Question

Palindrome Corp has prepared the following comparative balance sheet statements for 2015 and 2016:
2016    2015
Cash    569,000 245,000
Accounts Receivable 427,000 316,000
Inventory    272,000 297,000
Prepaid Expenses 55,000    64,000
Plant Assets    2,830,000 2,508,000
Accumulated Depreciation (960,000)    (852,000)
Patent    103,000 122,000
   3,296,000 2,700,000

Accounts Payable    248,000    267,000
Accrued Liabilities    102,000    78,000
Loan Payable 100,000 500,000
Preferred Stock 358,000    58,000
Additional Paid-in Capital - Preferred 112,000 12,000
Common Stock 1,164,000    1,164,000
Retained Earnings 1,212,000    621,000
   3,296,000    2,700,000

The Accumulated Depreciation account has been credited only for the depreciation expense for the period.
The Retained Earnings account has been charged for dividends of $210,000 and credited for the net income for the year.
The income statement for 2016 is as follows:
Sales Revenue    2,451,000
Cost of Sales 934,000
Gross Profit 1,517,000
Operating Expenses    716,000
Net Income    801,000

a) From the information above, prepare a statement of cash flows [indirect method] for Palindrome for the year ended December 31, 2016.
b) From the information above, prepare a schedule of cash flows provided by operating activities using the direct method.

Answer 1

a.)	Statement of Cash Flows
	For the year ended 31 December 2016
		Amount $
	Cash Flows from operating activities:
	Net income	801,000
	Adjustments to reconcile net income to Cash Flows from operating activities:
	Depreciation charged ( 960,000 - 852,000)	108,000
		909,000
	Changes in current Operating assets and liabilities
	Increase in Account Receivable	-111,000
	Decrease in Inventory	25,000
	Decrease in prepaid expenses	9,000
	Decrease in Accounts payable	-19,000
	Increase in accrued liabilities	24,000
	Net Cash flow from operating activities	837,000
	Cash Flow from from investing activities
	Purchase of Plant assets ( 2,830,000 - 2,508,000)	-322,000
	Sale of Patent ( 122,000 - 103,000 )	19,000
	Net Cash Flow from (used in ) investing activities	-303,000
	Cash Flow from financing activities
	Repayment of Loan ( 500,000 - 100,000)	-400,000
	Proceeds from issue of Preferred stock	400,000
	Cash Dividends paid	-210,000
	Cash Flow from (used in ) financing activities	-210,000
	Net cash ouflow from all activities	324,000
	Add :Cash at the beginning of the year	245,000
	Cash at the end of the year	569,000
b.)	Cash flows provided by operating activities using the direct method.
	Particulars	Amount ($)
	Cash Receipts
	Cash collections from customers ( 2,451,000 + 316,000 - 427,000 )	2,340,000
	Less: Cash Payments
	Cash Payments to Suppliers ( 934,000 + 272,000 - 297,000 + 267,000 - 248,000 )	928,000
	Cash payments for Operating expenses ( 716,000 + 55,000 - 64,000 + 78,000 - 102,000 – 108,000)	575,000
	Total cash Payments	1,503,000
	Cash flows provided by operating activities	837,000