Question

Wildhorse Inc., a greeting card company, had the following statements prepared as of December 31, 2017.

WILDHORSE INC. COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2017 AND 2016
		12/31/17			12/31/16
Cash		$5,900			$6,900
Accounts receivable		61,400			51,200
Short-term debt investments (available-for-sale)		34,700			18,000
Inventory		40,200			59,700
Prepaid rent		5,000			4,100
Equipment		152,700			130,200
Accumulated depreciation—equipment		(35,400	)		(25,000	)
Copyrights		45,700			49,900
Total assets		$310,200			$295,000
Accounts payable		$46,300			$40,400
Income taxes payable		3,900			6,000
Salaries and wages payable		8,100			3,900
Short-term loans payable		8,100			10,100
Long-term loans payable		60,200			69,400
Common stock, $10 par		100,000			100,000
Contributed capital, common stock		30,000			30,000
Retained earnings		53,600			35,200
Total liabilities & stockholders’ equity		$310,200			$295,000

WILDHORSE INC. INCOME STATEMENT FOR THE YEAR ENDING DECEMBER 31, 2017
Sales revenue				$335,075
Cost of goods sold				175,200
Gross profit				159,875
Operating expenses				120,100
Operating income				39,775
Interest expense		$11,400
Gain on sale of equipment		2,000		9,400
Income before tax				30,375
Income tax expense				6,075
Net income				$24,300

Additional information:

1.		Dividends in the amount of $5,900 were declared and paid during 2017.
2.		Depreciation expense and amortization expense are included in operating expenses.
3.		No unrealized gains or losses have occurred on the investments during the year.
4.		Equipment that had a cost of $20,100 and was 70% depreciated was sold during 2017.

Prepare a statement of cash flows using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Answer 1

Solution:

Wildhorse Inc.
Statement of Cash Flows (Indirect Method)
For year ended December 31, 2017
Particulars	Details	Amount
Cash Flow from Operating Activities:
Net Income	$24,300.00
Adjustments to reconcile net income to net cash flow from operating activitiess:
Gain on sale of equipment	-$2,000.00
Depreciation ($35,400 - $25,000 + $20,100*70%)	$24,470.00
Amortization of copyrights ($49,900 - $45,700)	$4,200.00
Changes in current operating assets and liabilities:
Increase in accounts receivables ($61,400 - $51,200)	-$10,200.00
Decrease in inventories ($59,700 - $40,200)	$19,500.00
Increase in prepaid rent ($5,000 - $4,100)	-$900.00
Increase in accounts payable ($46,300 - $40,400)	$5,900.00
Decrease in income tax payable ($6,000 - $3,900)	-$2,100.00
Increase in salary and wages payable ($8,100 - $3,900)	$4,200.00
Decrease in short term loans payable ($10,100 - $8,100)	-$2,000.00
Net cash flow from operating activities		$65,370.00
Cash Flow from Investing Activities:
Cash received from sale of Equipment ($20,100*30% + $2,000)	$8,030.00
Cash paid for purchase of Investment ($34,700 - $18,000)	-$16,700.00
Cash paid for purchase of equipment ($152,700 - $130,200 + $20,100)	-$42,600.00
Net cash flow used for investing activities		-$51,270.00
Cash Flow from Financing Activities:
Payment of long term loan ($69,400 - $60,200)	-$9,200.00
Cash paid for dividends	-$5,900.00
Net cash flow from financing activities		-$15,100.00
Net Increase / (Decrease) in Cash		-$1,000.00
Cash balance at beginning of year		$6,900.00
Cash balance at end of year		$5,900.00