Question

Hunter Company is developing its annual financial statements at December 31. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized:

	Current Year			Prior Year
Balance Sheet at December 31
Cash	$	44,100		$	13,000
Accounts Receivable		18,000			19,000
Inventory		21,000			26,000
Equipment		100,000			92,000
Accumulated Depreciation—Equipment		(33,000	)		(25,000	)
Total Assets	$	150,100		$	125,000
Accounts Payable	$	19,000		$	17,000
Salaries and Wages Payable		900			1,000
Note Payable (long-term)		25,000			38,000
Common Stock		75,000			50,000
Retained Earnings		30,200			19,000
Total Liabilities and Stockholders’ Equity	$	150,100		$	125,000
Income Statement (current year)
Sales Revenue	$	120,000
Cost of Goods Sold		71,000
Other Expenses		35,000
Net Income	$	14,000

Additional Data:

1. Bought equipment for cash, $8,000.
2. Paid $13,000 on the long-term note payable.
3. Issued new shares of stock for $25,000 cash.
4. Declared and paid a $2,800 cash dividend.
5. Other expenses included depreciation, $8,000; salaries and wages, $12,000; taxes, $5,000; utilities, $10,000.
6. Accounts Payable includes only inventory purchases made on credit. Because there are no liability accounts relating to taxes or other expenses, assume that these expenses were fully paid in cash.

Required:
1. Prepare the statement of cash flows for the year ended December 31 using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Solution

HUNTER COMPANY
Statement of Cash Flows
For the Year Ended December Current year
Cash flows from operating activities:
Net income		$   14,000.00
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of Investment
Depreciation expense	$   8,000.00
Decease in accounts receivables	$   1,000.00
Decrease in inventory	$   5,000.00
Increase in accounts payable	$   2,000.00
Decrease in salaries and wages payable	$     (100.00)
		$   15,900.00
Net cash from Operating Activities		$   29,900.00
Cash flows from investing activities:
Purchase of Equipment	$ (8,000.00)
Net cash from Investing Activities		$    (8,000.00)
Cash flows from financing activities:
Repayment of notes payable	$(13,000.00)
Issue of Common stock	$ 25,000.00
Dividends paid	$ (2,800.00)
Net cash from Financing Activities		$     9,200.00
Net change in cash during the year		$   31,100.00
Add: Beginning cash balance		$   13,000.00
Ending cash balance		$   44,100.00

.General notes for cash flow
Cash is increased when Current liability increase or Current asset Decrease.
Cash is Decreased when Current liability Decrease or Current asset Increase.
Depreciation or loss on sale of any asset is a non cash expense hence it will be added to net income to get operating cash
Profit on sale of asset or investment is a non cash profit and hence will be deducted from operating income.