Question

BGP Electrical Supply is developing its annual financial statements at December 31, current year. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized:

	Current Year				Prior Year
Balance sheet at December 31
Cash	$	37,800			$	30,500
Accounts receivable		33,700				29,500
Merchandise inventory		46,000				38,800
Property and equipment		122,800				101,200
Less: Accumulated depreciation		(31,700	)			(25,900	)
	$	208,600			$	174,100
Accounts payable	$	37,700			$	29,000
Accrued wages expense		2,000				2,400
Note payable, long-term		45,700				48,300
Common stock and additional paid-in capital		90,800				73,500
Retained earnings		32,400				20,900
	$	208,600			$	174,100
Income statement for current year
Sales	$	127,000
Cost of goods sold		77,000
Other expenses		38,500
Net income	$	11,500

Additional Data:

1. Bought equipment for cash, $21,600.
2. Paid $2,600 on the long-term note payable.
3. Issued new shares of stock for $17,300 cash.
4. No dividends were declared or paid.
5. Other expenses included depreciation, $5,800; wages, $20,800; taxes, $6,000; other, $5,900.
6. Accounts payable includes only inventory purchases made on credit. Because there are no liability accounts relating to taxes or other expenses, assume that these expenses were fully paid in cash.

Required:

1. Prepare the statement of cash flows for the year ended December 31, current year, using the indirect method. (List cash outflows as negative amounts.)

Answer 1

1) Statement of Cash Flows for the Current year, using the indirect method is shown as follows:-

BGP Electrical Supply
Statement of Cash Flows
For The Year Ended December 31, Current Year
Cash Flows from Operating Activities
Net Income	11,500
Adjustments to reconcile net income to operating cash flows:
Depreciation	5,800
Increase in Accounts receivable (33,700-29,500)	(4,200)
Increase in Merchandise Inventory (46,000-38,800)	(7,200)
Increase in Accounts payable (37,700-29,000)	8,700
Decrease in Accrued wages expense (2,400-2,000)	(400)
Net cash provided by operating activities (A)		14,200
Cash Flows from Investing Activities
Purchase of Equipment	(21,600)
Net cash used for investing activities (B)		(21,600)
Cash Flows from Financing Activities
Repayment of long term note payable	(2,600)
Issue of common stock	17,300
Net cash provided by financing activities (C)		14,700
Net Increase in cash (A+B+C)		7,300
Add: Beginning Cash Balance		30,500
Ending Cash Balance		37,800

Working Notes:-

1) The Increase in current assets and the decrease in current liabilities are deducted from net income whereas the decrease in current assets and the increase in current liabilities are added to net income for calculating operating cash flows.