Question

n PR 13-1B Statement of cash flows- indirect method The comparative balance sheet of Merrick Equipment Co. for December 31, 20Y9 and 20Y8, is as follows : Dec. 31, 20Y9 Dec. 31, 20Y8 Assets $ 70,720 $ 47,940 207,230 188,190 Cash Accounts receivable (net) Inventories 298,520 289,850 Investments 102,000 295,800 Land Equipment .. Accumulated depreciation-equipment Total assets 438,600 ( 99,110 ) $ 1,211,760 358,020 (84,320) $901,680 $ 194,140 26,860 20,400 Liabilities and Stockholders' Equity Accounts payable (merchandise creditors) Accrued expenses payable (operating expenses ) Dividends payable. Common stock, $1 par. Paid-in capital in excess of par- common stock. Retained earnings .. Total liabilities and stockholders ' equity $ 205,700 30,600 25,500 202,000 354,000 393,960 $ 1,211,760 102,000 204,000 354,280 $ 901,680 Additional data obtained from an examination of the accounts in the ledger for 20Y9 are as follows : a . Equipment and land were acquired for cash. b There were no disposals of equipment during the year. The investments were sold for $ 91,800 cash d . The common stock was issued for cash . e . There was a $ 141,680 credit to Retained Earnings for net income . f . There was a $ 102,000 debit to Retained Earnings for cash dividends declared . Instructions Prepare a statement of cash flows , using the indirect method of presenting cash flows from operating activities .

Answer 1

Here is the statement of cash flows for Merrick Equipment Co. for the year ended December 31, 20Y9, using the indirect method of presenting cash flows from operating activities:

------------------------------------------------------------------------------------------------------------

Cash Flows from Operating Activities

Net income $141,680

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation expense $8,970

Increase in accounts receivable (9,070)(9,070)

Increase in inventories (11,680)(11,680)

Decrease in accounts payable (10,570)(10,570)

Decrease in accrued expenses payable (4,140)(4,140)

Net cash provided by operating activities 116,190

------------------------------------------------------------------------------------------------------------

Cash Flows from Investing Activities

Purchase of equipment and land (160,100)(160,100)

Sale of investments 91,80091,800

Net cash used in investing activities (68,300)

------------------------------------------------------------------------------------------------------------

Cash Flows from Financing Activities

Issuance of common stock 14,44014,440

Payment of dividends (102,000)(102,000)

Net cash used in financing activities (87,560)

------------------------------------------------------------------------------------------------------------

| Net increase in cash | 360360 | | Cash at beginning of year | 305,220305,220 | | Cash at end of year | 305,580305,580 |

The statement of cash flows shows that Merrick Equipment Co. generated 116,190∗∗ofcashfromoperatingactivitiesduringtheyearendedDecember31,20Y9.Thecompanyinvested∗∗116,190∗∗ofcashfromoperatingactivitiesduringtheyearendedDecember31,20Y9.Thecompanyinvested∗∗(68,300) in equipment and land and sold investments for $91,800. The company also issued common stock for 14,440∗∗andpaiddividendsof∗∗14,440∗∗andpaiddividendsof∗∗(102,000). As a result, the company’s cash balance increased by $360 during the year .