Question

Foxboro Company’s income statement for Year 2 follows: Foxboro Company Income Statement Sales $ 719,000 Cost of goods sold 142,000 Gross margin 577,000 Selling and administrative expenses 216,000 Net operating income 361,000 Gain on sale of equipment 6,000 Income before taxes 367,000 Income taxes 146,800 Net income $ 220,200 Its balance sheet amounts at the end of Years 1 and 2 are as follows: Foxboro Company Balance Sheet Year 2 Year 1 Assets Cash $ 167,800 $ 54,300 Accounts receivable 268,000 134,000 Inventory 320,000 279,000 Prepaid expenses 9,000 18,000 Total current assets 764,800 485,300 Plant and equipment 625,000 512,000 Accumulated depreciation 166,800 131,200 Net plant and equipment 458,200 380,800 Loan to Harker Company 45,000 0 Total assets $ 1,268,000 $ 866,100 Liabilities and Stockholders' equity Accounts payable $ 318,000 $ 251,000 Accrued liabilities 46,000 53,000 Income taxes payable 85,100 80,100 Total current liabilities 449,100 384,100 Bonds payable 192,000 104,000 Total liabilities 641,100 488,100 Common stock 349,000 288,000 Retained earnings 277,900 90,000 Total stockholders' equity 626,900 378,000 Total liabilities and stockholders' equity $ 1,268,000 $ 866,100 Equipment that had cost $30,000 and on which there was accumulated depreciation of $11,900 was sold during Year 2 for $24,100. The company declared and paid a cash dividend during Year 2. It did not retire any bonds or repurchase any of its own stock. Required: 1. Using the indirect method, compute the net cash for operating activities for Year 2. (Negative amount should be indicated by a minus sign.) Net cash operating activities $ 2. Prepare a statement of cash flows for Year 2. (Amounts to be deducted and negative amounts should be indicated with a minus sign.)

Answer 1

Solution 1:

Foxboro Company
Cash flow from Operating Activities
For year 2
Particulars	Details	Amount
Cash Flow from Operating Activities:
Net Income	$220,200.00
Adjustments to reconcile net income to net cash provided by operations:
Depreciation Expense ($166,800 + $11,900 - $131,200)	$47,500.00
Gain on sale of equipment	-$6,000.00
Increase in accounts receivables ($268,000 - $134,000)	-$134,000.00
Increase in inventory ($320,000 - $279,000)	-$41,000.00
Decrease in prepaid expenses ($18,000 - $9,000)	$9,000.00
Increase in accounts payable ($318,000 - $251,000)	$67,000.00
Increase in Income Tax payable ($85,100 - $80,100)	$5,000.00
Decrease in Accrued liabilities ($53,000 - $46,000)	-$7,000.00
Net Cash provided by operating activities		$160,700.00

Solution 2:

Foxboro Company
Statement of Cash Flows (Indirect Method)
For year 2
Particulars	Details	Amount
Cash Flow from Operating Activities:
Net Income	$220,200.00
Adjustments to reconcile net income to net cash provided by operations:
Depreciation Expense ($166,800 + $11,900 - $131,200)	$47,500.00
Gain on sale of equipment	-$6,000.00
Increase in accounts receivables ($268,000 - $134,000)	-$134,000.00
Increase in inventory ($320,000 - $279,000)	-$41,000.00
Decrease in prepaid expenses ($18,000 - $9,000)	$9,000.00
Increase in accounts payable ($318,000 - $251,000)	$67,000.00
Increase in Income Tax payable ($85,100 - $80,100)	$5,000.00
Decrease in Accrued liabilities ($53,000 - $46,000)	-$7,000.00
Net Cash provided by operating activities		$160,700.00
Cash Flow from Investing Activities:
Sale of equipment	$24,100.00
Purchase of Equipment ($625,000 + $30,000 - $512,000)	-$143,000.00
Loan to Harker company	-$45,000.00
Net Cash Provided by Investing activities		-$163,900.00
Cash Flow from Financing Activities:
Proceed from issue of Bond	$88,000.00
Proceed from issue of common stock	$61,000.00
Cash paid for dividend ($90,000 + $220,200 - $277,900)	-$32,300.00
Net Cash Provided by financing activities		$116,700.00
Net Increase / (Decrease) in Cash		$113,500.00
Cash balance at beginning of year		$54,300.00
Cash balance at end of year		$167,800.00