Question

MONTGOMERY INC.

Comparative Balance Sheets
December 31, 2018 and 2017
2018 2017
Assets
Cash $ 38,200 $ 38,700
Accounts receivable, net 10,800 13,400
Inventory 96,800 77,500
Total current assets 145,800 129,600
Equipment 53,600 45,800
Accum. depreciation—Equipment (24,200 ) (16,900 )
Total assets $ 175,200 $ 158,500
Liabilities and Equity
Accounts payable $ 25,700 $ 28,100
Salaries payable 400 500
Total current liabilities 26,100 28,600
Equity
Common stock, no par value 129,300 119,000
Retained earnings 19,800 10,900
Total liabilities and equity $ 175,200 $ 158,500
MONTGOMERY INC.
Income Statement
For Year Ended December 31, 2018
Sales $ 40,300
Cost of goods sold (16,700 )
Gross profit 23,600
Operating expenses
Depreciation expense $ 7,300
Other expenses 5,000
Total operating expense 12,300
Income before taxes 11,300
Income tax expense 2,400
Net income $ 8,900
Additional Information
No dividends are declared or paid in 2018.
Issued additional stock for $10,300 cash in 2018.
Purchased equipment for cash in 2018; no equipment was sold in 2018.
1. Use the above financial statements and additional information to prepare a statement of cash flows for the year ended December 31, 2018, using the indirect method. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

Answer and Explanation:

The preparation of the cash flow statement using the indirect method is presented below;

Cash flows from operating activities

Net income $8,900

Adjustments made

Depreciation expenses $7,300

Add: Decrease account receivable $2,600

Less: Increase inventory ($19,300)

Less: Decrease account payable ($2,400)

Less: Decrease salary payable ($100)

Net cash flow from operating activities $(3,000)

Cash flows from investing activities

Purchase of equipment ($7,800)

Net cash flow from investing activities $(7,800)

Cash flows from financing activities

Issue common stock $10,300

Net cash flow from financing activity $10,300

Net cash flow ($500)

Add: Cash balance at beginning of year $38700

Cash balance at end of year $38,200