Question

Presented below are data taken from the records of Dussel Ltd.

Dussel Ltd.
Comparative Statement of Financial Position
	December 31, 2020	December 31, 2021
Land	12,500	12,500
Buildings	61,250	72,500
Less Depreciation	(14,000)	(18,500)
Equipment	23,750	35,000
Less Depreciation	(7,250)	(10,625)
Long-Term Investments	42,500	27,250
Merchandise Inventory	29,000	35,000
Accounts Receivable	65,000	72,500
Less Allowance for Bad Debts	(4,000)	(4,750)
Cash	38,750	50,000
Total	$247,500	$270,875
Retained Earnings	$47,625	$44,000
Common Stock	130,000	155,000
Long-term Notes Payable	35,000	31,000
Accrued Payables	5,125	5,875
Accounts Payable	29,750	35,000
Total	$247,500	$270,875

Additional Data (ignore taxes):

1. Net income for the year is $69,000.

2. Cash dividends declared during the year $47,625.

3. A stock dividend was declared during the year. This resulted in retained earnings of $25,000 being capitalized.

4. Investments that cost $17,250 were sold for $26,000.

5. Equipment that cost $5,000, and was one-fourth depreciated, was sold for $2,000.

Dussel’s 2021 income statement is as follows (ignore taxes):

Sales		$630,000
Less Cost of Goods Sold		398,500
Gross profit		231,500
Less operating expenses		169,500*
Income from operations		62,000
Other: Gain on sale of investments	$ 8,750
Loss on sale of equipment	(1,750)	7,000
Net income		$ 69,000*

* includes $9,125 of depreciation and $1,000 bad debt expense)

Required:        

(a) Prepare the operating activities section of the statement of cash flows using the direct method.

(b) Prepare the statement of cash flows using the indirect method.

Answer 1

Dussel Ltd. Statement of Cashflows - Indirect Statement of Cashflows -Direct For the period ending 31.12.2021 Cashflow from Operating Activity For the period ending 31.12.2021 Cashflow from Operating Activity Net Income Collection from Customer (630000-72500+4750+65000-4000) 69000 623250 Adjustments: Payment to Creditors (398500+35000-29000+29750-35000) -399250 Payment of expenses (169500-9125+5125-5875) -159625 Depreciation Expense 9125 Gain on sale of investments -8750 64375 Loss on sale of equipment 1750 Increase in Accounts Receivable -6750 Increase in Inventory -6000 Increase in Accounts Payable 5250 Increase in Accrued Payable 750 -4625 Cash generated from Operating Activity 64375 Cashflow from Investing Activity Investments sold 26000 Investments purchased -2000 Equipment sold Equipment purchased ( 35000 - 23750 + 5000) 2000 -16250 -11250 Building purchased Cash used for Investing Activity -1500 Cashflow from Financing Activity Dividends paid -47625 Long Term Notes paid -4000 Cash used for Financing Activity Net Increase in Cash Beginning Cash Balance Ending Cash Balance -51625 11250 38750 50000