Question

The comparative balance sheets and income statements for Gypsy Company follow.

Balance Sheets As of December 31
	Year 2				Year 1
Assets
Cash	$	25,779			$	2,523
Accounts receivable		2,158				1,295
Inventory		6,559				6,149
Equipment		18,948				43,638
Accumulated depreciation—equipment		(7,717	)			(17,493	)
Land		19,647				9,607
Total assets	$	65,374			$	45,719
Liabilities and equity
Accounts payable (inventory)	$	2,552			$	4,122
Long-term debt		2,728				6,236
Common stock		24,100				10,000
Retained earnings		35,994				25,361
Total liabilities and equity	$	65,374			$	45,719

Income Statement For the Year Ended December 31, Year 2
Sales revenue	$	39,700
Cost of goods sold		(15,735	)
Gross margin		23,965
Depreciation expense		(3,139	)
Operating income		20,826
Gain on sale of equipment		500
Loss on disposal of land		(60	)
Net income	$	21,266

Additional Data

1. During Year 2, the company sold equipment for $18,785; it had originally cost $31,200. Accumulated depreciation on this equipment was $12,915 at the time of the sale. Also, the company purchased equipment for $6,510 cash.
2. The company sold land that had cost $4,060. This land was sold for $4,000, resulting in the recognition of a $60 loss. Also, common stock was issued in exchange for title to land that was valued at $14,100 at the time of exchange.
3. Paid dividends of $10,633.

Required
Prepare a statement of cash flows using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)
  

Answer 1

Solution

Gypsy Company
Statement of Cash Flows-Indirect Method
For the Year Ended December 31, Year 2
Cash flows from operating activities:
Net income		$      21,266.00
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense	$      3,139.00
Gain on sale of Equipment	$        (500.00)
Loss on disposal of land	$           60.00
Increase in Accounts receivable	$        (863.00)
Increase in inventory	$        (410.00)
Decrease in accounts payable	$     (1,570.00)
		$          (144.00)
Net cash from Operating Activities		$      21,122.00
Cash flows from investing activities:
Cash received for sale of Equipment	$    18,785.00
Cash used on purchase of Equipment	$     (6,510.00)
Cash received for sale of Land	$      4,000.00
Net cash from Investing Activities		$      16,275.00
Cash flows from financing activities:
Dividends paid	$   (10,633.00)
Repayment of long term debts	$     (3,508.00)
Net cash from Financing Activities		$     (14,141.00)
Net change in cash during the year		$      23,256.00
Add: Beginning cash balance		$        2,523.00
Ending cash balance		$      25,779.00