Question

ESSAY. Write your answer in the space provided or on a separate sheet of paper.

12) Nashville Records Company uses the indirect method to prepare its statement of cash flows. Refer to the following sections of the comparative balance sheet:

                                                                   Nashville Records Company

                                                                    Comparative Balance Sheet

                                                                   December 31, 2018 and 2017

                                                                                              2018                      2017    Increase (Decrease)

Accounts Payable                                                         $ 6,000                   $ 9,000                    $(3,000)

Accrued Liabilities                                                          3,000                      1,500                        1,500

Long-term Notes Payable                                         126,000                  135,000                      (9,000)

Total Liabilities                                                         $135,000                $145,500                  $(10,500)

Common Stock                                                              45,000                      3,000                       42,000

Retained Earnings                                                       169,500                  111,000                       58,500

Treasury Stock                                                            (12,000)                   (7,500)                        (4,500)

Total Equity                                                                  202,500                  106,500                       96,000

Total Liabilities and Stockholders' Equity          $337,500                $252,000                     $85,500

Additional information for 2018:

•    No stock was retired.

•    No treasury stock was sold.

•    The company repaid $60,000 of long-term notes payable.

•    The company borrowed $51,000 on a new long-term note payable.

•    Net income for the year was $68,000.

Answer 1

Particulars	Amount
Operating Activities:
Net Income	68,000
Decrease in Accounts Payable	-3,000
Increase in Accrued Liabilities	1,500
Total of Operating Activities	66,500
Investing Activities:
No Activity	-
Financing Activities:
Increase in Equity	42,000
Increase in Treasury Equity	-4,500
Repayment of long term notes payable	-60,000
New long term notes payable	51,000
Total of Financing Acitivites	28,500
Total Cashflow	95,000
Note:
Technically, the Net income value should match to the movement in Retained Earnings. However, it is not matching in the given case. Since no further details are available, it is ignored and Net Income value is considered for above cashflow statement.