Question

LIVERS INC.

Statement of Cash Flows

For the Year Ended December 31, 20Y3

Cash flows from operating activities:

Net income

Adjustments to reconcile net income to net cash

flow from operating activities:

Depreciation

100,000

Loss on inventory write down and fixed assets

Gain on sale of investments

Changes in current operating assets and liabilities:

Increase in accounts receivable

(50,000)

Increase in inventories

(20,000)

Increase in accounts payable

40,000

Decrease in accrued expenses payable

(5,000)

Net cash flow from operating activities

Cash flows from investing activities:

Cash received from sale of investments

Cash paid for purchase of land

(500,000)

Cash paid for purchase of equipment

(200,000)

Net cash flow used for investing activities

Cash flows from financing activities:

Cash received from sale of common stock

$125,000

Cash paid for dividends

Net cash flow from financing activities

Change in cash

Cash at the beginning of the year

150,000

Cash at the end of the year

$155,000

Optional:

LIVERS INC.

Spreadsheet (Work Sheet) for Statement of Cash Flows

For the Year Ended December 31, 20Y3

Balance,

Transactions

Balance,

Dec. 31, 20Y2

Debit

Credit

Dec. 31, 20Y3

Cash

150,000

155,000

Accounts receivable (net)

400,000

450,000

Inventories

750,000

770,000

Investments

100,000

-

-

Land

-

500,000

Equipment

1,200,000

1,400,000

Accum. depr. - equipment

(500,000)

(600,000)

Accounts payable

(300,000)

(340,000)

Accrued expenses payable

(50,000)

(45,000)

Dividends payable

(25,000)

(30,000)

Common stock, $4 par

(600,000)

(700,000)

Paid-in capital in excess of par

(175,000)

(200,000)

Retained earnings

(950,000)

(1,360,000)

Totals

-

-

Operating activities:

Net income

Depreciation

Gain on sale of investments

Increase in accounts receivable

Increase in inventories

Increase in accounts payable

Decrease in accrued expenses payable

Investing activities:

Purchase of equipment

Purchase of land

Sale of investments

Financing activities:

Declaration of cash dividends

Sale of common stock

Increase in dividends payable

Net change in cash

Totals

Answer 1

Solution :

The gain on sale of investment is not provided. Whatever is the amount of gain could be showin in the cash flow from operationg activites and the sale value inclusding gain would be reflected in the cash flow from investing activities.

It is given that the dividend provided for year 20Y2 is 25,000, so that must have been paid in 20Y3. So the dividend proposed for 20Y3 is 30,000 . Hence the balance of net income would be 1360,000 + 30,000 - 950,000 = 440,000.

Cash Flow Statement

Operating activities:
		Net income		440000
		Depreciation		100000
		Gain on sale of investments		0
		-50000
		Increase in inventories		-20000
		Increase in accounts payable		40000
		Decrease in accrued expenses payable		-5000
			Total	505000
	Investing activities:
		Purchase of equipment		-500000
		Purchase of land		-200000
		Sale of investments		100000
			Total	-600000
	Financing activities:
		Declaration of cash dividends		-25000
		Sale of common stock		1250000
		Total		100000
	Net change in cash			5000
	Cash at the beginning of the year			150000
	Cash at the end of the year			155000
	Equals net change			5000