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Problem 1: Instructions: Prepare a statement of cash flows using the indirect method. The Comparative Balance...

Problem 1:

Instructions:

Prepare a statement of cash flows using the indirect method.

The Comparative Balance Sheet of XYZ Inc. for December 31, 2019 and 2018 is shown as follows:       

                                                                                                                   12/31/19                       12/31/18

                                           Assets

Cash                                                                                                            $625,760                     $585,920

Accounts Receivable                                                                                  227,840                       208,960

Inventories                                                                                        $641,760                    $617,120

Investments                                                                                              0                             240,000

Land                                                                                                      328,000                            0

Equipment                                                                                           705,120                       553,120

Accumulated Depreciation-equipment                                         (166,400)                    (148,000)

         Total Assets                                                                              $2,362,080                 $2,057,120

                           Liabilities and Stockholders’ Equity

Accounts payable (merchandise creditors)                                   $424,480                   $404,960

Accrued expenses payable (operating expenses)                             42,240                       52,640

Dividends payable                                                                                   24,000                       19,200

Common Stock, $4 par                                                                           150,000                    100,000

Paid In Capital – common stock                                                            417,500                    280,000

Retained earnings                                                                                  1,303,860                 1,200,320

         Total Liabilities and Stockholders’ equity                                  2,362,080                 2,057,120

Additional data obtained from an examination of the accounts in the ledger for 2019 are as follows:

  1. The Investments were sold for $280,000 cash.

  1. Equipment and land were acquired for cash

  1. The common stock was issued for cash

  1. There was a $199,540 credit to Retained Earnings for net income

  1. There was a $96,000 debit to Retained Earnings for cash dividends declared

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Answer #1
XYZ Inc
Statement of Cash Flows
For the year ended December 31 2019
Particulars Amount
Cash Flows from Operating Activities
Net Income 199540
Adjustments to reconcile net income to Net Cash flows from Operating Activities
Depreciation Expense 18400
Gain on Sale of Investment -40000
Increase in Account receivable -18880
Increase in Inventory -24640
Increase in Dividends Payable 4800
Increase in Accounts Payable 19520
Decrease in Accrued Liabilities -10400
Net Cash flows from operating activities 148340
Cash flows from Investing Activities
Sale of Investment 280000
Purchase of Land -328000
Purchase of Equipment -152000
Net Cash flows from Investing Activities -200000
Cash flows from Financing Activities
Issue of Common Stock 187500
Dividends paid -96000
Purchase of Treasury stock
Net cash flows from Financing Activities 91500
Net Change in Cash 39840
Add :Cash at the Beginning of the period 585920
Ending Cash Balance 625760
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