Question

The management team of Wickersham Brothers Inc. is preparing its annual financial statements. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statements are summarized.

	Current Year				Prior Year
Balance Sheet
Assets
Cash	$	57,900			$	79,800
Accounts receivable		88,000				77,000
Merchandise inventory		66,000				71,500
Property and equipment		122,000				66,000
Less: Accumulated depreciation		(34,080	)			(17,000	)
Total assets	$	299,820			$	277,300
Liabilities:
Accounts payable	$	11,000			$	13,200
Salaries and Wages Payable		2,200				1,100
Notes payable, long-term		55,000				66,000
Stockholders’ Equity:
Common stock		108,000				88,000
Retained earnings		123,620				109,000
Total liabilities and stockholders’ equity	$	299,820			$	277,300
Income Statement
Sales	$	240,000
Cost of goods sold		130,000
Depreciation expense		17,080
Other expenses		60,000
Net income	$	32,920

Other information from the company’s records includes the following:

Bought equipment for cash, $56,000.

Paid $11,000 on long-term note payable.

Issued new shares of common stock for $20,000 cash.

Cash dividends of $18,300 were declared and paid to stockholders.

Accounts Payable arose from inventory purchases on credit.

Income tax expense ($8,230) and interest expense ($3,300) were paid in full at the end of both years and are included in Other Expenses.

Required:
a. Prepare the statement of cash flows using the indirect method. Include any supplemental disclosures. (Enter any deductions and cash outflows as a negative value.)

Answer 1

Statement of cash flow :

Cash flow from operating activities
Net income		32920
Adjustment to reconcile net income to net cash flow from operating activities
Depreciation expense	17080
Increase account receivable	-11000
Decrease inventory	5500
Decrease account payable	-2200
Increase Salaries and Wages Payable	1100
		10480
Net cash flow from operating activities		43400
Cash flow from investing activities
Purchase equipment	-56000
Net cash used in investing activities		-56000
Cash flow from financing activities
Paid long term note	-11000
Issue common Stock	20000
Dividend paid	-18300
Net cash used in financing activities		-9300
Net increase (decrease) in cash		-21900
Beginning cash		79800
Ending cash		57900