Question

Statement of Cash Flows (Indirect Method) The Artic Company’s income statement and com-

parative balance sheets at December 31 of 2019 and 2018 are shown below:

ARTIC COMPANY

Income Statement

For the Year Ended December 31, 2019

Sales revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $645,000

Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $430,000

Wages expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,000

Insurance expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000

Depreciation expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,000

Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000

Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,000 590,000

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55,000

Assets

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 41,000 $ 8,000

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,000 32,000

Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000 65,000

Prepaid insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 7,000

Plant assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219,000 202,000

Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (68,000)

(55,000)

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $328,000 $259,000

Liabilities and Stockholders’ Equity

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,000 $ 10,000

Wages payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 6,000

Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 7,000

Bonds payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,000 87,000

Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000 90,000

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,000

59,000

Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $328,000 $259,000

Cash dividends of $40,000 were declared and paid during 2019. Plant assets were purchased for cash

and bonds payable were issued for cash. Bond interest is paid semi-annually on June 30 and December

31. Accounts payable relate to merchandise purchases.

Answer 1

Solution:

The Artic Company
Statement of Cash Flows
For year ended 2019
Particulars	Details	Amount
Cash Flow from Operating Activities:
Net Income	$55,000.00
Adjustments to reconcile net income to net cash provided by operations:
Depreciation Expense	$13,000.00
Decrease in accounts receivables ($41,000 - $32,000)	-$9,000.00
Increase in inventory ($90,000 - $65,000)	-$25,000.00
Decrease in prepaid insurance ($7,000 - $5,000)	$2,000.00
Decrease in accounts payable ($10,000 - $7,000)	-$3,000.00
Increase in Wages payable ($10,000 - $6,000)	$4,000.00
Decrease in income taxes payable ($7,000 - $6,000)	-$1,000.00
Net Cash provided (used) by operating activities		$36,000.00
Cash Flow from Investing Activities:
Purchase of plant asset	-$17,000.00
Net Cash provided (used) in Investing activities		-$17,000.00
Cash Flow from Financing Activities:
Dividend Paid	-$40,000.00
Proceed from issue of bond	$54,000.00
Net Cash provided (used) in financing activities		$14,000.00
Net Increase / (Decrease) in Cash		$33,000.00
Cash balance at beginning of year		$8,000.00
Cash balance at end of year		$41,000.00