Question

The following condensed financial statements are for Matadors, Inc.

Comparative Balance Sheet, December 31, 2015 and 2014
	2015	2014
Assets
Cash	$22	$16
Accounts receivable	225	245
Inventory	105	125
Prepaid general expenses	21	12
Plant assets	1,025	1,000
Accumulated depreciation – plant assets	(530)	(585)
Total assets	$868	$813
Liabilities and Stockholders’ Equity
Accounts payable	$70	$45
Interest payable	15	12
Income taxes payable	80	77
Bonds payable	105	97
Common stock	362	354
Retained earnings	236	228
Total liabilities and stockholders’ equity	$868	$813

Condensed Income Statement For the Year Ended December 31, 2015
Sales		$1,450
Cost of goods sold		990
Gross profit		$460
Operating expenses:
Depreciation expense	$55
General expenses	340
Interest expense	12
Income tax expense	15	422
Net income		$38

The following information is also available for 2015:

1) Plant assets were sold for their book value of $180 during the year. The assets had an original cost of $290.

2) Cash dividends totaling $30 were paid during the year.

3) All accounts payable relate to inventory purchases

4) All purchases of plant assets were cash transactions.

Required

1) Compute cash from (for) operating activities using both the direct and indirect methods. For the direct method you will calculate the following amounts:

            A) Cash received from customers,

            B) Cash paid for inventory,

            C) Cash paid for general expenses,

            D) Cash paid for interest, and

            E) Cash paid for taxes.

Operating cash flow using the direct method will be the sum of the above amounts. This will equal operating cash flow calculated using the indirect method (net income adjusted).

2) Compute cash from (for) investing activities.

3) Compute cash from (for) financing activities.

4) Use the above amounts to reconcile the beginning and ending cash balances.

Answer 1

CASH FLOW FROM OPERATING ACTIVITIES

By Direct Method	(Working)	$
Cash Reciepts:
Cash Sales and Collection from Trade Recievables
Sales + Opening Acc Rec - Closing Acc Rec (A)	1450 +245 - 225	1470
Cash Payments:
Cash Purchases and Payment to Trade Payables
Purchases + Opening Acc Payable - Closing Acc Payable	(990-125+105) + 45 - 70	945
Cash Paid for General Expenses	340 +21 -12	349
Cash Paid for Interest	12 - 15 + 12	9
Cash Paid for Taxes	15 - 80 + 77	12
(B)		1315
Cash Flow from Operating Activities (A)-(B)		$155
By Indirect Method
Net Income		38
Add: Income Tax Expense		15
Net Income before Tax		53
Add: Non Cash Items - Depreciation		55
		108
Working Capital Adjustments
Add: Accounts receivable		20
Add:Inventory		20
Less: Prepaid general expenses		-9
Add : Accounts Payable		25
Add : Interest Payable		3
Less: Cash Paid for Taxes		-12
Cash Flow from Operating Activities		$155

2) CASH FLOW FROM INVESTING ACTIVITIES

Cash Flow from Investing Activities
Sale of Plant		180
Purchase of Plant		-315
Cash used in Investing Activities		-135

3) CASH FLOW FROM FINANCING ACTIVITIES

Cash Flow from Financing Activities
Issue of Common stock		8
Issue of Bond		8
Dividend Paid		-30
Cash used in Financing Activities		-14

4) RECONCILIATION

Opening Cash Balance		$16.00
Cash Flow from Operating Activities		$155.00
Cash used in Investing Activities		-$135.00
Cash used in Financing Activities		-$14.00
Closing Cash Balance		$22.00

........

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