Question

The comparative balance sheet of Whitman Co. at December 31, 20Y2 and 20Y1, is as follows:

1		Dec. 31, 20Y2	Dec. 31, 20Y1
2	Assets
3	Cash	$918,330.00	$965,220.00
4	Accounts receivable (net)	828,620.00	761,010.00
5	Inventories	1,268,630.00	1,162,990.00
6	Prepaid expenses	30,290.00	35,390.00
7	Land	315,080.00	478,880.00
8	Buildings	1,462,320.00	899,910.00
9	Accumulated depreciation-buildings	(408,210.00)	(382,220.00)
10	Equipment	511,480.00	454,920.00
11	Accumulated depreciation-equipment	(140,580.00)	(159,440.00)
12	Total assets	$4,785,960.00	$4,216,660.00
13	Liabilities and Stockholders’ Equity
14	Accounts payable (merchandise creditors)	$923,090.00	$958,100.00
15	Bonds payable	269,000.00	0.00
16	Common stock, $25 par	325,500.00	118,000.00
17	Paid-in capital: Excess of issue price over par—common stock	766,500.00	559,000.00
18	Retained earnings	2,501,870.00	2,581,560.00
19	Total liabilities and stockholders’ equity	$4,785,960.00	$4,216,660.00

The noncurrent asset, noncurrent liability, and stockholders’ equity accounts for 20Y2 are as follows:

ACCOUNT Land

					ACCOUNT NO.
					Balance
Date		Item	Debit	Credit	Debit	Credit
20Y2
Jan.	1	Balance			478,880
Apr.	20	Realized $150,210 cash from sale		163,800	315,080

ACCOUNT Buildings

					ACCOUNT NO.
					Balance
Date		Item	Debit	Credit	Debit	Credit
20Y2
Jan.	1	Balance			899,910
Apr.	20	Acquired for cash	562,410		1,462,320

ACCOUNT Accumulated Depreciation––Buildings

					ACCOUNT NO.
					Balance
Date		Item	Debit	Credit	Debit	Credit
20Y2
Jan.	1	Balance				382,220
Dec.	31	Depreciation for year		25,990		408,210

ACCOUNT Equipment

					ACCOUNT NO.
					Balance
Date		Item	Debit	Credit	Debit	Credit
20Y2
Jan.	1	Balance			454,920
	26	Discarded, no salvage		47,120	407,800
Aug.	11	Purchased for cash	103,680		511,480

ACCOUNT Accumulated Depreciation ––Equipment

					ACCOUNT NO.
					Balance
Date		Item	Debit	Credit	Debit	Credit
20Y2
Jan.	1	Balance				159,440
	26	Equipment discarded	47,120			112,320
Dec.	31	Depreciation for year		28,260		140,580

ACCOUNT Bonds Payable

					ACCOUNT NO.
					Balance
Date		Item	Debit	Credit	Debit	Credit
20Y2
May	1	Issued 20-year bonds		269,000		269,000

ACCOUNT Common Stock $25 par

					ACCOUNT NO.
					Balance
Date		Item	Debit	Credit	Debit	Credit
20Y2
Jan.	1	Balance				118,000
Dec.	7	Issued 8,300 shares of common stock for $50 per share		207,500		325,500

ACCOUNT Paid-In Capital in Excess of Par––Common Stock

					ACCOUNT NO.
					Balance
Date		Item	Debit	Credit	Debit	Credit
20Y2
Jan.	1	Balance				559,000
Dec.	7	Issued 8,300 shares of common stock for $50 per share		207,500		766,500

ACCOUNT Retained Earnings

					ACCOUNT NO.
					Balance
Date		Item	Debit	Credit	Debit	Credit
20Y2
Jan.	1	Balance				2,581,560
Dec.	31	Net loss	47,830			2,533,730
	31	Cash dividends	31,860			2,501,870

Shaded cells have feedback.Statement of Cash Flows

Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. Be sure to complete the heading of the statement. Use the minus sign to indicate cash outflows.

Whitman Co.

Statement of Cash Flows

1	Cash flows from operating activities:
2
3	Adjustments to reconcile net loss to net cash flow from operating activities:
4
5
6	Changes in current operating assets and liabilities:
7
8
9
10
11
12
13	Cash flows from (used for) investing activities:
14
15
16
17
18
19	Cash flows from (used for) financing activities:
20
21
22
23
24
25	Cash at the beginning of the year
26	Cash at the end of the year

Answer 1

Statement of cash flows using indirect method is shown as follows:- (Amounts in $)

Whitman Co.

Statement of Cash Flows

For The Year Ended December 31, 20Y2

1	Cash flows from operating activities:
2	Net Loss		(47,830)
3	Adjustments to reconcile net loss to net cash flow from operating activities:
4	Depreciation for the year (Equipment and Building) (28,260+25,990)	54,250
5	Loss on sale of land (163,800-150,210)	13,590
6	Changes in current operating assets and liabilities:
7	Increase in Accounts Receivable (net) (828,620-761,010)	(67,610)
8	Increase in Inventories (1,268,630-1,162,990)	(105,640)
9	Decrease in Prepaid Expenses (35,390-30,290)	5,100
10	Decrease in Accounts Payable (958,100-923,090)	(35,010)
11	Total amount of changes and adjustments		(135,320)
12	Net cash used for operating activities (A)		(183,150)
13	Cash flows from (used for) investing activities:
14	Cash proceeds from sale of land	150,210
15	Purchase of building	(562,410)
16	Sale of Equipment (As equipment is discarded and result in zero cash flows)	0
17	Purchase of Equipment	(103,680)
18	Net cash used for investing activities (B)		(515,880)
19	Cash flows from (used for) financing activities:
20	Issue of bonds payable	269,000
21	New Issue proceeds from common stock (207,500+207,500)	415,000
22	Cash dividends paid	(31,860)
23	Net cash flows from financing activities (C)		652,140
24	Net Increase or (Decrease) in Cash (A+B+C)		(46,890)
25	Cash at the beginning of the year		965,220
26	Cash at the end of the year		918,330

Notes:-

a) The non cash and non operating expenses (i.e. depreciation and loss on sale of land) are added for calculating cash flows from operating activities by indirect method.

b) Increase in current assets and decrease in current liabilities are deducted whereas decrease in current assets and increase in current liabilities are added for calculating operating cash flows.