Question

Prepare a statement of cash flows, using the indirect method, with the information which follows:

ABC Company reports the following comparative balance sheet:

	ABC Company
	Balance Sheet
	Dec 2018/2017
Assets	2017	2018
Cash	37,000	54,000
Accounts Receivable	26,000	68,000
Inventory	-	54,000
Prepaid expenses	6,000	4,000
Land	70,000	45,000
Buildings	200,000	200,000
Accumulated Depreciation - buildings	(11,000)	(21,000)
equipment	68,000	193,000
Accumulated Depreciation - equipment	(10,000)	(28,000)
total assets	386,000	569,000

In addition, ABC Company reports the following income statement items:

Sales Revenue                                                         $890,000

COGS $465,000

Operating Expenses 221,000

Interest Expense 12,000

Loss on disposal of equip 2,000               $700,000

Income Before taxes                                               $190,000

Income Tax Expense                                                $65,000

Net Income                                                   $125,000

You are also given the following information:

Operating expenses include depreciation expense of $33,000

Land was sold at its book value ($25,000) for cash

Cash dividends of $55,000 were paid in 2018

Interest expense of $12,000 was paid in cash

Equipment with a cost of $166,000 was purchased for cash. Equipment with a cost of $41,000 and a book value of $36,000 was sold for $34,000 cash.

Bonds of $10,000 were redeemed at their face value for cash. Bonds of $30,000 were converted into common stock.

Common stock of $130,000 was issued for cash.

Prepare the statement of cash flows for ABC Company using the indirect method.

Calculate the free cash flows for ABC Company given the above information.

Answer 1

Cash flow indirect method
Cash flow from operating activities
Net income		125000
Adjustments to reconcile the net income
Depreciation expense	33000
Loss on sale of equipment	2000
Changes in current asset and liabilities
Increase in accounts receivable	-42000
Increase in Inventory	-54000
Decrease in prepaid expense	2000
decrease in accounts payable	-7000
		-66000
Cash flow from operating activities		59000
Cash flow from Investing activities
Land sold	25000
Equipment sold	34000
Equipment purchased	-166000
Cash flow from Investing activities		-107000

	Cash flow from Financing activities
	Paid in capital in excess
	Common stock	130000
	Dividend	-55000
	Bonds payable	-10000
	Cash flow from Financing activities		65000
	Net Cash and cash equivalent		17000
Add	Beginning cash and cash equivalent		37000
	Ending cash and cash equivalent		54000