Question

Statement of Cash Flows (Indirect Method)

Wolff Company's income statement and comparative balance sheets follow.

WOLFF COMPANY
Income Statement
For Year Ended December 31, 2019
Sales		$635,000
Cost of goods sold	$430,000
Wages expense	86,000
Insurance expense	8,000
Depreciation expense	17,000
Interest expense	9,000
Income tax expense	29,000	579,000
Net income		$56,000

WOLFF COMPANY
Balance Sheet
	Dec. 31, 2019	Dec. 31, 2018
Assets
Cash	$11,000	$5,000
Accounts receivable	41,000	32,000
Inventory	90,000	60,000
Prepaid insurance	5,000	7,000
PPE	250,000	195,000
Accumulated depreciation	(68,000)	(51,000)
Total assets	$329,000	$248,000
Liabilities and Stockholders' Equity
Accounts payable	$7,000	$10,000
Wages payable	9,000	6,000
Income tax payable	7,000	8,000
Bonds payable	130,000	75,000
Common stock	90,000	90,000
Retained earnings	86,000	59,000
Total liabilities and equity	$329,000	$248,000

Cash dividends of $29,000 were declared and paid during 2019. Also in 2019, PPE was purchased for cash, and bonds payable were issued for cash. Bond interest is paid semiannually on June 30 and December 31. Accounts payable relate to merchandise purchases.

a. Compute the change in cash that occurred during 2019.
Note: Do not use negative signs with your answers.

Cash, December 31, 2019	Answer
Less: Cash, December 31, 2018	Answer
Cash increase during 2019	Answer

b. Prepare a 2019 statement of cash flows using the indirect method.
Note: Use negative signs with your answers to indicate a decrease in cash (use of cash).

WOLFF COMPANY
Statement of Cash Flows
For Year Ended December 31, 2019
Net Cash Flow from Operating Activities
AnswerDepreciationGain on Sale of EquipmentIssuance of Bonds PayableIssuance of Common StockNet incomePurchase of PPESale of Equipment	Answer
Add (Deduct) Items to Convert Net Income to Cash Basis
AnswerDepreciationGain on Sale of EquipmentIssuance of Bonds PayableIssuance of Common StockNet incomePurchase of PPESale of Equipment	Answer
Accounts Receivable	Answer
Inventory	Answer
Prepaid Insurance	Answer
Accounts Payable	Answer
Wages Payable	Answer
Income Tax Payable	Answer
Net Cash Provided by Operating Activities	Answer
Cash Flows from Investing Activities
AnswerDepreciationGain on Sale of EquipmentIssuance of Bonds PayableIssuance of Common StockNet incomePurchase of PPESale of Equipment	Answer
Cash Flows from Financing Activities
AnswerDepreciationGain on Sale of EquipmentIssuance of Bonds PayableIssuance of Common StockNet incomePurchase of PPESale of Equipment	Answer
Payment of Dividends	Answer
Net Cash Provided by Financing Activities	Answer
Net change in cash	Answer
Cash at Beginning of Year	Answer
Cash at End of Year	Answer

Answer 1

Solution:

a)

Ending cash 31 Dec 2019	$11,000
Less: Beginning cash 31 Dec 2018	($5,000)
Cash increase	$6,000

b)

Wolff Company Statement of cash flows For the year ended December 31,2019
Cash flow from operating activities :
Net income		$56,000
Add (Deduct) items to convert net income to cash basis:
Depreciation ($51,000 -$68,000)	$17,000
Accounts receivable ($32,000 -$41,000)	($9,000)
Inventory (60,000 -$90,000)	($30,000)
Prepaid insurance ($7,000 -$2,000)	$2,000
Accounts payable ($7,000 -$10,000)	($3,000)
Wages payable ($9,000 -$6,000)	$3,000
Income tax payable ($7,000 -$8,000)	($1,000)	($21,000)
Cash flow provided by operating activities		$35,000
Cash flow from investing activities:
Purchase of plant assets ($195,000 -$250,000)	($55,000)
Cash used by investing activities		($55,000)
Cash flow from financing activites:
Issuance of bonds payable ($130,000 -$75,000)	$55,000
payment of dividends	($29,000)
Cash provided by financing activites		$26,000
Net change in cash		$6,000
Cash at Beginning of year		$5,000
Cash at end of year		$11,000

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