In: Accounting
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 | $ |
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 |