Question

STATEMENT OF CASH FLOWS (YOU MAY USE EITHER THE DIRECT OR THE INDIRECT METHOD – YOU MUST INDICATE AT THE TOP OF YOUR SOLUTION WHICH METHOD YOU ARE USING)

Eyjafjallajökull Company

Comparative Balance Sheet

December 31

                                                                                                                  2017                   2016                                                                                                      

Assets

Cash                                                                                                      $ 70,000           $ 35,000

Accounts receivable                                                                                  82,000 53,000

Inventories                                                                                               120,000         132,000

Prepaid expenses                                                                                     19,000 25,000

Investments                                                                                               80,000 65,000

Plant assets                                                                                             310,000         250,000

Accumulated depreciation                                                                        (65,000)              (60,000)

         Total                                                                                              $616,000         $500,000

Liabilities and Stockholders' Equity

Accounts payable                                                                                  $ 85,000           $ 75,000

Accrued expenses payable                                                                       22,000 24,000

Bonds payable                                                                                         130,000         150,000

Common stock                                                                                         245,000         170,000

Retained earnings                                                                                 134,000                 81,000

         Total                                                                                              $616,000         $500,000

Eyjafjallajökull Company

Income Statement

For the Year Ended December 31, 2017

Sales                                                                                                                              $480,000

Less:

         Cost of goods sold                                                                        $290,000

         Operating expenses (excluding depreciation)                                 60,000

         Depreciation expense                                                                       17,000

         Income taxes                                                                                    15,000

         Interest expense                                                                               13,000

         Loss on disposal of plant assets                                                        8,000             403,000

Net income                                                                                                                      $ 77,000

Additional information:

1.    New plant assets costing $85,000 were purchased for cash in 2017.
2.    Old plant assets costing $25,000 were sold for $5,000 cash when book value was $13,000.
3.    Bonds with a face value of $20,000 were converted into $20,000 of common stock.
4.    A cash dividend of $24,000 was declared and paid during the year.
5.    Accounts payable pertain to merchandise purchases.

Instructions

Prepare a statement of cash flows for the year using either the direct method OR the indirect method.

Answer 1

Eyjafjallajökull Company Statement of Cash Flows (Indirect method ) For the year ended December 31,2017 Cash flows from Operating Activities: Net Income $ 77,000 Adjustments to net income to reconcile net income to net cash flows from Operating Activities: Depreciation expense $ 17,000 Loss on disposal of plant assets $ 8,000 Increase in Accounts Receivables $(29,000) Decrease in inventory $ 12,000 Decrease in prepaid expenses $ 6,000 Increase in Accounts payable $ 10,000 Decrease in accrued expenses payable $ (2,000) $ 22,000 Net Cash from operating activities $ 99,000 Cash Flows from Investing Activities Purchase of Plan assets $(85,000) Cash from Sale of Plant assets $ 5,000 Purchase of Investments $(15,000) Net Cash used in Investting activities $(95,000) Cash Flows from Financing Activities Issue of Common Stock $ 55,000 Dividend paid S(24,000) Net Cash from Financing activities S 31.000 Net Increase (decrease) in Cash $ 35,000 Cash, beginning of the year $ 35.000 Cash, ending of the year $ 70,000

Working Notes: Satement of change in current assets & current liabilities (except cash & cash equivalents) Particulars Accounts Receivable Inventory Prepaid expenses Accounts payable Accrued expenses payable 2016 $ 53,000$ $ 132,000 $ $ 25,000 $ $ 75,000 $ $ 24,000$ 2017 Change 82,000$ 29,000 120,000 $ 12,000 19,000 $ 6,000 85,000 $ 10,000 22,000 $ 2,000 Cash from Issue of Common Stock Common stock, ending balance Less : Amount of bonds converted into common stock less : Common stock, beginning balance Cash from the issue of Common Stock $ $ $ $ 245,000 20,000), (170,000) 55,000 Cash paid for the purchase of investments Investments, ending balance Less : Investments, beginning balance Cash paid for the purchase of investments $ $ $ 80,000 (65,000) 15,000