Question

The comparative balance sheet of Livers Inc. for December 31, 20Y3 and 20Y2, is shown as follows:

1		Dec. 31, 20Y3	Dec. 31, 20Y2
2	Assets
3	Cash	$155,000.00	$150,000.00
4	Accounts receivable (net)	450,000.00	400,000.00
5	Inventories	770,000.00	750,000.00
6	Investments	0.00	100,000.00
7	Land	500,000.00	0.00
8	Equipment	1,400,000.00	1,200,000.00
9	Accumulated depreciation-equipment	(600,000.00)	(500,000.00)
10	Total assets	$2,675,000.00	$2,100,000.00
11	Liabilities and Stockholders’ Equity
12	Accounts payable (merchandise creditors)	$340,000.00	$300,000.00
13	Accrued expenses payable (operating expenses)	45,000.00	50,000.00
14	Dividends payable	30,000.00	25,000.00
15	Common stock, $4 par	700,000.00	600,000.00
16	Paid-in capital in excess of par—common stock	200,000.00	175,000.00
17	Retained earnings	1,360,000.00	950,000.00
18	Total liabilities and stockholders’ equity	$2,675,000.00	$2,100,000.00

Additional data obtained from an examination of the accounts in the ledger for 20Y3 are as follows:

	a. The investments were sold for $175,000 cash.
	b. Equipment and land were acquired for cash.
	c. There were no disposals of equipment during the year.
	d. The common stock was issued for cash.
	e. There was a $500,000 credit to Retained Earnings for net income.
	f. There was a $90,000 debit to Retained Earnings for cash dividends declared.

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. Enter amounts that represent cash outflows as negative numbers using a minus sign.

Labels and Amount Descriptions
Cash paid for dividends
Cash paid for merchandise
Cash paid for purchase of equipment
Cash paid for purchase of land
Cash received from customers
Cash received from sale of common stock
Cash received from sale of investments
December 31, 20Y3
Decrease in accounts payable
Decrease in accounts receivable
Decrease in accrued expenses payable
Decrease in inventories
Depreciation
For the Year Ended December 31, 20Y3
Gain on sale of investments
Increase in accounts payable
Increase in accounts receivable
Increase in accrued expenses payable
Increase in cash
Increase in inventories
Loss on sale of investments
Net cash flow from operating activities
Net cash flow used for operating activities
Net cash flow from investing activities
Net cash flow used for investing activities
Net cash flow from financing activities
Net cash flow used for financing activities
Net decrease in cash
Net income
Net increase in cash
Net loss

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. Enter amounts that represent cash outflows as negative numbers using a minus sign.

Livers Inc.

Statement of Cash Flows

1	Cash flows from (used for) operating activities:
2
3	Adjustments to reconcile net income 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	Cash balance, January 1, 20Y3
25	Cash balance, December 31, 20Y3

Answer 1

Solution

Livers Inc.
Statement of Cash Flows
For the Year Ended December 31, 20Y3
A. Cash Flows from Operating Activity
Net Income	$ 500,000
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation expense	$ 100,000
Gain on sale of Investment	-$ 75,000
Changes in current operating assets and liabilities:
Increase in Accounts Receivables	-$ 50,000
Increase in Inventory	-$ 20,000
Increase in Accounts Payable	$ 40,000
Decrease in Accrued expenses	-$ 5,000
Net cash flow from Operating activities		$ 490,000
B. Cash flows from Investing Activities
Cash received from Sale of Investment	$ 175,000
Cash paid for Purchase of Land	-$ 500,000
Cash paid for Purchase of Equipment	-$ 200,000
Net Cash used in Investing activities		-$ 525,000
C. Cash Flows from Financing activities
Cash received from sale of Common stock	$ 125,000
Cash paid for dividends	-$ 85,000
Cash flows from Financing activities		$ 40,000
Net Increase (Decrease) in Cash [A+B+C]		$ 5,000
Cash at the beginning		$ 150,000
Cash at the end		$ 155,000

Working

Calculation of Cash Dividend paid
Opening Balance of Dividends Payable	$ 25,000
Add: Dividends Declared during the year	$ 90,000
Total Dividend Liability	$ 115,000
Less: Closing Balance of Dividends	$ 30,000
Dividends Paid in cash During the year	$ 85,000