Question

3-12. (Working with a statement of cash flows) Prepare a statement of cash flows for Abrahams Manufacturing Company for the year ended December 31, 2015. Interpret your results. Abrahams Manufacturing Company Balance Sheet for 12/31/2014 and 12/31/2015 2014 2015 Cash $ 89,000 $100,000 Accounts receivable 64,000 70,000 Inventory 112,000 100,000 Prepaid expenses 10.000 10,000 Total current assets 275,000 280,000 Gross plant and equipment 238,000 311,000 Accumulated depreciation (40.000) (66,000) Total assets $473.000 $525,000 Accounts payable $ 85,000 $90,000 Accrued liabilities 68,000 63,000 Total current debt 153,000 153,000 Mortgage payable 70,000 Preferred stock 120,000 Common stock 205,000 205,000 Retained earnings 45,000 47,000 Total debt and equity $473,000 $525.000

Answer 1

Abrahams Manufacturing Company Cash Flow Statement for the Year Ending 31st Dec,2015 Indirect Method Particulars Cash Flows From Operating Activities Net Income for the year 2015 (W note 1) (Amount in $) 2,000 26,000 28,000 Adjustments to Reconcile Net Income:- Add :Depreciation For the year (W note 2) 1 Operating Profit before working capital changes 2 Changes in Working Capital :- Decrease in Inventory Increase in Account Receivable Increase in Account Payable Decrease in Accrued Liablities Total 12,000 (6,000) 5,000 (5,000) 34,000 Net Cash Flow From Operating Activities (A) 34,000

Cash Flows From Investing Activities 3 Purchase of plant & equipment ($311000 - $238000) Net Cash Flow From Investing Activities (B) (73,000) (73,000) 1 Cash Flows From Financing Activities e Cash Received from issue of Preferred stock Payment of Mortgage amount 120,000 (70,000) Net Cash Flow From Financing Activities (C) 50,000 Net Increase (Decrease) in cash (A+B+C) Cash Balance December 31,2014 Cash Balance December 31,2015 11,000 89,000 100,000

Working Note 1 Calculation of Net income Retained Earnings as on 31st Dec, 2015 -Less : Retained Earnings as on 31st Dec, 2014 Net income for the year 2015 47,000 (45,000) 2,000 - Working Note 2 Calculation of Depreciation - Accumulated Depreciation as on 31st Dec, 2015 Less:Accumulated Depreciation as on 31st Dec, 2014 Depreciation for the year 2015 66,000 (40,000) 26,000