Question

Condensed financial data of Stellar Company for 2017 and 2016 are presented below.

STELLAR COMPANY

COMPARATIVE BALANCE SHEET

AS OF DECEMBER 31, 2017 AND 2016

2017 2016

Cash $1,780 $1,140

Receivables 1,760 1,310

Inventory 1,570 1,900

Plant assets 1,890 1,720

Accumulated depreciation (1,190 ) (1,150 )

Long-term investments (held-to-maturity) 1,280 1,410

$7,090 $6,330

Accounts payable $1,220 $890

Accrued liabilities 210 250

Bonds payable 1,430 1,540

Common stock 1,940 1,730

Retained earnings 2,290 1,920

$7,090 $6,330

STELLAR COMPANY

INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2017

Sales revenue $6,670

Cost of goods sold 4,640

Gross margin 2,030

Selling and administrative expenses 930

Income from operations 1,100

Other revenues and gains Gain on sale of investments 80

Income before tax 1,180

Income tax expense 550

Net income 630

Cash dividends 260

Income retained in business $370

Additional information:

During the year, $70 of common stock was issued in exchange for plant assets. No plant assets were sold in 2017.

Prepare a statement of cash flows using the indirect method.

Answer 1

Stellar Company
Statement of Cash Flows (Indirect Method)
For the year ended December 31, 2017
	$	$
Cash Flow from Operating Activities
Net Income	630.00
Adjustments to reconcile net income to net cash provided by operations:
Income Statement items not affecting cash;
Depreciation expense (1,190-1,150)	40.00
Gain on sale of investments	(80.00)
Changes in current operating assets and liabilities:
Decrease in Inventory	330.00
Increase in accounts receivable	(450.00)
Increase in Accounts Payable	330.00
Decrease in Accrued Liabilities	(40.00)
Net Cash provided by Operating Activities		760.00
Cash Flows from Investing Activities:
Sale of Held-to-Maturity Investments [(1,410 - 1,280) + 80]	210.00
Purchase of Plant Assets [(1,890 - 1,720) - 70]	(100.00)
Net Cash provided by Investing Activities		110.00
Cash Flows from Financing Activities:
Issuance of common stock [(1,940 - 1,730) - 70]	140.00
Redemption of Bonds Payable	(110.00)
Payment of Cash Dividends	(260.00)
Net Cash used in Financing Activities		(230.00)
Net Increase in Cash		640.00
Add: Cash balance at the beginning of the year		1,140.00
Cash balance at the end of the year		1,780.00