Question

Statement of Cash Flows (Direct 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	6,000
Interest expense	10,000
Income tax expense	36,000
Loss on bond retirement	5,000	613,000
Net income		$87,000

DAIR COMPANY Balance Sheets
	Dec. 31, 2011	Dec. 31, 2010
Assets
Cash	$ 22,000	$ 18,000
Accounts receivable	54,000	48,000
Inventory	103,000	109,000
Prepaid expenses	12,000	10,000
Plant assets	360,000	336,000
Accumulated depreciation	(86,000)	(84,000)
Intangible assets	44,000	50,000
Total assets	$ 509,000	$ 487,000
Liabilities and Stockholders' Equity
Accounts payable	$ 31,000	$ 26,000
Interest payable	3,000	7,000
Income tax payable	6,000	8,000
Bonds payable	60,000	120,000
Common stock	252,000	228,000
Retained earnings	157,000	98,000
Total liabilities and equity	$ 509,000	$ 487,000

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 $60,000 was acquired in exchange for $60,000 of bonds payable, and bonds payable of $120,000 were retired for cash at a loss. A $28,000 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 direct method. Use one cash flow for "cash paid for wages and other operating expenses." Accounts payable relate to inventory purchases only.

HINT: Use negative signs with your answers, when appropriate

DAIR COMPANY Statement of Cash Flows For Year Ended December 31, 2011
Cash Flows from Operating Activities
Cash received from customers		$Answer
Cash paid for merchandise purchased	Answer
Cash paid for wages & other operating expenses	Answer
Cash paid for interest	Answer
Cash paid for income taxes	Answer	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(decrease) 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