In: Accounting
On the basis of the following data for Larson Co. for the year ending December 31 Year 2, and the preceding year ended December 31 Year 1, prepare a statement of cash flows. Use the indirect method of reporting cash flows from operating activities. In addition to the balance sheet data, assume that: (Q.10)
Equipment costing $125,000 was purchased for cash. |
Equipment costing $85,000 with accumulated depreciation of $65,000 was sold for $15,000. |
The stock was issued for cash. |
The only entries in the retained earnings account were net income of $51,000 and cash dividends declared of $13,000. |
Year 2 |
Year 1 |
|
Assets |
||
Cash |
$100,000 |
$78,000 |
Accounts receivable (net) |
78,000 |
85,000 |
Inventories |
101,500 |
90,000 |
Equipment |
410,000 |
370,000 |
Accumulated depreciation |
(150,000) |
(158,000) |
Total assets |
$539,500 |
$465,000 |
Liabilities and Stockholders' Equity |
||
Accounts payable (merchandise creditors) |
$58,500 |
$55,000 |
Cash dividends payable |
5,000 |
4,000 |
Common stock, $10 par |
200,000 |
170,000 |
Paid-in capital in excess of par—common stock |
62,000 |
60,000 |
Retained earnings |
214,000 |
176,000 |
Total liabilities and stockholders' equity |
$539,500 |
$465,000 |
Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.
Larson Co. | ||
Statement of Cash Flows | ||
For Year Ended December 31, Year 2 | ||
Cash flows from operating activities: | ||
$ | ||
Adjustments to reconcile net income to net cash flow from operating activities: | ||
Changes in current operating assets and liabilities: | ||
Net cash flow from operating activities | $ | |
Cash flows from investing activities: | ||
$ | ||
Net cash flow used for investing activities | ||
Cash flows from financing activities: | ||
$ | ||
Net cash flow provided by financing activities: | ||
$ | ||
Cash at the beginning of the year | ||
Cash at the end of the year | $ |
Solution
Larson Co. | ||
Statement of Cash Flows | ||
For the Year Ended December 31, Year 2 | ||
Cash flows from operating activities: | ||
Net income | $ 51,000.00 | |
Adjustments to reconcile net income to net cash flow from operating activities: | ||
Depreciation expense | $ 57,000.00 | |
Loss on disposal of Equipment | $ 5,000.00 | |
Changes in current operating assets and liabilities: | ||
Decease in accounts receivables | $ 7,000.00 | |
Increase in inventory | $ (11,500.00) | |
Increase in accounts payable | $ 3,500.00 | |
$ 61,000.00 | ||
Net cash from Operating Activities | $ 1,12,000.00 | |
Cash flows from investing activities: | ||
Sale of Equipment | $ 15,000.00 | |
Purchase of Equipment | $ (1,25,000.00) | |
Net cash from Investing Activities | $ (1,10,000.00) | |
Cash flows from financing activities: | ||
Issue of Common stock | $ 32,000.00 | |
Dividends paid | $ (12,000.00) | |
Net cash from Financing Activities | $ 20,000.00 | |
Net change in cash during the year | $ 22,000.00 | |
Add: Beginning cash balance | $ 78,000.00 | |
Ending cash balance | $ 1,00,000.00 |
Dividend paid in cash = Dividend declared minus increase in dividend payable.