Question

The financial statements for Fallon Sales Limited are shown
below:

Statement of Financial Position

As of 31 December 20X5 20X4
Assets    
 Cash $ 17,100 $ 20,000
 Accounts receivable 72,500 60,000
 Merchandise inventory 131,400 180,000
 Prepaid insurance 2,600 2,400
 Investments 10,000 30,000
 Land 70,000 70,000
 Capital assets, net 278,000 240,000
 Goodwill, net   67,900  106,600
$649,500 $709,000

Liabilities and equity    
 Accounts payable $ 98,000 $111,000

 Rent payable 6,500 2,000
 Income tax payable 6,400 8,000
 Bonds payable 150,000 260,000
 Pension obligation 6,700 5,000
 Common shares 324,000 270,000
 Retained earnings   57,900   53,000
  $649,500 $709,000

Statement of Comprehensive Income

For the year ended 31 December 20X5
Sales revenue $399,100
Investment revenue 1,900
Cost of goods sold 184,400
Depreciation expense 14,000
Goodwill impairment 38,700
Operating expenses 122,000
Interest expense 4,400
Loss on sale of investment 6,000
Income tax expense   14,600
Net earnings and comprehensive income $ 16,900
During the year, the company purchased a capital asset valued at $28,000; payment was made by
issuing common shares. Additional capital assets were acquired for cash. Changes in other accounts
were typical transactions.

Required:
1. Prepare the statement of cash flow, using the indirect method. Omit the separate disclosure of cash
flow for interest, investment income, and income tax.

Answer 1

Fallon Sales Limited
Statement of Cash Flows - Indirect Method
For Year Ending December 31, 20X5
Cash Flow from Operating Activities
Net income	16,900
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation expenses	14,000
Goodwill impairment	38,700
Loss on sale of investment	6,000
Increase in accounts receivable	(12,500)
Decrease in merchandise inventory	48,600
Increase in prepaid insurance	(200)
Decrease in accounts payable	(13,000)
Increase in rent payable	4,500
Increase in pension obligation	1,700
Decrease in income tax payable	(1,600)
Net cash flows from operations		103,100
Cash Flow from Investing Activities
Purchase of capital assets	(24,000)
Sale of investment	14,000
Net cash flows from investing activities		(10,000)
Cash Flow from Financing Activities
Repayment of bonds payable	(110,000)
Proceeds from issuance of common shares	26,000
Payment of cash dividends	(12,000)
Net cash flows from financing activities		(96,000)
Net increase (decrease) in cash		(2,900)
Cash balance at the beginning of period		20,000
Cash balance at the end of period		17,100