Question

Statement of Cash Flows—Indirect Method

The comparative balance sheet of Merrick Equipment Co. for December 31, 20Y9 and 20Y8, is as follows:

		Dec. 31, 20Y9		Dec. 31, 20Y8
Assets
Cash		$273,200		$252,390
Accounts receivable (net)		98,970		90,650
Inventories		279,400		268,360
Investments		0		103,980
Land		143,300		0
Equipment		308,250		237,280
Accumulated depreciation—equipment		(72,170)		(63,980)
	Total assets	$1,030,950		$888,680
Liabilities and Stockholders' Equity
Accounts payable		$186,600		$175,070
Accrued expenses payable		18,560		23,110
Dividends payable		10,310		8,000
Common stock, $10 par		55,670		43,550
Paid-in capital: Excess of issue price over par-common stock		209,280		120,860
Retained earnings		550,530		518,090
	Total liabilities and stockholders’ equity	$1,030,950		$888,680

Additional data obtained from an examination of the accounts in the ledger for 20Y9 are as follows:

1. Equipment and land were acquired for cash.
2. There were no disposals of equipment during the year.
3. The investments were sold for $93,580 cash.
4. The common stock was issued for cash.
5. There was a $74,210 credit to Retained Earnings for net income.
6. There was a $41,770 debit to Retained Earnings for cash dividends declared.

Required:

Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Use the minus sign to indicate cash outflows, cash payments, decreases in cash, or any negative adjustments.

Merrick Equipment Co.
Statement of Cash Flows
For the Year Ended December 31, 20Y9
Cash flows from operating activities:
	$
Adjustments to reconcile net income to net cash flow from operating activities:
Changes in current operating assets and liabilities:
Net cash flow from operating activities		$
Cash flows from (used for) investing activities:
	$
Net cash flow used for investing activities
Cash flows from (used for) financing activities:
Net cash flow from financing activities
		$
Cash at the beginning of the year
Cash at the end of the year		$

Answer 1

Solution

Merrick Equipment Co.
Statement of Cash Flows
For the Year Ended December 31, 20Y9
Cash flows from operating activities:
Net income	$        74,210.00
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation	$          8,190.00
Loss on sale of investments	$        10,400.00
Changes in current operating assets and liabilities:
Increase in accounts receivable	$         (8,320.00)
Increase in inventories	$       (11,040.00)
Increase in accounts payable	$        11,530.00
Decrease in accrued expenses payable	$         (4,550.00)
Net cash flow from operating activities		$    80,420.00
Cash flows from (used for) investing activities:
Cash Received from sale of investments	$        93,580.00
Cash used for purchase of land	$     (143,300.00)
Cash used for purchase of equipment	$       (70,970.00)
Net cash flow used for investing activities		$ (120,690.00)
Cash flows from (used for) financing activities:
Cash received from sale of common stock	$      100,540.00
Cash used for dividends	$       (39,460.00)
Net cash flow from financing activities		$    61,080.00
Increase in cash		$    20,810.00
Cash at the beginning of the year		$ 252,390.00
Cash at the end of the year		$ 273,200.00

.Working

Dividends paid in cash
Dividends declared	$    41,770.00
Less: Increase in dividends payable	$    (2,310.00)
Dividends paid in cash	$    39,460.00