Question

Nathan Herrmann has completed the basic format to be used in preparing the statement of cash flows (indirect method) for CEO Consultants.

Purchase of equipment $220,000
Increase in inventory 30,000
Increase in prepaid rent 10,000
Payment of dividends 40,000
Depreciation expense 20,000
Increase in accounts receivable 60,000
Increase in accounts payable 10,000
Loss on sale of land 7,000
Net income 70,000
Repayment of notes payable 50,000
Cash received from the sale of land 3,000
Issuance of common stock 250,000
Prepare the statement of cash flows for CEO Consultants using the indirect method.

Answer 1

Answer and Explanation:

The preparation of the cash flow statement is shown below:

Cash Flow From Operating Activities

Net Income $70,000

Add: Depreciation expenses $20,000

Add: Loss on Sale of Land $7,000

Add: Increase in Accounts Payable $10,000

Less: Increase in accounts receivable -$60,000

Less: Increase in prepaid rent -$10,000

Less: Increase in inventory -$30,000

Cash Flow Provided by Operating Activities $7,000 (A)

Cash Flow From Investing Activities

Purchase of equipment -$220,000

Cash received from the sale of land $3,000

Cash Flow Used by Investing Activities -$217,000 (B)

Cash Flow from Financing Activities

Payment of dividends -$40,000

Repayment of notes payable -$50,000

Issuance of common stock $250,000

Cash Flow Provided by Financing Activities $160,000 (C)

Net Decrease in Cash -$50,000 (A + B + C)

Add: Cash at the beginning of the period $95,000

Cash at the end of the period $45,000

We considered the all three activities of the cash flow statements