Question

On the basis of the following data for Breach Co. for the current and preceding years ended December 31, prepare a statement of cash flows for the current year using the indirect method. (Q.8)

Assume that equipment costing $25,000 was purchased for cash and no long term assets were sold during the period.

Stock was issued for cash-3,200 shares at par.
Net income for the current year was $76,000.
Cash dividends declared and paid were $13,000.

	Current year	Prior year
Assets
Cash	$170,000	$74,000
Accounts receivable (net)	78,000	85,000
Inventories	106,500	90,000
Equipment	395,000	370,000
Accumulated depreciation	(195,000)	(158,000)
Total assets	$554,500	$461,000
Liabilities and Stockholders' Equity
Accounts payable (merchandise creditors)	$51,000	$50,000
Taxes payable	2,500	5,000
Common stock, $10 par	262,000	230,000
Retained earnings	239,000	176,000
Total liabilities and stockholders' equity	$554,500	$461,000

Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.

Breach Co.
Statement of Cash Flows
For Year Ended December 31
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		$

Answer 1

Solution

Breach Co.
Statement of Cash Flows
For Year Ended December 31
Cash flows from operating activities:
Net income	$   76,000.00
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation expense	$   37,000.00
Changes in current operating assets and liabilities:
Decrease in accounts receivable	$    7,000.00
Increase in inventory	$ (16,500.00)
Increase in accounts payable	$    1,000.00
Decrease in taxes payable	$   (2,500.00)
Net cash flow from operating activities		$1,02,000.00
Cash flows from investing activities:
Purchase of Equipment	$ (25,000.00)
Net cash flow used for investing activities		$ (25,000.00)
Cash flows from financing activities:
Cash dividend	$ (13,000.00)
Issue of Common stock	$   32,000.00
Net cash flow provided by financing activities		$   19,000.00
		$   96,000.00
Cash at the beginning of the year		$   74,000.00
Cash at the end of the year		$1,70,000.00