Question

MONTGOMERY INC. Comparative Balance Sheets December 31 Current Year Prior Year Assets Cash $ 55,600 $ 55,900 Accounts receivable, net 12,500 15,400 Inventory 112,100 89,000 Total current assets 180,200 160,300 Equipment 62,100 52,700 Accum. depreciation—Equipment (28,100 ) (19,400 ) Total assets $ 214,200 $ 193,600 Liabilities and Equity Accounts payable $ 29,900 $ 32,200 Salaries payable 500 700 Total current liabilities 30,400 32,900 Equity Common stock, no par value 156,300 145,500 Retained earnings 27,500 15,200 Total liabilities and equity $ 214,200 $ 193,600 MONTGOMERY INC. Income Statement For Current Year Ended December 31 Sales $ 54,000 Cost of goods sold (22,400 ) Gross profit 31,600 Operating expenses Depreciation expense $ 8,700 Other expenses 6,700 Total operating expense 15,400 Income before taxes 16,200 Income tax expense 3,900 Net income $ 12,300 Additional Information on Current-Year Transactions No dividends are declared or paid. Issued additional stock for $10,800 cash. Purchased equipment for cash; no equipment was sold. 1. Use the above information to prepare a statement of cash flows for the current year using the indirect method. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

Answer and Explanation:

Th preparation of the cash flow statement using the indirect method is presented below:

Cash flow from operating activities

Net income $12,300

Adjustments made

Add: Depreciation expense $8,700

Add: Decrease in account receivable $900 ($12,500 - $15,400)

Less: Increase in inventory -$23,100 ($112,100 - $89,000)

Less: decrease in accounts payable -$2,300 ($29,900 - $32,200)

Less: Decrease in salaries payable -$200 ($500 - $700)

Net cash used by operating activities -$1,700 (A)

Cash from investing activities

Purchase of Equipment -$9,400 ($62,100 - $52,700)

Net cash used by investing activities -$9,400 (B)

Cash from financing activities

Cash from stock issue $10,800 ($156,300 - $145,500)

Net cash provided by financing activities $10,800 (C)

Net decrease in cash -300 (A + B + C)

Add: Beginning cash balance $55,900

Ending year cash balance $55,600

The minus sign indicated the outflow of cash and positive sign indicates the inflow of cash and according to that the adjustment are made i.e shown above