Question

In: Accounting

On the basis of the following data for Garrett Co. for Years 1 and 2 ended...

On the basis of the following data for Garrett Co. for Years 1 and 2 ended December 31, prepare a statement of cash flows using the indirect method of reporting cash flows from operating activities. Assume that equipment costing $125,000 was purchased for cash and equipment costing $85,000 with accumulated depreciation of $65,000 was sold for $15,000; that the stock was issued for cash; and that the only entries in the retained earnings account were for net income of $56,000 and cash dividends declared of $18,000. (Q.11)

Year 2

Year 1

Assets

Cash

$ 90,000   

$78,000   

Accounts receivable (net)

78,000   

85,000   

Inventories

106,500   

90,000   

Equipment

410,000   

370,000  

Accumulated depreciation

(150,000)  

(158,000)  

Total assets

$534,500   

$465,000  

Liabilities and Stockholders' Equity

Accounts payable (merchandise creditors)

$ 53,500   

$55,000   
Cash dividends payable

5,000   

4,000   

Common stock, $10 par

200,000   

170,000   

Paidin capital in excess of par—common stock

62,000   

60,000   

Retained earnings

214,000   

176,000   

Total liabilities and stockholders' equity

$534,500   

$465,000  

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

Garrett Co.
Statement of Cash Flows
For the 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 $

Solutions

Expert Solution

Solution

Garrett Co.
Statement of Cash Flows
For the Year Ended December 31, Year 2
Cash flows from operating activities:
Net Income $     56,000.00
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation expense $     57,000.00
Loss on sale of equipment $       5,000.00
Changes in current operating assets and liabilities:
Decrease in accounts receivable $       7,000.00
Increase in Inventory $    (16,500.00)
Decrease in accounts payable $      (1,500.00)
Net cash flow from operating activities $     1,07,000.00
Cash flows from investing activities:
Purchase of Equipment $ (1,25,000.00)
Sale of Equipment $     15,000.00
Net cash flow used for investing activities $    (1,10,000.00)
Cash flows from financing activities:
Payment of Dividend $    (17,000.00)
Issue of Common stock $     32,000.00
Net cash flow provided by financing activities $       15,000.00
Net Change in cash during year $       12,000.00
Cash at the beginning of the year $       78,000.00
Cash at the end of the year $       90,000.00

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