Question

Problem 11-4A Prepare a statement of cash flows - indirect method (LO11-2, 11-3)

VIDEO PHONES, INC. Income Statement For the Year Ended December 31, 2018
Net sales		$	3,336,000
Expenses:
Cost of goods sold	$ 2,150,000
Operating expenses	898,000
Depreciation expense	31,000
Loss on sale of land	8,400
Interest expense	17,000
Income tax expense	52,000
Total expenses			3,156,400
Net income		$	179,600

VIDEO PHONES, INC. Balance Sheet December 31
	2018		2017
Assets
Current assets:
Cash	$	273,440	$	177,520
Accounts receivable		85,400		64,000
Inventory		105,000		139,000
Prepaid rent		12,960		6,480
Long-term assets:
Investments		109,000		0
Land		214,000		248,000
Equipment		278,000		214,000
Accumulated depreciation		(73,800)		(42,800)
Total assets	$	1,004,000	$	806,200
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	69,600	$	85,000
Interest payable		6,400		10,800
Income tax payable		15,400		14,400
Long-term liabilities:
Notes payable		293,000		229,000
Stockholders' equity:
Common stock		340,000		340,000
Retained earnings		279,600		127,000
Total liabilities and stockholders’ equity	$	1,004,000	$	806,200

Additional Information for 2018:

1. Purchase investment in bonds for $109,000.
2. Sell land costing $34,000 for only $25,600, resulting in a $8,400 loss on sale of land.
3. Purchase $64,000 in equipment by borrowing $64,000 with a note payable due in three years. No cash is exchanged in the transaction.
4. Declare and pay a cash dividend of $27,000.  

Required:
Prepare the statement of cash flows using the indirect method. Disclose any noncash transactions in an accompanying note. (List cash outflows and any decrease in cash as negative amounts.)

Answer 1

Cash flows from Operating activities

Net Income

Adjustments to reconcile net income to net cash provided by

operating activities:

Add: Depreciation expense

Loss on sale of land

Decrease in Inventory (S 139,000 - S 105,000)

Increase in Income tax payable (S 15,400 - S 14,400)

Less: Increase in Accounts receivable (S 64,000 - S 85,400)

Increase in Prepaid rent (S 6,480 - S 12,960)

Decrease in Accounts payable (S 69,600 - S 85,000)

Decrease in Interest payable (S 6,400 - S 10,800)

Net Cash flow from Operating activities