Question

Comparative balance sheet accounts of Splish Company are presented below.

SPLISH COMPANY COMPARATIVE BALANCE SHEET ACCOUNTS AS OF DECEMBER 31
Debit Balances		2020		2019
Cash		$70,600		$50,500
Accounts Receivable		155,100		130,000
Inventory		75,600		61,100
Debt investments (available-for-sale)		55,100		84,300
Equipment		70,300		48,400
Buildings		144,400		144,400
Land		39,600		25,300
Totals		$610,700		$544,000
Credit Balances
Allowance for Doubtful Accounts		$10,000		$7,900
Accumulated Depreciation—Equipment		21,000		14,100
Accumulated Depreciation—Buildings		37,300		28,200
Accounts Payable		66,400		60,600
Income Taxes Payable		11,900		9,900
Long-Term Notes Payable		62,000		70,000
Common Stock		310,000		260,000
Retained Earnings		92,100		93,300
Totals		$610,700		$544,000

Additional data:

1.		Equipment that cost $10,100 and was 60% depreciated was sold in 2020.
2.		Cash dividends were declared and paid during the year.
3.		Common stock was issued in exchange for land.
4.		Investments that cost $34,600 were sold during the year.
5.		There were no write-offs of uncollectible accounts during the year.

Splish’s 2020 income statement is as follows.

Sales revenue					$949,600
Less: Cost of goods sold					600,500
Gross profit					349,100
Less: Operating expenses (includes depreciation expense and bad debt expense)					247,700
Income from operations					101,400
Other revenues and expenses
Gain on sale of investments		$14,900
Loss on sale of equipment		(3,100	)		11,800
Income before taxes					113,200
Income taxes					44,600
Net income					$68,600

(a) Compute net cash provided by operating activities under the direct method. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Net cash flow from operating activities

$

(b) Prepare a statement of cash flows using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Answer 1

Solution:

Requirement:A

Net cash flow from operating activities

$          49,160

Requirement:B

SPLISH COMPANY
Statement of Cash Flows [Indirect Method]
For the Year Ended December 31, 2020
Cash flows from operating activities:
Net Income	$       68,600
Adjustments to reconcile net income to net cash provided by operating activities
Income statement items not affecting cash
Depreciation expense	$       22,060
Loss on sale of equipment	$         3,100
Gain on sale of investments	$    (14,900)
Changes in current operating assets and liabilities
Increase in Account Receivables	$    (23,000)
Increase in Inventory	$    (14,500)
Increase in accounts payable	$         5,800
Increase in income taxes payable	$         2,000
Net cash provided by operating activities[A]		$          49,160
Cash flow from investing activities:
Purchase of Equipment	$    (32,000)
Sale of Equipment	$             940
Purchase of investments	$       (5,400)
Sale of Investments	$       49,500
Net cash used by investing activities[B]		$          13,040
Cash flow from financing activities:
Payment of Notes Payable	$       (8,000)
Issue on Common Stock	$       35,700
Payment of Dividend	$    (69,800)
Net Cash used by financing activities (C )		$        (42,100)
Net increase(decrease) in cash		$          20,100
Cash balance at prior year-end		$          50,500
Cash balance at current year-end		$          70,600

Working:

Investments
Beg Balance	$       84,300	Sale of investments	$        34,600
Purchase of investments	$          5,400
End Balance	$       55,100
Property, plant, and equipment
Beg Balance	$       48,400	Asset Sold	$        10,100
Asset Purchased	$       32,000
End Balance	$       70,300

Accumulated Depreciation
Depreciation [Of Sold Asset]	$          6,060	Beg Balance	$        42,300
		Depreciation Expense	$        22,060
		End Balance	$        58,300