Question

Audio City, Inc., 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 below:

	Current Year				Previous Year
Balance Sheet at December 31
Cash	$	62,600			$	67,200
Accounts Receivable		15,400				20,500
Inventory		22,600				20,500
Equipment		225,000				151,000
Accumulated Depreciation—Equipment		(61,500	)			(46,000	)
Total Assets	$	264,100			$	213,200
Accounts Payable	$	8,100			$	19,200
Salaries and Wages Payable		2,100				1,000
Note Payable (long-term)		60,500				76,000
Common Stock		102,000				71,000
Retained Earnings		91,400				46,000
Total Liabilities and Stockholders’ Equity	$	264,100			$	213,200
Income Statement
Sales Revenue	$	203,000
Cost of Goods Sold		91,000
Other Expenses		61,500
Net Income	$	50,500

Additional Data:

Bought equipment for cash, $74,000.

Paid $15,500 on the long-term note payable.

Issued new shares of stock for $31,000 cash.

Dividends of $5,100 were paid in cash.

Other expenses included depreciation, $15,500; salaries and wages, $20,500; taxes, $25,500.

Accounts Payable includes only inventory purchases made on credit. Because a liability relating to taxes does not exist, assume that they were fully paid in cash.

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

Answer 1

Statement of cash flow

Cash flow from operating activities
Net income		50500
Adjustment to reconcile net income to net cash flow from operating activities
Depreciation expense	15500
Decrease account receivable	5100
Increase inventory	-2100
Decrease account payable	-11100
Increase salary and wages payable	1100
		8500
Net cash flow from operating activities		59000
Cash flow from investing activities
Equipment purchased	-74000
Net cash used in investing activities		-74000
Cash flow from financing activities
Paid long term notes payable	-15500
Issue common Stock	31000
Dividend paid	-5100
Net cash flow from financing activities		10400
Net cash increase (decrease)		-4600
Beginning Cash		67200
Ending Cash		62600