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 cash flow worksheet for 2018 in good form using the indirect method for cash flows from operating activities.

Answer 1

statement of cash flow for the year ended 31 dec2018
cash flow from operating activity
Net income	50000
Adjustment to reconcile net income to net cash flow
Depreciation on equipment [610000+ 15000 accumulated dep on equipment sold - 572000beginning accumulated dep]	53000
gain on sale of equipment [6000-5000]	(1000)
Gain on sale of debt securities [74000-69500]	(4500)
increase in accounts receivable	(11750)
increase in inventory	(20000)
decrease in prepaid insurance	500
decrease in accounts payable	(72330)
decrease in salaries payable	(4500)
decrease in notes payable	(50000)	(110580)
net cash flow from operating activity		(60580)
cash flow from investing activtiy
sale of equipment	6000
sale of debt securities	74000
purchase of new equipment	(145000)
net cash flow from investing activity		(65000)
cash flow from financing activity
Issue of bond payable	200000
payment cash dividend	(20000)
cash flow from financing activity		180000
net increase/(decrease) in cash flow		54420
Beginning cash balance		22955
Cash at end		77375