Question

Statement of Cash Flows (Indirect method)
Particulars	Amount
Cash Flow from operating activities:
Net Income for 2019		$58,850
Adjustments:
Gain on sale of land	($8,000)
Gain on sale of long term investment	($4,000)
Depreciation	$35,500
Amortization expense	$5,000
Increase in accounts receivable	($4,550)
Increase in Dividend receivable	($1,000)
Increase in Inventories	($7,000)
Decrease in Prepaid rent	$9,000
Increase in Prepaid Insurance	($1,200)
Increase in Office Supplies	($250)
Decrease in Accounts payable	($4,000)
Increase in Income tax payable	$1,000
Increase in Wages payable	$2,000
Increase in Dividend payable	$1,500
Decrease in Unearned Income	($1,500)
Decrease in Accrued Liabilities	($5,550)	$16,950
Cash flow from Operating Activities		$75,800
Cash Flow from Investing Activites:
Proceeds from sale of land	$58,000
Proceeds from sale of long term investment	$14,000
Cash paid for purchase of Equipment	($125,000)
Net Cash flow from Investing activities		($53,000)
Cash Flow from Financing Activities:
Cash paid for long term note payable	($10,000)
Stock repurchased	($35,000)
Cash dividend paid	($40,875)
Common stock issued	$98,910
Net cash flow from Financing activities		$13,035
Net change in cash		$35,835
Beginning cash balance		$4,000
Ending cash balance		$39,835
Working Note:
Depreciation on building = 105000-87500 = 17500
Depreciation on equipment = 130000-112000 = 18000
Amortization on Patent = 50000-45000 = 5000
Sale of land = 175000-125000 = 50000+gain on sale of land 8000 = 58000
Sale on investment = 30000-20000 = 10000+4000 gain = 14000
Purchase of Equipment = 525000-400000 = 125000
Dividend paid = Beginning retained earnings+net income-ending retained earnings
= 88747+58850-106722 = 40875
Common Stock issued = 70000+28910 (APIC) = 98910

For the Operating Section (Direct Method)

1)You are starting with Sales, adjusting it for cash received from customers, then going directly down the Income Statement and doing the same with each item

on the Income Statement (see Chapter 13 Appendix).

2) You will end up with the same answer for Operating Cash Flow as derived using the Indirect Approach.

3) Be sure to consider all items labeled Operating in your Comparative Balance Sheet.

4) You will have several items to adjust that will be slightly different than what is provided in the book.

You will be expected to use your best judgment on

these.

Answer 1

Statement of Cash Flows (direct method)				Working Notes
Particulars	Amount			1) Cash Receipts from customers = Sales less Increase in Receivables
Cash Flow from operating activities:				Cash Receipts from customers = 1160000 - 4550	$ 11,55,450.00
Cash Receipts from customers		$ 11,55,450.00		2) Cash payments to suppliers = Cost of Goods Sold) plus (Increase in Inventory) lPlus (decrease in Accounts Payable)
Dividend Received		$         1,400.00		Cash payments to suppliers = 748000 + 7000 + 4000	$    7,59,000.00
Cash Payments:				3) Cash payments for operating expenses = (Operating Expenses) - (Depreciation Expense) – Decrease in Prepaid Rent + Increase in Prepaid Insurance + Increase in Office Supplies - Increase in Wages Payable
To suppliers	$   7,59,000.00			Cash payments for operating expenses = 276400 - (35,500+5000) - 9000 + 1200 +250 - 2000	$    2,26,350.00
For operating expenses	$   2,26,350.00			4) Cash payments for income taxes = Income Taxes) less (Increase in Income Taxes Payable)
For income tax	$      38,400.00			Cash payments for operating income taxes = 39400 -1000	$       38,400.00
For interest Paid	$      57,300.00	$ -10,81,050.00		5) Interest Paid = Interest Expense + Decrease in Accrued Liabilities
Net cash provided by operating activities		$       75,800.00		Interest paid = 51750 + 5550	$       57,300.00
				6) Dividend Recived = Dividend Revenue - Dividend Receivable
Cash Flow from Investing Activites:				Dividend Received = 2400 - 1000	1400
Proceeds from sale of land	$      58,000.00
Proceeds from sale of long term investment	$      14,000.00
Cash paid for purchase of Equipment	$ -1,25,000.00
Net Cash flow from Investing activities		$      -53,000.00
Cash Flow from Financing Activities:
Cash paid for long term note payable	$    -10,000.00
Stock repurchased	$    -35,000.00
Cash dividend paid	$    -40,875.00
Common stock issued	$      98,910.00
Net cash flow from Financing activities		$       13,035.00
Net change in cash		$       35,835.00
Beginning cash balance		$         4,000.00
Ending cash balance		$       39,835.00

Working Notes
1) Cash Receipts from customers = Sales less Increase in Receivables
Cash Receipts from customers = 1160000 - 4550	$ 11,55,450.00
2) Cash payments to suppliers = Cost of Goods Sold) plus (Increase in Inventory) lPlus (decrease in Accounts Payable)
Cash payments to suppliers = 748000 + 7000 + 4000	$    7,59,000.00
3) Cash payments for operating expenses = (Operating Expenses) - (Depreciation Expense) – Decrease in Prepaid Rent + Increase in Prepaid Insurance + Increase in Office Supplies - Increase in Wages Payable
Cash payments for operating expenses = 276400 - (35,500+5000) - 9000 + 1200 +250 - 2000	$    2,26,350.00
4) Cash payments for income taxes = Income Taxes) less (Increase in Income Taxes Payable)
Cash payments for operating income taxes = 39400 -1000	$       38,400.00
5) Interest Paid = Interest Expense + Decrease in Accrued Liabilities
Interest paid = 51750 + 5550	$       57,300.00
6) Dividend Recived = Dividend Revenue - Dividend Receivable
Dividend Received = 2400 - 1000	1400