Question

MARZANO COMPANY Comparative Balance Sheets December 31 Assets 2017 Cash $ 63,000 Accounts receivable 88,000 Inventory 167,000 Land 80,000 Equipment 265,000 Accumulated depreciation-equipment (66,000) Total $597,000 Change 40,000 12.000 O, I or F Step #3 0 2016 $22,000 76,000 189,000 100,000 200,000 (32,000) $555,000 122,000) o (20, 000) I 65.000 I 34,000 0 0 Liabilities and Stockholders' Equity Accounts payable Bonds payable Common stock ($1 par) Retained earnings Total $34,000 150,000 221,000 192,000 $597,000 $43,000 (9000) 200,000 (50,000) 174,000 (47, 000) 138,000 $555,000 54,000 Mixed 0++ Additional information: 1. Net income for 2017 was $103,000. 2. Depreciation expense was $34,000. 3. Cash dividends of $49,000 were declared and paid. 4. Bonds payable amounting to $50,000 were redeemed for cash $50,000. 5. Common stock was issued for $47,000 cash. 6. No equipment was sold during 2017. 7. Land was sold for its book value. ructions: Prepare a statement of cash flows using the indirect method.

Answer 1

Solution

MARZANO COMPANY
Statement of Cash Flows
For Year Ended December 31, 2017
Cash flows from operating activities:
Net income		$ 103,000
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation expense	$ 34,000
Changes in current operating assets and liabilities:
Increase in accounts receivable	-$ 12,000
Decrease in inventory	$ 22,000
Decrease in accounts payable	-$ 9,000
		$ 35,000
Net cash flow from operating activities		$ 138,000
Cash flows from investing activities:
Purchase of Equipment	-$ 65,000
Sale of Land	$ 20,000
Net cash flow used for investing activities		-$ 45,000
Cash flows from financing activities:
Cash dividend	-$ 49,000
Issue of Common stock	$ 47,000
Redemption of bonds	-$ 50,000
Net cash flow provided by financing activities		-$ 52,000
Net change in cash during the year		$ 41,000
Cash at the beginning of the year		$ 22,000
Cash at the end of the year		$ 63,000

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.General notes for cash flow
Cash is increased when Current liability increase or Current asset Decrease.
Cash is Decreased when Current liability Decrease or Current asset Increase.
Depreciation or loss on sale of any asset is a non cash expense hence it will be added to net income to get operating cash
Profit on sale of asset or investment is a non cash profit and hence will be deducted from operating income.