Question

26) The following are comparative balance sheets and an income statement for Wentworth Company.

Wentworth Company Balance Sheets as of December 31
Assets	2018	2017
Cash	$21,500	$120,000
Accounts receivable	195,000	105,000
Inventory	180,000	225,000
Long-term investments	0	60,000
Totals	$396,500	$510,000
Liabilities and shareholders' equity
Accounts payable	$75,000	$120,000
Operating expenses payable	24,000	15,000
Bonds payable	70,000	100,000
Common stock	125,000	125,000
Retained earnings	102,500	150,000
Totals	$396,500	$510,000

Wentworth Company Income Statement For the Year Ended December 31, 2018
Sales		$560,000
Cost of goods sold:
Beginning inventory	$225,000
Purchases	330,000
Goods available for sale	555,000
Less: ending inventory	180,000
Cost of goods sold		375,000
Gross profit		185,000
Operating expenses		180,000
Income from operations		5,000
Other expenses:
Loss on sale of long-term investment		(7,500)
Net loss		($2,500)

Cash dividends of $45,000 were paid in 2018.

Required:

Prepare a statement of cash flows for 2018 using the indirect method for operating activities. Make sure to prepare all 3 activities.

Answer 1

Cash flow from Operating activities
Net Loss		(2,500)
Adjustments to reconcile net loss
Add: Loss on sale of investments	7,500
Add: Decrease in inventory	45,000
Add: Increase in Operating expenses payable	9,000
Less: Increase in accounts receivable	(90,000)
Less: Decrease in accounts payable	(45,000)	(73,500)
Net cash used in Operating activities		(76,000)
Cash flow from Investing activities
Sale of long term investments [60,000 - 7,500]	52,500	52,500
Cash flow from financing activities
Dividend paid	(45,000)
Bonds repaid	(30,000)	(75,000)
Net decrease in cash and cash equivalents		(98,500)
Add: Opening cash balance		120,000
Closing cash balance		21,500