Question

The comparative balance sheet of Hinson Enterprises, Inc. at December 31, 2013 and 2012, is as follows: Dec 31, 2013 Dec 31, 2012 Cash Accounts receivable (net)..... Merchandise inventory .... Prepaid expenses ... Equipment. Accumulated depreciation equipment $ 128,275 196,525 281,400 11,725 573,125 (149,450) $1,041,600 $157,325 211.750 261,800 8,400 469,875 (115.675) $993,475 Liabilities and Stockholders' Equity Accounts payable (merchandise creditors).. Mortgage note payable......... Common stock, 51 par... Paid-in capital in excess of par-common stock Retained earnings.... $ 218,925 0 91,000 455,000 276,675 $1,041,600 $ 207.900 294,000 21,000 280,000 190,575 $993,475 Additional data obtained from the income statement and from an examination of the accounts in the ledger for 2012 are as follows: a. Net income, $220,500. b. Depreciation reported on the income statement, $72,975. c. Equipment was purchased at a cost of $142,450, and fully depreciated equipment costing $39,200 was discarded, with no salvage realized. d. The mortgage note payable was not due until 2014, but the terms permitted earlier payment without penalty. e. 7,000 shares of common stock were issued at $35 for cash. f. Cash dividends declared and paid, $134,400. Instructions Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities.

Answer 1

Cash flow statement of Hinson Enterprises
For the period ended December 31
Particulars	Amount (in $)
Cash flow fron Operating activities
Net income	2,20,500
Adjustment:
Depreciation	72,975
Dividend paid	1,34,400
Decrease in accounts receivable	15,225
Increase in inventory	-19,600
Increase in prepaid expense	-3,325
Increase in accounts payable	11,025
Net cash flow from operating activities	4,31,200
Assumption:-
Mortgage Note payable considered long term liability, thus not considered while calculating cash flow from operating activities.