Question

P12.11A (LO 2), AP The comparative balance sheets for Spicer Company as of December 31 are presented below.

Prepare a statement of cash flows—indirect method.

Spicer Company Comparative Balance Sheets December 31
Assets		2022		2021
Cash		$ 68,000		$ 45,000
Accounts receivable		50,000		58,000
Inventory		151,450		142,000
Prepaid expenses		15,280		21,000
Land		145,000		130,000
Buildings		200,000		200,000
Accumulated depreciation—buildings		(60,000)		(40,000)
Equipment		225,000		155,000
Accumulated depreciation—equipment		(45,000)		(35,000)
Total		$749,730		$676,000
Liabilities and Stockholders' Equity
Accounts payable		$ 44,730		$ 36,000
Bonds payable		300,000		300,000
Common stock, $1 par		200,000		160,000
Retained earnings		205,000		180,000
Total		$749,730		$676,000

Additional information:

• 1. Operating expenses include depreciation expense of $42,000 ($20,000 of depreciation expense for buildings and $22,000 for equipment).
• 2. Land was sold for cash at book value.
• 3. Cash dividends of $12,000 were paid.
• 4. Net income for 2022 was $37,000.
• 5. Equipment was purchased for $92,000 cash. In addition, equipment costing $22,000 with a book value of $10,000 was sold for $8,000 cash.
• 6. 40,000 shares of $1 par value common stock were issued in exchange for land with a fair value of $40,000.

Instructions

Prepare a statement of cash flows for the year ended December 31, 2022, using the indirect method.

Net cash provided—oper. act.

$94,000

Answer 1

Solution

Spicer Company
Statement of Cash Flows
For the Year Ended December 31, 2022
Cash flows from operating activities:
Net income	$        37,000.00
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation	$        42,000.00
Loss on sale of Equipment	$          2,000.00
Changes in current operating assets and liabilities:
Decrease in accounts receivable	$          8,000.00
Increase in inventories	$         (9,450.00)
Increase in accounts payable	$          8,730.00
Decrease in prepaid expense	$          5,720.00
Net cash flow from operating activities		$    94,000.00
Cash flows from (used for) investing activities:
Cash Received from sale of Land	$        25,000.00
Cash Received from sale of Equipment	$          8,000.00
Cash used for purchase of equipment	$       (92,000.00)
Net cash flow used for investing activities		$   (59,000.00)
Cash flows from (used for) financing activities:
Cash used for dividends	$       (12,000.00)
Net cash flow from financing activities		$   (12,000.00)
Increase in cash		$    23,000.00
Cash at the beginning of the year		$    45,000.00
Cash at the end of the year		$    68,000.00