Question

The Murdock Corporation reported the following balance sheet data for 2018 and 2017:

​	2018	2017
Cash	$77,375	$22,955
Available-for-sale debt securities	​	​
(not cash equivalents)	15,500	85,000
Accounts receivable	80,000	68,250
Inventory	165,000	145,000
Prepaid insurance	1,500	2,000
Land, buildings, and equipment	1,250,000	1,125,000
Accumulated depreciation	(610,000)	(572,000)
Total assets	$979,375	$876,205
Accounts payable	$76,340	$148,670
Salaries payable	20,000	24,500
Notes payable (current)	25,000	75,000
Bonds payable	200,000	0
Common stock	300,000	300,000
Retained earnings	358,035	328,035
Total liabilities and shareholders' equity	$979,375	$876,205

Additional information for 2018:
(1.) Sold available-for-sale debt securities costing $69,500 for $74,000.
(2.) Equipment costing $20,000 with a book value of $5,000 was sold for $6,000.
(3.) Issued 6% bonds payable at face value, $200,000.
(4.) Purchased new equipment for $145,000 cash.
(5.) Paid cash dividends of $20,000.
(6.) Net income was $50,000.

Required:

Prepare a statement of cash flows for 2018 in good form using the indirect method for cash flows from operating activities. Also, provide a cash flow worksheet to prove your answer.

Answer 1

Murdock Corporation
CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31,2018
	$	$
CASH FLOW FROM OPERATING ACTIVITIES
Net Profit /Operating Profit Before Working Capital Changes	50,000.00
Adjustment For non cash items and working capital changes:
Depreciation 610000 - [572000 - (20000 - 5000)]	53,000.00
Gain on sale of Available for sale securities (69500 - 74000)	(4,500.00)
Gain on sale of Equipment (5000 - 6000)	(1,000.00)
Increase in Accounts receivable (68250 - 80000)	(11,750.00)
Increase in inventory (145000 - 165000)	(20,000.00)
Decrease in Prepaid Insurance (2000 - 1500)	500.00
Decrease in Accounts payable (76340 - 148670)	(72,330.00)
Decrease in Salaries payable (20000 - 24500)	(4,500.00)
Decrease in Notes payable (25000 - 75000)	(50,000.00)
NET CASH FROM OPERATING ACTIVITIES (A)		(60,580.00)
CASH FLOW FROM INVESTING ACTIVITIES
Sale of Available for sale securities	74,000.00
Sale of Equipment	6,000.00
Purchase of Equipment	(1,45,000.00)
NET CASH FROM INVESTING ACTIVITIES (B)		(65,000.00)
CASH FLOW FROM FINANCING ACTIVITIES
Issue of Bonds	2,00,000.00
Payment of dividend	(20,000.00)
NET CASH FROM FINANCING ACTIVITIES (C)		1,80,000.00
NET CHANGES IN CASH AND CASH EQUIVALENTS (A+B+C)		54,420.00
ADD: OPENING CASH AND CASH EQUIVALENTS		22,955.00
CLOSING CASH AND CASH EQUIVALENTS		77,375.00