Question

Prepare a cash flow statement using both the direct and the Indirect methods.

Preparing a Statement of Cash Flows (Indirect Method) Dair Company's income statement and comparative balance sheets follow. LO3, 4 DAIR COMPANY Income Statement For Year Ended December 31, 2013 Sales Cost of goods sold Wages and other operating expenses Depreciation expense. Amortisation expense. Interest expense Income tax expense Loss on bond retirement. $700,000 $440,000 95,000 22,000 7,000 10,000 36,000 5,000 615,000 $ 85,000 Net income. . DAIR COMPANY Balance Sheets Dec. 31, 2013 Dec. 31, 2012 Assets $ 27,000 $ 18,000 Cash... 48,000 53,000 Accounts receivable. 109,000 10,000 336,000 (84,000) 50,000 103,000 12,000 Inventory. Prepaid expenses Plant assets.. Accumulated depreciation Intangible assets 360,000 (87,000) 43,000 $511,000 $487,000 Total assets.. Liabilities and Shareholders' Equity Accounts payable Interest payable. Income tax payable. Bonds payable. Share capital . Retained earnings. $ 32,000 $ 26,000 7,000 8,000 4,000 6,000 60,000 252,000 157,000 120,000 228,000 98,000 $487,000 Total liabilities and equity. $511,000 S10 C2013, the company sold for $17.000 cash old equipment that had cost $36,000 and had accumulated depreciation. Also in 2013. new equipment worth $60,000 was acquired in exchange for $60,000 of bonds payable, and bonds payable of $120,000 were retired for cash at a loss, A $26,000 cash dividend was declared and paid in 2013. Any stock issuances were for cash.

Answer 1

DAIR COMPANY

STATEMENT OF CASH FLOWS

FOR YEAR ENDED DECEMBER 31,2013

Cash flows from operating activities
Net income		85,000
Adjustment to net income to determining net cash flow
Depreciation expense	22,000
Amortization expense	7,000
Loss on bond retirement	5,000
Increase in account receivable	(5,000)
Decrease in inventory	6,000
Increase in prepaid expenses	(2,000)
Increase in account payable	6,000
Decrease in interest payable	(3,000)
Decrease in income tax payable	(2,000)	34,000
Net cash provided from operating activities		119,000
Cash flows from investing activities
Sale of equipment		17,000
Cash flows from Financing Activities
Retirement of bonds	(125,000)
Cash dividends	(26,000)
Issuance of stock(252,000-228,000)	24,000
Net cash used in financing activities		(127,000)
Net increase (decrease) in cash		9,000
Cash balance at beginning		18,000
Cash balance at ending		27,000
Non cash activities
New equipment acquire in exchange of bonds		60,000

Retirement of bonds = cost + loss (120,000+5,000)