Question

Statement of cash flows (indirect method).
The net changes in the balance sheet accounts of Keating Corporation for the year 2018 are shown below.

Account

Debit

Credit

Cash

$ 87,000

Short-term investments

$121,000

Accounts receivable

78,200

Allowance for doubtful accounts

13,300

Inventory

74,200

Prepaid expenses								22,800
Investment in subsidiary (equity method)								25,000

Plant and equipment

210,000

Accumulated depreciation

130,000

Accounts payable

80,700

Accrued liabilities

21,500

Deferred tax liability

15,500

8% serial bonds

70,000

Common stock, $10 par								90,000
Additional paid-in capital								150,000

Retained earnings—Appropriation for bonded indebtedness

60,000

Retained earnings—Unappropriated

38,000

________

$643,600

$643,600

An analysis of the Retained Earnings—Unappropriated account follows:

Retained earnings unappropriated, December 31, 2017

$1,300,000

Add:	Net income	307,000
	Transfer from appropriation for bonded indebtedness	60,000

Total

$1,667,000

Deduct:	Cash dividends	$165,000
	Stock dividend	240,000		405,000

Retained earnings unappropriated, December 31, 2018

$1,262,000

1. On January 2, 2018 short-term investments (classified as available-for-sale) costing $121,000 were sold for $155,000.
2. The company paid a cash dividend on February 1, 2018.
3. Accounts receivable of $16,200 and $19,400 were considered uncollectible and written off in 2018 and 2017, respectively.
4. Major repairs of $33,000 to the equipment were debited to the Accumulated Depreciation account during the year. No assets were retired during 2018.
5. The wholly owned subsidiary reported a net loss for the year of $25,000. The loss was recorded by the parent.
6. At January 1, 2018, the cash balance was $166,000.

Instructions
Prepare a statement of cash flows (indirect method) for the year ended December 31, 2018. Keating Corporation has no securities which are classified as cash equivalents.

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Answer 1

Working notes

• The depreciation amount will be accumulated deprecation for 2018 plus major repairs of $33,000
• Only cash dividend will be shown in Cash Flow from Financing activities
• Increase in net accounts receivable will be Accounts receivable minus allowance for doubtful accounts
• gain in short term investment is $34,000 ( $155,000 0$121,000)

statement of cash flows (indirect method) for the year ended December 31, 2018 of Keating Corporation is calculated below

KEATING CORPORATION
STATEMENT OF CASHFLOWS
For the year ended december 31,2018
Increase/(Decrease) in Cash
Cash Flow from operating activities
	Net income						$307,000
	Adjustments to reconcile net income to net Cash provided by operating activities
		Equity in subsidairy loss				$25,000
		Depreciation expense				$163,000
		Gain on sale of short term investment				-$34,000
		Decrease in deferred tax liability				-$15,500
		Increase in accounts receivable (net)				-$64,900
		increase in inventory				-$74,200
		Decrease in prepaid expenses				$22,800
		Decrease in accounts payable				-$80,700
		Increase in accrued liabilities				$21,500	-$37,000
Net Cash provided from operating activities							$270,000
Cash Flow from investing activities
		sale of short term investments				$155,000
		Purchase of Plant and Machinery				-$210,000
		Major repairs to equipments				-$33,000
Net Cash provided from Investing activities activities							-$88,000
Cash Flow from Financing activities
		payment of cash dividend				-$165,000
		Sale of serial bonds				$70,000
Net Cash used by Investing activities activities							-$95,000
Net increase in Cash							$87,000
Cash, january 1,2018							$166,000
Cash, December 31,2018							$253,000

To check whether cash flow is correctly prepared is net increase in Cash $87,000 as per cash flow statement should match with The net changes in the balance sheet accounts of Keating Corporation for the year 2018 are shown below. Which shows debit balance of cash for $87,000