Question

Statement of Cash Flows (Indirect Method)
Use the following information regarding the Newcastle Corporation to prepare a statement of cash flows using the indirect method:

Accounts payable decrease	$9,000
Accounts receivable increase	12,600
Wages payable decrease	5,400
Amortization expense	28,800
Cash balance, January 1	54,000
Cash balance, December 31	12,600
Cash paid as dividends	10,800
Cash paid to purchase land	180,000
Cash paid to retire bonds payable at par	135,000
Cash received from issuance of common stock	81,000
Cash received from sale of equipment	21,600
Depreciation expense	70,200
Gain on sale of equipment	25,200
Inventory increase	23,400
Net income	172,800
Prepaid expenses increase	14,400

Remember to use negative signs with answers when appropriate.

NEWCASTLE CORPORATION Statement of Cash Flows For Year Ended December 31
Cash Flow from Operating Activities
Net Income	Answer
Add (deduct) items to convert net income to cash basis
Depreciation	Answer
Amortization	Answer
Gain on Sale of Equipment	Answer
Accounts Receivable Increase	Answer
Inventory Increase	Answer
Prepaid Expenses Increase	Answer
Accounts Payable Decrease	Answer
Wages Payable Decrease	Answer
Cash Flow Provided by Operating Activities	Answer
Cash Flow from Investing Activities
Sale of Equipment	Answer
Purchase of Land	Answer
Cash Used by Investing Activities	Answer
Cash Flow from Financing Activities
Issuance of Common Stock	Answer
Retirement of Bonds Payable	Answer
Payment of Dividends	Answer
Cash Used by Financing Activities	Answer
Net Decrease in Cash	Answer
Cash at Beginning of Year	Answer
Cash at End of Year	Answer

Answer 1

Solution

NEWCASTLE CORPORATION
Statement of Cash Flows
For Year Ended December 31
Cash Flow from Operating Activities
Net Income	$ 172,800.00
Add (deduct) items to convert net income to cash basis
Depreciation	$    70,200.00
Amortization	$    28,800.00
Gain on Sale of Equipment	$   (25,200.00)
Accounts Receivable Increase	$   (12,600.00)
Inventory Increase	$   (23,400.00)
Prepaid Expenses Increase	$   (14,400.00)
Accounts Payable Decrease	$     (9,000.00)
Wages Payable Decrease	$     (5,400.00)
Cash Flow Provided by Operating Activities	$ 181,800.00
Cash Flow from Investing Activities
Sale of Equipment	$    21,600.00
Purchase of Land	$ (180,000.00)
Cash Used by Investing Activities	$ (158,400.00)
Cash Flow from Financing Activities
Issuance of Common Stock	$    81,000.00
Retirement of Bonds Payable	$ (135,000.00)
Payment of Dividends	$   (10,800.00)
Cash Used by Financing Activities	$   (64,800.00)
Net Decrease in Cash	$   (41,400.00)
Cash at Beginning of Year	$    54,000.00
Cash at End of Year	$    12,600.00

.General notes for cash flow
Cash is increased when Current liability increase or Current asset Decrease.
Cash is Decreased when Current liability Decrease or Current asset Increase.
Depreciation or loss on sale of any asset is a non cash expense hence it will be added to net income to get operating cash
Profit on sale of asset or investment is a non cash profit and hence will be deducted from operating income.