Question

QS 12-19 Indirect: Preparing statement of cash flows LO P1, P2, P3

MONTGOMERY INC. Comparative Balance Sheets December 31, 2018 and 2017
		2018				2017
Assets
Cash	$	33,200			$	33,400
Accounts receivable, net		12,100				14,700
Inventory		108,500				84,900
Total current assets		153,800				133,000
Equipment		60,100				50,200
Accum. depreciation—Equipment		(27,100	)			(18,500	)
Total assets	$	186,800			$	164,700
Liabilities and Equity
Accounts payable	$	28,800			$	30,700
Salaries payable		600				700
Total current liabilities		29,400				31,400
Equity
Common stock, no par value		130,000				118,100
Retained earnings		27,400				15,200
Total liabilities and equity	$	186,800			$	164,700

MONTGOMERY INC. Income Statement For Year Ended December 31, 2018
Sales				$	53,500
Cost of goods sold					(22,200	)
Gross profit					31,300
Operating expenses
Depreciation expense	$	8,600
Other expenses		6,600
Total operating expense					15,200
Income before taxes					16,100
Income tax expense					3,900
Net income				$	12,200

Additional Information

No dividends are declared or paid in 2018.

Issued additional stock for $11,900 cash in 2018.

Purchased equipment for cash in 2018; no equipment was sold in 2018.

1. Use the above financial statements and additional information to prepare a statement of cash flows for the year ended December 31, 2018, using the indirect method. (Amounts to be deducted should be indicated by a minus sign.)
  

MONTGOMERY, INC. Statement of Cash Flows (Indirect Method) For Year Ended December 31, 2018 Cash flows from operating activities Adjustments to reconcile net income to net cash provided by operations: Changes in current operating assets and liabilities $0 Cash flows from investing activities 0 Cash flows from financing activities 0 $0 Cash balance at beginning of year Cash balance at end of year $0

Answer 1

Montgomery, Inc.

Statement of cash flows

For the year ended December 31, 2018

I. Cash flows from operating activities
Net income	12,200
Add: Income tax expense	3,900
Add: Depreciation expense	8,600
Operating profit before working capital changes	24,700
Adjustments to reconcile net income to net cash provided by operations:
Changes in current operating assets and liabilities
Accounts receivables	2,600
Inventory	-23,600
Accounts payable	- 1,900
Salaries payable	- 100
Less: Income tax expense	- 3,900
Net cash used in operating activities		-2,200
II. Cash flows from Investing activities
Equipment purchased	- 9,900
Net cash used in Investing activities		-9,900
III. Cash flows from Financing Activities
Issue of common stock	11,900
Net cash flows from Financing activities		11,900
Net increase in cash (I + II + III)		- 200
Cash balance at the begining of the year		33,400
Cash balance at the end of the year		33,200

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