Question

Statement of Cash Flows—Indirect Method

The comparative balance sheet of Livers Inc. for December 31, 20Y3 and 20Y2, is shown as follows:

		Dec. 31, 20Y3		Dec. 31, 20Y2
Assets
Cash		$222,990		$209,100
Accounts receivable (net)		80,780		75,100
Inventories		228,030		222,360
Investments		0		86,140
Land		116,960		0
Equipment		251,600		196,590
Accumulated depreciation—equipment		(58,900)		(53,010)
	Total assets	$841,460		$736,280
Liabilities and Stockholders' Equity
Accounts payable (merchandise creditors)		$152,300		$145,050
Accrued expenses payable (operating expenses)		15,150		19,140
Dividends payable		8,410		6,630
Common stock, $10 par		45,440		36,080
Paid-in capital: Excess of issue price over par-common stock		170,820		100,130
Retained earnings		449,340		429,250
	Total liabilities and stockholders’ equity	$841,460		$736,280

Additional data obtained from an examination of the accounts in the ledger for 20Y3 are as follows:

1. The investments were sold for $100,780 cash.
2. Equipment and land were acquired for cash.
3. There were no disposals of equipment during the year.
4. The common stock was issued for cash.
5. There was a $54,700 credit to Retained Earnings for net income.
6. There was a $34,610 debit to Retained Earnings for cash dividends declared.

Required:

Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.

Livers Inc.
Statement of Cash Flows
For the Year Ended December 31, 20Y3
Cash flows from operating activities:
Net income	$
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 from financing activities
		$
Cash at the beginning of the year
Cash at the end of the year		$

Answer 1

Solution

Livers Inc.
Statement of Cash Flows
For the Year Ended December 31, 20Y3
A. Cash Flows from Operating Activity
Net Income	$ 54,700
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation expense	$ 5,890
Gain on sale of Investment	-$ 14,640
Changes in current operating assets and liabilities:
Increase in Accounts Receivables	-$ 5,680
Increase in Inventory	-$ 5,670
Increase in Accounts Payable	$ 7,250
Decrease in Accrued expenses	-$ 3,990
Net cash flow from Operating activities		$ 37,860
B. Cash flows from Investing Activities
Cash received from Sale of Investment	$ 100,780
Cash paid for Purchase of Land	-$ 116,960
Cash paid for Purchase of Equipment	-$ 55,010
Net Cash flows from Investing activities		-$ 71,190
C. Cash Flows from Financing activities
Cash received from sale of Common stock	$ 80,050
Cash paid for dividends	-$ 32,830
Cash flows from Financing activities		$ 47,220
Net Increase (Decrease) in Cash [A+B+C]		$ 13,890
Cash at the beginning		$ 209,100
Cash at the end		$ 222,990

Working

Calculation of Cash Dividend paid
Opening Balance of Dividends Payable	$ 6,630
Add: Dividends Declared during the year	$ 34,610
Total Dividend Liability	$ 41,240
Less: Closing Balance of Dividends	$ 8,410
Dividends Paid in cash During the year	$ 32,830

General notes for cash flow
Cash is increased when Current liability increase or Current asset Decrease.
Cash is Decreased when Current liability Decrease or Current asset Increase.
Depreciation or loss on sale of any asset is a non cash expense hence it will be added to net income to get operating cash
Profit on sale of asset or investment is a non cash profit and hence will be deducted from operating income.