Question

A comparative balance sheet for Lomax Company containing data for the last two years is as follows:

Lomax Company Comparative Balance Sheet
	This Year		Last Year
Assets
Current assets:
Cash and cash equivalents	$	97,000	$	70,800
Accounts receivable		642,000		675,000
Inventory		639,200		446,000
Prepaid expenses		30,800		18,000
Total current assets		1,409,000		1,209,800
Property, plant, and equipment		2,500,000		1,904,000
Less accumulated depreciation		646,200		583,400
Net property, plant, and equipment		1,853,800		1,320,600
Long-term investments		134,600		208,000
Loans to subsidiaries		146,000		83,000
Total assets	$	3,543,400	$	2,821,400
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	911,600	$	596,000
Accrued liabilities		40,600		65,400
Income taxes payable		166,800		138,800
Total current liabilities		1,119,000		800,200
Bonds payable		750,000		478,000
Total liabilities		1,869,000		1,278,200
Stockholders’ equity:
Common stock		1,142,000		1,026,000
Retained earnings		532,400		517,200
Total stockholders’ equity		1,674,400		1,543,200
Total liabilities and stockholders' equity	$	3,543,400	$	2,821,400

The following additional information is available about the company’s activities during this year:

1. The company declared and paid a cash dividend this year.

2. Bonds with a principal balance of $406,000 were repaid during this year.

3. Equipment was sold during this year for $83,000. The equipment had cost $182,000 and had $71,200 in accumulated depreciation on the date of sale.

4. Long-term investments were sold during the year for $162,000. These investments had cost $73,400 when purchased several years ago.

5. The subsidiaries did not repay any outstanding loans during the year.

6. Lomax did not repurchase any of its own stock during the year.

The company reported net income this year as follows:

Sales					$	3,520,000
Cost of goods sold						2,182,400
Gross margin						1,337,600
Selling and administrative expenses						1,067,800
Net operating income						269,800
Nonoperating items:
Gain on sale of investments	$	88,600
Loss on sale of equipment		(27,800	)			60,800
Income before taxes						330,600
Income taxes						106,000
Net income					$	224,600

Required:

Using the indirect method, prepare a statement of cash flows for this year. (List any deduction in cash outflows as negative amounts.)

Answer 1

LOMAX COMPANY
Statement of Cash flows
Cash flows from operating activities
Net Income		$   224,600
Adjustments to reconcile net income to ;
Depreciation expense	$   134,000		646200-583400+71200
Gain on sale of investment	$   (88,600)
Loss on sale of equipment	$      27,800
Decrease in accounts receivable	$      33,000
Increase in inventory	$ (193,200)
Increase in prepaid expense	$   (12,800)
Increase in accounts payable	$   315,600
Decrease in accrued liabilities	$   (24,800)
Increase in income tax payable	$      28,000
		$   219,000
Net cash provided by operating activities		$   443,600
Cash flows from investing activities
Cash received from sale of equipment	$      83,000
Cash received from sale of investments	$   162,000
Cash paid to purchase equipment	$ (778,000)		1904000-2500000-182000
Loan given to subsidiaries	$   (63,000)
Net cash used by investing activities		$ (596,000)
Cash flows from financing activities
Cash paid for dividends	$ (209,400)		532400-517200-224600
Cash received from issue of bonds	$   678,000		750000-478000+406000
Cash paid to retire bonds	$ (406,000)
Cash received from issuance of common stock	$   116,000
Net cash provided by financing activities		$   178,600
Net Increase in cash and cash equivalents		$      26,200
Cash and cash equivalents at beginning of period		$      70,800
Cash and cash equivalents at end of period		$      97,000

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