Question

The comparative balance sheet of Merrick Equipment Co. for December 31, 20Y9 and 20Y8, is as follows:

		Dec. 31, 20Y9		Dec. 31, 20Y8
Assets
Cash		$267,060		$250,430
Accounts receivable (net)		96,750		89,940
Inventories		273,100		266,320
Investments		0		103,170
Land		140,080		0
Equipment		301,330		235,440
Accumulated depreciation—equipment		(70,540)		(63,490)
	Total assets	$1,007,780		$881,810
Liabilities and Stockholders' Equity
Accounts payable		$182,410		$173,720
Accrued expenses payable		18,140		22,930
Dividends payable		10,080		7,940
Common stock, $10 par		54,420		43,210
Paid-in capital: Excess of issue price over par-common stock		204,580		119,930
Retained earnings		538,150		514,080
	Total liabilities and stockholders’ equity	$1,007,780		$881,810

Additional data obtained from an examination of the accounts in the ledger for 20Y9 are as follows:

1. Equipment and land were acquired for cash.
2. There were no disposals of equipment during the year.
3. The investments were sold for $92,850 cash.
4. The common stock was issued for cash.
5. There was a $65,520 credit to Retained Earnings for net income.
6. There was a $41,450 debit to Retained Earnings for cash dividends declared.

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 outflows, cash payments, decreases in cash, or any negative adjustments.

Merrick Equipment Co.
Statement of Cash Flows
For the Year Ended December 31, 20Y9
Cash flows from operating activities:
	$
Adjustments to reconcile net income to net cash flow from operating activities:
Changes in current operating assets and liabilities:
Net cash flow from operating activities		$
Cash flows from (used for) investing activities:
	$
Net cash flow used for investing activities
Cash flows from (used for) financing activities:
Net cash flow from financing activities
		$
Cash at the beginning of the year
Cash at the end of the year		$

Answer 1

Solution

Merrick Equipment Co.
Statement of Cash Flows
For the Year Ended December 31, 20Y9
Cash flows from operating activities:
Net income	$        65,520.00
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation	$          7,050.00
Loss on sale of investments	$        10,320.00
Changes in current operating assets and liabilities:
Increase in accounts receivable	$         (6,810.00)
Increase in inventories	$         (6,780.00)
Increase in accounts payable	$          8,690.00
Decrease in accrued expenses payable	$         (4,790.00)
Net cash flow from operating activities		$    73,200.00
Cash flows from (used for) investing activities:
Cash Received from sale of investments	$        92,850.00
Cash used for purchase of land	$     (140,080.00)
Cash used for purchase of equipment	$       (65,890.00)
Net cash flow used for investing activities		$ (113,120.00)
Cash flows from (used for) financing activities:
Cash received from sale of common stock	$        95,860.00
Cash used for dividends	$       (39,310.00)
Net cash flow from financing activities		$    56,550.00
Increase in cash		$    16,630.00
Cash at the beginning of the year		$ 250,430.00
Cash at the end of the year		$ 267,060.00

Working

Dividends paid in cash
Dividends declared	$    41,450.00
Less: Increase in dividends payable	$    (2,140.00)
Dividends paid in cash	$    39,310.00

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.