Question

Metlock Inc., a greeting card company, had the following statements prepared as of December 31, 2017.

METLOCK INC. COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2017 AND 2016
		12/31/17			12/31/16
Cash		$5,900			$7,100
Accounts receivable		62,000			51,000
Short-term debt investments (available-for-sale)		35,000			18,100
Inventory		40,400			59,900
Prepaid rent		5,000			4,000
Equipment		153,300			129,100
Accumulated depreciation—equipment		(35,000	)		(24,800	)
Copyrights		46,300			50,300
Total assets		$312,900			$294,700
Accounts payable		$46,500			$40,200
Income taxes payable		4,100			6,100
Salaries and wages payable		8,100			4,100
Short-term loans payable		8,000			10,100
Long-term loans payable		60,600			69,600
Common stock, $10 par		100,000			100,000
Contributed capital, common stock		30,000			30,000
Retained earnings		55,600			34,600
Total liabilities & stockholders’ equity		$312,900			$294,700

METLOCK INC. INCOME STATEMENT FOR THE YEAR ENDING DECEMBER 31, 2017
Sales revenue				$338,150
Cost of goods sold				175,700
Gross profit				162,450
Operating expenses				119,400
Operating income				43,050
Interest expense		$11,300
Gain on sale of equipment		2,000		9,300
Income before tax				33,750
Income tax expense				6,750
Net income				$27,000

Additional information:

1.		Dividends in the amount of $6,000 were declared and paid during 2017.
2.		Depreciation expense and amortization expense are included in operating expenses.
3.		No unrealized gains or losses have occurred on the investments during the year.
4.		Equipment that had a cost of $19,800 and was 70% depreciated was sold during 2017.

Prepare a statement of cash flows using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Answer 1

Statement of cash flows using the indirect method is as shown below:

Metlock Inc
Statement of Cash Flow-Indirect Method
Operating activities:
Net Income		27,000
Adjustments to convert Net Income to cash basis:
Depreciation	24,060
Amortization Expense (50,300-46,300)	4,000
Gain on sale of equipment	-2000
Increase in account receivable	-11,000
Increase in short term investments	-16,900
Decrease in Inventory	19,500
Increase in prepaid rent	-1,000
Increase in accounts payable	6,300
Increase in salaries and wages payable	4,000
Decrease in short term loan payable	-2,100
		24,860
Net cash provided by operating activities		51,860
Investing activities:
Proceeds from sale of equipment	7,940
Purchase of equipment	-46,000
Net cash used in investing activities		-38,060
Financing activities:
Cash Dividends	-6,000
Loan Repaid	-9,000
Net Cash provided by financing activities		-15,000
Net increase in cash		-1,200
Beginning Cash		7,100
Ending Cash		5,900

Working:

Equipment
Particulars	Amount ($)	Particulars	Amount ($)
opening	129,100	Acc dep	13,860
Cash	46,000	Cash	7,940
Gain on sale of equipment	2,000
	175,100		21,800
closing	153,300
Acc Dep
Particulars	Amount ($)	Particulars	Amount ($)
Equipment	13,860	opening	24,800
		Dep	24,060
	13860		48,860
		closing	35,000
Retained Earnings
Particulars	Amount ($)	Particulars	Amount ($)
		opening	34,600
	0		34600
		closing	55,600