Question

The following table presents selected details from the balance sheet of Davis Corporation:

	2020	2019
Accounts Receivable	224,000	250,000
Inventory	187,000	160,000
Prepaid Insurance	10,000	6,000
Prepaid Rent	7,000	9,000
Accumulated Depreciation	(620,000)	(580,000)
Deferred Revenue	36,500	42,000
Salary Payable	17,000	15,000
Accounts Payable	14,200	14,700

Additional information:

• Sold land with a book value of 145,000 for 170,000
• Bonds with a net book value of 175,000 were paid off early by paying 172,500 cash
• Stock option compensation expense was 1,000
• Purchased trading securities for 15,000
• Equipment costing $25,000 with a book value of 5,000 was sold for 3,500
• Amortization of bond premium was 3,000
• Issued new common stocks for 100,000
• Paid cash dividends of $24,000
• Net income was $58,000

Present the 2020 CFO (indirect method). List all items and total. Indicate next to each item whether it is a cash inflow (I), a cash outflow (O), a reversal of non-cash revenue/gain (RR), or a reversal of non-cash expense/loss (RE).

Answer 1

Cash Flow Statement
Indirect Method
Cash flow from Operating Activities
Net Income		$          58,000
Adjustments
Depreciation	$          60,000			RE
Gain on sale of land	$         -25,000			RR
Gain on retirement of bonds	$           -2,500			RR
Stock Option Compensation Expense	$            1,000			RE
Loss on sale of equipment	$            1,500			RE
Amortization of Bond Premium	$           -3,000			O
Decrease in Accounts Receivable	$          26,000			I
Increase in Inventory	$         -27,000			O
Increase in Prepaid Insurance	$           -4,000			O
Decrease in Prepaid Rent	$            2,000			I
Increase in Accounts payable	$              -500			O
Increase in Salary payable	$            2,000			I
Decrease in Deferred Revenue	$           -5,500			O
Total Adjustments		$          25,000
Net Cash from operating activities			$          83,000