Question

Statement of Cash Flows—Indirect Method

The comparative balance sheet of Yellow Dog Enterprises Inc. at December 31, 20Y8 and 20Y7, is as follows:

		Dec. 31, 20Y8		Dec. 31, 20Y7
Assets
Cash		$69,770		$85,140
Accounts receivable (net)		107,210		114,780
Inventories		153,140		142,260
Prepaid expenses		6,240		4,310
Equipment		311,980		254,890
Accumulated depreciation-equipment		(81,110)		(62,510)
	Total assets	$567,230		$538,870
Liabilities and Stockholders' Equity
Accounts payable (merchandise creditors)		$119,120		$112,620
Mortgage note payable		0		161,660
Common stock, $1 par		18,000		11,000
Paid-in capital in excess of par-common stock		257,000		152,000
Retained earnings		173,110		101,590
	Total liabilities and stockholders’ equity	$567,230		$538,870

Additional data obtained from the income statement and from an examination of the accounts in the ledger for 20Y8 are as follows:

1. Net income, $183,090.
2. Depreciation reported on the income statement, $39,760.
3. Equipment was purchased at a cost of $78,250 and fully depreciated equipment costing $21,160 was discarded, with no salvage realized.
4. The mortgage note payable was not due for six years, but the terms permitted earlier payment without penalty.
5. 7,000 shares of common stock were issued at $16 for cash.
6. Cash dividends declared and paid, $111,570.

Required:

Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Use the minus sign to indicate cash outflows, cash payments, decreases in cash, or any negative adjustments.

Yellow Dog Enterprises Inc.
Statement of Cash Flows
For the Year Ended December 31, 20Y8
Cash flows from (used for) operating activities:
Net income	$
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation
Changes in current operating assets and liabilities:
Decrease in accounts receivable
Increase in inventories
Increase in prepaid expenses
Increase in accounts payable
Net cash flow from operating activities		$
Cash flows from (used for) investing activities:
Cash paid for equipment	$
Net cash flow used for investing activities
Cash flows from (used for) financing activities:
Cash received from sale of common stock	$
Cash paid for dividends
Cash paid to retire mortgage note payable
Net cash flow used for financing activities
Net decrease in cash		$
Cash balance, January 1, 20Y8
Cash balance, December 31, 20Y8		$

Answer 1

Solution

Yellow Dog Enterprises Inc.
Statement of Cash Flows
For the Year Ended December 31, 20Y8
Cash flows from operating activities:
Net income	$    1,83,090.00
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation	$       39,760.00
Changes in current operating assets and liabilities:
Decrease in accounts receivables	$         7,570.00
Increase in Inventory	$      (10,880.00)
Increase in accounts payable	$         6,500.00
Increase in prepaid expense	$          (1,930.00)
Net cash flow from operating activities		$          2,24,110.00
Cash flows from investing activities:
Purchase of Equipment	$      (78,250.00)
Net cash flow used for investing activities		$            (78,250.00)
Cash flows from financing activities:
Issue of common stock	$    1,12,000.00
Repayment of mortgage	$   (1,61,660.00)
Payment of Dividend	$   (1,11,570.00)
Net cash flow used for financing activities		$         (1,61,230.00)
Change in cash during year		$            (15,370.00)
Cash balance, January 1, 20Y8		$             85,140.00
Cash balance, December 31, 20Y8		$             69,770.00

.General notes for cash flow
Cash is increased when Current liability increase or Current asset Decrease.
Cash is Decreased when Current liability Decrease or Current asset Increase.
Depreciation or loss on sale of any asset is a non cash expense hence it will be added to net income to get operating cash
Profit on sale of asset or investment is a non cash profit and hence will be deducted from operating income.