Question

A comparative balance sheet for “Alpha” Company containing data in € for the last
recent years is as follows:

20X2 20X2 20X1 Assets Fixed assets: Land Buildings Less accumulated depreciation Equipment Less accumulated depreciation Total fixed assets 170,000 450.000 (110,000) Comparative Balance Sheet Liabilities & 20X1 Stockholders' Equity Stockholders' equity: 225,000 Common stock 450.000 Retained earnings (100,000) Total stockholders' equity 300.000 Long - term liabilities: (100,000) Long-term notes payable 265,000 135,000 400,000 200.000 100.000 300,000 425.000 (125,000) 30,000 30,000 810,000 775,000 420,000 430,000 Long-term debt Total long-term liabilities Current liabilities: Current assets: 450,000 460,000 ICS Cash and cash equivalents Marketable securities Accounts receivables Inventory Total current assets 20.000 20.000 25,000 41,150 106,150 1,100 25,000 30,000 40,000 96,100 Accounts payable Notes Payable Accrued Expenses Taxes Payable Total current liabilities Total liabilities Total liabilities & stockholders' equity 20.000 20,000 16.150 10,000 66,150 516,150 916,150 30,000 40.000 11,100 30,000 111,100 571,100 871,100 L Total assets 916,150 871,100

Required:
1. Prepare the cash flow statement for “Alpha” Company for this year 20X2,
using the indirect method.
2. Prepare the cash flow statement for “Alpha” Company for this year 20X2,
using the direct method. .
3. How can a firm distribute (finance) a positive (negative) cash component of
earnings? Explain briefly (max: 300 words)

Answer 1

The cash flow statement for “Alpha” Company for this year 20X2, using the indirect method.:

Alpha company

Statement of Cash Flows
for the year ended 20x2

Net income		$64400
Adjustments for:
Depreciation and amortization	$35,000
Dividend revenue	(4150)
Gain on sale of land	(4,000)
		91250
Decrease in trade receivables	5000
Decrease in marketable securities	5000
Increase in inventories	(1150)
Decrease in notes payable	(20000)
Decrease in taxes payable	(20000)
Increase in accrued exp	5050
Decrease in trade payables	(10,000)
		(36100)
Cash generated from operations		55150
Cash flows from investing activities
Proceeds from sale of Land	55000
Gain on sale of land	4000
Purchase of equipment	(125000)
Net cash used in investing activities		(66000)
Cash flows from financing activities
Proceeds from issue of common stock	65000
Payment of long-term debt	(10,000)
Dividends revenue	4150
Net cash used in financing activities		59150
Net increase in cash and cash equivalents		48300
Cash and cash equivalents at beginning of period		1100
Cash and cash equivalents at end of period		$49400