Question

Following are the data for Larson Co. for the year ending December 31 Year 2, and the preceding year ended December 31 Year 1 and the indirect method of reporting cash flows from operating activities. In addition to the balance sheet data, assume that:

	Equipment costing $125,000 was purchased for cash.
	Equipment costing $85,000 with accumulated depreciation of $65,000 was sold for $15,000.
	The stock was issued for cash.

The only entries in the retained earnings account were net income of $51,000 and cash dividends declared of $13,000.

1		Year 2	Year 1
2	Cash	$100,000.00	$78,000.00
3	Accounts receivable (net)	78,000.00	85,000.00
4	Inventories	101,500.00	90,000.00
5	Equipment	410,000.00	370,000.00
6	Accumulated depreciation	(150,000.00)	(158,000.00)
7		$539,500.00	$465,000.00
8	Accounts payable (merchandise creditors)	$58,500.00	$55,000.00
9	Cash dividends payable	5,000.00	4,000.00
10	Common stock, $10 par	200,000.00	170,000.00
11	Paid-in capital in excess of par—common stock	62,000.00	60,000.00
12	Retained earnings	214,000.00	176,000.00
13		$539,500.00	$465,000.00

Answer 1

Statement of Cash Flows - Indirect Method
	Amount in $	Amount in $
Net income		$             51,000
Cash flows from operating activities
Adjustments for:
Depreciation	$             57,000
Gain on sale of Equipment
Loss on sale of Equipment	$                5,000
(Increase) / Decrease in Account receivables	$                7,000
Inventory Decrease / (Increase)	$            -11,500
Accounts payable Increase / ( Decrese)	$                3,500
		$             61,000
Net cash from operating activities		$          1,12,000
Cash flows from investing activities
Sale of Equipment	$        -1,25,000
Sale of Equipment	$             15,000
Net cash used in investing activities		$        -1,10,000
Cash flows from Financing activities
Issue of Common Stock	$             30,000
Paid in capital in Excess of par	$                2,000
Dividend Paid	$            -12,000
Note Payable
Net cash used in financing activities		$             20,000
Net increase in cash and cash equivalents		$             22,000
Add :Cash and cash equivalents at beginning of period		$             78,000
Cash and cash equivalents at end of period		$          1,00,000
Equipment costing	$             85,000
Less: Accumulated Depreciation	$             65,000
Net Equipment Balance	$             20,000
Less : Sales	$             15,000
Loss on sales of Equipment	$                5,000
Opening balance of Dividend payable	$                4,000
Add: Deividend Declared	$             13,000
Total	$             17,000
Less: Dividend closing bala	$                5,000
Dividend Paid	$             12,000
Accumulatred deprecition op bal.	$          1,58,000
Less: Accumlated Depreciation against sold	$             65,000
Net Balance	$             93,000
Closing Accumlated Depreciation	$          1,50,000
Difference is depreciation of the year	$             57,000