The following information was obtained from the accounting records and financial statements of Fairbanks Inc. Assets...

The following information was obtained from the accounting records and financial statements of Fairbanks Inc.

Assets	2019	2020	∆
Cash	$ 662,000	781,000	119,000
Accounts receivable	524,000	707,000	183,000
Raw materials inventory	404,000	521,000	117,000
Finished goods inventory	1,212,000	1,190,000	(22,000)
Land	1,200,000	1,000,000	(200,000)
Machinery and equipment	3,330,000	3,511,000	181,000
Accumulated depreciation	(1,555,000)	(1,725,000)	(170,000)
Net capital assets	1,775,000	1,786,000	11,000
Total	5,777,000	5,985,000
Liabilities and Stockholders’ equity
Accounts payable	888,000	961,000	73,000
Wages payable	122,000	107,000	(15,000)
Long-term debt	2,900,000	2,970,000	70,000
Common shares	940,000	1,000,000	60,000
Retained earnings	927,000	947,000	20,000
Total	5,777,000	5,985,000

Additional information:

On February 1, 2020, Fairbanks issued common shares for machinery and equipment. The common shares had a current market value of $20,000.
On March 1, 2020, Fairbanks sold equipment that cost $200,000, with a book value of $90,000, for $95,000.
On August 15, 2020, Fairbanks sold land with an original cost of $200,000 for $189,000.
On September 27, 2020, Fairbanks issued a stock dividend to shareholders valued at $10,000.
On December 31, 2020, Fairbanks declared and paid cash dividends of $3,000.

Required:

Prepare the cash flow statement, using the indirect method, for Fairbanks for the year ended December 31, 2020.

Expert Solution

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Workings- Indirect Method
Net Income	Amount $
Closing Balance- Retained Earnings	947,000.00
Add: Cash Dividends	3,000.00
Add: Stock Dividends	10,000.00
Less: Opening Balance- Retained Earnings	(927,000.00)
Net Income	33,000.00

Depreciation Expense
Accumulated depreciation- Closing balance	1,725,000.00
Add: Depreciation on equipment sold (200,000-90,000)	110,000.00
Less: Accumulated depreciation- Opening balance	(1,555,000.00)
Depreciation Expense	280,000.00

Gain on sale of equipment
Sale value of equipment	95,000.00
Less: Book value of equipment sold	90,000.00
Gain on sale of equipment	5,000.00

Loss on sale of land
Book value of land	200,000.00
Less: Sale value of land	189,000.00
Loss on sale of land	11,000.00

Capital Assets purchased
Closing Balance	3,511,000.00
Add: Cost of equipment sold	200,000.00
Less: Opening Balance	(3,330,000.00)
Capital Assets purchased	381,000.00
Less: Common Stock issued	20,000.00
Capital Assets purchased in cash	361,000.00

Long term debt issued
Closing Balance	2,970,000.00
Less: Opening Balance	(2,900,000.00)
Long term debt issued	70,000.00

Common Stock Issued
Closing Balance	1,000,000.00
Less: Opening Balance	940,000.00
Less: Issued against purchase of capital assets	20,000.00
Less: Stock dividend	10,000.00
Common Stock Issued	30,000.00

Fairbank
Cashflow statement	Amount $	Amount $
Particulars
Net Income		33,000.00
Adjustment to reconcile Net Income to Net Cash
Add:
Depreciation Expense		280,000.00
Loss on sale of land		11,000.00
Less:
Gain on sale of equipment		5,000.00
Cash flow from Operations		319,000.00
Changes in Current Assets/Current Liabilities
Increase in Accounts Receivable	(183,000.00)
Increase in Raw Material Inventory	(117,000.00)
Decrease in Finished Goods Inventory	22,000.00
Increase in Accounts Payable	73,000.00
Decrease in Wages payable	(15,000.00)	(220,000.00)
Net cash provided by operating activities		99,000.00

Cash flow from investing activities
Capital Assets purchased in cash	(361,000.00)
Land sold	189,000.00
Equipment sold	95,000.00
Net cash use for investing activities		(77,000.00)

Cash flow from financing activities
Common Stock Issued	30,000.00
Long term debt issued	70,000.00
Dividends paid	(3,000.00)
Net cash used for financing activities		97,000.00

Net Increase/(Decrease) in cash		119,000.00
Cash Balance, beginning		662,000.00
Cash Balance, ending		781,000.00

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