Question

A comparative balance sheet for Lomax Company containing data for the last two years is as follows:

  

Lomax Company Comparative Balance Sheet
	This Year		Last Year
Assets
Current assets:
Cash and cash equivalents	$	96,000	$	70,000
Accounts receivable		640,000		672,500
Inventory		638,000		445,000
Prepaid expenses		30,000		17,500
Total current assets		1,404,000		1,205,000
Property, plant, and equipment		2,495,000		1,900,000
Less accumulated depreciation		645,000		582,500
Net property, plant, and equipment		1,850,000		1,317,500
Long-term investments		132,500		205,000
Loans to subsidiaries		145,000		82,500
Total assets	$	3,531,500	$	2,810,000
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	910,000	$	595,000
Accrued liabilities		40,000		64,500
Income taxes payable		165,500		138,000
Total current liabilities		1,115,500		797,500
Bonds payable		745,000		475,000
Total liabilities		1,860,500		1,272,500
Stockholders’ equity:
Common stock		1,140,000		1,025,000
Retained earnings		531,000		512,500
Total stockholders’ equity		1,671,000		1,537,500
Total liabilities and stockholders' equity	$	3,531,500	$	2,810,000

The following additional information is available about the company’s activities during this year:
a.	The company declared and paid a cash dividend this year.
b.	Bonds with a principal balance of $405,000 were repaid during this year.
c.	Equipment was sold during this year for $82,500. The equipment had cost $180,000 and had $70,000 in accumulated depreciation on the date of sale.
d.	Long-term investments were sold during the year for $160,000. These investments had cost $72,500 when purchased several years ago.
e.	The subsidiaries did not repay any outstanding loans during the year.
f.	Lomax did not repurchase any of its own stock during the year.

The company reported net income this year as follows:

Sales			$	3,500,000
Cost of goods sold				2,170,000
Gross margin				1,330,000
Selling and administrative expenses				1,062,500
Net operating income				267,500
Nonoperating items:
Gain on sale of investments	$	87,500
Loss on sale of equipment		27,500		60,000
Income before taxes				327,500
Income taxes				105,000
Net income			$	222,500

Required:
1.	Using the indirect method, prepare a statement of cash flows for this year. (List any deduction in cash and cash outflows as negative amounts.)

Answer 1