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MONTGOMERY INC.
Comparative Balance Sheets
December 31
Current Year Prior Year
Assets
Cash $ 34,500 $ 34,900
Accounts receivable, net 10,000 12,400
Inventory 89,600 71,700
Total current assets 134,100 119,000
Equipment 49,600 42,400
Accum. depreciation—Equipment (22,400 ) (15,600 )
Total assets $ 161,300 $ 145,800
Liabilities and Equity
Accounts payable $ 23,800 $ 25,900
Salaries payable 400 500
Total current liabilities 24,200 26,400
Equity
Common stock, no par value 117,100 108,500
Retained earnings 20,000 10,900
Total liabilities and equity $ 161,300 $ 145,800
MONTGOMERY INC.
Income Statement
For Current Year Ended December 31
Sales $ 39,600
Cost of goods sold (16,400 )
Gross profit 23,200
Operating expenses
Depreciation expense $ 6,800
Other expenses 4,900
Total operating expense 11,700
Income before taxes 11,500
Income tax expense 2,400
Net income $ 9,100


Additional Information on Current-Year Transactions

  1. No dividends are declared or paid.
  2. Issued additional stock for $8,600 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.)

MONTGOMERY, INC. Statement of Cash Flows (Indirect Method) For Current Year Ended December 31 Cash flows from operating activ

Continued

Cash flows from financing activities Cash balance at beginning of year Cash balance at end of year

OPtions for the 2nd and the 3rd last box for the left column

  • Net income
  • Net loss

Options for the left column

  • Cash paid for equipment
  • Cash received from stock issuance
  • Decrease in accounts payable
  • Decrease in accounts receivable
  • Decrease in inventory
  • Decrease in salaries payable
  • Depreciation expense
  • Increase in accounts payable
  • Increase in accounts receivable
  • Increase in inventory
  • Increase in salaries payable
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Answer #1
MONTGOMERY, INC.
Statement of Cash Flows (Indirect Method)
For Current Year Ended December 31
Cash flows from operating activities:
Net income $9100
Adjustments to reconcile net income to net cash provided by operations:
Income statement items not affecting cash
Depreciation expense 6800
Changes in current operating assets and liabilities
Decrease in accounts receivable (12400-10000) 2400
Increase in inventories (89600-71700) -17900
Decrease in accounts payable (25900-23800) -2100
Decrease in salaries payable (500-400) -100
0
0
Net cash used in operating activities -1800
Cash flow from investing activities:
Cash paid for equipment (49600-42400) -7200
0
Net cash used in investing activities -7200
Cash flows from financing activities:
Cash received from stock issuance (117100-108500) 8600
0
Net cash provided by financing activities 8600
Net increase (decrease) in cash $(400)
Cash balance at beginning of the year 34900
Cash balance at end of year $34500

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