Question

Union Brake Inc.’s comparative balance sheet information at December 31, 2017 and 2016, and its income statement for the year ended December 31, 2017, are as follows:

Union Brake Inc.
Income Statement
For Year Ended December 31, 2017
Sales				$	879,000
Cost of goods sold					571,000
Gross profit				$	308,000
Operating expenses	$	132,670
Depreciation expense		41,230			173,900
Operating Profit					134,100
Loss on sale of equipment		12,140
Investment income		19,020
Profit before taxes					140,980
Income taxes					17,000
Profit					123,980

Union Brake Inc.
Balance Sheet Information
	December 31
	2017			2016			Net Change
Cash	$	43,000		$	23,960		$	19,040
Cash equivalents		24,780			8,600			16,180
Accounts receivable		87,320			32,440			54,880
Inventory		113,240			78,520			34,720
Investment		0			24,780			(24,780)
Land		75,800			75,800			0
Building and equipment		420,530			439,550			(19,020)
Accumulated depreciation		113,080			91,960			21,120
Accounts payable		11,870			36,800			(24,930)
Dividends payable		1,800			1,100			700
Bonds payable		19,000			0			19,000
Preferred shares		80,600			80,600			0
Common shares		405,080			405,080			0
Retained earnings		133,240			68,110			65,130

During 2017, the following transactions occurred:
1. Purchased equipment for $20,700 cash.
2. Sold the investment on January 1, 2017, for $43,800.
3. Sold equipment for $7,470 cash that had originally cost $39,720 and had $20,110 of accumulated depreciation.
4. Issued $19,000 of bonds payable at face value.

Other information:
a. All sales are credit sales.
b. All credits to accounts receivable in the period are receipts from customers.
c. All purchases of merchandise are on credit.
d. All debits to accounts payable in the period result from payments for merchandise.
e. Other operating expenses are cash expenses.
f. Income taxes are cash expenses.

Required:
Prepare a statement of cash flows for 2017 using the direct method to report cash inflows and outflows from operating activities. (List any deduction in cash and cash outflows as negative amounts.)

Answer 1

Union Brake Inc.
Statement of Cash flows
For the Year Ended December 31, 2017
Cash flows from operating activities
Cash received from customers	$    824,120		879000-54880
Cash paid to suppliers	$ (630,650)		571000+24930+34720
Cash paid for operating expenses	$ (132,670)
Cash paid for income tax expenses	$    (17,000)
Net cash provided by operating activities		$    43,800
Cash flows from investing activities
Purchase of equipment	$    (20,700)
Sale of investment	$       43,800
Sale of equipment	$         7,470
Net cash provided by investing activities		$    30,570
Cash flows from financing activities
Cash received from issuance of bonds	$       19,000
Payment of dividends	$    (58,150)		133240-68110-123980-700
Net cash used by financing activities		$ (39,150)
Net Increase in cash		$    35,220
Cash and cash equivalents at beginning of period		$    32,560
Cash and cash equivalents at end of period		$    67,780

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