Question

Exercise 23-13 Indigo Inc., a greeting card company, had the following statements prepared as of December 31, 2017. INDIGO INC. COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2017 AND 2016 12/31/17 12/31/16 Cash $6,100 $7,100 Accounts receivable 62,400 51,000 Short-term debt investments (available-for-sale) 34,700 18,100 Inventory 40,400 60,300 Prepaid rent 4,900 4,000 Equipment 154,100 130,600 Accumulated depreciation—equipment (34,900 ) (24,800 ) Copyrights 46,400 49,800 Total assets $314,100 $296,100 Accounts payable $46,500 $40,200 Income taxes payable 4,000 6,000 Salaries and wages payable 8,100 4,100 Short-term loans payable 7,900 10,100 Long-term loans payable 59,600 68,400 Common stock, $10 par 100,000 100,000 Contributed capital, common stock 30,000 30,000 Retained earnings 58,000 37,300 Total liabilities & stockholders’ equity $314,100 $296,100 INDIGO INC. INCOME STATEMENT FOR THE YEAR ENDING DECEMBER 31, 2017 Sales revenue $339,800 Cost of goods sold 176,500 Gross profit 163,300 Operating expenses 120,500 Operating income 42,800 Interest expense $11,300 Gain on sale of equipment 2,000 9,300 Income before tax 33,500 Income tax expense 6,700 Net income $26,800 Additional information: 1. Dividends in the amount of $6,100 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 $20,100 and was 70% depreciated was sold during 2017. Prepare a statement of cash flows using the direct method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).) INDIGO INC. Statement of Cash Flows

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Answer 1

Cash Flow Statement
Indirect Method
Cash Flow from Operating Activities
Net Income		$          26,800
Adjustments
Depreciation	$        24,170			=34900-24800+20100*70%
Amortization	$          3,400			=49800-46400
Gain on Sale of Equipment	$        -2,000
Changes in Current Assets/ Current Liabilities
Increase in Accounts Receivable	$      -11,400			=51000-62400
Decrease in inventory	$        19,900			=60300-40400
Increase in Prepaid Rent	$            -900			=4000-4900
Increase in Accounts Payable	$          6,300			=46500-40200
Decrease in Income Tax Payable	$        -2,000			=4000-6000
Increase in Salaries Payable	$          4,000			=8100-4100
Total Adjustments		$          41,470
Cash from Operating Activities			$         68,270
Cash flow from Investing Activities
Purchase of Short Term Investments		$        -16,600		=18100-34700
Purchase of Equipment		$        -43,600		=-(154100-130600+20100)
Sale of Equipment		$            8,030		=20100*30%+2000
Net cash used In investing activities			$       -52,170
Cash flow from Financing Activities
Repayment of Loan		$        -11,000		=-(68400+10100-7900-59600)
Dividend Paid		$           -6,100
Net cash used in financing activities			$       -17,100
Increase in Cash			$          -1,000
Opening Balance of Cash			$           7,100
Closing Balance of Cash			$           6,100