Question

P12-1 Preparing a Statement of Cash Flows (Indirect Method) LO12-1, 12-2, 12-4, 12-6

Sharp Screen Films, Inc., is developing its annual financial statements at December 31, current year. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized as follows:

	Current Year				Prior Year
Balance sheet at December 31
Cash	$	67,250			$	65,400
Accounts receivable		17,950				24,450
Merchandise inventory		24,450				19,100
Property and equipment		211,950				153,500
Less: Accumulated depreciation		(61,400	)			(46,950	)
	$	260,200			$	215,500
Accounts payable	$	11,600			$	21,800
Wages payable		4,300				4,800
Note payable, long-term		62,200				74,200
Contributed capital		101,800				66,900
Retained earnings		80,300				47,800
	$	260,200			$	215,500
Income statement for current year
Sales	$	205,000
Cost of goods sold		102,000
Depreciation expense		14,450
Other expenses		44,000
Net income	$	44,550

Additional Data:

1. Bought equipment for cash, $58,450.
2. Paid $12,000 on the long-term note payable.
3. Issued new shares of stock for $34,900 cash.
4. Dividends of $12,050 were declared and paid.
5. Other expenses all relate to wages.
6. Accounts payable includes only inventory purchases made on credit.

1. Prepare the statement of cash flows using the indirect method for the year ended December 31, current year. (List cash outflows as negative amounts.)

Answer 1

Solution

Sharp Screen Films, Inc.
Statement of Cash Flows
For the Year Ended December 31, Current year
Cash flows from operating activities:
Net income		$   44,550.00
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	$     14,450.00
Decease in accounts receivables	$          6,500.00
Increase in Inventory	$        (5,350.00)
Decrease in accounts payable	$    (10,200.00)
Decrease in wages payable	$         (500.00)
		$     4,900.00
Net cash from Operating Activities		$   49,450.00
Cash flows from investing activities:
Purchase of Equipment	$    (58,450.00)
Net cash from Investing Activities		$ (58,450.00)
Cash flows from financing activities:
Repayment of notes payable	$    (12,000.00)
Issue of Common stock	$     34,900.00
Dividends paid	$    (12,050.00)
Net cash from Financing Activities		$   10,850.00
Net change in cash during the year		$     1,850.00
Add: Beginning cash balance		$   65,400.00
Ending cash balance		$   67,250.00