Statement of Cash Flows—Indirect Method Glendive Corp. is in the process of prep

Question

Statement of Cash Flows—Indirect Method

Glendive Corp. is in the process of preparing its statement of cash flows for the year ended June 30, 2017. An income statement for the year and comparative balance sheets are as follows:

Dividends of $7,000 were declared and paid during the year. New plant assets were purchased during the year for $195,000 in cash. Also, land was purchased for cash. Plant assets were sold during the year for $25,000 in cash. The original cost of the assets sold was $45,000, and their book value was $30,000. Additional stock was issued for cash, and a portion of the bank loan was repaid.

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 cash payments, cash outflows, or decreases in cash.

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The indirect method involves reporting net cash flow from operating activities; it is computed by adjusting net income to remove the effect of all deferrals of past operating cash receipts and payments and all accruals of future operating cash receipts and payments. The sum of operating, investing, and financing activities must equal the net change in cash.

2. Cash flow from operations computed under the direct method is
preferred by investors as it provides more information by showing actual inflows and outflows of cash.

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Correct

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Explanation / Answer

Cash flow Statement: Cash flow from operating activities: Net income for the period: 33000 Adjustment required for reconciliation Depreciation   75000 Loss on sale of plant 5000 Increase in Accounts receivable -15000 Decrease in Inventory 15000 Decrease in Prepaid rent 4000 Increase in Accounts payable 7000 Increase in Accrued liabilities 6000 Decrease in Income tax payable -2000 Net cash provided from operating activities 128000 Cash flows from Investing activities: Sale of plant 25000 Acquisition of land -80000 Acquisition of new plant -195000 Net cash used in Investing activities -250000 Cash flows from Financing activities: Repayment of bonds payable -30000 Issue of Common Stock 150000 Dividend paid -7000 Net cash provided from financing activities 113000 Net decrease in cash -9000 Beginning balance of cash 40000 Ending balance of cash 31000 Cash flows from Operating activities: Cash receivevd ffrom Accounts receivavble (550000+75000-90000) 535000 Cash paid for inventory (350000+80000-95000+148000-155000) -328000 General and admin expense paid (55000+12000-16000+26000-32000) -45000 Interest paid -15000 Income tax paid (17000+10000-8000) -19000 Net cash provided from Operating activities 128000

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