Question

The comparative balance sheet of Iglesias Inc. for December 31, 20Y3 and 20Y2, is shown as follows:

1
Dec. 31, 20Y3
Dec. 31, 20Y2
2
Assets
3
Cash
$186,000.00
$180,000.00
4
Accounts receivable (net)
540,000.00
480,000.00
5
Inventories
924,000.00
900,000.00
6
Investments
0.00
120,000.00
7
Land
600,000.00
0.00
8
Equipment
1,680,000.00
1,440,000.00
9
Accumulated depreciation-equipment
(720,000.00)
(600,000.00)
10
Total assets
$3,210,000.00
$2,520,000.00
11
Liabilities and Stockholders’ Equity
12
Accounts payable
$408,000.00
$360,000.00
13
Accrued expenses payable
54,000.00
60,000.00
14
Dividends payable
36,000.00
30,000.00
15
Common stock, $4 par
840,000.00
720,000.00
16
Excess of paid-in capital over par
240,000.00
210,000.00
17
Retained earnings
1,632,000.00
1,140,000.00
18
Total liabilities and stockholders’ equity
$3,210,000.00
$2,520,000.00
Additional data obtained from an examination of the accounts in the ledger for 20Y3 are as follows:
a. The investments were sold for $210,000 cash.
b. Equipment and land were acquired for cash.
c. There were no disposals of equipment during the year.
d. The common stock was issued for cash.
e. There was a $600,000 credit to Retained Earnings for net income.
f. There was a $108,000 debit to Retained Earnings for cash dividends declared.
Required:
Prepare a statement of cash flows, using the indirect method of presenting cash flows from (used for) operating activities. Be sure to complete the heading of the statement. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. Use the minus sign to indicate cash outflows, decreases in cash and a net cash outflow for each section, if required.

Answer 1

The statement of cash flows for Iglesias Inc. using the indirect method involves adjusting the net income for non-cash expenses and changes in working capital, considering cash flows from investing activities such as the sale of investments, and reflecting financing activities like issuing stock and paying dividends.

Step-by-step explanation:

Statement of Cash Flows for Iglesias Inc.

Using the indirect method for operating activities, we start with the net income and adjust for changes in working capital and non-cash expenses. The provided comparative balance sheets and additional data help us to derive the cash flows:

1. Net Income: Start with net income, which is a credit to Retained Earnings of $600,000.
2. Adjustments for Non-Cash Items: Add back depreciation of $120,000, which is the increase in accumulated depreciation.
3. Changes in Operating Assets and Liabilities: Accounts receivable increased by $60,000, inventories increased by $24,000, and accounts payable increased by $48,000. Accrued expenses payable decreased by $6,000 and dividends payable increased by $6,000.
4. Net Cash Provided by Operating Activities: Calculate the net cash by adding net income, adding back depreciation, and adjusting for the changes in operating assets and liabilities.
5. Cash Flows from Investing Activities: The sale of investments brought in $210,000 in cash.
6. Cash Flows from Financing Activities: Issue of common stock increased equity by $120,000, and dividends declared (deduction from retained earnings) were $108,000.
7. The increase in cash from 20Y2 to 20Y3 can be determined by subtracting the cash at the end of 20Y2 from the cash at the end of 20Y3.

Note: Acquisition of equipment and land for cash is an investing activity and issues of stock for cash are financing activities. These will be based on the provided comparative balance sheet figures and additional data.