Question

Statement of Cash Flows Using a Work Sheet—Indirect Method (Appendix)

Peoria Corp. just completed another successful year, as indicated by the following income statement:

	For the Year Ended December 31, 2017

Sales revenue	$1,250,000
Cost of goods sold	700,000
Gross profit	$550,000
Operating expenses	150,000
Income before interest and taxes	$400,000
Interest expense	25,000
Income before taxes	$375,000
Income tax expense	150,000
Net income	$225,000

Presented here are comparative balance sheets:

	December 31
	2017		2016
Cash	$52,000		$90,000
Accounts receivable	180,000		130,000
Inventory	230,000		200,000
Prepayments	15,000		25,000
Total current assets	$477,000		$445,000
Land	$750,000		$600,000
Plant and equipment	700,000		500,000
Accumulated depreciation	(250,000)		(200,000)
Total long-term assets	$1,200,000		$900,000
Total assets	$1,677,000		$1,345,000
Accounts payable	$130,000		$148,000
Other accrued liabilities	68,000		63,000
Income taxes payable	90,000		110,000
Total current liabilities	$288,000		$321,000
Long-term bank loan payable	$350,000		$300,000
Common stock	$550,000		$400,000
Retained earnings	489,000		324,000
Total stockholders' equity	$1,039,000		$724,000
Total liabilities and stockholders' equity	$1,677,000		$1,345,000

Other information is as follows:

Dividends of $60,000 were declared and paid during the year.

Operating expenses include $50,000 of depreciation.

Land and plant and equipment were acquired for cash, and additional stock was issued for cash. Cash also was received from additional bank loans.

The president has asked you some questions about the year's results. She is very impressed with the profit margin of 18% (net income divided by sales revenue). She is bothered, however, by the decline in the company's cash balance during the year. One of the conditions of the existing bank loan is that the company maintain a minimum cash balance of $50,000.

Required:

1. Using the format in the chapter's appendix, prepare a statement of cash flows work sheet. If an amount box does not require an entry, leave it blank. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash.

	Balances			Cash Inflows (Outflows)
Accounts	12/31/17	12/31/16	Changes	Operating	Investing	Financing
Cash	$	$	$	$	$	$
Accounts Receivable
Inventory
Prepayments
Land
Plant and Equipment
Accumulated Depreciation
Accounts Payable
Other Accrued Liabilities
Income Taxes Payable
Long-Term Bank Loan Payable
Common Stock
Retained Earnings
Net Income
Totals	$	$	$	$	$	$
Net increase (decrease) in cash				$

2. Prepare a statement of cash flows for 2017 using the indirect method in the Operating Activities section. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash.

Peoria Corp.
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash Flows from Operating Activities
	$
Adjustments to reconcile net income to net cash provided by operating activities:
	$
Cash Flows from Investing Activities
	$
	$
Cash Flows from Financing Activities
	$
	$
	$
Cash balance, December 31, 2016
Cash balance, December 31, 2017	$

3. During the year Peoria experienced a decrease in cash at the end of the year due to

     

Answer 1

1. Using the format in the chapter's appendix, prepare a statement of cash flows work sheet. If an amount box does not require an entry, leave it blank. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash.
Balances		Cash Inflows (Outflows)
Accounts	12/31/17	12/31/16	Changes	Operating	Investing	Financing
Cash	$52,000.00	$90,000.00	-$38,000.00		$	$
Accounts Receivable	$180,000.00	$130,000.00	$50,000.00	-$50,000.00
Inventory	$230,000.00	$200,000.00	$30,000.00	-$30,000.00
Prepayments	$15,000.00	$25,000.00	-$10,000.00	$10,000.00
Land	$750,000.00	$600,000.00	$150,000.00		-150000
Plant and Equipment	$700,000.00	$500,000.00	$200,000.00		-200000
Accumulated Depreciation	-$250,000.00	-$200,000.00	-$50,000.00	$50,000.00
Accounts Payable	$130,000.00	$148,000.00	-$18,000.00	-$18,000.00
Other Accrued Liabilities	$68,000.00	$63,000.00	$5,000.00	$5,000.00
Income Taxes Payable	$90,000.00	$110,000.00	-$20,000.00	-$20,000.00
Long-Term Bank Loan Payable	$350,000.00	$300,000.00	$50,000.00			$50,000.00
Common Stock	$550,000.00	$400,000.00	$150,000.00			$150,000.00
Retained Earnings	$489,000.00	$324,000.00	$165,000.00			-60000
Net Income	$225,000.00		$225,000.00	$225,000.00
Totals	$	$	$	$172,000.00	-$350,000.00	$140,000.00
Net increase (decrease) in cash				-$38,000.00
2. Prepare a statement of cash flows for 2017 using the indirect method in the Operating Activities section. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash.
Peoria Corp.
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash Flows from Operating Activities
Net Income	$225,000.00
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation Expense	$50,000.00
Increase in Accounts Receivable	-$50,000.00
Increase in Inventories	-$30,000.00
Decrease in Prepayments	$10,000.00
Decrease in Accounts Payable	-$18,000.00
Increase in Other Accrued Liabilities	$5,000.00
Decrease in Income Taxes Payable	-$20,000.00
Net Cash provided by operating expenses		$172,000.00
Cash Flows from Investing Activities
Acquisition of land	-$150,000.00
Acquisition of plant and equipment	-$200,000.00
Net cash used by investing activities		-$350,000.00
Cash Flows from Financing Activities
Additional long-term borrowings	$50,000.00
Issuance of common stock	$150,000.00
Cash dividends paid	$60,000.00
Net cash provided by financing activities		$260,000.00
Net decrease in cash		$82,000.00
Cash balance, December 31, 2016		$90,000.00
Cash balance, December 31, 2017	$	$172,000.00
3. During the year Peoria experienced a decrease in cash at the end of the year due to acquisition of land and plant & equipment.