Question

Audio City, Inc. is developing its annual financial statements at December 31. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized below:

	Current Year			Previous Year
Balance Sheet at December 31
Cash	$	72,700		$	76,000
Accounts Receivable		17,000			22,500
Inventory		25,000			22,500
Equipment		233,000			155,000
Accumulated Depreciation–Equipment		(67,500	)		(50,000	)
	$	280,200		$	226,000
Accounts Payable	$	8,500		$	20,000
Salaries and Wages Payable		2,200			1,000
Note Payable (long-term)		62,500			80,000
Common Stock		110,000			75,000
Retained Earnings		97,000			50,000
	$	280,200		$	226,000
Income Statement
Sales Revenue	$	215,000
Cost of Goods Sold		95,000
Other Expenses		67,500
Net Income	$	52,500

Additional Data:

a.	Bought equipment for cash, $78,000.
b.	Paid $17,500 on the long-term note payable.
c.	Issued new shares of stock for $35,000 cash.
d.	Dividends of $5,500 were paid in cash.
e.	Other expenses included depreciation, $17,500; salaries and wages, $22,500; taxes, $27,500.
f.	Accounts Payable includes only inventory purchases made on credit. Because a liability relating to taxes does not exist, assume that they were fully paid in cash.

1)

Prepare the statement of cash flows for the current year ended December 31 using the indirect method. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

Answer:-

Audio City Inc.
Statement of Cash Flow (Using Indirect Method)
For the year ended
Particulars	Amount
	$
Cash flow from opreating activities
Net Income	52500
Adjustments to reconcile net income to net cash provided by opreating activities
Adjustment for non cash effects
Depreciation	17500
Change in opreating assets & liabilities
Decrease in accounts receivable	5500
Increase in inventory	-2500
Decrease in accounts payable	-11500
Increase in salaries and wages payable	1200
Net cash flow from opreating activities (a)	62700
Cash Flow from Financing activities
Cash dividends paid	-5500
Common stock issued	35000
Net cash Flow from Financing activities (b)	29500
Cash Flow from Investing activities
Equipment purchased	-78000
Long term note paid	-17500
Net cash Flow from Investing activities (c)	-95500
Net Channge in cash c=a+b+c	-3300
Beginning cash balance	76000
Closing cash balance	72700