Question

The comparative balance sheet of Yellow Dog Enterprises Inc. at December 31, 20Y8 and 20Y7, is as follows:

*NOTE: Please explain in detail how you got the answers. Thanks in advance!

1		Dec. 31, 20Y8	Dec. 31, 20Y7
2	Assets
3	Cash	$80,000.00	$100,000.00
4	Accounts receivable (net)	275,000.00	300,000.00
5	Inventories	510,000.00	400,000.00
6	Prepaid expenses	15,000.00	10,000.00
7	Equipment	1,070,000.00	750,000.00
8	Accumulated depreciation-equipment	(200,000.00)	(160,000.00)
9	Total assets	$1,750,000.00	$1,400,000.00
10	Liabilities and Stockholders’ Equity
11	Accounts payable (merchandise creditors)	$100,000.00	$90,000.00
12	Mortgage note payable	????0.00	400,000.00
13	Common stock, $10 par	600,000.00	200,000.00
14	Paid-in capital: Excess of issue price over par—common stock	300,000.00	100,000.00
15	Retained earnings	750,000.00	610,000.00
16	Total liabilities and stockholders’ equity	$1,750,000.00	$1,400,000.00

Additional data obtained from the income statement and from an examination of the accounts in the ledger for 20Y8 are as follows:

	a. Net income, $190,000.
	b. Depreciation reported on the income statement, $115,000.
	c. Equipment was purchased at a cost of $395,000 and fully depreciated equipment costing $75,000 was discarded, with no salvage realized.
	d. The mortgage note payable was not due for six years, but the terms permitted earlier payment without penalty.
	e. 40,000 shares of common stock were issued at $15 for cash.
	f. Cash dividends declared and paid, $50,000.

Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. Be sure to complete the heading of the statement. Enter amounts that represent cash outflows as negative numbers using a minus sign.

Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. Be sure to complete the heading of the statement. Enter amounts that represent cash outflows as negative numbers using a minus sign.

Answer 1

Solution:

Cash flow Statement (Indirect Method)
Particulars	Details	Amount
Cash Flow from Operating Activities:
Net Income		$190,000.00
Adjustments to reconcile net income to cash flow from operating activities:
Depreciation	$115,000.00
Decrease in Accounts Receivables ($300000- $275000)	$25,000.00
Increase in Inventories ($510000- $400000)	-$110,000.00
Increase in Prepaid Expense ($15000 - $10000)	-$5,000.00
Increase in Accounts Payable ($100000 - $90000)	$10,000.00
Total Adjustments		$35,000.00
Net Cash Flow provided by Operating Activites (A)		$225,000.00
Cash Flow from Investing Activities:
Purchase of Equipment	-$395,000.00
Net Cash Flow used by Investing Activites (B)		-$395,000.00
Cash Flow from Financing Activities:
Proceeds from issuance of common stock (40000* $15)	$600,000.00
Cash Dividend paid	-$50,000.00
Motgage Note Paid	-$400,000.00
Net Cash Flow provided by Financing Activites (C)		$150,000.00
Net Increase (Decrease) in cash during the year (A+B+C)		-$20,000.00
Cash at the beginning of the year		$100,000.00
Cash at the end of year		$80,000.00