Question

1		Dec. 31, 20Y8	Dec. 31, 20Y7
2	Assets
3	Cash	$146,480.00	$179,640.00
4	Accounts receivable (net)	225,010.00	241,920.00
5	Inventories	321,600.00	298,870.00
6	Prepaid expenses	13,030.00	10,420.00
7	Equipment	654,380.00	537,900.00
8	Accumulated depreciation-equipment	(169,970.00)	(133,130.00)
9	Total assets	$1,190,530.00	$1,135,620.00
10	Liabilities and Stockholders’ Equity
11	Accounts payable (merchandise creditors)	$240,960.00	$236,720.00
12	Mortgage note payable	0.00	335,410.00
13	Common stock, $10 par	510,000.00	247,000.00
14	Paid-in capital: Excess of issue price over par—common stock	430,000.00	310,000.00
15	Retained earnings	9,570.00	6,490.00
16	Total liabilities and stockholders’ equity	$1,190,530.00	$1,135,620.00

Additional data obtained from the income statement and from an examination of the accounts in the ledger for 20Y8 are as follows:

A.	Net income, $155,560
B.	Depreciation reported on the income statement, $82,480
C.	Equipment was purchased at a cost of $162,120 and fully depreciated equipment costing $45,640 was discarded, with no salvage realized.
D.	The mortgage note payable was not due for six years, but the terms permitted earlier payment without penalty.
E.	Cash dividends declared and paid, $152,480 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, cash payments, decreases in cash, or any negative adjustments.

Answer 1

Statement of Cash Flows

For the year Ended December 31, 20Y8 (Amounts in $)

Cash Flows from Operating Activities:
Net Income		155,560
Adjustments to reconcile net income to net cash provided by operating activities:
Add: Depreciation expense	82,480
Add: Decrease in Accounts Receivable (241,920 - 225,010)	16,910
Less: Increase in Inventory (321,600 - 298,870)	(22,730)
Less: Increase in Prepaid Expenses (13,030 - 10,420)	(2,610)
Add: Increase in Accounts Payable (240,960 - 236,720)	4,240
Net Cash provided by Operating Activities (A)		233,850
Cash flows from Investing Activities:
Cash paid for purchase of Equipment	(162,120)
Net cash used in investing activities (B)		(162,120)
Cash flows from Financing Activities:
Cash received from stock issuance (Working Note 2)	383,000
Cash paid for cash dividends	(152,480)
Cash flow for mortgage note payable	(335,410)
Net cash used in financing activities (C)		(104,890)
Net Increase (decrease) in cash (D = A+B+C)		(33,160)
Cash Balance at the beginning of year (E)		179,640
Cash Balance at the end of year (D+E)		146,480

Working Notes:-

1) Increase in current assets and decrease in curent liabilities will be deducted from net income to reconcile the net income to cash flows from operating activities. Similarly, decrease in current assets and increase in curent liabilities will be added to net income.

2) Net increase in common stock in 20Y8 is $263,000 ($510,000 - $247,000) and increase in paid in capital: excess of issue price over par-Common Stock is $120,000 ($430,000 - $310,000). Hence total cash flow from issuance of common stock is $383,000 ($263,000+$120,000).