Question

The comparative balance sheets of Posner Company, for Years 1 and 2 ended December 31, appear below in condensed form.

1		Year 2	Year 1
2	Cash	$53,000.00	$50,000.00
3	Accounts Receivable (net)	37,000.00	48,000.00
4	Inventories	108,500.00	100,000.00
5	Investments		70,000.00
6	Equipment	573,200.00	450,000.00
7	Accumulated Depreciation-Equipment	(142,000.00)	(176,000.00)
8		$629,700.00	$542,000.00
9	Accounts Payable	$62,500.00	$43,800.00
10	Bonds Payable, Due Year 2		100,000.00
11	Common Stock, $10 par	325,000.00	285,000.00
12	Paid-In Capital in Excess of Par—Common Stock	80,000.00	55,000.00
13	Retained Earnings	162,200.00	58,200.00
14		$629,700.00	$542,000.00

The income statement for the current year is as follows:

1	Sales		$625,700.00
2	Cost of merchandise sold		340,000.00
3	Gross profit		$285,700.00
4	Operating expenses:
5	Depreciation expense	$26,000.00
6	Other operating expenses	68,000.00	94,000.00
7	Income from operations		$191,700.00
8	Other revenue and expense:
9	Gain on sale of investment	$4,000.00
10	Interest expense	(6,000.00)	(2,000.00)
11	Income before income tax		$189,700.00
12	Income tax		60,700.00
13	Net income		$129,000.00

Additional data for the current year are as follows:

(a)	Fully depreciated equipment costing $60,000 was scrapped, no salvage, and new equipment was purchased for $183,200.
(b)	Bonds payable for $100,000 were retired by payment at their face amount.
(c)	5,000 shares of common stock were issued at $13 for cash.
(d)	Cash dividends declared and paid, $25,000.

Required:

Prepare a statement of cash flows using the indirect method of reporting 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, cash payments, decreases in cash, or any negative adjustments. Prepare a statement of cash flows using the indirect method of reporting 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, cash payments, decreases in cash, or any negative adjustments. Posner Company Statement of Cash Flows 1 Cash flows from operating activities: 2 3 Adjustments to reconcile net income to net cash flow from operating activities: 4 5 6 Changes in current operating assets and liabilities: 7 8 9 10 11 Cash flows from investing activities: 12 13 14 15 Cash flows from financing activities: 16 17 18 19 20 21 Cash at the beginning of the year 22 Cash at the end of the year

Answer 1

POSNER COMPANY
Statement of cash flows
for the year ending December 31, Year 2
Cash flow from operating activities
Net income		129000
Adjustments to net cash flows :
Depreciation expense	26000
Gain on sale of investment	-4000	22000
Changes in current operting assets and liabilities
Decrease in accounts receivable	11000
Increase in inventories	-8500
Increase in accounts payable	18700	21200
Cash flow from operating activities		172200
Cash flow from investing activities
Sale of investments (1)	74000
Purchase of equipment	-183200
Cash flow from investing activities		-109200
Cash flow from financing activities
Retirement of bonds payable	-100000
Issue of common stock	65000
Payment of dividends	-25000
Cash flow from financing activities		-60000
Net cash flow		3000
Beginning cash balance		50000
Ending Cash balance		53000
Cash receipt from sale of investments
Beginning balance of investments	70000
Ending balance of investments	0
sale of investments	70000
Gain on sale of investments	4000
Cash received from sale of investments (1)	74000