Question

The Murdock Corporation reported the following balance sheet data for 2021 and 2020:

2021 2020
Cash $97,355 $33,755
Available-for-sale debt securities (not cash equivalents) 24,500 103,000
Accounts receivable 98,000 84,450
Inventory 183,000 161,200
Prepaid insurance 3,120 3,800
Land, buildings, and equipment 1,286,000 1,143,000
Accumulated depreciation (628,000) (590,000)
Total assets $1,063,975 $939,205
Accounts payable $92,540 $166,670
Salaries payable 27,200 33,500
Notes payable (current) 41,200 93,000
Bonds payable 218,000 0
Common stock 300,000 300,000
Retained earnings 385,035 346,035
Total liabilities and shareholders' equity $1,063,975 $939,205
Additional information for 2021:
(1) Sold available-for-sale debt securities costing $78,500 for $84,800.
(2) Equipment costing $20,000 with a book value of $6,800 was sold for $8,700.
(3) Issued 6% bonds payable at face value, $218,000.
(4) Purchased new equipment for $163,000 cash.
(5) Paid cash dividends of $29,000.
(6) Net income was $68,000.
Required:
Prepare a statement of cash flows for 2016 in good form using the indirect method for cash flows from operating activities.

Answer 1

The Murdock Corporation

Statement of Cash Flows

For the year ended December 31, 2016

Operating Activities:

Net income $68,000

Less:

Gain from sale of available-for-sale 6,300

Gain from sale of equipment 1,900

Operating cash $59,800

Working capital changes:

Accounts receivable -13,550

Inventory -21,800

Prepaid insurance 680

Accounts payable -$74,130

Salaries payable -6,300

Notes payable (current) -51,800

Net operating cash flows ($107,100)

Investing Activities:

Sale of Available-for-sale securities $84,800

Sale of Equipment 8,700

Purchase of new equipment -163,000

Net investing cash flows ($69,500)

Financing Activities:

Issue of 6% bonds payable $218,000

Payment of cash dividends -29,000

Net financing cash flows $189,000

Net cash flows $12,400

Step-by-step explanation:

a) Data and Calculations:

2021 2020 Change

Cash $97,355 $33,755 +$63,600

Available-for-sale debt securities

(not cash equivalents) 24,500 103,000 -78,500

Accounts receivable 98,000 84,450 +13,550

Inventory 183,000 161,200 +21,800

Prepaid insurance 3,120 3,800 -680

Land, buildings, and equipment 1,286,000 1,143,000 +143,000

Accumulated depreciation (628,000) (590,000)

Total assets $1,063,975 $939,205

Accounts payable $92,540 $166,670 -$74,130

Salaries payable 27,200 33,500 -6,300

Notes payable (current) 41,200 93,000 -51,800

Bonds payable 218,000 0 +218,000

Common stock 300,000 300,000 0

Retained earnings 385,035 346,035

Total liabilities and

shareholders' equity $1,063,975 $939,205

Additional Data:

1. Sale of Available-for-sale securities $84,800

Gain from sale of available-for-sale $6,300

2. Sale of Equipment $8,700

Gain from sale of equipment $1,900

3. Issue of 6% bonds payable $218,000

4. Purchase of new equipment $163,000

5. Payment of cash dividends $29,000

6. Net income $68,000