Question

The 2017 comparative balance sheet and income statement of Summer Time Hardware Corp. follow. Summer Time had no​ non-cash investing and financing transactions during 2017. During the​ year, there were no sales of land or​ equipment, no issuance of notes​ payable, and no repurchase of shares transactions.

The 2017 comparative balance sheet and income statement of Summer Time Hardware Corp. follow. Summer Time had no non-cash investing and financing transactions during 2017. During the year, there were no sales of land or equipment, no issuance of notes payable, and no repurchase of shares transactions. E (Click the icon to view the comparative balance sheet.) (Click the icon to view the income statement.) Requirements 1. Prepare the 2017 statement of cash flows, formatting operating activities by using the indirect method. 2. How will what you leamed in this problem help you evaluate an investment? Requirement 1. Prepare the 2017 statement of cash flows, formatting operating activities by using the indirect method. Start by completing the cash flows from operating activities. Then, continue with completing the investing and financing activities sections. Finally, determine the net increase in cash. (Use a minus sign or parentheses for subtracting numbers that are typically shown enclosed in parentheses in a statement of cash flows.) Summer Time Hardware Corp. Statement of Cash Flows For the Year Ended December 31, 2017 Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Decrease in accounts recievable Decrease in inventories Increase in prepaid expenses Increase in accounts payable Decrease in salary payable Decrease in other accrued liabilities Net cash provided by operating activities Cash flows from investing activities: Purchase of land Purchase of equipment Net cash used for investing activities Cash flows from financing activities: Payment of dividends Payment of note payable Issuance of common shares Net cash used for financing activities Net increase in cash Cash balance, December 31, 2016 Cash balance, December 31, 2017

Answer 1

1.

Summer Time Hardware Corporation Statement of Cash Flows For the year ended December 31, 2017
Cash Flows from Operating Activities
Net Income		109,600
Adjustments to reconcile net income to net cash provided by operations
Depreciation	3,800
Decrease in accounts receivable	1,800
Decrease in inventories	4,100
Increase in prepaid expenses	(1,000)
Increase in accounts payable	1,600
Decrease in salary payable	(4,000)
Decrease in other accrued liabilities	(1,100)	5,200
Net cash provided by operating activities		114,800
Cash Flows from Investing Activities
Purchase of land	(28,800)
Purchase of equipment	(7,000)
Net cash used for investing activities		(35,800)
Cash Flows from Financing Activities
Payment of dividends	(64,800)
Payment of notes payable	(26,500)
Issuance of common shares	24,100
Net cash used for financing activities		(67,200)
Net increase in cash		11,800
Cash balance, December 31, 2016		5,900
Cash balance, December 31, 2017		17,700

2. This will indicate the financial flexibility that the company enjoys in raising finance for the new investment. As the cash flows from operating activities of $ 114,800 exceeds net income of $ 109,600, the liquidity position is robust, and it can fund fresh investments through internal accruals and equity, without resorting to debt.