Question

Aires Corporation Comparative Balance Sheets December 31, 2020 and 2019 Assets 2020 2019 Change Cash $ 21,000 $ 54,000 Accounts receivable (net) 421,000 480,000 Inventory 310,000 340,000 Prepaid expenses 17,000 15,000 Long Term Investments 70,000 80,000 Land 400,000 300,000 Equipment 1,730,000 1,590,000 Accumulated depreciation-equipment (610,000) (600,000) Patent 40,000 50,000 Total assets $2,399,000 $2,309,000 Liabilities Accounts payable $ 328,000 $ 335,000 Accrued liabilities 171,000 170,000 Income taxes payable 22,000 34,000 Bonds payable 410,000 700,000 Long-term note payable 130,000 0 Total liabilities $1,061,000 $1,239,000

Stockholders' Equity Common stock $ 800,000 $ 600,000 Additional paid-in capital 152,000 152,000 Retained

earnings 386,000 318,000 Total stockholders' equity $1,338,000 $1,070,000 Total liabilities and stockholders' equity $2,399,000 $2,309,000 Aires Corporation Income Statement Year Ended December 31, 2020 Sales $638,700 Cost of merchandise sold 302,000 Gross profit $336,700 Operating expenses: Depreciation expense $70,000 Amortization expense 10,000 Other operating expenses 58,000 138,000 Income from operations $198,700 Other income/(expenses): Gain on sale of equipment $3,000 Loss on sale of investment (2000) Interest income 6,000 7,000 Income before income tax $205,700 Income tax 62,700 Net income $143,000 a) Issued a long-term note payable in exchange for computer equipment for $130,000. b) Purchased computer equipment for $90,000. c) Sold investments costing $10,000 for $8,000 (Hint: Calculate gain or loss) d) Sold equipment costing $80,000 with accumulated depreciation of $60,000 for $23,000 (Hint: Calculate gain or loss) e) f) Repayment of bonds payable at par for $290,000. g) Declared and paid dividends of $75,000. h) Issued 20,000 shares of common stock at par value of $10 per share. i) Paid $100,000 for land intended for a new plant site.

Required: a) Prepare a statement of cash flows using the indirect method. Include a schedule of noncash investing and financing transactions, if applicable. b) Calculate (Write final answer in space provided below. Show calculation). Ratio Answer Free Cash Flows

Answer 1

Solution

Aires Corporation

Statement of cash flows (Indirect method)

Aires Corporation
Statement of Cash Flows (Indirect Method)
For the Year Ended December 31, 2020
Cash flow from operating activities:
Net Income		$143,000
Adjustments to reconcile net income to net cash flow from operations:
Depreciation	$70,000
Amortization	$10,000
Gain on sale of equipment	($3,000)
Loss on sale of investment	$2,000
Decrease in accounts receivable	$59,000
Decrease in inventory	$30,000
Increase in prepaid expenses	($2,000)
Decrease in accounts payable	($7,000)
Increase in accrued liabilities	$1,000
Decrease in income taxes payable	($12,000)	$148,000
Cash flow from operating activities:		$291,000
Cash flow from investing activities
Purchase of land	($100,000)
Sale of equipment	$23,000
Sale of investments	$8,000
Purchase of computer equipment	($90,000)
Cash flow from investing activities		($159,000)
Cash flow from financing activities:
Repayment of bonds payable	($290,000)
Dividends	($75,000)
Isssue of common stock	$200,000
Cash flow from financing activities		($165,000)
Decrease in cash		($33,000)
Beginning cash balance		$54,000
Ending cash balance		$21,000