Question

Required information The following information applies to the questions displayed below.] Hanks Company is developing its annual financial statements at December 31, current year. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized as follows: Prior Year Current Year Balance sheet at December 31 $ 27,500 31,900 44,300 79,800 $ 17,400 Cash Accounts receivable 33,300 39,100 75,500 $165,300 Merchandise inventory Fixed assets (net) $183,500 $ 32,800 $ 26,300 3,600 Accounts payable Wages payable Note payable, long-term Common stock, no par 4,500 46,000 78,000 53,800 62,400 Retained earnings 22,200 19,200 $183,500 $165,300 Income statement for current year Sales 95,000 Cost of goods sold (51,000) (37,000) 7,000 Expenses Net income Additional data: a. Bought fixed assets for cash, $11,000. b. Paid $7,800 on the long-term note payable. c. Sold unissued common stock for $15,600 cash. d. Declared and paid a $4,000 cash dividend. e. Incurred the following expenses: depreciation, $6,700; wages, $14,000; taxes, $4,000; and other, $12,300.

Answer 1

In calculating the cash flows statement from indirect method, we will start with the net income. We will add back the non cash item of depreciation in it. Then we will adjust the amount for increase or decrease in cash due to increase or decrease in current assets or current liabilities.Like, an increase in current assets will reduce cash, so we will deduct it and a decrease in current assets will increase cash, so we will add it. Similarly, an increase in current liabilities will increase cash, so it will be added and a decrease in current liabilities will reduce cash, so it will be deducted.

Statement of cash flows for the year ended December 31, current year

Description	Amount	Amount
Operating activities:
Net income	7000
Adjustments to reconcile net income to cash
Add: Depreciation	6700
Add: Decrease in accounts receivable	1400
Less: Increase in merchandise inventory	(5200)
Add: Increase in accounts payable	6500
Add: Increase in wages payable	900
Net cash flows from operating activities		17300
Investing activities:
Purchase of fixed assets	(11000)
Net cash flows from investing activities		(11000)
Financing activities:
Long term notes payable paid	(7800)
Proceeds from sale of common stock	15600
Dividend paid	(4000)	(32200)
Net increase in cash		10100
Beginning cash balance		17400
Ending cash balance		27500