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		$313,010		$292,180
Accounts receivable (net)		113,390		104,940
Inventories		320,110		310,700
Investments		0		120,370
Land		164,180		0
Equipment		353,170		274,690
Accumulated depreciation—equipment		(82,680)		(74,070)
	Total assets	$1,181,180		$1,028,810
Liabilities and Stockholders' Equity
Accounts payable (merchandise creditors)		$213,790		$202,680
Accrued expenses payable (operating expenses)		21,260		26,750
Dividends payable		11,810		9,260
Common stock, $10 par		63,780		50,410
Paid-in capital: Excess of issue price over par-common stock		239,780		139,920
Retained earnings		630,760		599,790
	Total liabilities and stockholders’ equity	$1,181,180		$1,028,810

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

The investments were sold for $140,830 cash.

Equipment and land were acquired for cash.

There were no disposals of equipment during the year.

The common stock was issued for cash.

There was a $79,320 credit to Retained Earnings for net income.

There was a $48,350 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:
Depreciation
Gain on sale of investments
Changes in current operating assets and liabilities:
Increase in accounts receivable
Increase in inventories
Increase in accounts payable
Decrease in accrued expenses payable
Net cash flow from operating activities		$
Cash flows from investing activities:
Cash received from sale of investments	$
Cash paid for purchase of land
Cash paid for purchase of equipment
Net cash flow used for investing activities
Cash flows from financing activities:
Cash received from sale of common stock	$
Cash paid for dividends
Net cash flow from financing activities
Change in cash		$
Cash at the beginning of the year
Cash at the end of the year

Answer 1

Livers Inc.
Statement of Cash Flows
For the Year Ended December 31, 20Y3
Cash flows from operating activities:
Net income	$79,320
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation (WN 3)	8,610
Gain on sale of investments ($140,830-$ 120,370)	(20,460)
Changes in current operating assets and liabilities:
Increase in accounts receivable($ 104,940 - $ 113,390)	(8,450)
Increase in inventories ($310,700 – $ 320,110)	(9,410)
Increase in accounts payable($202,680 -$213,790)	11,110
Decrease in accrued expenses payable ($26,750 -$ 21,260)	(5,490)
Net cash flow from operating activities		$55,230
Cash flows from investing activities:
Cash received from sale of investments	$140,830
Cash paid for purchase of land (WN 1)	($164,180)
Cash paid for purchase of equipment (WN 2)	($ 78,480)
Net cash flow used for investing activities		($101,830)
Cash flows from financing activities:
Cash received from sale of common stock (WN 4)	$113,230
Cash paid for dividends (WN 5)	($45,800 )
Net cash flow from financing activities		67,430
Change in cash		20,830
Cash at the beginning of the year		$292,180
Cash at the end of the year	$ 313,010

Working Notes (WN):

(1)Land Account

Particulars	Debit Amount ($)	Particulars	Credit Amount ($)
Beginning Balance	0
Cash purchase (Balancing figure)	164,180	Ending Balance	164,180
Total	164,180	Total	164,180

(2)Equipment Account

Particulars	Debit Amount ($)	Particulars	Credit Amount ($)
Beginning Balance	274,690
Cash purchase (Balancing figure)	78,480	Ending Balance	353,170
Total	353,170	Total	353,170

(3)Accumulated depreciation—equipment

Particulars	Debit Amount ($)	Particulars	Credit Amount ($)
		Current Year Depreciation (Balancing figure)	8,610
Ending Balance	82,680	Dividend declared	48,350
Total	82,680	Total	82,680

(4)Issue of Common stock                            

Issue of common stock for cash ( $ 63,780 - $ 50,410)	$ 13,370
Add: Paid-in capital: Excess of issue price over par-common stock ($ 239,780- $ 139,920)	$ 99,860
Issue of Common stock for cash	$ 113,230

(5)Dividend payable Account

Particulars	Debit Amount ($)	Particulars	Credit Amount ($)
Cash dividend paid (Balancing figure)	45,800	Beginning Balance	9,260
Ending Balance	11,810	Dividend declared	48,350
Total	57,610	Total	57,610

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