from operating activities
Net Income		$ 288,000
Adjustments to reconcile net income to ;
Depreciation expense	$      80,000
Loss on sale of equipment	$      48,000		288000-240000
Changes in current operating assets and liabilities
Increase in accounts receivable	$ (144,000)		216000-360000
Decrease in inventories	$      96,000		480000-384000
Increase in accounts payable	$      80,000		176000-96000
Decrease in income tax payable	$   (40,000)		352000-392000
		$ 120,000
Net cash provided by operating activities		$ 408,000

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