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Statement of Cash Flows Using a Work Sheet—Indirect Method (Appendix) Wabash Corp. just completed another successful...

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

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

For the Year Ended December 31, 2017
Sales revenue $2,460,000  
Cost of goods sold 1,400,000  
  Gross profit $1,060,000  
Operating expenses 460,000  
  Income before interest and taxes $600,000  
Interest expense 100,000  
  Income before taxes $500,000  
Income tax expense 150,000  
  Net income $350,000  

Presented here are comparative balance sheets:

December 31
2017 2016
Cash $140,000 $210,000
Accounts receivable 60,000 145,000
Inventory 200,000 180,000
Prepayments 15,000 25,000
   Total current assets $415,000 $560,000
Land $600,000 $700,000
Plant and equipment 850,000 600,000
Accumulated depreciation (225,000) (200,000)
   Total long-term assets $1,225,000 $1,100,000
   Total assets $1,640,000 $1,660,000
Accounts payable $140,000 $120,000
Other accrued liabilities 50,000 55,000
Income taxes payable 80,000 115,000
   Total current liabilities $270,000 $290,000
Long-term bank loan payable $200,000 $250,000
Common stock $450,000 $400,000
Retained earnings 720,000 720,000
  Total stockholders' equity $1,170,000 $1,120,000
  Total liabilities and stockholders' equity $1,640,000 $1,660,000

Other information is as follows:

Dividends of $350,000 were declared and paid during the year.

Operating expenses include $25,000 of depreciation.

Land was sold for its book value, and new plant and equipment were acquired for cash.

Part of the bank loan was repaid, and additional common stock was issued for cash.

The president has asked you some questions about the year's results. She is very impressed with the profit margin of 14% (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 $100,000.

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.

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 net loss, cash payments, cash outflows, or decreases in cash.

Wabash 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 Wabash experienced a decrease in cash at the end of the year due to

Solutions

Expert Solution


Cash flow indirect method

Cash flow from operating activities

Net income

350000

Adjustments to reconcile the net income

Depreciation expense

25000

Changes in current asset and liabilities

Increase in Inventory

-20000

accounts receivable decrease in

85000

Decrease in prepayments

10000

Increase in accounts payable

20000

Decrease in income tax payable

-35000

Decrease in accrued liabilities  

-5000

80000

Cash flow from operating activities

430000

Cash flow from Investing activities

Equipment purchased

-250000

Equipment sold

Land sold

100000

Cash flow from Investing activities

-150000

Cash flow from Financing activities

Paid in capital in excess

Common stock

50000

Long term balnk loan payable

-50000

Dividend

-350000

Cash flow from Financing activities

-350000

Net Cash and cash equivalent

-70000

Add

Beginning cash and cash equivalent

210000

Ending cash and cash equivalent

140000

THANK YOU............


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