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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
decrease in accounts receivable 85000
Increase in Inventory -20000
Decrease in prepayments 10000
Increase in accounts payable 20000
Decrease in accrued liabilities   -5000
Decrease in income tax payable -35000
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
Dividend -350000
Long term balnk loan payable -50000
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

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