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Statement of Cash Flows—Indirect Method The comparative balance sheet of Merrick Equipment Co. for December 31,...

Statement of Cash Flows—Indirect Method

The comparative balance sheet of Merrick Equipment Co. for December 31, 20Y9 and 20Y8, is as follows:

Dec. 31, 20Y9 Dec. 31, 20Y8
Assets
Cash $257,300 $238,800
Accounts receivable (net) 93,210 85,760
Inventories 263,120 253,930
Investments 0 98,380
Land 134,960 0
Equipment 290,310 224,500
Accumulated depreciation—equipment (67,970) (60,540)
Total assets $970,930 $840,830
Liabilities and Stockholders' Equity
Accounts payable $175,740 $165,640
Accrued expenses payable 17,480 21,860
Dividends payable 9,710 7,570
Common stock, $10 par 52,430 41,200
Paid-in capital: Excess of issue price over par-common stock 197,100 114,350
Retained earnings 518,470 490,210
Total liabilities and stockholders’ equity $970,930 $840,830

Additional data obtained from an examination of the accounts in the ledger for 20Y9 are as follows:

  1. Equipment and land were acquired for cash.
  2. There were no disposals of equipment during the year.
  3. The investments were sold for $88,540 cash.
  4. The common stock was issued for cash.
  5. There was a $67,780 credit to Retained Earnings for net income.
  6. There was a $39,520 debit to Retained Earnings for cash dividends declared.

Required:

Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Use the minus sign to indicate cash outflows, cash payments, decreases in cash, or any negative adjustments.

Merrick Equipment Co.
Statement of Cash Flows
For the Year Ended December 31, 20Y9
Cash flows from operating activities:
Net income $
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation
Loss on sale of investments
Changes in current operating assets and liabilities:
Increase in accounts receivable
Increase in inventories
Increase in accounts payable
Decrease in accrued expenses payable
Net cash flow from operating activities $
Cash flows from (used for) investing activities:
Cash from sale of investments $
Cash used for purchase of land
Cash used for purchase of equipment
Net cash flow used for investing activities
Cash flows from (used for) financing activities:
Cash from sale of common stock
Cash used for dividends
Net cash flow from financing activities
Increase in cash $
Cash at the beginning of the year
Cash at the end of the year $

Solutions

Expert Solution

Merrick Equipment Co.
Statement of Cash Flows
For the Year Ended December 31, 20Y9
Cash flows from operating activities: Amount in $ Amount in $
Net income            67,780
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation (67970 - 60540)               7,430
Loss on sale of investments (Note -1)               9,840
           17,270
Changes in current operating assets and liabilities:
Increase in accounts receivable (93210-85760) -7450
Increase in inventories (263120-253930) -9190
Increase in accounts payable (175740-165640) 10100
Decrease in accrued expenses payable ( 17480-21860) -4380
-10920
Net cash flow from operating activities (A)            74,130
Cash flows from (used for) investing activities:
Cash from sale of investments            88,540
Cash used for purchase of land        -134,960
Cash used for purchase of equipment (290310-224500)           -65,810
Net cash flow used for investing activities (B) -112230
Cash flows from (used for) financing activities:
Cash from sale of common stock (Note 3)            93,980
Cash used for dividends (Note 2)           -37,380
Net cash flow from financing activities ( C)            56,600
Increase in cash (A+B+C)            18,500
Cash at the beginning of the year          238,800
Cash at the end of the year          257,300
Note - 1
Loss on sale of investments = Sale Price - Cost of Investment
Loss on sale of investments = 88,540 - 98,380
Loss on sale of investments = 88,540 - 98,380
Loss on sale of investments = $ 9,840
Note - 2
Calculation of Dividend Paid
Balance as on Dec 31,20Y8 (1)               7,570
Add : Transferred from Retained Earnings (2)            39,520
Balance as on Dec 31,20Y9 (3)               9,710
Dividend Paid (1+2-3)            37,380
Note - 3
Cash from sale of common stock
Dec 31,20Y9
(A)		 Dec 31,20Y8
(B)		 Cash from sale of common stock (A-B)
Common stock, $10 par            52,430            41,200                   11,230
Paid-in capital: Excess of issue price over par-common stock          197,100          114,350                   82,750
         249,530          155,550                   93,980

ekkarill92 answered 1 year ago
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