Question

The comparative balance sheet of Livers Inc. for December 31, 20Y3 and 20Y2, is shown as follows:

1		Dec. 31, 20Y3	Dec. 31, 20Y2
2	Assets
3	Cash	$626,170.00	$585,760.00
4	Accounts receivable (net)	227,840.00	208,880.00
5	Inventories	641,390.00	616,790.00
6	Investments	0.00	240,820.00
7	Land	327,380.00	0.00
8	Equipment	704,290.00	554,020.00
9	Accumulated depreciation-equipment	(167,160.00)	(148,930.00)
10	Total assets	$2,359,910.00	$2,057,340.00
11	Liabilities and Stockholders’ Equity
12	Accounts payable (merchandise creditors)	$424,670.00	$404,080.00
13	Accrued expenses payable (operating expenses)	43,080.00	52,050.00
14	Dividends payable	24,920.00	19,300.00
15	Common stock, $4 par	140,000.00	102,000.00
16	Paid-in capital: Excess of issue price over par—common stock	417,400.00	280,600.00
17	Retained earnings	1,309,840.00	1,199,310.00
18	Total liabilities and stockholders’ equity	$2,359,910.00	$2,057,340.00

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

A.	The investments were sold for $279,890 cash.
B.	Equipment and land were acquired for cash.
C.	There were no disposals of equipment during the year.
D.	The common stock was issued for cash.
E.	There was a $206,210 credit to Retained Earnings for net income.
F.	There was a $95,680 debit to Retained Earnings for cash dividends declared.

Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. Be sure to complete the heading of the statement. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.

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Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. Be sure to complete the heading of the statement. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.

Livers Inc.

Statement of Cash Flows

1	Cash flows from operating activities:
2
3	Adjustments to reconcile net income to net cash flow from operating activities:
4
5
6	Changes in current operating assets and liabilities:
7
8
9
10
11
12
13	Cash flows from investing activities:
14
15
16
17
18
19	Cash flows from financing activities:
20
21
22
23
24	Cash at the beginning of the year
25	Cash at the end of the year

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Labels and Amount Descriptions
Cash paid for dividends
Cash paid for merchandise
Cash paid for purchase of equipment
Cash paid for purchase of land
Cash received from customers
Cash received from sale of common stock
Cash received from sale of investments
Change in cash
December 31, 20Y3
Decrease in accounts payable
Decrease in accounts receivable
Decrease in accrued expenses payable
Decrease in inventories
Depreciation
For the Year Ended December 31, 20Y3
Gain on sale of investments
Increase in accounts payable
Increase in accounts receivable
Increase in accrued expenses payable
Increase in inventories
Loss on sale of investments
Net cash flow from operating activities
Net cash flow used for operating activities
Net cash flow from investing activities
Net cash flow used for investing activities
Net cash flow from financing activities
Net cash flow used for financing activities
Net income
Net loss

Answer 1

Solution

Livers Inc

Statement of cash flows:

	Livers Inc
Statement of Cash Flows (Indirect Method)
for the year ended December 31, 20Y3
Cash flows from operating activities:
Net Income		206,210
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation expense	$18,230
gain on sale of investments	($39,070)
Changes in current operating assets and liabilities:
Increase in accounts receivable	($18,960)
Increase in inventory	($24,600)
increase in accounts payable	$20,590
decrease in accrued expenses payable	($8,970)
increase in dividends payable	$5,620	-$47,160
Cash flow from operating activities		$159,050
Cash flow from investing activities:
Proceeds from sale of investment	$279,890
Purchase of land	($327,380)
Purchase of equipment	($150,270)
Cash flow from investing activities		($197,760)
Cash flow from financing activities:
Issue of common stock	$174,800
Dividends paid	($95,680)
Cash flow from financing activities		$79,120
Excess of cash		$40,410
Beginning balance		$585,760
Ending cash balance		$626,170

Note:

Cash from issue of common stock –

Increase in common stock par value = $38,000(140,000 – 102,000)

Add: increase in paid-in capital$136,800(417,400 – 280,600)

Cash from issue of common stock$174,800

Gain on sale of investments:

Sale proceeds$279,890

Less: Book value $240,820

Gain on sale $39,070

Depreciation expense and gain on sale of investments are non-cash items and hence added back to reconcile net income.