Question

Comparative balance sheets for 2018 and 2017 and a statement of income for 2018 are given below for Metagrobolize Industries. Additional information from the accounting records of Metagrobolize also is provided.

METAGROBOLIZE INDUSTRIES Comparative Balance Sheets December 31, 2018 and 2017 ($ in 000s)
	2018				2017
Assets
Cash	$	540			$	285
Accounts receivable		670				350
Inventory		820				430
Land		600				570
Building		900				900
Less: Accumulated depreciation		(250	)			(220	)
Equipment		3,300				3,110
Less: Accumulated depreciation		(481	)			(440	)
Patent		1,600				1,800
	$	7,699			$	6,785
Liabilities
Accounts payable	$	920			$	720
Accrued expenses payable		310				250
Lease liability—land		130				0
Shareholders' Equity
Common stock		3,640				3,500
Paid-in capital—excess of par		550				460
Retained earnings		2,149				1,855
	$	7,699			$	6,785

METAGROBOLIZE INDUSTRIES Income Statement For the Year Ended December 31, 2018 ($ in 000s)
Revenues
Sales revenue	$	3,152
Gain on sale of land		70		$	3,222
Expenses
Cost of goods sold	$	1,120
Depreciation expense—building		30
Depreciation expense—equipment		608
Loss on sale of equipment		25
Amortization of patent		200
Operating expenses	$	350			2,333
Net income				$	889

Additional information from the accounting records:

Annual payments of $20,000 on the finance lease liability are paid each January 1, beginning in 2018.

During 2018, equipment with a cost of $630,000 (90% depreciated) was sold.

The statement of shareholders’ equity reveals reductions of $230,000 and $365,000 for stock dividends and cash dividends, respectively.

Required:
Prepare the statement of cash flows for Metagrobolize Industries using the indirect method. (Enter your answers in thousands. (i.e., 10,000 should be entered as 10).) Amounts to be deducted should be indicated with a minus sign.)

Answer 1

SOLUTION

Metagrobolize Industries

Statement of cash flows

	Amount ($)	Amount ($)
Cash flow from Operating activities
Net Income		889
Add: Adjustments to reconcile
Depreciation expense - Building	30
Depreciation expense - Equipment	608
Patent amortization	200
Loss on equipment	25
Gain on Land	(70)
Changes in Current assets and current liabilities-
Increase in accounts payable (920 - 720)	200
Increase in expense payable (310 - 250)	60
Increase in accounts receivable (670 - 350)	(320)
Increase in inventory (820 - 430)	(390)	343
Net cash flow form operating activities (A)		1,232
Cash flow from Investing activities
Sale of Equipment	88
Sale of Land (30 + 70)	100
Purchase of Equipment	(820)
Net cash used in investing activities (B)		(632)
Cash flow from financing activities
Payment of dividends	(365)
Lease liability	20
Net cash used in financing activities (C)		(345)
Net change in cash (A+B+C)		255
Add: Opening cash balance		285
Ending cash balance		540