Question

Question 5 (20 marks)

The comparative Balance Sheets and the Income statement for the Marine Corporation are as follow:

Marine Corporation Income Statement For the Year Ended December 31, 2019
Sales	$ 5,500,000
Less: Cost of Goods Sold	4,100,000
Gross Profit	1,400,000
Less: Selling, General & Administrative Expenses	230,000
Operating profit	1,170,000
Less: Depreciation Expense	160,000
Earnings Before Interest and Taxes	1,010,000
Less: Interest Expense	140,000
Earnings Before Taxes	870,000
Less: Taxes (50%)	435,000
Net Income	$ 435,000

Marine Corporation	Balance Sheet
Assets	2018	2019
Cash	$35,000	$40,000
Marketable Securities	185,000	170,000
Accounts Receivable	220,000	240,000
Inventories	240,000	275,000
Investments	75,000	50,000
Total current assets	$755,000	$775,000
Plant and Equipment	1,100,000	1,450,000
Less Accumulated Amortization	420,000	550,000
Net plant and Equipment	$680,000	$900,000
Total Assets	1,435,000	1,675,000

LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	$75,000	$95,000
Notes payable	70,000	30,000
Accrued Expenses	25,000	5,000
Income Taxes Payable	4,000	8,000
Bonds Payable (2016)	700,000	850,000
Common Stock (100,000 shares)	200,000	200,000
Retained Earnings	361,000	487,000
Total Liabilities’ and Shareholders’ Equity	$1,435,000	$1,675,000

Required:

Prepare a Statement of Cash Flows for the year ended December 31, 2019 using the Indirect Method showing the operating, investing and financial cashflows up to the net change in cash.

Answer 1

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Workings- Indirect Method
Decrease in Marketable Securities	Amount $
Closing Balance	170,000.00
Less: Opening Balance	185,000.00
Decrease in Marketable Securities	(15,000.00)
Increase in Accounts Receivable
Closing Balance	240,000.00
Less: Opening Balance	220,000.00
Increase in Accounts Receivable	20,000.00
Increase in Inventory
Closing Balance	275,000.00
Less: Opening Balance	240,000.00
Increase in Inventory	35,000.00
Decrease in Investments
Closing Balance	50,000.00
Less: Opening Balance	75,000.00
Decrease in Investments	(25,000.00)
Increase in Accounts Payable
Closing Balance	95,000.00
Less: Opening Balance	75,000.00
Increase in Accounts Payable	20,000.00
Decrease in Accrued Expenses
Closing Balance	5,000.00
Less: Opening Balance	25,000.00
Decrease in Accrued Expenses	(20,000.00)
Increase in Income Taxes Payable
Closing Balance	8,000.00
Less: Opening Balance	4,000.00
Increase in Income Taxes Payable	4,000.00
Decrease in Notes payable
Closing Balance	30,000.00
Less: Opening Balance	70,000.00
Decrease in Notes payable	(40,000.00)
Plant and Equipment purchased
Closing Balance	1,450,000.00
Less: Opening Balance	1,100,000.00
Plant and Equipment purchased	350,000.00
Bonds Payable Issued
Closing Balance	850,000.00
Less: Opening Balance	700,000.00
Bonds Payable Issued	150,000.00
Dividends paid
Opening Balance- Retained Earnings	361,000.00
Add: Net Income	435,000.00
Less: Closing Balance- Retained Earnings	487,000.00
Dividends paid	309,000.00

Marine
Cashflow statement	Amount $	Amount $
Particulars
Net Income		435,000.00
Adjustment to reconcile Net Income to Net Cash
Add:
Depreciation Expense		130,000.00
Cash flow from Operations		565,000.00
Changes in Current Assets/Current Liabilities
Decrease in Marketable Securities	15,000.00
Increase in Accounts Receivable	(20,000.00)
Increase in Inventory	(35,000.00)
Decrease in Investments	25,000.00
Increase in Accounts Payable	20,000.00
Decrease in Notes payable	(40,000.00)
Decrease in Accrued Expenses	(20,000.00)
Increase in Income Taxes Payable	4,000.00	(51,000.00)
Net cash provided by operating activities		514,000.00
Cash flow from investing activities
Plant and Equipment purchased	(350,000.00)
Net cash use for investing activities		(350,000.00)
Cash flow from financing activities
Bonds Payable Issued	150,000.00
Dividends paid	(309,000.00)
Net cash used for financing activities		(159,000.00)
Net Increase/(Decrease) in cash		5,000.00
Cash Balance, beginning		35,000.00
Cash Balance, ending		40,000.00