Question

Statement of Cash Flows (Indirect Method) Use the following information regarding the Lund Corporation to (a) prepare a statement of cash flows using the indirect method and (b) compute Lund's operating-cash-flow-to-current-liabilities ratio. Accounts payable increase Accounts receivable increase Accrued liabilities decrease Amortization expense Cash balance, January 1 $11,000 4,000 3,000 7,000 22,000 16,000 1,000 90,000 60,000 35,000 17,000 29,000 5,000 13,000 78,000 3,000 120,000 Cash balance, December 31 Cash paid as dividends Cash paid to purchase land Cash paid to retire bonds payable at par Cash received from issuance of common stock Cash received from sale of equipment Depreciation expense Gain on sale of equipment Inventory decrease Net income Prepaid expenses increase Average current liabilities a. Use negative signs with cash outflow answers. LUND CORPORATION Statement of Cash Flows For Year Ended December 31 Cash Flow from Operating Activities Net Income Add (deduct) items to convert net income to cash basis 78,000 Depreciation 29,000 Amortization 7,000 Gain on Sale of Equipment (5,000)

Answer 1

Solution a:

Lund Corporation
Statement of Cash Flows
For year ended December 31
Particulars	Amount
Cash Flow from Operating Activities:
Net Income	$78,000.00
Adjustments to reconcile net income to net cash provided by operations:
Depreciation Expense	$29,000.00
Amortization	$7,000.00
Gain on sale of equipment	-$5,000.00
Accounts receivables increase	-$4,000.00
Inventory Decrease	$13,000.00
Prepaid expenses increase	-$3,000.00
Accounts payable increase	$11,000.00
Accrued liabilities decrease	-$3,000.00
Net Cash provided by operating activities	$123,000.00
Cash Flow from Investing Activities:
Sale of equipment	$17,000.00
Purchase of land	-$90,000.00
Net Cash used in Investing activities	-$73,000.00
Cash Flow from Financing Activities:
Issuance of common stock	$35,000.00
Retirement of bond payable	-$60,000.00
Payment of dividends	-$31,000.00
Net Cash used by financing activities	-$56,000.00
Net Decrease in Cash	-$6,000.00
Cash balance at beginning of year	$22,000.00
Cash balance at end of year	$16,000.00

Solution b:

Average current Liabilities = $120,000

Increase in current liabilities during the year = $11,000 - $3,000 = $8,000

Ending Current liabilities = $120,000 + $8,000/2 = $124,000

Operating cash flow to current liabilities = $123,000 / $124,000 = 0.99