Question

Prepare the statement of cash flow, Indirect Method

Explain step by step

Spartan Company reports $25,000 net income for the year ended December 31, 2016. Also:

1. Accounts Receivable increased by $7,500 during the year and Accounts Payable increased by $10,000 during the year. No other current assets or current liabilities were changed during 2016.

2. During 2016, Spartan reported $2,500 of Depreciation Expense.

3. During 2016, Spartan reported $2,000 gain on sale of equipment.

4. Given: Property, Plant & Equipment (PPE):

                        Beg. Balance $10,000            Ending Balance $7,000

                Accumulated Depreciation(A.D.):
                        Beg. Balance $ 3,000             Ending Balance $4,000

During the year, a piece of equipment was sold, which resulted in a Gain on Sale of Equipment of $2,000. A machine was acquired at a cost of $5,000 during the year.

5. Given: Common Stock:

                        Beg. Balance $160,000                      Ending Balance $170,000

                Long-term Debt:
                        Beg. Balance $ 150,000                     Ending Balance $130,000

                Retained Earnings:
                        Beg. Balance $ 60,000                       Ending Balance $82,000

During the year, all declared dividends were paid.

6. Cash: Beg. Balance $5,500                       Ending Balance $24,000

Answer 1

Cash Flow from Operating Activities :-
Net Income	25000
Adjustment relating to non operating & non cash activities:-
(-) Gain on sale of equipment	2000
(+) Depreciation Exp	2500
Adjustment relating to Working Capital:-
(-) A/c Receivable Increased	7500
(+) A/c Payable Increased	10000
Cash Flow from Operating Activities (A)		28000
Cash Flow from Investing Activities:-
(-) Purchase of PPE (7000 +5000 – 10000)	2000
(+) Sale of Equipment (5000-1500+2000)	5500
Cash Flow from Investing Activities (B)		3500
Cash Flow from Financing Activities:-
(+) Issue common stock	10000
(-) Repay Long Term Debt	20000
(-) Paid Dividend (60000 + 25000 – 82000)	3000
Cash Flow from Financing Activities (C)		(13000)
Net Cash Inflow/Outflow (A+B+C)		18500
(+) Beginning cash Balance		5500
Ending Cash Balance		24000