Question

The comparative balance sheets of Capitol Company, for Years 1 and 2 ended December 31, appear below in condensed form.

	Year 2	Year 1
Cash	$ 45,000	$ 53,500
Accounts Receivable (net)	51,300	58,000
Inventories	147,200	135,000
Investments	0	60,000
Equipment	493,000	375,000
Accumulated Depreciation—Equipment	(113,700)	(128,000)
	$622,800	$553,500
Accounts Payable	54,500	$32,600
Deferred Income	7,000	10,000
Bonds Payable, Due Year 4	0	100,000
Common Stock, $10 par	250,000	200,000
Paid-In Capital in Excess of Par—Common Stock	75,000	50,000
Retained Earnings	236,300	160,900
	$622,800	$553,500

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The income statement for the current year is as follows:

Sales		$623,000
Cost of merchandise sold		348,500
Gross profit		$274,500
Operating expenses:
Depreciation expense	$24,700
Other operating expenses	75,300	100,000
Income from operations		$174,500
Other revenue and expense:
Gain on sale of investment	$ 5,000
Interest expense	(12,000)	(7,000)
Income before income tax		$167,500
Income tax expense		64,100
Net income		$103,400

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Additional data for the current year are as follows:

(a)	Fully depreciated equipment costing $39,000 was scrapped, no salvage, and equipment was purchased for $157,000.
(b)	Bonds payable for $100,000 were retired by payment at their face amount.
(c)	5,000 shares of common stock were issued at $15 for cash.
(d)	Cash dividends declared were paid, $28,000.
(e)	All sales are on account.

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Prepare a statement of cash flows using the indirect method of reporting cash flows from operating activities.

Answer 1

Answer-

CAPITOL COMPANY
STATEMENT OF CASH FLOWS (USING INDIRECT METHOD)
FOR THE YEAR ENDED
Particulars		Amount
		$
Cash flow from operating activities
Net Income		103400
Adjustments to reconcile net income to net cash provided by operating activities
Adjustment for non cash effects
Depreciation		24700
Gain on sale of investment		-5000
Change in operating assets & liabilities
Decrease in Accounts receivable		6700
Increase in inventories		-12200
Increase in accounts payable		21900
Decrease in deferred income		-3000
Net cash flow from operating activities (a)		136500
Cash Flow from Investing activities
Long term investments sold		65000
Equipment purchased		-157000
Net cash Flow from Investing activities (b)		-92000
Cash Flow from Financing activities
Cash dividends paid		-28000
Common stock issued		75000
Bonds payable paid		-100000
Net cash Flow from Financing activities (c)		-53000
Net Change in cash c=a+b+c		-8500
Beginning cash balance		53500
Closing cash balance		45000