Question

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

1		Dec. 31, 20Y3	Dec. 31, 20Y2
2	Assets
3	Cash	$626,640.00	$585,760.00
4	Accounts receivable (net)	226,900.00	208,390.00
5	Inventories	641,350.00	616,130.00
6	Investments	0.00	239,300.00
7	Land	328,730.00	0.00
8	Equipment	705,940.00	553,530.00
9	Accumulated depreciation-equipment	(166,970.00)	(148,000.00)
10	Total assets	$2,362,590.00	$2,055,110.00
11	Liabilities and Stockholders’ Equity
12	Accounts payable	$425,140.00	$404,540.00
13	Accrued expenses payable	42,020.00	52,750.00
14	Dividends payable	23,580.00	19,500.00
15	Common stock, $4 par	154,000.00	100,000.00
16	Paid-in capital: Excess of issue price over par—common stock	416,600.00	279,400.00
17	Retained earnings	1,301,250.00	1,198,920.00
18	Total liabilities and stockholders’ equity	$2,362,590.00	$2,055,110.00

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

A.	The investments were sold for $279,880 cash.
B.	Equipment and land were acquired for cash.
C.	There were no disposals of equipment during the year.
D.	The common stock was issued for cash.
E.	There was a $198,010 credit to Retained Earnings for net income.
F.	There was a $95,680 debit to Retained Earnings for cash dividends declared.

Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. Be sure to complete the heading of the statement. Use the minus sign to indicate cash outflows, decreases in cash and a net cash outflow for each section, if required.

Answer 1

• All working forms part of the answer
• Cash Flow Statement includes a ‘working’ column for understanding which contains reference from where the data has been used from the given question:
• Working for Increase & Decrease

Point no.		Dec. 31, 20Y3	Dec. 31, 20Y2	Increase (decrease)
1
		[A]	[B]	[A – B]
2	Assets
3	Cash	$                 6,26,640.00	$        5,85,760.00	$                 40,880.00
4	Accounts receivable (net)	$                 2,26,900.00	$        2,08,390.00	$                 18,510.00
5	Inventories	$                 6,41,350.00	$        6,16,130.00	$                 25,220.00
6	Investments	$                                    -	$        2,39,300.00	$           (2,39,300.00)
7	Land	$                 3,28,730.00	$                           -	$             3,28,730.00
8	Equipment	$                 7,05,940.00	$        5,53,530.00	$             1,52,410.00
9	Accumulated depreciation-equipment	$               (1,66,970.00)	$      (1,48,000.00)	$              (18,970.00)
10	Total assets	$               23,62,590.00	$      20,55,110.00	$             3,07,480.00
11	Liabilities and Stockholders’ Equity
12	Accounts payable	$                 4,25,140.00	$        4,04,540.00	$                 20,600.00
13	Accrued expenses payable	$                     42,020.00	$            52,750.00	$              (10,730.00)
14	Dividends payable	$                     23,580.00	$            19,500.00	$                   4,080.00
15	Common stock, $4 par	$                 1,54,000.00	$        1,00,000.00	$                 54,000.00
16	Paid-in capital: Excess of issue price over par—common stock	$                 4,16,600.00	$        2,79,400.00	$             1,37,200.00
17	Retained earnings	$               13,01,250.00	$      11,98,920.00	$             1,02,330.00
18	Total liabilities and stockholders’ equity	$               23,62,590.00	$      20,55,110.00	$             3,07,480.00

• Cash Flow Statement as asked:

---Cash Outflows are mentioned within “( )”

Working	Cash Flow Statement - Indirect Method
	Cash Flows from Operating Activities
Point 'E' in question	Net Income		$             1,98,010.00
	Adjustment to reconcile net income to net operating cash
[279880 - 239300]	Gain on Sale of Investment	$        (40,580.00)
Point 9	Depreciation expense	$          18,970.00
Point 4	Increase in Accounts receivables	$        (18,510.00)
Point 5	Increase in Inventories	$        (25,220.00)
Point 12	Increase in Accounts payable	$          20,600.00
Point 13	Decrease in Accrued expenses	$        (10,730.00)
Point 14	Increase in Dividend payable	$            4,080.00	$              (51,390.00)
	Net Cash Flows from Operating Activities (A)		$             1,46,620.00
	Cash Flow from Investing Activities
Point 'A'	Sale of Investments	$      2,79,880.00
Point 'B' and 8	Equipment purchased	$    (1,52,410.00)
Point 'B' and 7	Land Purchased	$    (3,28,730.00)
	Net Cash flow used in Investing activities (B)		$          (2,01,260.00)
	Cash Flow from Financing Activities
Point 15	Common Stock issued	$          54,000.00
Point 16	Paid in capital on stock issued	$      1,37,200.00
Point 'F'	Dividends paid	$        (95,680.00)
	Net Cash flows provided from Financing activities ( C)		$                95,520.00
	Net Increase (decrease) in Cash [A+B+C)		$                40,880.00
Point 3	Cash at beginning		$             5,85,760.00
Point 3	Cash at the end		$             6,26,640.00