Statement of Cash Flows—Indirect Method The income statement for Astro Inc. for

Question

Statement of Cash Flows—Indirect Method

The income statement for Astro Inc. for 2017 is as follows:

Presented here are comparative balance sheets:

Other information is as follows:

Dividends of $35,000 were declared and paid during the year.

Operating expenses include $70,000 of depreciation.

Land and plant and equipment were acquired for cash, and additional stock was issued for cash. Cash also was received from additional bank loans.

The president has asked you some questions about the year's results. He is disturbed with the $100,000 net loss for the year. He notes, however, that the cash position at the end of the year is improved. He is confused about what appear to be conflicting signals: "How could we have possibly added to our bank accounts during such a terrible year of operations?"

Required:

1. Prepare a statement of cash flows for 2017 using the indirect method in the Operating Activities section. Use the minus sign to indicate net loss, cash payments, cash outflows, or decreases in cash.

2. Despite a net loss for the year, Astro was able to increase its cash at the end of the year

     

     Astro can increase its net profits by

     

For the Year Ended
December 31, 2017

Explanation / Answer

Required: Statement of cash flows for 2017 using the indirect method in the Operating Activities section only

Solution:

As above the statement of cash flow showing net cash inflow from operating activities is $70,000.

Amount in $ Cash flow from operating activities: Net loss as per income statement       -1,00,000 Add: Non cash items of income statement Depreciation           70,000 Add: Items of Financing activities Interest           20,000 Adjustment for changes in working capital Account receivables           25,000 Prepayments          -10,000 Inventory           50,000 Accounts payables           25,000 Other accrured liabilities          -10,000 Net cash inflow from operating activities before tax           70,000 Less: Tax paid if any                  -   Net cash inflow from operating activities after tax         70,000

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