Question

The balance sheets for Plasma Screens Corporation, along with additional information, are provided below:

PLASMA SCREENS CORPORATION
Balance Sheets
December 31, 2024 and 2023

2024 2023
Assets
Current assets:
Cash $116,500 $136,800
Accounts receivable 80,400 95,000
Inventory 101,000 85,400
Prepaid rent 5,200 2,600
Long-term assets:
Land 510,000 510,000
Equipment 814,000 700,000
Accumulated depreciation (434,000) (280,000)
Total assets $1,193,100 $1,249,800
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $105,000 $90,400
Interest payable 6,900 13,800
Income tax payable 9,200 5,600
Long-term liabilities:
Notes payable 115,000 230,000
Stockholders' equity:
Common stock 730,000 730,000
Retained earnings 227,000 180,000
Total liabilities and stockholders' equity $1,193,100 $1,249,800

Additional Information for 2024:
1. Net income is $75,000.
2. The company purchases $114,000 in equipment. No equipment was sold.
3. Depreciation expense is $154,000.
4. The company repays $115,000 in notes payable.
5. The company declares and pays a cash dividend of $28,000.

Required:
Prepare the statement of cash flows using the indirect method. (Amounts to be deducted, cash outflows, and any decrease in cash should be indicated with a minus sign.)

Answer 1

The statement of cash flows begins with the net income of $75,000. Adjustments are made for non-cash expenses, such as depreciation ($154,000), and changes in working capital items. Operating activities resulted in a net cash outflow of $62,300. Investing activities show a cash outflow of $114,000 due to the purchase of equipment. Financing activities indicate a net cash outflow of $143,000, primarily from the repayment of notes payable and payment of cash dividends.

Plasma Screens Corporation

Statement of Cash Flows - Indirect Method

For the Year Ended December 31, 2024

Operating Activities:

Net Income | $75,000

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

Depreciation | -$154,000

Changes in current assets and liabilities:

Decrease in accounts receivable | $14,600 (95,000 - 80,400)

Increase in inventory | -$15,600 (101,000 - 85,400)

Increase in prepaid rent | -$2,600 (5,200 - 2,600)

Increase in accounts payable | $14,600 (105,000 - 90,400)

Decrease in interest payable | -$6,900 (6,900 - 13,800)

Increase in income tax payable | $3,600 (9,200 - 5,600)

Net cash provided by operating activities | -$62,300

Investing Activities:

Purchase of equipment | -$114,000

Net cash used in investing activities | -$114,000

Financing Activities:

Repayment of notes payable | -$115,000

Payment of cash dividends | -$28,000

Net cash used in financing activities | -$143,000

Net Decrease in Cash | -$319,300

Cash at Beginning of Year | $136,800

Cash at End of Year | $116,500