Question

Exercise 12-12 Indirect: Preparing statement of cash flows LO P2, P3

MONTGOMERY INC. Comparative Balance Sheets December 31
	Current Year				Prior Year
Assets
Cash		$	30,400			$	30,550
Accounts receivable, net			10,050				12,150
Inventory			90,100				70,150
Total current assets			130,550				112,850
Equipment			49,900				41,500
Accum. depreciation—Equipment			(22,500	)			(15,300	)
Total assets		$	157,950			$	139,050
Liabilities and Equity
Accounts payable		$	23,900			$	25,400
Salaries payable			500				600
Total current liabilities			24,400				26,000
Equity
Common stock, no par value			110,000				100,000
Retained earnings			23,550				13,050
Total liabilities and equity		$	157,950			$	139,050

MONTGOMERY INC. Income Statement For Current Year Ended December 31
Sales				$	45,575
Cost of goods sold					(18,950	)
Gross profit					26,625
Operating expenses
Depreciation expense	$	7,200
Other expenses		5,550
Total operating expense					12,750
Income before taxes					13,875
Income tax expense					3,375
Net income				$	10,500

Additional Information on Current-Year Transactions

1. No dividends are declared or paid.
2. Issued additional stock for $10,000 cash.
3. Purchased equipment for cash; no equipment was sold.

1. Use the above information to prepare a statement of cash flows for the current year using the indirect method. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

Answer:

MONTGOMERY INC
Statement of Cash Flows
For the Year Ended December 31
Cash flows from Operating activities:
Net income		$10,500
Adjustments to Reconcile Net income to Net cash Provided by Operating Activities:
Depreciation expense	$7,200
Decrease in accounts receivable	$2,100
Increase in accounts payable	($19,950)
Decrease in accounts payable	($1,500)
Decrease in salaries payable	($100)	($12,250)
Net cash provided by operating activities (i)		($1,750)
Cash flows from investing activities:
Purchase of equipment	($8,400)
Net cash provided by investing activities (ii)		($8,400)
Cash flows from financing activities:
Issuance of common stock	$10,000
Net cash provided by financing activities (iii)		$10,000
Net increase (decrease) in cash [i+ii+iii]		($150)
Cash balance, prior year		$30,550
Cash balance, current year		$30,400