Question

Problem 16-12 (IAA) Hill Company provided the following comparative statement of financial position. 2015 Assets Cash and cash equivalents Accounts receivable Inventory Prepaid expenses Property, plant and equipment Accumulated depreciation 750,000 1,750,000 2,550,000 100,000 5,300,000 ( 1,150,000) 9,300,000 2014 950,000 1,100,000 1,800,000 150,000 4,300,000 ( 800,000) 7,500,000 Liabilities and equity Accounts payable Accrued expenses Share capital Retained earnings 1,250,000 50,000 4,750,000 3,250,000 9,300,000 1,000,000 200,000 4,250,000 2,050,000 7,500,000 Additional information 1. The statement of retained earnings for 2015 showed net income of P1,500,000 and cash dividend paid of P300,000. 2. During the year, the entity purchased equipment for cash and issued share capital for cash. Required: Prepare a statement of cash flows for 2015 using the indirect method.

Answer 1

Statement of Cash Flows:

1,500,000 Hill Company Statement of Cash Flows For the year ended XX Month & XX Date, 2015 Cash flows from operating activities Net Income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 350,000 Increase in Accounts Receivable (650,000) Increase in Inventory (750,000) Decrease in Prepaid expense 50,000 Increase in Accounts Payable 250,000 Decrease in Accrued Expenses (150,000) Net Cash provided by operating activities (1,500,000 + 350,000 -650,000 - 750,000 + 50,000 + 250,000 - 150,000) 600,000 Cash flows from investing activities Cash paid for equipment Net cash used by investing activities (1,000,000) (1,000,000) Cash flows from financing activities Cash received from issue of share capital Cash paid for dividends Net cash used by financing activities 500,000 (300,000) 200,000 Net Increase in cash Beginning Cash Balance Ending Cash Balance (200,000) (600,000- 1,000,000 + 200,000) 950,000 750,000 (-200,000+ 950,000)

Workings:

Note: Check if the above balance calculated closing cash balance matches with the cash balance reflecting in the balance sheet, and it matches. Depreciation Expense = Difference in Accumulated Depreciation Depreciation Expense = P1,150,000 - P800,000 = P350,000 Cash Paid for Equipment = Difference in Property Plant & Equipment Cash Paid for Equipment = P5,300,000 - P4,300,000 = P1,000,000 This will be represented in brackets, as it is a outflow of cash. Cash received from issue of share capital = Difference in Share Capital Cash received from issue of share capital = P4,750,000 - P4,250,000 = P500,000