Question

Statement of Cash Flows—Indirect Method

The comparative balance sheet of Yellow Dog Enterprises Inc. at December 31, 20Y8 and 20Y7, is as follows:

		Dec. 31, 20Y8		Dec. 31, 20Y7
Assets
Cash		$91,310		$111,430
Accounts receivable (net)		140,310		150,220
Inventories		200,430		186,180
Prepaid expenses		8,170		5,640
Equipment		408,300		333,580
Accumulated depreciation-equipment		(106,160)		(81,810)
	Total assets	$742,360		$705,240
Liabilities and Stockholders' Equity
Accounts payable (merchandise creditors)		$155,900		$147,400
Mortgage note payable		0		211,570
Common stock, $1 par		24,000		15,000
Paid-in capital: Excess of issue price over par-common stock		370,000		199,000
Retained earnings		192,460		132,270
	Total liabilities and stockholders’ equity	$742,360		$705,240

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

1. Net income, $154,090.
2. Depreciation reported on the income statement, $52,040.
3. Equipment was purchased at a cost of $102,410, and fully depreciated equipment costing $27,690 was discarded, with no salvage realized.
4. The mortgage note payable was not due for six years, but the terms permitted earlier payment without penalty.
5. 9,000 shares of common stock were issued at $20 for cash.
6. Cash dividends declared and paid, $93,900.

Required:

Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.

Yellow Dog Enterprises Inc.
Statement of Cash Flows
For the Year Ended December 31, 20Y8
Cash flows from operating activities:
Net income	$
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation
Changes in current operating assets and liabilities:
Net cash flow from operating activities		$
Cash flows from investing activities:
	$
Net cash flow used for investing activities
Cash flows from financing activities:
	$
Net cash flow used for financing activities
		$
Cash at the beginning of the year
Cash at the end of the year

Answer 1

Solution

Yellow Dog Enterprises Inc.
Statement of Cash Flows
For the Year Ended December 31, 20Y8
Cash flows from operating activities:
Net income	$     154,090.00
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation	$       52,040.00
Changes in current operating assets and liabilities:
Decrease in accounts receivables	$         9,910.00
Increase in Inventory	$      (14,250.00)
Increase in accounts payable	$         8,500.00
Increase in prepaid expense	$          (2,530.00)
Net cash flow from operating activities		$           207,760.00
Cash flows from investing activities:
Purchase of Equipment	$    (102,410.00)
Net cash flow used for investing activities		$          (102,410.00)
Cash flows from financing activities:
Issue of common stock	$     180,000.00
Repayment of mortgage	$    (211,570.00)
Payment of Dividend	$      (93,900.00)
Net cash flow used for financing activities		$          (125,470.00)
Change in cash during year		$            (20,120.00)
Cash at the beginning of the year		$           111,430.00
Cash at the end of the year		$             91,310.00

.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.