Question

Golden Corp.'s current year income statement, comparative balance sheets, and additional information follow. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, (5) Other Expenses are all cash expenses, and (6) any change in Income Taxes Payable reflects the accrual and cash payment of taxes.

GOLDEN CORPORATION Comparative Balance Sheets December 31 Current Year Prior Year $ 170,000 92,000 610,000 872,000 351,100 (161,000) $1,062, 100 $ 113,600 77,000 532,000 722,600 305,000 (107,000) $ 920,600 Assets Cash Accounts receivable Inventory Total current assets Equipment Accum. depreciation-Equipment Total assets Liabilities and Equity Accounts payable Income taxes payable Total current liabilities Equity Common stock, $2 par value Paid-in capital in excess of par value, common stock Retained earnings Total liabilities and equity $ 99,000 34,000 133,000 77,000 28,100 105,100 599, 200 206,800 123,100 $1,062,100 574,000 169,000 72,500 $ 920,600

GOLDEN CORPORATION Income Statement For Current Year Ended December 31
Sales				$	1,822,000
Cost of goods sold					1,092,000
Gross profit					730,000
Operating expenses
Depreciation expense	$	54,000
Other expenses		500,000			554,000
Income before taxes					176,000
Income taxes expense					30,400
Net income				$	145,600

Additional Information on Current Year Transactions

1. Purchased equipment for $46,100 cash.
2. Issued 12,600 shares of common stock for $5 cash per share.
3. Declared and paid $95,000 in cash dividends.

Required:
Prepare a complete statement of cash flows using the indirect method for the current year. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Solution

GOLDEN CORPORATION
Cash flow Statement
For the Year ended December 31
Cash Flow from Operating Activities:
Net Income	$     145,600.00
Adjustments to reconcile net income to net cash provided by operations
Income statement items not affecting cash
Depreciation Expense	$        54,000.00
Changes in current assets and current liabilities
Increase in Accounts Receivables	$     (15,000.00)
Increase in Inventory	$     (78,000.00)
Increase in Accounts payable	$        22,000.00
Increase in Income taxes payable	$          5,900.00
A. Cash Outflow from Operating Activities		$   134,500.00
cash flow from investing activities
Purchase of Equipment	$     (46,100.00)
B.Net cash used by investing activities		$   (46,100.00)
Cash flows from Financing activities
Payment of Dividend	$     (95,000.00)
Issue of Common Stock	$        63,000.00
C. Net cash Used in financing activities		$   (32,000.00)
(A+B+C) Net increase (Decrease) in cash and Cash Equivalent		$     56,400.00
Cash balance, December 31, prior year		$   113,600.00
Cash balance, December 31, current year		$   170,000.00

.General notes for cash flow
Cash is increased when Current liability increase or Current asset Decrease.
Cash is Decreased when Current liability Decrease or Current asset Increase.
Depreciation 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.