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Statement of Cash Flows—Indirect Method The comparative balance sheet of Merrick Equipment Co. for December 31,...

Statement of Cash Flows—Indirect Method

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 $293,310 $275,050
Accounts receivable (net) 106,260 98,790
Inventories 299,950 292,480
Investments 0 113,310
Land 153,850 0
Equipment 330,950 258,590
Accumulated depreciation—equipment (77,480) (69,730)
Total assets $1,106,840 $968,490
Liabilities and Stockholders' Equity
Accounts payable $200,340 $190,790
Accrued expenses payable 19,920 25,180
Dividends payable 11,070 8,720
Common stock, $10 par 59,770 47,460
Paid-in capital: Excess of issue price over par-common stock 224,690 131,710
Retained earnings 591,050 564,630
Total liabilities and stockholders’ equity $1,106,840 $968,490

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

Equipment and land were acquired for cash.

There were no disposals of equipment during the year.

The investments were sold for $101,980 cash.

The common stock was issued for cash.

There was a $71,940 credit to Retained Earnings for net income.

There was a $45,520 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 out flows, 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:
Depreciation
Loss on sale of investments
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
Increase in cash $
Cash at the beginning of the year
Cash at the end of the year $

Feedback

The statement of cash flows reports three types of cash flow activities, as follows:
1. Cash flows from operating activities are the cash flows from transactions that affect the net income of the company.
2. Cash flows from (used for) investing activities are the cash flows received from or used for transactions that affect investments in the noncurrent assets of the company.
3. Cash flows from (used for) financing activities are the cash flows received from or used for transactions that affect the debt and equity of the company.

The indirect method reports cash flows from operating activities by beginning with net income and adjusting it for revenues and expenses that do not involve the receipt or payment of cash. A primary advantage of the indirect method is that it reconciles the differences between net income and net cash flows from operations.

Calculate the increases and decreases in the current asset/liability accounts over the period. How do these increases or decreases impact the amount of cash a company has? Were there any purchases or sales of noncurrent assets during the year? If there were any sales of noncurrent assets, were these noncurrent assets sold at what the company had initially paid? Or were the assets sold for more or less than the book value? Did the company engage in any activities that affected the equity or debt in their company?

Solutions

Expert Solution

Merrick Equipment
Statement of Cash Flows
for the year ended December 31,2015
Cash flows from Operating Activities
Net income for the year 71,940
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation expense 7,750
increase in Accounts receivable -7470
increase in inventory -7470
loss on sale of investment 11,330
increase in accounts payable 9550
Decrease in accrued expenses payable -5260 8,430
Net cash flow from operating activities 80,370
Cash flows from Investing Activities:
cash from sale of investmentss 101,980
Cash used for purchase of land -153,850
cash used for purchase of Equipment -72,360
Net cash used by investing activities -124,230
Cash flows from financing activities
cash from common stock issue 105,290
Cash dividend paid -43,170
net cash flow from financing activities 62,120
Net increase in cash 18,260
cash at the beginning of the year 275,050
cash at year end 293,310

ekkarill92 answered 1 year ago
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