Question

Condensed financial data of Fairfield Company for 2010 and 2009 are presented below:

Comparative Balance Sheet as at December 31, 2010 and 2009
	2010	2009
Cash	$2,150	$1,110
Receivables	1,750	1,300
Inventory	1,600	1,900
Plant Assets	1,910	1,700
Accumulated Depreciation	(1,200)	(1,170)
Long-term investments (Held-to-Maturity)	1,300	1,470
	$7,510	$6,310
Accounts Payable	$1,250	$800
Income Tax Payable Accrued Liabilities	90    200	10   250
Bonds Payable	1,400	1,650
Capital Stock	1,910	1,700
Retained Earnings	2,660	1,900
	$7,510	$6,310

Income Statement For the year ended December 31, 2010
Sales	$7,000
Cost of goods sold	4,700
Gross margin	2,300
Depreciation Selling and administrative expense	30 900
Income from operations	1,370
Loss on sale of investments	70
Income before tax	1,300
Income tax expense	390
Net Income	910

Additional information: No plant assets were sold in 2010. Cash dividends were $150.

Required:

Prepare a statement of cash flows for 2010 using the indirect method.

Using the direct method, prepare the Operating Activities section of the statement of cash flows for 2010.                                                                                

Answer 1

Solution:

Cash flow statement using indirect method:

Workings:

Payments to accounts payable = Beg. accounts payble + purchase - Ending accounts payable

= $800 +(4700+1600-1900) - 1250 = $3,950

Amount received from accounts receivable = beg. balance + sales - ending bal.

Payment of income tax = Beg. bal of income tax payable + income tax exp. - Ending bal. of income tax payable

= 10 + 390 - 90 =$310