Question

Presented below are the 2021 income statement and comparative balance sheets for Santana Industries.

 

Additional information for the 2021 fiscal year ($ in thousands):
1. Cash dividends of $1,000 were declared and paid.
2. Equipment costing $4,000 was purchased with cash.
3. Equipment with a book value of $500 (cost of $1,500 less accumulated depreciation of $1,000) was sold for $500.
4. Depreciation of $1,600 is included in operating expenses.

 

Required:
Prepare Santana Industries’ 2021 statement of cash flows, using the indirect method to present cash flows from operating activities. Use a format similar to the one in the Concept Review Exercise at the end of Part B of this chapter.

 

Answer 1

SANTANA INDUSTRIES

         Statement of Cash Flows

For the Year Ended December 31, 2021

                  ($ in thousands)

Cash flows from operating activities:

          Net income                                                        $ 4,800

          Adjustments for noncash effects:

           Depreciation expense                                       1,600

          Changes in operating assets and liabilities:

           Increase in accounts receivable                       (300)

           Increase in inventory                                      (1,000)

           Decrease in prepaid rent                                    150

           Increase in accounts payable                            300

           Increase in interest payable                              100

           Increase in deferred revenue                           200

           Decrease in income taxes payable                 (250) 

           Net cash flows from operating activities                    $5,600

 

Cash flows from investing activities:

          Purchase of equipment                                   (4,000)

          Sale of equipment                                                500

           Net cash flows from investing activities                  (3,500)

 

Cash flows from financing activities:

          Issuance of notes payable                                 5,000

          Dividends paid to shareholders                      (1,000)

           Net cash flows from financing activities                   4,000

 

Net increase in cash                                                                6,100

 

Cash, January 1                                                                        2,200

Cash, December 31                                                                $8,300

Cash, December 31                                                                $8,300