Question

Statement of Cash Flows (Indirect Method)
Dair Company's income statement and comparative balance sheets follow.

DAIR COMPANY Income Statement For Year Ended December 31,2011
Sales		$ 700,000
Cost of goods sold	$ 440,000
Wages and other operating expenses	95,000
Depreciation expense	21,000
Amortization expense	7,000
Interest expense	6,000
Income tax expense	37,000
Loss on bond retirement	4,000	610,000
Net income		$90,000

DAIR COMPANY Balance Sheets
	Dec. 31, 2011	Dec. 31, 2010
Assets
Cash	$ 33,000	$ 20,000
Accounts receivable	53,000	48,000
Inventory	103,000	113,000
Prepaid expenses	12,000	8,000
Plant assets	348,000	329,000
Accumulated depreciation	(86,000)	(84,000)
Intangible assets	43,000	50,000
Total assets	$ 506,000	$ 484,000
Liabilities and Stockholders' Equity
Accounts payable	$ 32,000	$ 26,000
Interest payable	4,000	7,000
Income tax payable	3,000	8,000
Bonds payable	55,000	119,000
Common stock	252,000	228,000
Retained earnings	160,000	96,000
Total liabilities and equity	$ 506,000	$ 484,000

During 2011, the company sold for $17,000 cash old equipment that had cost $36,000 and had $19,000 accumulated depreciation. Also in 2011, new equipment worth $55,000 was acquired in exchange for $55,000 of bonds payable, and bonds payable of $119,000 were retired for cash at a loss. A $26,000 cash dividend was declared and paid in 2011. Any stock issuances were for cash.

(a) Compute the change in cash that occurred in 2011.

Cash, December 31, 2011	$Answer
Cash, December 31, 2010	Answer
Cash increase during 2011	$Answer

(b) Prepare a 2011 statement of cash flows using the indirect method.

Use negative signs with answers to show a decrease in cash.

DAIR COMPANY STATEMENT OF CASH FLOWS FOR YEAR ENDED DECEMBER 31, 2011
Net Cash Flow from Operating Activities
Net Income	$ Answer
Add (Deduct) Items to Convert Net Income to Cash Basis
Depreciation	Answer
Amortization expense	Answer
Loss on Bond Retirement	Answer
Accounts Receivable Increase	Answer
Inventory Decrease	Answer
Prepaid Expenses Increase	Answer
Accounts Payable Increase	Answer
Interest Payable Decrease	Answer
Income Tax Payable Decrease	Answer
Net Cash Provided by Operating Activities		Answer
Cash Flows from Investing Activities
Sale of Equipment		Answer
Cash Flows from Financing Activities
Retirement of Bonds Payable	Answer
Issuance of Common Stock	Answer
Payment of Dividends	Answer
Net Cash Used by Financing Activities		Answer
Net Increase in Cash		Answer
Cash at Beginning of Year		Answer
Cash at End of Year		$Answer

(c) Prepare separate schedules showing (1) cash paid for interest and for income taxes and (2) noncash investing and financing transactions.

(1) Supplemental Cash Flow Disclosures
Cash Paid for Interest	$ Answer
Cash Paid for Income Taxes	$Answer

(2) Schedule of Noncash Investing and Financing Activities
Issuance of Bonds Payable to Acquire Equipment	$Answer

Answer 1

(a)

Cash, December 31, 2011	33000
Cash, December 31, 2010	20000
Cash increase during 2011	13000

(b)

DAIR COMPANY
Statement of Cash Flows
For Year Ended December 31, 2011
Net Cash Flow from Operating Activities
Net income	90000
Add (Deduct) items to convert net income to cash basis
Depreciation (21000 + 7000)	28000
Loss on bond retirement	4000
Accounts receivable increase	-5000
Inventory decrease	10000
Prepaid expenses increase	-4000
Accounts payable increase	6000
Interest payable decrease	-3000
Income tax payable decrease	-5000
Net cash provided by operating activities		121000
Cash flows from investing activities:
Sale of equipment		17000
Cash flows from financing activities:
Retirement of bonds payable (119000 + 4000)	-123000
Issuance of common stock	24000
Payment of dividends	-26000
Net cash used by financing activities		-125000
Net increase in cash		13000
Cash at beginning of year		20000
Cash at end of year		33000

(c)

(1) Supplemental Cash Flow Disclosures
Cash paid for interest (7000 + 6000 - 4000)	9000
Cash paid for income taxes (8000 + 37000 - 3000)	42000
(2) Schedule of Noncash Investing and Financing Activities
Issuance of bonds payable to acquire equipment	55000