Question

Statement of Cash Flows

Lake Isabella, Inc. reports the following income statement for the year ended December 31, 2018:

Sales	$2,268,000
Cost of goods sold	732,480
Gross profit	1,535,520
Depreciation expense	66,300
Selling and administrative expense	688,800
Income before tax	780,420
Income tax expense	161,736
Net income	$ 618,684

The company also reports the following information from the balance sheet:

	December 31, 2018	December 31, 2017
Cash	$ 126,000	$ 50,400
Accounts receivable	100,000	62,000
Inventory	28,800	39,200
Accounts payable	198,000	226,800
Accrued selling and admin expenses	39,400	31,200
Taxes payable	138,600	86,400
Dividends payable	26,400	57,600

A) Prepare the operating section of the statement of cash flow, using the indirect method for Lake Isabella, Inc. for December 31, 2018.

B) Suppose Lake Isabella sold property, plant, and equipment for cash proceeds of $10,900. The equipment originally cost $20,320. The company recorded a loss on sale of $6,230. The company uses the indirect method to prepare its statement of cash flows. What amounts would be included in cash from operations and cash from investing, respectively?

Answer 1

1	Lake Isabella, Inc.
	Statement of Cash Flows
	For the Year Ended December 31, 2018
	Cash Flows from Operating Activities
	Income before Income Taxes		$780,420
	Adjustments to reconcile net income to net cash flows from operating activities:
	Depreciation Expense	$66,300
	Changes in current operating assets and liabilities:
	Increase in Accounts Receivable	-$38,000
	Decrease in Inventory	$10,400
	Decrease in Accounts Payable	-$28,800
	Increase in Accrued Selling and Admin Expenses	$8,200	$18,100
	Cash from operating activities		$798,520
	Less: Tax Paid		-$109,536
	Net cash flows from operating activities		$688,984
2
	Lake Isabella, Inc.
	Statement of Cash Flows
	For the Year Ended December 31, 2018
	Cash Flows from Operating Activities
	Income before Income Taxes		$780,420
	Adjustments to reconcile net income to net cash flows from operating activities:
	Depreciation Expense	$66,300
	Loss on Sale of Property, Plant, and Equipment	$6,230
	Changes in current operating assets and liabilities:
	Increase in Accounts Receivable	-$38,000
	Decrease in Inventory	$10,400
	Decrease in Accounts Payable	-$28,800
	Increase in Accrued Selling and Admin Expenses	$8,200	$24,330
	Cash from operating activities		$804,750
	Less: Tax Paid		-$109,536
	Net cash flows provided by operating activities		$695,214
	Cash Flows from Investing Activities
	Cash Proceeds from the sale of Equipment	$10,900
	Net cash flow used in investing activities		$10,900