Question

Statement of Cash Flows

Lake Isabella, Inc. reports the following income statement for the year ended December 31, 2018:

Sales	$2,268,000
Cost of goods sold	732,480
Gross profit	1,535,520
Depreciation expense	66,300
Selling and administrative expense	688,800
Income before tax	780,420
Income tax expense	161,736
Net income	$ 618,684

The company also reports the following information from the balance sheet:

	December 31, 2018	December 31, 2017
Cash	$ 126,000	$ 50,400
Accounts receivable	100,000	62,000
Inventory	28,800	39,200
Accounts payable	198,000	226,800
Accrued selling and admin expenses	39,400	31,200
Taxes payable	138,600	86,400
Dividends payable	26,400	57,600

A) Prepare the operating section of the statement of cash flow, using the indirect method for Lake Isabella, Inc. for December 31, 2018.

B) Suppose Lake Isabella sold property, plant, and equipment for cash proceeds of $10,900. The equipment originally cost $20,320. The company recorded a loss on sale of $6,230. The company uses the indirect method to prepare its statement of cash flows. What amounts would be included in cash from operations and cash from investing, respectively?

Answer 1

Part A
	Cash flow from Operating activities	Amount(in $)
	Net Income	6,18,684
	Add:Depreciation expenses	66,300
	Cash flow before adjustment of working capital items	6,84,984
	Less:Increase in Accounts Receivable	(38,000)
	Add:Decrease in Inventory	10,400
	Less:Decrease in Accounts payable	(28,800)
	Add:Increase in Accrued selling and admin expenses	8,200
	Add:Inrease in Taxes payable	52,200
	Less:Decrease in Dividends payable	(31,200)
	Net Cash flow from Operating activities	6,57,784
Part B
	In Operating activities the loss on sale of equipment of $6,230 will be added back
	In Investing activities the cash proceeds of $10,900 will be shown as cash Inflows