Question

IV. (5 Points) Hartman, Inc. has prepared the following comparative balance sheets for 2017 and 2018: 2018 _2017 Cash $ 282,000 $ 153,000 Accounts receivable 139,000 117,000 Inventory 150,000 180,000 Prepaid expenses 18,000 27,000 Plant assets 1,295,000 1,050,000 Accumulated depreciation (450,000) (375,000) Patent 153.000 174.000 $1.587.000 $1.326,000 Accounts payable $ 153,000 $ 168,000 Accrued liabilities 60,000 42.000 Mortgage payable - 450,000 Preferred stock 525,000 - Additional paid-in capital preferred 120,000 Common stock 600,000 600,000 Retained earnings 129,000 - 66,000 $1,587,000 $1,326,000 1. The Accumulated Depreciation account has been credited only for the depreciation expense for the period. 2. The Retained Earnings account has been charged for dividends of $138,000 and credited for the net income for the year. The income statement for 2018 is as follows: Sales revenue $1,980,000 Cost of sales 1.089.000 Gross profit 891,000 Operating expenses 690,000 Net income $201.000 Instructions (a) From the information above, prepare a statement of cash flows (indirect method) for Hartman, Inc. for the year ended December 31, 2018. (b) From the information above, prepare a schedule of cash provided by operating activities using the direct method.

Answer 1

Hartman, Inc. Statement of Cash Flows (Indirect method) For the Year Ended December 31, 2018 Cash Flow from Operating Activities: Net Income $201,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Expense $75,000 Amortization Expense - Patents $21,000 Increase in Accounts Receivables -$22,000 Decrease in Inventory $30,000 Decrease in Prepaid expenses $9,000 Decrease in Accounts Payable -$15,000 Increase in Accrued Liabilities $18,000 Net Cash provided by operating activities [$450,000 - $375,000; Non-cash expense and so added back] ($174,000 - $153,000; Non-cash expense and so added back] ($117000 - $139000; Working capital increases and so deducted] [$180000 - $150000; Working capital decreases and so added] [$27000 - $18000; Working capital increases and so deducted] [$153000 - $168000; Working capital increases and so deducted] [$60000 - $42000; Working capital decreases and so added] $317,000 Cash Flow from Investing Activities: Cash paid to Plant Assets Net Cash used in investing activities -$245,000 ($1,050,000 - $1,295,000] -$245,000

$645,000 -$450,000 -$138,000 Cash Flow from Financing Activities: Cash realized from preferred stocks issued Cash paid to retire mortgage payable Cash dividend paid Net Cash provided by financing activities Net increase in cash balance during the year Add: Beginning cash balance Ending Cash Balance ($525,000 +$120,000 - $0] [$0 - $450,000] ($ 66,000 + $ 201,000 - $129,000] $57,000 $129,000 $153,000 $282,000 b) Workings: Hartman, Inc. Statement of Cash Flows (Direct Method) For the Year Ended December 31, 2018 Cash Flows from Operating Activities: Cash inflows: Cash collections from customers $1,958,000 Cash Outflows for: Inventory $1,074,000 Operating Expenses -$567,000 Income taxes $0 Net cash flow from operating activities Accounts receivable, beg. bal. Add: Sales revenue for the year Less: Accounts receivable, end. bal. Cash received on account $117,000 $1,980,000 -$139,000 $1,958,000 Cost of Sales Add: Ending Inventory Less: Beginning Inventory Goods Purchased $1,089,000 $150,000 -$180,000 $1,059,000 $317,000

Workings continued.... $168,000 -$153,000 $1,074,000 Accrued liabilities, beg. bal. Add: Prepaid expenses - end. bal. Add: Operating expenses Less: Depreciation expense Less: Patents amortized Less: Accrued liabilities, end.bal. Less: Prepaid expenses - beg. bal. Operating expenses paid Accounts payable, beg. Bal. Less: Accounts payable, end. Bal. Cash paid to Suppliers for Inventory $42,000 $18,000 $690,000 -$75,000 [As calculated under indirect method] -$21,000 [As calculated under indirect method] -$60,000 -$27,000 $567,000