Question

Comparative financial statements for Weaver Company follow:

During 2009, the company sold some equipment for $20 that had cost $40 and on which there was accumulated depreciation of $16. In addition, the company sold long-term investments for $10 that had cost $3 when purchased several years ago. Cash dividends totaling $30 were paid during 2009.

 

Required:

1. Using the indirect method, determine the net cash provided by operating activities for 2009.

2. Using the information in (1) above, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for 2009.

 

 

Answer 1

1. and 2.

Weaver Company  Statement of Cash Flows  For the Year Ended December 31, 2009

 

Operating activities:
Net income		$ 63
Adjustments to convert net income to cash basis:
Depreciation charges	$ 24
Increase in accounts receivable	(100)
Decrease in inventory	50
Increase in prepaid expenses	(4)
Increase in accounts payable	80
Decrease in accrued liabilities	(12)
Gain on sale of investments	(7)
Loss on sale of equipment	4
Increase in deferred income taxes	6	41
Net cash provided by operating activities		104
Investing activities:
Proceeds from sale of long-term investments	10
Proceeds from sale of equipment	20
Additions to plant and equipment	(180)
Net cash used for investing activities		(150)
Financing activities:
Increase in bonds payable	110
Decrease in common stock	(40)
Cash dividends	(30)
Net cash provided by financing activities		40
Net decrease in cash		(6)
Cash balance, beginning of the year		15
Cash balance, end of the year		$  9

Note to the instructor: Although it is not a requirement, a worksheet may be helpful.

 

			Cash
		Source	Flow	Adjust-	Adjusted	Classi-
	Change	or use?	Effect	ments	Effect	fication
Assets (except cash and cash equivalents)
Current assets:
Accounts receivable	+100	Use	–100		–100	Operating
Inventory	–50	Source	+50		+50	Operating
Prepaid expenses	+4	Use	–4		–4	Operating
Noncurrent assets:
Long-term investments	–3	Source	+3	–3	0	Investing
Plant and equipment	+140	Use	–140	–40	–180	Investing
Liabilities, Contra-assets, and Stockholders’ Equity
Contra-assets:
Accumulated depreciation	+8	Source	+8	+16	+24	Operating
Current liabilities:
Accounts payable	+80	Source	+80		+80	Operating
Accrued liabilities	–12	Use	–12		–12	Operating

 

			Cash
		Source	Flow	Adjust-	Adjusted	Classi-
	Change	or use?	Effect	ments	Effect	fication
Noncurrent liabilities:
Bonds payable	+110	Source	+110		+110	Financing
Deferred income taxes	+6	Source	+6		+6	Operating
Stockholders’ equity:
Common stock	–40	Use	–40		–40	Financing
Retained earnings:
Net income	+63	Source	+63		+63	Operating
Dividends	–30	Use	–30		–30	Financing
Additional entries
Proceeds from sale of investments				+10	+10	Investing
Gain on sale of investments				–7	–7	Operating
Proceeds from sale of equipment				+20	+20	Investing
Loss on sale of equipment				+4	+4	Operating
Total			–6		–6