Question

Prepare Statement of cash flows for Travel Products Inc. for year ended December 31,2014 using the indirect method.

Service revenue.......$235,000

Dividend revenue.....8,200

Total revenues.......$243,000

Expenses:

Cost of goods sold $103,000

Salary expense $58,000

Depreciation expense $21,000

Advertising expense 2,900

Interest expense $3,300

Income tax expense $6,000

Total expenses 194,200

Net Income $49,000

Additional Data

Aquisition of plant assets was $125,000. Of this amount 75,000 was paid in cash and $50,000 by signing a note payable.

Proceeds from sale of land totaled $39,000.

Proceeds from issuance of common stock totaled $47,000.

Payment of long-term note payable was $15,000.

Payment of Dividends was $9,000.

From the balance sheets:

December 31,2014

Current assets:

Cash $80,000

Accounts receivable $40,000

Inventory 48,000

Prepaid Expenses 9,300

Current Liabilities:

Accounts payable $33,000

Accrued liabilities $4,000

December 31,2013

Current assets $4,000

Accounts receivable $55,000

Inventory 59,000

Prepaid expenses $8,300

Current Liabilities:

Accounts payable $19,000

Accrued Liabilities $24,000

Answer 1

Statement of Cash Flows for the year ending December 31, 2014 is as follows:

In Indirect method, only operating activities treatment would differ where we would add the non cash expense to the Net income and the changes in the current assets and current liabilities would be added and deducted as required.

eg. If current assets other than cash increased from last year, it would deemed to be assumed that cash outflow occured. Likewise, in case of increase in current assets, cash flow would be negative and for decrease in current assets, cash flow would be positive. For increase in current liabilities, cash flow would be positive and for decrease in current liabilities, cash flow would be negative.

Interest expense and dividend revenue is deemed to be operating activities.

Beginning Cash balances = Ending Cash Balances - Net Cash Flow during the period.

Hope the answer is helpful!!