Question

A comparative balance sheet and income statement for Groton Company follow:

Groton Company
Comparative Balance Sheet
December 31, 2011 and 2010
2011 2010
  Assets
  Cash $ 5   $ 16   
  Accounts receivable 322   237   
  Inventory 166    208   
  Prepaid expenses 16    14   

  Total current assets 509    475   

  Property, plant, and equipment 517    438   
  Less accumulated depreciation (89)    (75)   

  Net property, plant, and equipment 428    363   

  Long-term investments 29    40   

  Total assets $ 966    $ 878   

  Liabilities and Stockholders' equity
  Accounts payable $ 305    $ 229   
  Accrued liabilities 74    84   
  Income taxes payable 80    71   

  Total current liabilities 459    384   
  Bonds payable 206    180   

  Total liabilities 665    564   

  Common stock 171    210   
  Retained earnings 130    104   

  Total stockholders’ equity 301    314   

  Total liabilities and stockholders' equity $ 966    $ 878   

Groton Company
Income Statement
For the Year Ended December 31, 2011
  Sales $ 764  
  Cost of goods sold 450  

  Gross margin 314  
  Selling and administrative expenses
220  

  Net operating income 94  
  Non operating items:
      Gain on sale of investments $ 5  
      Loss on sale of equipment (3) 2  

  Income before taxes 96  
  Income taxes
31  

  Net income $ 65  

    

     During 2011, Groton sold some equipment for $18 that had cost $31 and on which there was accumulated depreciation of $10. In addition, the company sold long-term investments for $16 that had cost $11 when purchased several years ago. A cash dividend was paid during 2011 and the company repurchased $39 of its own stock. Groton did not retire any bonds during 2011.

Required:
1.

Using the indirect method, determine the net cash provided by/used by operating activities for 2011. (Negative amount should be entered with a minus sign.)

2.

Using the information in (1) above, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for 2011. (Amounts to be deducted and negative amounts should be indicated with a minus sign.)

Answer 1

1. Net cash provided by operating activities $117

2.

Groton Company
Statement of Cash Flows - Indirect Method
For the Year Ended December 31, 2011
Cash Flows from Operating Activities:
Net income		65
Adjustments to convert net income to cash basis:
Depreciation expense [$89 - ($75 - $10)]	24
Gain on sale of investments	-5
Loss on sale of equipment	3
Increase in Accounts Receivable	-85
Decrease in Inventory	42
Increase in Prepaid expenses	-2
Increase in Accounts payable	76
Decrease in Accrued liabilities	-10
Increase in Income taxes payable	9	52
Net cash provided by operating activities		117
Cash Flows from Investing Activities:
Sale proceeds of equipment	18
Sale of long-term investments	16
Purchase of equipment [$517 - ($438 - $31)]	-110
Net cash used by investing activities		-76
Cash Flows from Financing Activities:
Issuance of bonds payable	26
Repurchase of Common stock	-39
Payment of cash dividends [($104 + $65) - $130]	-39
Net cash used by financing activities		-52
Net increase (decrease) in cash		-11
Cash balance, December 31, 2010		16
Cash balance, December 31, 2011		5