Question

Statement of Cash Flows (Indirect Method) Use the following information regarding the Fremantle Corporation to prepare a statement of cash flows using the indirect method Accounts payable increase Accounts receivable increase Accrued liabilities decrease Amortization expense Cash balance, January 1 Cash balance, December 31 Cash paid as dividends Cash paid to purchase land Cash paid to retire bonds payable at par Cash received from issuance of common stock 75,000 Cash received from sale of equipment Depreciation expense Gain on sale of equipment Inventory decrease Net income Prepaid expenses increase $14,000 4,000 5,000 26,000 21,000 108,000 49,000 103,000 70,000 17,000 65,000 14,000 11,000 126,000 2,000

Answer 1

Correct Answer:

FREMANTLE CORPORATION
Statement of Cash flows
For year Ended December 31
Cash Flow from Operating Activities
Net Income		$         1,26,000
Add(deduct) Items to convert Net Income to cash Basis
Depreciation	$                 65,000
Amortization	$                 26,000
Gain onn sale of Equipment	$              (14,000)
Accounts Receivable Increase	$                 (4,000)
Inventory Decrease	$                 11,000
Prepaid Expense Increase	$                 (2,000)
Accounts Payable Increase	$                 14,000
Accrued Liabilities Decrease	$                 (5,000)
		$            91,000
Cash Flow Provided by Operating Activities		$         2,17,000
Cash Flow From Investing Activities
Sale of Equipment	$                 17,000
Purchase of Land	$           (1,03,000)
Cash Used by Investing Activities		$          (86,000)
Cash Flow from Financing Activities
Issuance of Common stock	$                 75,000
Retirement of Bonds Payable	$              (70,000)
Payment of Dividends	$              (49,000)
Cash Used by Financing Activities		$          (44,000)
Net Increase In Cash		$            87,000
Cash at Beginning of year		$            21,000
Cash at Ending of year		$         1,08,000

General notes for cash flow

Depreciation, Amortization Expense or loss on sale of any asset is a non-cash expense hence it will be added to net income to get operating cash

Profit on sale of asset or investment is a non-cash profit and hence will be deducted from operating income.

Cash is Decreased when Current liability Decrease or Current asset Increase.

Cash is increased when Current liability increase or Current asset Decrease.

End of Answer.

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