Question

The management team of Wickersham Brothers Inc. is preparing its annual financial statements.

The statements are complete, except for the Statement of Cash Flows.
The completed comparative Balance Sheets and Income Statements are summarized:
Balance Sheet
Assets: Current Year Prior Year
Cash $95,700 $114,900
Accounts receivable 124,000 108,500
Merchandise inventory 93,000 100,750
Property and equipment 176,000 93,000
Less: Accumulated
depreciation (50,640) (26,000)
Total assets $438,060 $391,150
Liabilities:
Accounts payable $15,500 $18,600
Salaries and Wages Payable 3,100 1,550
Notes payable, long-term 77,500 93,000
Stockholders' Equity:
Common stock 144,000 124,000
Retained earnings 197,960 154,000
Total Liabilities and
Stockholders' Equity $438,060 $391,150
Income Statement
Sales $420,000
Cost of goods sold 220,000
Depreciation expense 24,640
Other expenses 105,000
Net income $70,360
Other information from the company's records includes the following:
a. Bought equipment for cash, $83,000.
b. Paid $15,500 on long-term note payable.
c. Issued new shares of common stock for $20,000 cash.
d. Cash dividends of $26,400 were declared and paid to stockholders.
e. Accounts Payable arose from inventory purchases on credit.
f. Income tax expense ($17,590) and interest expense ($4,650) were paid in full at the end of both years and are included in Other Expenses.
Required:
Prepare the Statement of Cash Flows, using the indirect method. Include any supplemental disclosures.
(Enter any deductions and cash outflows as a negative value)

Answer 1

Wickersham Brothers Inc.

Statement of Cash Flows, indirect method:

Operating Activities:

Adjustment of Net Income $70,360

Add Depreciation 24,640

Cash from operations $95,000

Working capital adjustments:

Accounts receivable -$15,500

Inventory 7,750

Accounts Payable -$3,100

Salaries & Wages Payable 1,550

Income Tax expense -$17,590

Interest expense -$4,650

Cash flow from operating activities $64,460

Financing Activities:

Long-term note payable -$15,500

Common Stock $20,000

Dividend -$26,400

Cash flow from financing activities -$21,900

Investing Activities:

Equipment -$83,000

Net Cash flows ($40,440)

Step-by-step explanation:

a) Balance Sheet

Assets: Current Year Prior Year

Cash $95,700 $114,900

Accounts receivable 124,000 108,500

Merchandise inventory 93,000 100,750

Property and equipment 176,000 93,000

Less: Accumulated

depreciation (50,640) (26,000)

Total assets $438,060 $391,150

Liabilities:

Accounts payable $15,500 $18,600

Salaries & Wages Payable 3,100 1,550

Notes payable, long-term 77,500 93,000

Stockholders' Equity:

Common stock 144,000 124,000

Retained earnings 197,960 154,000

Total Liabilities and

Stockholders' Equity $438,060 $391,150

b) Income Statement

Sales $420,000

Cost of goods sold 220,000

Depreciation expense 24,640

Other expenses 105,000

Net income $70,360

c) Operating Activities:

Accounts receivable -$15,500

Inventory 7,750

Accounts Payable -$3,100

Salaries & Wages Payable 1,550

Income Tax expense -$17,590

Interest expense -$4,650

Net Income $70,360

Add Depreciation 24,640

Cash from operations $95,000

d) Financing Activities:

Long-term note payable -$15,500

Common Stock $20,000

Dividend -$26,400

e) Investing Activities:

Equipment -$83,000

f) The indirect method is one of the two methods for preparing the Statement of Cash Flows. This method takes the net income and adjusts non-cash flow expenses, like depreciation. It is prepared through a reconciliation of balances, of inflows and outflows during two periods.