Question

Hunter Company is developing its annual financial statements at December 31. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized:

	Current Year			Prior Year
Balance Sheet at December 31
Cash	$	44,440		$	16,000
Accounts Receivable		23,400			25,000
Inventory		26,400			32,000
Equipment		106,600			98,000
Accumulated Depreciation—Equipment		(35,400	)		(28,000	)
Total Assets	$	165,440		$	143,000
Accounts Payable	$	22,600		$	20,000
Salaries and Wages Payable		840			1,000
Note Payable (long-term)		32,000			44,000
Common Stock		78,000			56,000
Retained Earnings		32,000			22,000
Total Liabilities and Stockholders’ Equity	$	165,440		$	143,000
Income Statement (current year)
Sales Revenue	$	114,000
Cost of Goods Sold		68,000
Other Expenses		32,600
Net Income	$	13,400

Additional Data:

1. Bought equipment for cash, $8,600.
2. Paid $12,000 on the long-term note payable.
3. Issued new shares of stock for $22,000 cash.
4. Declared and paid a $3,400 cash dividend.
5. Other expenses included depreciation, $7,400; salaries and wages, $11,400; taxes, $4,400; utilities, $9,400.
6. Accounts Payable includes only inventory purchases made on credit. Because there are no liability accounts relating to taxes or other expenses, assume that these expenses were fully paid in cash.

Required:
1. Prepare the statement of cash flows for the year ended December 31 using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Statement of Cash Flows
For the Year Ended December 31
Cash flows from operating activities:
Net income		13400
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense	7400
Decrease in accounts receivable	1600
Decrease in inventory	5600
Increase in Accounts payable	2600
Decrease in Salaries and wages payable	-160
		17040
Net cash provided by operating activities		30440
Cash flows from investing activities:
Cash payments to purchase equipment	-8600
Net cash used by investing activities		-8600
Cash flows from financing activities:
Cash payments on long-term note	-12000
Cash receipts from issuing stock	22000
Payment of cash dividends	-3400
Net cash provided by financing activities		6600
Net increase in cash during the year		28440
Cash balance, January 1		16000
Cash balance, December 31		44440