Question

The comparative balance sheets for 2021 and 2020 and the statement of income for 2021 are given below for Dux Company. Additional information from Dux’s accounting records is provided also.

DUX COMPANY Comparative Balance Sheets December 31, 2021 and 2020 ($ in thousands)
	2021				2020
Assets
Cash	$	33			$	20
Accounts receivable		48				50
Less: Allowance for uncollectible accounts		(4	)			(3	)
Dividends receivable		3				2
Inventory		55				50
Long-term investment		15				10
Land		70				40
Buildings and equipment		225				250
Less: Accumulated depreciation		(25	)			(50	)
	$	420			$	369
Liabilities
Accounts payable	$	13			$	20
Salaries payable		2				5
Interest payable		4				2
Income tax payable		7				8
Notes payable		30				0
Bonds payable		95				70
Less: Discount on bonds		(2	)			(3	)
Shareholders' Equity
Common stock		210				200
Paid-in capital—excess of par		24				20
Retained earnings		45				47
Less: Treasury stock		(8	)			0
	$	420			$	369

DUX COMPANY Income Statement For the Year Ended December 31, 2021 ($ in thousands)
Revenues
Sales revenue	$	200
Dividend revenue		3		$	203
Expenses
Cost of goods sold		120
Salaries expense		25
Depreciation expense		5
Bad debt expense		1
Interest expense		8
Loss on sale of building		3
Income tax expense		16			178
Net income				$	25

Additional information from the accounting records:

1. A building that originally cost $40,000, and which was three-fourths depreciated, was sold for $7,000.
2. The common stock of Byrd Corporation was purchased for $5,000 as a long-term investment.
3. Property was acquired by issuing a 13%, seven-year, $30,000 note payable to the seller.
4. New equipment was purchased for $15,000 cash.
5. On January 1, 2021, bonds were sold at their $25,000 face value.
6. On January 19, Dux issued a 5% stock dividend (1,000 shares). The market price of the $10 par value common stock was $14 per share at that time.
7. Cash dividends of $13,000 were paid to shareholders.
8. On November 12, 500 shares of common stock were repurchased as treasury stock at a cost of $8,000.

Required:
Prepare the statement of cash flows of Dux Company for the year ended December 31, 2021. Present cash flows from operating activities by the direct method. (Do not round your intermediate calculations. Enter your answers in thousands (i.e., 10,000 should be entered as 10). Amounts to be deducted should be indicated with a minus sign.)

Answer 1

$25 DUX COMPANY Statement of Cash Flows (Indirect Method) For the Year Ended December 31, 2021 ($ in 000s) Cash Flow from Operating Activities: Net Income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Expense Loss on sale of building Amortization of discount on bonds payable Dividend revenue Accounts Receivable decrease Increase in allowance for doubtful debt Inventory increase Accounts Payable decrease Salaries Payable decrease Interest Payable increase Income taxes Payable decrease Total Adjustments Net cash flow from operating activities [Non-cash expense and so added back] [Non-cash expense and so added back] [Non-cash expense and so added back ($3 - $2)] [Reclassifed as investing activities] [$50 - $48 --> It would decrease working capital requirement] [$4 - $3 --> It would decrease working capital requirement] ($50 - $55 --> It would increase working capital requirement] ($20 - $13 --> It would increase working capital requirement] [$5 - $2 --> It would increase working capital requirement] [$2 - $4 --> It would decrease working capital requirement] ($8 - $7 --> It would increase working capital requirement] -$5 $20

Cash Flow from Investing Activities: Cash realized from sale of building Cash realized from dividend revenue Cash paid to purchase long-term investment Cash paid to purchase new equipment Net cash flow from investing activities -$5 [Given] [$3+ ($2 - $3) (Ref: Dividend receivable account balance)] [Given] [Given] -$11 $15 $25 -$13 -$8 Cash Flow from Financing Activities: Cash realized from sale of bonds payable Cash dividends declared & paid Cash paid to purchase treasury stock Net cash flow from financing activities Net increase in cash balance during the year Add: Beginning cash balance Ending Cash Balance $4 $13 $20 $33

Workings: DUX COMPANY Statement of Cash Flows (Direct Method) For the Year Ended December 31, 2021 ($ in 000s) Cash Flow from Operating Activities: From customers $203 To Inventory -$132 To Operating Expenses -$51 Net Cash Flow from Operating Activities $20 $50 $4 Accounts receivable, beg. bal. Add: Allow. for doubt. debt., end. bal. Add: Sales revenue for the year Less: Accounts receivable, end. bal. Less: Allow. for doubt. debt., beg. bal. Cash Received from Customers $200 -$48 -$3 $203 $120 $55 Salaries payables, beg. bal. Interest payable, beg. Bal. Income taxes payable, beg. Bal. Add: Salaries Expense Interest Expense Income tax Expense Less: Salaries payables, end.bal. Interest payables, end.bal. Income taxes payable, end. Bal. Operating expenses paid $25 $8 $16 Cost of Goods Sold Add: Ending Inventory Less: Beginning Inventory Goods Purchased Accounts payable, beg. Bal. Less: Accounts payable, end. Bal. Cash paid to Suppliers for Inventory -$50 $125 $20 $13 $132