Question

Statement of Cash Flows—Indirect Method

The comparative balance sheet of Yellow Dog Enterprises Inc. at December 31, 20Y8 and 20Y7, is as follows:

		Dec. 31, 20Y8		Dec. 31, 20Y7
Assets
Cash		$68,060		$83,670
Accounts receivable (net)		104,580		112,790
Merchandise inventory		149,400		139,800
Prepaid expenses		6,090		4,240
Equipment		304,330		250,470
Accumulated depreciation-equipment		(79,130)		(61,430)
	Total assets	$553,330		$529,540
Liabilities and Stockholders' Equity
Accounts payable (merchandise creditors)		$116,200		$110,670
Mortgage note payable		0		158,860
Common stock, $1 par		18,000		11,000
Paid-in capital: Excess of issue price over par-common stock		268,000		149,000
Retained earnings		151,130		100,010
	Total liabilities and stockholders’ equity	$553,330		$529,540

Additional data obtained from the income statement and from an examination of the accounts in the ledger for 20Y8 are as follows:

1. Net income, $130,870.
2. Depreciation reported on the income statement, $38,490.
3. Equipment was purchased at a cost of $74,650, and fully depreciated equipment costing $20,790 was discarded, with no salvage realized.
4. The mortgage note payable was not due for six years, but the terms permitted earlier payment without penalty.
5. 7,000 shares of common stock were issued at $18 for cash.
6. Cash dividends declared and paid, $79,750.

Required:

Prepare a statement of cash flows, using the indirect method. Use the minus sign to indicate cash outflows, cash payments, decreases in cash, or any negative adjustments.

Yellow Dog Enterprises Inc.
Statement of Cash Flows
For the Year Ended December 31, 20Y8
Cash flows from operating activities:
	$
Adjustments to reconcile net income to net cash flow from operating activities:
Changes in current operating assets and liabilities:
Net cash flow from operating activities		$
Cash flows from (used for) investing activities:
	$
Net cash flow used for investing activities
Cash flows from (used for) financing activities:
	$
Net cash flow used for financing activities
		$
Cash at the beginning of the year
Cash at the end of the year		$

Answer 1

cash flow from operating activities	amount($)
net income as reported	130870
add(deduct) items not affecting cash:
depreciation	38490
cash flow from operating activities before working capital changes	169360
add:decrease in accounts receivable	8210
less:increase in inventory	-9600
less:increase in prepaid expenses	-1850
add:increase in accounts payable	5530
net cash provided by operating activities	171650
cash flow from investing activities
purchase of equipment	-74650
net cash provided by investing activities	-74650
cash flow from financing activities
mortgage notes repaid	-158860
issue of common stock	126000
dividend paid	-79750
net cash provided by financing activities	-112610
increase/(decrease in cash)	-15610
cash balance at beginning of the year	83670
cash balance at the closing of the year	68060

notes:

1) depreciation is a non cash item,hence added back to net income.

2) no cash is realised on discarding of equipment,hence it is not considered.

3) repayment of notes payable is a long term debt and so taken in financing activities.

4) incraese in current is cash outflow activity and decrease in current assets is cash inflow activity and the reverse will happenin the case of current liabilities.