Question

Tulip Inc.’s balance sheet is as follows:

Balance Sheet	January 1	December 31
Assets:
Cash	$ 12,000	$ 7,000
Accounts receivable	2,000	11,000
Inventory	24,000	39,000
Long-term investments	9,000	23,000
Property, plant, & equipment	100,000	83,000
Less accumulated depreciation	(62,000)	(66,000)
Total	$ 85,000	$97,000
Liabilities and stockholders’ equity:
Accounts payable	$ 28,000	$ 9,000
Income taxes payable	2,000	1,000
Bonds payable	10,000	16,000
Common stock	30,000	42,000
Retained earnings	15,000	29,000
Total	$85,000	$97,000

Tulip reported net income of $34,000 and paid $20,000 of cash dividends. No equipment was purchased, and no long-term investments were sold. There was a gain of $3,000 when equipment was sold. The accumulated depreciation on the equipment that was sold was $12,000. Prepare Tulip’s statement of cash flows using the indirect method.

Answer 1

Statement of cash flows

Particulars	$	$
I. Cash flow from Operating Activities
Net income	34,000
Add: Adjustments to reconcile net income to net cash provided by operating activities
Depreciation on equipment	16,000
Gain on sale of equipment	-3,000
Changes in current operating assets and liabilities:
Accounts receivable increase	-9,000
Inventory increase	-15,000
Accounts payable decrease	-19,000
Income tax payable decrease	-1,000
Accrued expenses payable increase
Net cash provided by Operating Activities		3,000
II. Cash flow from Investing Activities
Sale of equipment	8,000
Purchase of investments	-14,000
Net cash used in Investing Activities		-6,000
III. Cash flow from Financing Activities
Issue of common stock	12,000
Issue of Bonds	6,000
Dividend paid	-20,000
Net cash provided by Financing Activities		-2,000
Net increase in Cash and Cash Equivalents(I +II +III)		-5,000
Add: Cash in the beginning of the period		12,000
Cash at the end of the period		7,000

Equipment

Beginning balance	100,000	Accumulated depreciation	12,000
Gain on sale	3,000	Cash (Sale) (Balance figure)	8,000
		Ending balance	83,000
	103,000		103,000

Accumulated depreciation - Equipment

Equipment	12,000	beginning balance	62,000
Ending balance	66,000	Depreciation (balancing figure)	16,000
	78,000		78,000