Question

Prepare Stoughton's statement of cash flows for the year ended December​ 31, 2018​, using the indirect method.
Evaluate the​ company's cash flows for the year. In your​ evaluation, mention all three categories of cash flows and give the rationale for your evaluation.	Evaluate the​ company's cash flows for the year. In your​ evaluation, mention all three categories of cash flows and give the rationale for your evaluation.

Revenues:

Service revenue                                 $283,000

Dividend revenue                                     8,700                                

                                                                                            $291,700

Expenses:
Cost of goods sold                                 103,000
Salary expense                                          55,000
Depreciation expense                              34,000
Advertising expense                                   4,300
Interest expense                                         2,100
Income tax expense                                 10,000                        208,400
Net income                                                                                    $83,300

a. Acquisition of plant assets was $ 156,000. Of this​ amount, $ 105,000 was paid in cash and $ 51,000 was financed by signing a note payable.

b. Proceeds from the sale of land totaled $ 23,000.

c. Proceeds from the issuance of common stock totaled $ 35, 000.

d. Payment of a​ long-term note payable was $ 17,000.

e. Payment of dividends was $ 13, 000.

f. From the balance​ sheets:          

Current Assets	2018	2017
Cash	80,000	52,000
Account Receivable	38,000	55,000
Inventory	50,000	69,000
Prepaid Expenses	9,400	8,100
Current Liabilities
Accounts Payable	36,000	18,0001
Accrued Liabilities	14,000	79,000

Cash flows from financing activities

Cash receipt from issuance of common stock

Payment of Note payable

Payment of Dividends

Net cash Provided by (ued for) financing activities

Net increase (decrease) in cash

Cash balance at December 31 2013

Cash Balance at December 31 2014

Noncash investing and financing activities:

Acquisition of plant assets by issuing a note payable

Answer 1

Statement of cash flows for the year ended December 31, 2018 is shown as follows:-

Cash Flows from Operating Activities
Net Income	83,300
Adjustments to reconcile net income to operating cash flows
Less: Dividend revenue (it is part of investing activity)	(8,700)
Add: Depreciation Expense	34,000
Add: Decrease in Accounts receivable (55,000-38,000)	17,000
Add: Decrease in Inventory (69,000-50,000)	19,000
Less: Increase in prepaid expense (9,400-8,100)	(1,300)
Add: Increase in Accounts Payable (36,000-18,000)	18,000
Less: Decrease in Accrued Liabilities (79,000-14,000)	(65,000)
Net Cash provided by Operating Activities (A)	96,300
Cash Flows from Investing Activities
Purchase of Plant Asset	(105,000)
Dividend revenue	8,700
Sale of Land	23,000
Net cash used for investing activities (B)	(73,300)
Cash Flows from Financing Activities
Cash receipt from issuance of common stock	35,000
Payment of Note payable	(17,000)
Payment of Dividends	(13,000)
Net cash Provided by financing activities (C)	5,000
Net increase (decrease) in cash (A+B+C)	28,000
Add: Cash balance at December 31 2017	52,000
Cash balance at December 31 2018 (28,000+52,000)	80,000
Non cash investing and financing activities:
Acquisition of plant assets by issuing a note payable	51,000

Notes:-

1) The increase in current assets and decrease in current liabilities is deducted from net income and decrease in current assets and increase in current liabilities is added to net income for calculating cash flows from operating activities.