Question

The comparative balance sheet of Navaria Inc. for December 31, 20Y3 and 20Y2, is shown as follows:

1		Dec. 31, 20Y3	Dec. 31, 20Y2
2	Assets
3	Cash	$155,000.00	$150,000.00
4	Accounts receivable (net)	450,000.00	400,000.00
5	Inventories	770,000.00	750,000.00
6	Investments	0.00	100,000.00
7	Land	500,000.00	0.00
8	Equipment	1,400,000.00	1,200,000.00
9	Accumulated depreciation-equipment	(600,000.00)	(500,000.00)
10	Total assets	$2,675,000.00	$2,100,000.00
11	Liabilities and Stockholders’ Equity
12	Accounts payable	$340,000.00	$300,000.00
13	Accrued expenses payable	45,000.00	50,000.00
14	Dividends payable	30,000.00	25,000.00
15	Common stock, $4 par	700,000.00	600,000.00
16	Paid-in capital: Excess of issue price over par—common stock	200,000.00	175,000.00
17	Retained earnings	1,360,000.00	950,000.00
18	Total liabilities and stockholders’ equity	$2,675,000.00	$2,100,000.00

Additional data obtained from an examination of the accounts in the ledger for 20Y3 are as follows:

A.	The investments were sold for $175,000 cash.
B.	Equipment and land were acquired for cash.
C.	There were no disposals of equipment during the year.
D.	The common stock was issued for cash.
E.	There was a $500,000 credit to Retained Earnings for net income.
F.	There was a $90,000 debit to Retained Earnings for cash dividends declared.

Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. Be sure to complete the heading of the statement. Use the minus sign to indicate cash outflows, decreases in cash and a net cash outflow for each section, if required.

Answer 1

Livers Inc.
Statement of Cash Flows
For the Year Ended December 31, 20Y3
A. Cash Flows from Operating Activity
Net Income		$    5,00,000.00
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation expense	$    1,00,000.00
Gain on sale of Investment	$     (75,000.00)
Changes in current operating assets and liabilities:
Increase in Inventory	$     (20,000.00)
Increase in Accounts Payable	$       40,000.00
Decrease in Accrued expenses payable	$       (5,000.00)
Increase in Accounts Receivables	$     (50,000.00)
		$     (10,000.00)
Net cash flow from Operating activities		$    4,90,000.00
B. Cash flows from Investing Activities
Sale of investment	$    1,75,000.00
Purchase of land	$ (5,00,000.00)
Purchase of Equipment	$ (2,00,000.00)
Net Cash flows from Investing activities		$ (5,25,000.00)
C. Cash Flows from Financing activities
Issue of common stock	$    1,25,000.00
payments of dividends	$     (85,000.00)
Cash flows from Financing activities		$        40,000.00
Net Increase (Decrease) in Cash [A+B+C]		$          5,000.00
Cash at the beginning		$    1,50,000.00
Cash at the end		$    1,55,000.00

Dividends paid in cash = Dividends declared -Increase in dividends payable