Question

MONTGOMERY INC. Comparative Balance Sheets December 31
	Current Year				Prior Year
Assets
Cash		$	30,400			$	30,550
Accounts receivable, net			10,050				12,150
Inventory			90,100				70,150
Total current assets			130,550				112,850
Equipment			49,900				41,500
Accum. depreciation—Equipment			(22,500	)			(15,300	)
Total assets		$	157,950			$	139,050
Liabilities and Equity
Accounts payable		$	23,900			$	25,400
Salaries payable			500				600
Total current liabilities			24,400				26,000
Equity
Common stock, no par value			110,000				100,000
Retained earnings			23,550				13,050
Total liabilities and equity		$	157,950			$	139,050

MONTGOMERY INC. Income Statement For Current Year Ended December 31
Sales				$	45,575
Cost of goods sold					(18,950	)
Gross profit					26,625
Operating expenses
Depreciation expense	$	7,200
Other expenses		5,550
Total operating expense					12,750
Income before taxes					13,875
Income tax expense					3,375
Net income				$	10,500

Additional Information on Current-Year Transactions

1. No dividends are declared or paid.
2. Issued additional stock for $10,000 cash.
3. Purchased equipment for cash; no equipment was sold.

1. Use the above information to prepare a statement of cash flows for the current year using the indirect method. (Amounts to be deducted should be indicated by a minus sign.)
  

Answer 1

Solution

MONTGOMERY INC.
Cash Flow Statement
For year ended 31st December Current year
A. Cash Flows from Operating Activity
Net Income		$      10,500.00
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation expense	$          7,200.00
Changes in current operating assets and liabilities:
Decrease in Accounts receivables	$          2,100.00
Increase in Inventory	$     (19,950.00)
Decrease in salaries payable	$           (100.00)
Decrease in Accounts payable	$       (1,500.00)
		$    (12,250.00)
Net cash flow from Operating activities		$      (1,750.00)
B. Cash flows from Investing Activities
Purchase of Equipment	$       (8,400.00)
Net cash flow used for investing activities		$      (8,400.00)
C. Cash Flows from Financing activities
Issue of Common stock	$       10,000.00
Cash flows from Financing activities		$      10,000.00
Net Increase (Decrease) in Cash [A+B+C]		$          (150.00)
Cash at the beginning		$      30,550.00
Cash at the end		$      30,400.00