Question

Swasey Company provided the following partial comparative balance sheets and the income statement for 20X2

Swasey Company

Comparative Balance Sheets

At December 31, 20X1 and 20X2

1		20X1	20X2
2	Current assets:
3	Cash	$460,000.00	$1,320,000.00
4	Accounts receivable	$1,500,000.00	$1,165,000.00
5	Inventories	600,000.00	640,000.00
6	Long-term assets:
7	Plant and equipment	4,400,000.00	4,300,000.00
8	Accumulated depreciation	(2,400,000.00)	(2,540,000.00)
9	Land	2,000,000.00	2,875,000.00
10	Total assets	$6,560,000.00	$7,760,000.00
11	Current liabilities:
12	Wages payable	$1,400,000.00	$1,030,000.00
13	Long-term liabilities:
14	Bonds payable	0.00	770,000.00
15	Mortgage payable	200,000.00	0.00
16	Total liabilities	1,600,000.00	1,800,000.00
17	Stockholders’ equity:
18	Common stock	750,000.00	750,000.00
19	Paid-in capital in excess of par	560,000.00	560,000.00
20	Retained earnings	3,650,000.00	4,650,000.00
21	Total Stockholders’ equity	4,960,000.00	5,960,000.00
22	Total liabilities and stockholders’ equity	$6,560,000.00	$7,760,000.00

Swasey Company

Income Statement

For the Year Ended December 31, 20X2

1	Revenues	$6,000,000.00
2	Gain on sale of equipment	200,000.00
3	Cost of goods sold	(3,840,000.00)
4	Depreciation expense	(540,000.00)
5	Interest expense	(20,000.00)
6	Net income	$1,800,000.00

During the year, Swasey Company sold equipment with a book value of $560,000 for $760,000 (original purchase cost of $960,000). New equipment was purchased.

	Required:
1.	Prepare a statement of cash flows for Swasey for 20X2.
2.	Reflect on the relationship between the statement of cash flows and the change in cash.

X

Answer 1

1	Swasey Company
	Statement of Cash Flows - Indirect Method
	Year Ended December 31, 20X2
		(Figure in $)
	Cash flow from operating activities
	Net Income		1,800,000
	Adjust to reconcile net income to
	Net cash provided by operating activities:
	Depreciation expense	540,000
	Gain on sale of equipment	-200,000
	Decrease in Accounts receivable	335,000
	Increase in Inventories	-40,000
	Decrease in Wages Payable	-370,000
			265,000
	Net Cash provided by operating activities		2,065,000
	Cash flow from investing activities
	Proceeds from sale of Equipment	760,000
	Purchase of Land	-875,000
	Purchase of equipment	-860,000
	Net cash used by investing activities		-975,000
	Cash flow from financing activities
	Proceeds from Bonds Payable	770,000
	Repayment to Mortgage Payable	-200,000
	Dividend Paid	-800,000
	Net Cash used by financing activities		-230,000
	Net decrease in cash		860,000
	Cash and cash equivalents, December 31, 2017		460,000
	Cash and cash equivalents, December 31, 2018		1,320,000
2	The relationship between the statement of cash flows and the change in cash is that
	a cash flow statement shows the exact amount of a company's cash inflows and
	outflows over a period of time i.e. change in cash over a period of time. Cash flow statement
	is prepare to know the cash provided or used by different activity like operating activities,
	investing activities and financing activities.